What is Fractional Ownership?
Simply defined, fractional ownership is a method whereby several unrelated parties can share ownership of a high-value asset. This is done to mitigate risk for all investors involved, as well as claim a share of an expensive asset that may not be accessible to a single investor because of price reasons.
All the shareholders are responsible for splitting the benefits of the asset as well as usage rights. Needless to say, if the asset increases in value, the values of the shares within the investment structure increase too, and vice versa.
A relevant example of fractional ownership would be the shared ownership of a vacation property. There could be property investors who have their share in the property, and they’re responsible for splitting the costs related to the asset. Shareholders will also have equal benefits and usage rights.
With the modern innovations in fractional ownership, shared ownership in high-value assets is now looking at a digital future.
Fractional Ownership and NFTs
An NFT’s key purpose is to provide immutable, digital proof of ownership in a transparent and decentralised manner to any asset. It thus makes perfect sense to integrate fractional ownership within the whole NFT – the process of dividing one whole token into smaller tokens, with each representing percentage ownership of the entire asset.
NFTs have created immense value around digital assets that previously wasn’t there. 2021 saw insane amounts of volume flooding into a market around image files and jpegs. Ownership of these NFTs gained exclusive access to communities as well as unique events - and don’t forget about the trendy profile picture on Twitter.
Some of these profile picture collections became incredibly expensive digital assets. One of which being the CryptoPunks, a collection of 10,000 NFTs with a unique artwork for each token. These ‘Punks’ have sold for up to 8,000 $ETH per token – adding up to around $23,7 million at the time.
These assets are inaccessible to most NFT investors. Their price is exorbitant and they don’t necessarily offer real-world utility.
There are however ways that you can own part of a CryptoPunk yourself and that is through NFT fractionalisation. A collection of 50 CryptoPunks was fractionalised into millions of tokens, with each representing a small percentage of ownership. This gave more NFT enthusiasts the opportunity to claim a part of one of Ethereum’s earliest forms of non-fungible tokens.
Knowing that NFTs can also be implemented within physical assets, this brings about the opportunity to fractionalise ownership of these assets with digital representation - a much more efficient way to do so than traditional fractional ownership.
How Are NFTs Fractionalised?
When it comes to fractionalising NFTs, the whole NFT must first be locked up in a smart contract before it can be fractionalised. A smart contract is a program stored on a blockchain that executes its role once pre-determined conditions are met.
The smart contract divides the token into many fractions – the number is determined by the owner of the NFT. Each of these fractions, which are new tokens, represents a percentage of the indivisible asset. These new tokens are then put up for sale on an open marketplace for a fixed price until they’re sold out to investors.
The fractionalisation process can be applied to any NFT – no matter the asset the NFT is attached to. We’ve seen CryptoPunks fractionalised, but we’ve also seen physical assets fractionalised. The goal remains the same – making part ownership of high-value accessible to the broader public.
3 Advantages of Fractional Ownership Through NFTs
Fractional ownership through NFTs is an incredibly exciting innovation in both the physical and digital world – forming a model of ownership that we haven’t seen before.
1. Making Ownership Accessible
Fractional ownership isn’t new, and the main purpose remains the same – making part-ownership of high-value assets possible. Through fractionalising ownership with NFTs, smaller investors can get involved in expensive assets, whether they’re digital assets or physical assets.
Through digitising fractional ownership, investors can now claim part ownership of unique assets that previously wasn’t possible. An example of this would be Momint and Scoin tokenising a ZAR coin collection. Previously, purchasing a whole coin from this collection would involve exorbitant prices. By fractionalising the coin set, it invites a wider range of collectors to claim percentage ownership in the historic coin set at a more attractive price.
2. Bringing in Liquidity
One of the key benefits of fractional ownership is bringing in a wider range of investors, therefore bringing in more liquidity into a market. High-value assets of all kinds are limited to individual wealthy individuals. By fractionalising assets, it makes investing less risky, as well as invites smaller investors.
Selling fractions of a CryptoPunk will open the collection to a lot more NFT investors, and fractionalising a factory will attract more businesses to get involved.
3. Market Efficiency
One of the most important attributes that NFTs and blockchain technology promote is efficiency. Fractional ownership of assets can be bought and sold on a peer-to-peer basis without the need for intermediaries.
This has the ability to transform the market for physical assets, where traditional processes are slow and expensive. Imagine being able to purchase part-ownership of a house in a matter of minutes with all the necessary documents and information attached? This type of efficiency is now possible in all markets through fractionalising ownership with NFTs.
Marketplaces Supporting Fractional NFTs
With fractional NFTs growing in popularity, there are now various marketplaces that support the sales of them on a peer-to-peer basis. Here are some great platforms to check out:
Fractional.art provides the opportunity to own fractions of some of the most sought after NFTs. The type of categories includes domains, profile picture projects, and various other well respected collections on the Ethereum network.
This marketplace allows NFT enthusiasts to claim part-ownership in some of Ethereum’s most legendary NFTs, bringing in more liquidity to the overall ecosystem.
Otis is a marketplace where collectors can purchase shares of NFTs, collectibles, artworks, and even physical sneakers. Purchases are made in dollars and collectors can build a portfolio with unique collectibles and historic items, along with well-renowned NFTs.
Momint in an NFT marketplace for modern investments. The marketplace offers digital art, as well as other NFT collections with unique and forward-thinking utility. Momint has fractionalised physical assets such as historic coin sets and aims to integrate NFTs into various industries.