What is Fractionalization? 🧩

Hey y’all!

Okay, let’s have a moment of honesty here.

Have you ever gone to a restaurant and insisted on sampling every plate on the table?

Instead of everyone ordering their own dish, you advocate for everyone to order a different item on the menu so that you can all try a little bit of everything. Some people love this approach because they get the experience of sampling a lot of different plates for the price of one, while others hate it because they’d rather have their own dish and be able to savor it in all its goodness. Even though everyone has their preferences, neither approach is wrong! It just implies that people value variety and the ability to choose how to engage.

This week, we’re talking about fractualization– a topic that has become more mainstream in the web3 world. Much like those of you who love to sample everything at the restaurant, fractionalization opens up an entire new method of ownership for people who want a little variety in their life. 

In a previous post, we broke down what NFTs (non-fungible tokens) are and why they’ll be a core part of technology in the future. NFTs give you the ability to own digital assets that have some sort of value attached to them. While there are different types of NFTs, one of the most notable types right now are the digital art pieces–some of which cost millions of dollars. We don’t know about you, but that’s slightly (very) out of the budget.

This is where fractualization comes into play. 

The concept of fractualization is one that you’re probably familiar with already. For example, think about timeshares. They leverage a shared ownership model of vacation real estate that allows multiple purchasers to own allotments of usage, typically in one-week increments, in the same property. In the same way that you can share ownership over beautiful vacation homes that you may not be able to afford outright, fractualization allows you to own a piece of it and still reap the benefits. 

According to Coindesk, “A fractional NFT refers to a set of fungible tokens tied to a whole (e.g. one Bored Ape Yacht Club NFT) or a set of NFTs (e.g. several CryptoPunk NFTs). As the name suggests, it implies fractional – or proportionally shared – ownership of an NFT.” The fractualization of the NFT is done by creating several tokens that are tied to the underlying NFT, then selling these fractional tokens to people who want to buy into the NFT project, collection, or asset for a lower cost.

And you get a piece! And you get a piece!

Fractionalizing is a game-changer. Especially when it comes to NFTs. Full-stop. Here’s a few reasons why

• Democratization: if you’ve tried to buy an NFT whether it was the talk of the town or even recently, you probably noticed the price point. By fractionalizing NFTs, smaller investors now have a chance to access assets that were formerly only reserved for people with deep pockets.

• Greater liquidity: given the non-fungibility of NFTs, an item can become very rare very fast, leading to a lack of liquidity on the market. Once you fractionalize an NFT, not only is ownership spread out, but it also creates further trading on the secondary market

• Price Estimates: As an NFT-minter (read: creator of NFTs), its tough to know how much your latest project will be worth. By fractionalizing it into equal parts, once the fractions are bought/sold for a price, the artist can now have a better idea of how much it’s worth as a whole

But what does this actually look like?

Here’s a classic example of how fractionalization brings value. 

In June 2021, PleasrDAO bought the Doge NFT (yes like Dogecoin) for 1,696 ether (about $4 million at the time). And in September 2021, the DAO fractionalized the NFT into $DOG tokens (roughly 17B tokens actually) and then auctioned off 20% of them. The high demand brought the valuation of the NFT to $225 million.

Fractionalization is here to stay.

W3FTC has touched on a theme that ties directly to the topic of fractionalization: ownership. People want to have true ownership of their own assets - whether that’s the pictures you upload to Instagram or your artists favorite song or memorabilia, we all want to have a little piece of that. And this is enabled by fractionalization.

Thanks for reading! ✌🏽