What are fractional NFTs, and how do they impact real-world investments?

November 17, 2022

By Sharan Kaur Phillora

While the current crypto winter is affecting even NFTs extensively, some developers are using this time to build and develop some new concepts using the technology. One such new concept is fractional NFTs. This iteration of NFTs allows many investors to own a piece of one token. These NFTs differ from the normal nonfungible tokens in that they use smart contracts to fractionalize the token into several parts predetermined by the owner or issuing firm, who also set the Minimum price.

The head of the global group at Klaytn Foundation, David Shin, commented “They enable more people to reap the benefits of asset ownership while reducing the amount of upfront capital required per user, creating more inclusivity for users who would otherwise have been priced out.”

Notably, the collective ownership that comes with fractional NFTs enables a group of investors to own various assets with previously high barriers to entry. For instance, owning art pieces or real estate needs investors to meet specific requirements, whether a certain level of net worth or specific legal requirements.

Real estate is a popular use case for fractional NFTs, and the underlying blockchain technology offers an extra layer of transparency. For instance, users can view past buyers and investment activity through the blockchain explorer.

Play-to-earn gaming is another notable use case for fractional nonfungible tokens. It enables many players to buy expensive in-game assets collectively. In-game NFTs can become quite expensive because of increased demand. Hence, enabling gamers to split the cost can make it much easier for them to use these same assets.

However, legislators and regulators may also slow down the rate of adoption. Since fractional NFTs enable people to own a fraction of an asset, they might be classified entirely as stocks by the United States Securities and Exchange Commission (SEC).

For now, fractional ownership is just valid in certain territories where the relevant legislation is set in place. Shin also said that the success of fractional NFTs in enabling investors to reap benefits from physical-world assets also depends heavily on whether the rules and regulations operate in tandem. Apart from the regulatory complications, some experts believe that fractional NFTs represent the values of a fully decentralized internet.

About the author

Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.

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