Are these fractions proper?
Fractionalised non-fungible tokens (F-NFTs) are the latest incarnation of the complexities of the crypto art world. In brief, they break up the concept of owning a piece of art by allowing anyone to own a smaller piece of it.
However there is confusion around what the future holds for F-NFT investors and whether regulators will view the new trend courteously. If cryptocurrencies weren’t enough of a communal concept, fractionalisation of non-fungible tokens (NFTs) takes it a even further.
It’s the premise of splitting up ownership of something so that many people can receive the benefits. The more they own, the larger their benefits. Basically, it’s like buying shares in a company. Each share is a portion of the company that anyone can hold. These shares, in turn, provide the investors with voting rights.
Mutual funds work the same way too. Investors pool money into a fund, and that money is used to buy assets. Each investor owns a fraction of the entirety of the fund.
“Fractionalisation is a really cool idea. It’s a more affordable way to own NFTs,” Rahul Pagidipati, the CEO of crypto exchange Zebpay, told Business Insider. “It’s almost like a fraternity.”
How do F-NFTs accrue value?
An NFT gets its value from — flexibility, pedigree, future value and its liquidity premium. For F-NFTs, ownership history is now divided among the masses, with the resulting utility from the fractionalised tokens varying, liquidity is now higher — instead of just one asset, there are many little bits and pieces — and the future value will change according to the other three factors.
In technical terms, the original NFT was minted as an indivisible token – the fractionalised version however, is many, many more such tokens, and they can be exchanged for one another since they all are a part of the same NFT.
A divided alliance?
As the razzmatazz around NFTs grows, so does demand. This culminates in NFTs becoming more expensive, pricing our many investors.
With fractionalisation, investors with limited funds can own a part of the NFT without fledging themselves. This retains liquidity, and more importantly, access to a larger base of investors.
Our Take
Fractionalised NFTs are becoming more common in the crypto world. Considering that the concept is even newer than NFTs, legal guidelines around the asset are in a state of flux. It’s also not clear when it comes to what rights an F-NFT investor gets, and the benefits seem to vary from project to project.
If F-NFTs are seen as investment contracts by legislators, then they will need to be shepherded by other securities markets. The principal concern is that NFTs are high risk assets. And F-NFTs are tokens based on those high risk assets, making them even more volatile