Learn How To Purchase A Fraction Of An Expensive NFT
Fractional NFTs are becoming more popular, and with good reason.
Bluechip NFT collections have become extremely expensive and out of reach for the average investor.
This is where fractional NFTs come into play!
Fractional NFTs are the perfect way for small and mid-tier investors to purchase and own a piece of a top NFT. To simplify things, it is similar to owning shares in a company.
What Is A Fractional NFT?
Let’s use the BAYC NFT collection as an example.
Currently (March 2023) the floor price for one BAYC NFT is 72 ETH ($115,000). This is out of reach for the average investor. They are priced out.
When a stock like TSLA became too expensive they did a stock split to make it more affordable for less affluent investors to own one share.
NFTs can not do this. An average investor can not purchase a BAYC NFT and take advantage of a future price increase.
Enter NFT fractionalisation.
There are platforms that list fractional NFTs for sale.
A BAYC NFT is listed on a fractional platform, and there is an option for investors to purchase a one-tenth share of this NFT. Rather than needing to pay $115,000 for it, investors can purchase 10 percent of the BAYC for $11,500.
Now multiple investors own a piece of the BAYC, and when it increases in value, they can profit from this price movement.
How Does NFT Fractionalization Work?
To fractionalise an NFT it must be locked into a smart contract. The smart contract splits the NFT token into multiple fragments and includes preset conditions. Including; metadata, attributes, base price, number of tokens to be produced, and other information.
Typically, fractional NFTs are listed for sale for a fixed price, or investors are already lined up before the contract is created.
A simple example to help you understand how this works is to imagine a famous traditional painting (in the real world) that is worth a million dollars.
There are a limited number of buyers that can afford to spend a million dollars on an art painting.
A simple smart contract on a blockchain can split this paintings ownership into five parts. Now, it is possible for five investors to share the ownership of the art piece at $200,000 each.
The reason this is done is because there are far more investors that can afford $200,000 than there are investors who have a million dollars.
The difference between a traditional NFT and a fractional one is a traditional NFT consists of one token, and a fractional NFT has been split into multiple tokens.
Interestingly, if an investor buys up the other fractional tokens over time and ends up controlling the entire token supply of the NFT, they can, if they so wish, convert the fractional NFT back into a whole one. Fractional NFTs can be converted back into a whole NFT.
What Are The Benefits Of Fractional NFTs?
By now, you will understand the main benefits of fractional NFTs. It allows the little guy a chance to own something only the big guys can afford. This means the little guy can gain exposure to the upside of a top-tier NFT that was previously out of reach.
Fractionalisation also brings more liquidity into top tier NFTs as more investors can get involved.
There is a possibility that an expensive NFT collection increases in value as fractionalisation increases demand for top-tier NFTs.
Simply put, fractional NFTs reduce the barrier to entry and bring more investors into the NFT space. It allows a group of investors to own assets across a spectrum of NFT niches.
Sports enthusiasts can club together to own a rare digital NFT collectible from the official NBA or NFL collection.
The most exciting part of fractional NFT ownership has yet to come!
Real-world fractional ownership utilising NFT and smart contract technology.
Because an NFT can represent literally anything, the possibilities are endless.
A real estate commercial building (shopping mall) ownership can now be wrapped in an NFT and fractionalized.
We are already seeing the legal framework for NFT deed ownership being worked on in El Salvador’s Bitcoin city!
Polkacity metaverse is looking at using NFTs as a form of fundraising to start a real-world chain of ice cream shops. Hundreds of ice cream NFTs will be created (1000 NFTs, for example) and sold to multiple investors. Each owner of an NFT will receive a profit share.
Where Can You Purchase A Fractional NFT?
We have created an NFT resource directory and included a list of platforms that allow fractional NFT minting and purchasing. Visit our NFT fractional directory now!
You can also visit our NFT resource directory to find useful links to help you invest in NFT more effectively.
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