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Fractional NFTs and what they mean for investing in real-world assets

While non-fungible tokens (NFTs) are currently suffering in the bowels of a bear market, some are taking advantage of this time to build and develop new concepts using this technology.

Such a new concept is fractional NFT. This is an iteration of NFTs that allows multiple investors to own a single token.

These NFTs differ from regular NFTs in that they use a smart contract to split the token into a number of parts predetermined by the owner or issuing organization, with the lowest price set by the issuing organization.

Applying these NFTs to real-world assets offers interesting use cases for investors planning to own valuable real-world commodities.

Fractional NFTs spread the cost of asset ownership over a wide range of users, allowing investor groups to own a portion of a larger asset.

David Shin, head of the global group of the Klaytn Foundation, a blockchain focused metaverse, told Cointelegraph: Otherwise it is discounted. ”

Tokenized ownership is not a new concept. Before NFTs, tokenization was a way for users to segment their real-world assets. However, fractional NFTs offer a new way for investors to split costs and transfer ownership of specific assets.

More accessible assets

Accessibility is one of the main benefits of splitting NFTs as it is more affordable for investors, reducing the barriers to entry for owning certain assets.

Co-ownership attached to fractional NFTs allows groups of investors to own assets that traditionally have high barriers to entry. For example, when owning real estate or works of art, investors must meet certain requirements. Such as certain net worth levels or specific legal requirements.

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Fractional NFTs could help the average person get around these hurdles. Alexei Krevets, co-founder and CEO of blockchain game Walken, told Cointelegraph:

“Whether you are a builder, collector or consumer, Fractional NFTs allow you to co-own a piece of art or an NFT project you are working on. When validated by (like real estate), it could be something else entirely.Think of it as an exchange traded fund with no brokerage or management fees.It’s a beautiful concept to call the new age of the internet. The era of co-creation and co-ownership.”

Joel Dietz, CEO of MetaMetaverse, the metaverse creation platform, told Cointelegraph: Asset splitting is nothing new, but it appeared in the NFT space not too long ago. One aspect is to make expensive tokens more accessible to different investors with different desires. This makes it easier to price NFTs and DeFi platforms. ”

This accessibility could also add investors to the blockchain space, Asif Kamal, founder of Web3 art investment platform Artfi, told Cointelegraph.

“Partial ownership is a way to significantly increase market size and help provide adoption and access to a wider audience to invest in the asset class in a simpler and easier way. ‘ he said.

What is your use case?

Real estate is a common use case for fractional NFTs, and the underlying blockchain technology provides an additional layer of transparency. For example, users can view previous buyers and investment activity via the blockchain explorer.

Dietz said, “The usual case that everyone is very enthusiastic about right now regarding fractional NFTs is the possibility of individuals transferring ownership of real estate (IRL assets). and transmit immutably.”

“By owning a portion of an NFT that represents a real-world asset, investors can cash out of their crypto holdings without leaving the decentralized financial ecosystem entirely. Although focused on real estate, these fragmented and highly involved commodities can be very interesting in terms of watches, paintings, boats, planes, and more.

Play-to-earn games are another use case for fractional NFTs, allowing multiple players to purchase expensive in-game assets in bulk. His NFTs in the game can become very expensive due to demand, and allowing players to split the cost makes it easier to use the same assets. For example, his Axie Infinity for P2E NFT game is currently testing the idea of ​​fractionated NFTs by selling fractions of the rarest Axie NFTs.

Barriers to adoption

Fractional NFTs may make it easier for people to invest in certain assets, but market conditions may hinder their adoption.

Dietz said: , at least for now. No one knows what the market will look like in the next three months, let alone three years. ”

Regulators and lawmakers may also delay adoption. Because fractional NFTs allow you to own a portion of the assets, they may be classified as stocks by the U.S. Securities and Exchange Commission (SEC).

Yaroslav Shakra, CEO of YARD Hub, a Web3 venture studio, told Cointelegraph: A fractional NFT can be compared to a stock as it also confirms joint ownership of an asset (in this case his NFT). ”

Shakula also said that current law is not clear about the legal status of partial NFTs used to own part of physical assets. “In many cases, ownership of this type of NFT is not clearly outlined in law, and projects and users struggle to understand how the SEC and other authorities treat this ownership. Therefore, for now, partial ownership is only valid in certain jurisdictions where relevant legislation is in place.”

Similarly, Singh said, “The success of fractional NFTs, which allow investors to profit from real-world assets, also depends on whether regulations work together. Dissonance arises when NFTs and traditional title deeds create competing legal claims against real-world assets.”

Due to the uncertainty behind taxation and the legal status of partial NFTs, temporary ownership may be a safer bet in the short term.

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Shakula said of this: Youth Examples of his cases are the right to rent a car or the right to stay in a hotel. In this way, NFT owners do not have to decide who will pay taxes or who will handle damage costs. However, until these issues are resolved, fractional NFTs look better on paper than for common use cases. ”

Regulatory concerns aside, some believe that fractional NFTs represent the value of the decentralized internet. Kulevets sees fractional NFTs as the catalyst for his Web3 adoption, stating:

“Upon closer inspection, fractional NFTs represent the essence of the Web3 concept. There is a reason why we call Web3 the next era of the Internet. Creativity is one of its fundamental elements: everyone who shares vision, skills, and expertise can co-create, co-own, and be part of many projects of new realities. .”