Fractional is a decentralized protocol where NFT owners can mint tokenized fractional ownership of their NFTs. These tokens then function as normal ERC20 tokens which have governance over the NFT that they own.
Fractional NFT Ownership
Through Fractional, it will become easy to buy and hold a percentage of an NFT. This allows users who have been previously priced out of certain NFTs or artists (such as Beeple) to be able to buy a piece of their work. Alongside this, fractionalizing an NFT allows for the NFT holder to be able to see some liquidity from their asset without selling the entire piece.
Alongside individual NFTs, users will be able to fractionalize entire collections of NFTs and release them under one shared ownership token. This will allow for less educated users to bank on the industry knowledge of accomplished NFT collectors.
There are several reasons why an NFT owner might want to fractionalize their asset.
- Price Discovery: The asset is extremely valuable and they want help finding price discovery, fractionalizing the item and selling 20% on the market can be a valuable tool to help understand how the market values the NFT.
- Liquidity: Owners have significantly better exit liquidity than if they owned the NFT themselves. This can be achieved through on-chain exchanges such as Sushiswap and Uniswap.
- Curator Fees: NFT owners who lock up their assets will receive curator fees. These fees are set by the NFT owner, but guided by governance to disallow inordinately high fees. Curator fees are similar to an asset under management fee. Annually, a curator will earn a percentage of the total share supply. This unlocks interest bearing properties for their NFT.
Fractional Ownership Perks
Once a user owns fractional shares of an NFT, they have the right to vote on the reserve price of the asset. This reserve price is the price in ETH required to be bid by a third party to initiate an auction for the NFT. A new token holders reserve price defaults to the current reserve price, but can be changed at any time. At the completion of a successful auction, all fractional shareholders will be able to cash in their shares for ETH on a pro rata basis. At any point, fractional tokens are normal functioning ERC20 tokens and can be used as such.
How It Works
As an NFT holder, when you come to the Fractional platform you will be able to mint an NFT Vault. This vault will take custody of your NFT and in exchange it will give you 100% of the fractional ownership tokens. At this point, the NFT owner can do whatever they please with the tokens they have. For example, they can sell them in a Dutch auction, add liquidity to Sushiswap or just give them to friends. Token holders hold complete ownership on the locked up NFT. In the instance a buyer emerges, they can send ETH equal or greater to the reserve price of the asset. This initiates an auction. At completion, the auction winner will receive the NFT and token holders will be able to claim the ETH paid.
The forthcoming governance token for the Fractional platform will be charged with keeping fractional ownership NFT buyers safe and making sure the platform stays performing well. Governance will also receive a small AUM fee for the work that is done to keep Fractional shareholders happy.