NFT fractionalization and financialization is another emerging trend right now. Let’s start with the first term.
NFTs, by design, are single tokens that only one person owns at a time; however, emerging tooling make it so that NFTs can be broken into fungible tokens that represent fractional ownership of the underlying NFT.
One problem NFTs suffer from is lack of liquidity, especially on higher-priced cryptomedia like BAYC Apes. There are few people who can afford to purchase an entire Ape, but fractionalizing that ape into 1B tokens makes it affordable for small investors to get exposure. These fungible tokens represent partial ownership of the NFT, so they increase in price when the underlying NFT increases in price.
Users can lock their NFTs in a vault, and withdraw fungible tokens in return. This can be done on Fractional and Unicly.
NFTX is another protocol that pools multiple NFTs together for people to invest in like an index fund. Checkout the PUNK vault that contains 141 floor CryptoPunks.
PartyBid allows users to collectively bid on NFTs. Groups of users, or “parties” target a specific NFT, and pool their funds together to place bids on that NFT. If the NFT is won, the NFT is fractionalized, and distributed pro-rata to the party’s contributors. Fun fact – PartyBid uses Fractional as part of its backend to fractionalize the NFTs.
Now holders of the fractional NFT tokens can vote on the minimum price they are willing to resell the NFT for, if at all. This token voting gives users a direct say in what is done with the NFT that they partially own, which brings us to the topic of DAOs, or decentralized autonomous organizations. PleasrDAO and PartyDAO are popular examples of collector DAOs. These communities collectively invest and manage popular NFT assets.
Fractionalization allows for NFTs to be used throughout the DeFi ecosystem. For example, fractional NFT tokens can be swapped on decentralized exchanges. This leads to better price discovery and liquidity, especially for high-priced NFTs. Also, these fractional NFT tokens can be used in other DeFi protocols, like as collateral in Aave. Highly popular cryptomedia has been used as collateral in the traditional finance world as well. Autoglyph #488 was used as collateral for a $1.4M loan. PawnFi and NFTFi are platforms related to the NFT collateral space.
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