Understanding Asset Fractionalization through Fractional NFTs (F-NFTs)

Fractional ownership of assets is not a new concept. This idea has been successfully utilized in many industries, from real estate to fashion, and for all kinds of tangible assets, including stocks, designer goods, and luxury assets such as yachts and private jets.

In real estate, fractionalization is often used by trading groups as a way to affordably purchase vacation homes. Unlike timeshares, which only guarantee a certain time period at a property annually, fractional property owners receive a deed representing their share of the home. Fractional owners bear all the benefits and losses that come with property ownership. Co-owners share income, use rights, and access to the common property proportionate to the stake they own. If the resort property increases in total value over a decade, the value of the individual shares will also increase. Naturally, this also means that if the property's value depreciates, so does the value of the shares.

A Fractional NFT is simply a full NFT that has been divided into smaller parts, allowing different individuals to affirm ownership over a portion of the same NFT. Fractionalization of an NFT is achieved by using a smart contract to create a large number of tokens associated with the indivisible original. These token parts give each owner a percentage of the NFT ownership and can be bought, sold, or traded on secondary markets.

Imagine if we could break down Norwegian artist Edvard Munch's iconic painting "The Scream," which sold for nearly $120 million at Sotheby’s in 2011, into parts. An NFT representing the artwork would be prohibitively expensive, and only a very small number of wealthy investors could bid for it. However, if an NFT of The Scream was divided into 10,000 F-NFT tokens using a smart contract, then owning a piece of the famous artwork would be much more affordable at just $12,000 each, attracting a broader range of buyers with ease.