Fractional NFTs: what they are, how they work, and why they’re so relevant

Although promising, NFTs do pose some challenges. 

One of the defining features of NFTs is that they’re unique and cannot be replicated or divided. While this translates into a lot of security for holders, it also means that, in many cases, only a lucky —and wealthy— few will be able to access certain assets. 

Exclusive ownership significantly limits the NFT ecosystem, so innovators and creators are looking into ways to push its boundaries further. That’s when fractional NFTs come in.

Let’s explore the concept of fractional NFTs —also known as F-NFTs— and find out why they are a top-notch mechanism to democratize ownership of digital assets.

What are fractional NFTs and how do they work?

Fractional NFTs are pretty self-explanatory. They are non-fungible tokens that have been divided into smaller fractions that can be sold separately. Therefore, different people can claim ownership over different small pieces of the same NFT, which can be traded or exchanged on secondary markets.

To fractionalize an NFT, you need to use a smart contract to generate a set number of tokens linked to the indivisible original one. The number of tokens that will be created and their metadata are determined by the current owner of the original NFT. 
Once the NFT has been split into different F-NFTs, they can be bought and sold like any other token.

The advantages of fractional NFTs

Fractional NFTs were born out of the necessity to solve specific pain points that were limiting the potential of the ecosystem and leaving people out. These are some of their advantages:

  • Democratization of ownership. More often than not, the exceptionally high prices of NFTs exclude smaller investors from participating —and they even discourage people who are unfamiliar with NFTs from entering this world. But with F-NFTs, any investor, no matter how big or small, can access the most valuable tokens and own a percentage of them.
  • More liquidity. Given that the transaction value of fractionalized NFTs is smaller than that of a whole NFT, traders can sell them easily and more quickly to anyone willing to buy them. Therefore, fractionalizing NFTs boosts liquidity in the entire market.
  • Price discovery. Fractional NFTs can be a powerful mechanism for discovering the actual price of an NFT. By splitting a token and selling only a percentage of F-NFTs on the market, holders and creators can get a reasonable valuation of a given asset.
  • Easier monetization. F-NFTs allow artists and creators to monetize their digital assets more easily. Instead of selling an entire NFT, which can be pretty expensive, they can sell small parts at a fraction of the price.

F-NFTs as the drivers of a paradigm shift

As the NFT space continues to boom in popularity and demand, we must make sure it’s accessible to everyone. Although it’s true that NFTs will fundamentally transform the way we perceive value, things won’t really change if only a few people have access to them.
Fractional NFTs present themselves as a solution to this issue, helping increase inclusion and participation so that no one is left out of this new paradigm.