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We all know that NFTs, unlike a cryptocurrency, are non-fungible. This means you cannot. exchange them for any other asset. But if this is true, how then can NFTs have multiple owners, given that non-fungible tokens have an immutable certificate of ownership??
The answer is NFT fractionalization. NFT fractionalization helps break the ownership of an NFT into smaller, different fractions, making it possible for more than one individual to own a single NFT. Keep reading to find out how it works!
A New Variant of Non-Fungible Tokens – Fractionalized NFTs
Although a majority of pioneering NFTs will only have one owner, some emerging variants allow more than ownership through fractionalization. Typically, NFT fractionalization entails splitting the non-fungible token into ERC-20 tokens for multiple buyers to claim a certain percentage of ownership. Think of it as a traditional investment pool market that allows like-minded individuals to pull resources together for a project.
This makes the whole NFT space democratized, allowing mainstream ownership, adoption, and usage. In other words, NFT fractionalization makes art collections relatively affordable to all, including the average collector. NFT fractionalization is not only prevalent in art collections. Users can also own a percentage of other types of NFTs, including memes, avatars, music catalogs, and even sports memorabilia.
How Many People Can Own a Single NFT?
The number of collectors who can own an NFT piece at the same time varies with the creator and the number of pieces fractionalized. In fact, some users can even collect more than one piece, especially if there is no limit to the amount of percentage one collector can claim. Moreover, artists can decide to fractionalize the NFT into thousands, sometimes tens of pieces. So, the true number of multiple owners depends on the number of fractionalized pieces.
However, this doesn’t mean that all owners are the same when it comes to rewards, and utilities, such as community access. Depending on the project, there might be a tier reward system for multiple NFT owners, based on their ownership percentages. But still, there is a catch. Every fractionalized piece of an NFT collection is fungible. For this reason, collectors can treat them as traditional assets, such as company stocks that can be exchanged for one another. Typically, you can buy and sell fractionalized NFTs at open marketplaces.
Smart Contracts in Fractionalized NFTs
Fractionalized NFTs leverage smart contracts to prove multiple ownership instantly. Simply defined, smart contracts are blockchain-centric programmed protocols that get triggered if the transacting parties meet certain conditions. For instance, once a collector pays for a fractionalized piece, the smart contract gets triggered to record the transaction and ownership on the underlying blockchain network. However, some new networks, such as Concordium, leverage a more innovative protocol, akin to smart contracts, known as a Reg-DeFi-centric Layer 1 blockchain. This solution has an ID layer at the protocol level. It also offers fast and real finalization.
Either way, both protocols serve the same purpose. For instance, selling the entire piece altogether triggers an event where payments are sent to all tokens at the same time. In this case, each token piece represents the fractionalized owner, who will get their dividend at the same time as other owners. Also, these protocols create a standardized mechanism for selling or trading the NFTs, bringing a level playing field for all users.
Reasons Why Fractional NFT Ownership is Gaining Popularity
As noted, a majority of NFT collections still don’t support multiple ownership. But on the flip side, more collectors now would rather go with fractional as opposed to full ownership for good reasons. Here are some of the benefits of multiple NFT ownership, say one collector doesn’t decide to buy the whole piece, which is unlikely in most cases.
You Can Own More Expensive Collections
Ask collectors – NFT prices can sometimes be incredibly high, depending on the creator, community, or utility behind the project. In this case, only ultra-wealthy individuals, or active NFT communities would manage to pay for high-end NFTs because the prices are out of range for the average collector. However, on the flipside, NFT fractionalization allows collectors from all walks of life to partly own even the most expensive collections at relatively affordable price tags.
Get Instant Access to Rare NFTs
Buying a high-net-worth asset may require fulfilling certain conditions before the ownership gets completely transferred to you. If the asset is an NFT, say a building in the Metaverse, you may not get instant access. On the other hand, fractionalized NFTs get added to the collector’s portfolio instantly once the transaction is through, giving them instant access. Moreover, collectors can also access rare use cases.
Better Price Discovery
This one goes without explanation. In any market, whether physical or online, many participants translate to easier buying and selling processes. It’s common to see highly competitive biddings on fractionalized NFTs, whether in primary or secondary marketplaces. This allows investors and creators to know how much a collection is really worth, based on the supply and demand forces.
Fairer Market and More Liquidity
If ownership is open to all users, regardless of their background or economic power, the markets will be free from deep pockets control. In that case, it will be hard, if not nigh impossible to manipulate NFT markets. Moreover, many people buying means more liquidity in the marketplace for streamlined trading activities.
Practical in Real-Life Situations
Artists often collabo on various projects. Sometimes, NFT enthusiasts also invest in rare collections as a community, as opposed to one buyer. With fractionalized NFTs, these segments of users can now experience a more realistic perspective of asset ownership. For a community, each member can get to truly own a part of the collection in the blockchain.
Where to Buy Fractionalized NFTs
As you can see, anyone can partly own NFTs and get access to rare communities and utilities. Visit SpaceSeven today and browse exclusive catalogs of unique NFTs from all your favorite creators. Even better, get started without the need to connect your credit card!