by Justin Caccappolo

Joint Ownership

As top tier NFT projects have seen immense price increases over the past year, an average retail investor entering the NFT space is priced out of these investments. Looking to bridge the gap between these price discrepancies, multiple protocols have realized this inefficiency and innovated buying, selling, and minting fractions of NFTs on Ethereum. Through these protocols, users are able to become partial owners of certain NFTs that are powered by smart contracts while unlocking liquidity to the original owner. In some instances, NFT holders may want to take profit or liquidate a portion of their NFT as they reach certain price points. However, NFTs are single tokens and selling a NFT constitutes selling the entirety of it, which is different from regular market dynamics in that you can take profit on a certain percentage of your position. These protocols include Niftex, DAOfi, and Fractional – as an example, we will take a deeper dive into the logistics behind Fractional, below.

What is Fractional Art?

Fractional is a decentralized protocol where NFT owners can mint ERC-20 tokenized fractions of their NFTs. Through their website, NFT owners can provide their NFT or a collection of NFTs to the NFT vault and receive 100% of the fractional ownership tokens produced. The owner can set a name for the tokens, the total supply, and an annual management fee (the asset under management fee distributed to the curator on a yearly basis). The NFT vault (powered solely by decentralized, audited smart contracts) will take custody of the provided NFT and lock the NFT until further action is taken. Fractional ownership unlocks a multitude of actions allowing the owner to share his art, profit from the popularity of it, and even create a community behind it. Specific examples that have been executed include setting up a liquidity pool on a decentralized exchange such as Uniswap or Sushiswap, airdropping them to community members or owners of certain token’s protocols, or sending 50% to a friend to split ownership of an NFT.

Redeeming your Ownership Tokens

Distributing the tokens will allow holders of the tokens to vote on a reserve price which is the price at which an external buyer can purchase the NFT that was entered into the vault. The reserve price is set by the weighted average of all ownership token holders who have voted on a set price for the NFT. At least 51% of token holders must vote on a price or a reserve price will not be set. If an external buyer is looking to purchase the NFT that is vaulted, they must offer the amount in the reserve price or above. Once the purchase is confirmed, token holders are able to trade all of their ownership tokens in for the Ethereum that was deposited by the external buyer. The ownership tokens that were traded in for the Ethereum will then be burned by governance via smart contracts. An example of a fractional pool that was successful was CryptoPunk #7171 which has a total supply of 10,000 Hoodie tokens and a current reserve price of 646 Ethereum ($2,495,075 USD)!

Share

CrossTower Inc. provides this content for general information purposes, to better inform you on your digital asset investment journey. We do not provide investment recommendations or provide tax advice. Please consult your investment professional or tax advisor if you require assistance in these areas.

Ready to get started?

Subscribe below and get started on your CrossTower journey. We offer a variety of informational content along with our top tier trading services.