The NFT Market Needs Democratisation — with Fractionalisation

NFTs have seen a meteoric rise in their popularity over the last few months. Google “NFTs,” and you can find tens of thousands of articles on the several exciting aspects of these non-fungible tokens, and honestly, it may be overwhelming to keep up with all of them. But there are some aspects of this concept that we’d like you to hear us out on. Before we do that though, we do need a bit of a crash course on NFTs.

The latest hype in the crypto world: NFTs

You’ve probably already heard about the storm that NFTs are making in the crypto space. Digital artworks are being sold for millions of dollars, and collectors and ordinary people alike are obsessing over this new rage that NFTs are.

And what’s astonishing about this is that, even with spending millions of dollars, you’re not going to get a physical copy of the artwork, a print perhaps, or anything of that sort. You’ll get a token — a unique one. Unlike cryptocurrencies like Bitcoin, Ethereum, etc., this token will be non-fungible. Which means that no token will be equal to another (this is not how currencies — like BTC and ETH, or any other work).

So you get a one-of-a-kind digital asset that replicates a traditional asset of the exact nature. The hype surrounding NFTs in the digital world is very similar to how artworks in the real world are collected.

As much as the growth in the NFT markets has been nothing short of explosive and phenomenal, it is crucial to understand that the market is still very young and taking baby steps.

Being a market that is yet to develop into its maturity stage, it has its own set of challenges and uncertainties. There is still a lot more room for innovation, whether it is in the technical know-how, basic infrastructure, user interface, or accessibility to the broader population.

Democratization of NFTs

In the future, the NFT market will go beyond just artworks and will be more inclusive of other digital assets. In light of this, democratization is an essential idea the market needs to not only warm up to, but embrace. NFTs have certainly enabled digital artworks to be democratized — so many artists can now sell their work to the world. But the extent of this is limited.

Yes, there are several advantages of NFTs — like secure and recorded ownership of NFTs, quicker payments and settlements, and royalty payments through smart contracts. But the fact is that an increasingly large proportion of NFTs are beginning to mirror the real art world — in the sense that they’re expensive, and out of reach of the masses, discouraging further participation.

Plus, there have been various instances of art thefts occurring in the NFT world where people steal the artworks of other people from different platforms and sell them for significantly larger sums as an NFT.

So what does the NFT world need?

The concept of fractionalization

NFTs themselves are a relatively new concept, and fractionalization is an excellent concept that is increasingly being enabled on NFTs. It may seem new; however, it’s not an unexplored area. In fact, one of the best examples of fractionalization in NFTs can be traced back to the sale of Beeple’s artworks to a crypto entrepreneur who goes by the pseudonym MetaKovan.

One among the few artworks of digital artist Beeple. Source: Artwoonz

While this person is prominently known for the purchase of “Everydays — The First 5000 Days”, another artwork by Beeple, for a whopping $69.3 million, what is lesser known about him is the fact that he divided ownership of his previously purchased artworks into tokens and then sold them to the public. These tokens based on blockchain technology go by the name B20 tokens.

Although there are several articles explaining NFTs, information on fractionalization in NFTs is limited. Fractional NFTs or F-NFTs is the idea of dividing an NFT into various smaller tokens. As a consequence, people can own fractional shares in an NFT while more people can invest in a particular NFT.

#1 Fractionalizing NFTs

If you were previously unable to buy an NFT due to its high price, you could now own a proportion of them — kind of like owning shares in a company (or a fraction of your crypto), all thanks to the concept of fractionalization. And as for the owner of the NFT, it enables them to have some control over the liquidity without having to sell the entire piece.

The number of people in the NFT marketplace has a lot of room for growth, primarily because not all of them can afford to buy these seemingly expensive digital tokens with a massive sum of money. Fractionalisation, therefore, allows an ordinary investor to diversify their portfolio without having to spend millions of dollars, unlike collectors or the ultra-rich people who are ready to spend any amount of money on an NFT purely based on an interest or hobby.

#2 Price Discovery in NFTs

Another significant idea behind fractionalization is to enable the mechanism of price discovery. When the NFT is being sold as an entire piece, there can be several limitations to determining the actual market value of the product. In an illiquid market, this is not surprising. However, with fractionalization, users can have a much better and closer estimate of the product’s actual value.

The accuracy of prices and liquidity of the market is largely dependent on the number of participants in the market. As a consequence, fractionalization will undoubtedly help the NFT markets to bring more people towards it, thus improving price discovery, as well as liquidity levels.

Enabling fractionalization in NFTs through Fusible

We at Fusible aim to bridge the gap between ordinary people and the NFT world by allowing the liquefaction of NFTs in an attempt to allow for fractionalization. Built on the Binance Smart Chain, Fusible is a price discovery protocol that enables traders to liquefy their NFTs and create pools. What follows is curve-based price discovery, allowing the market to both be highly liquid, and accessible to the world at large!

The ownership of the NFT is not transferred through these fungible tokens, but rather just the value of the underlying NFT. It’s kind of like derivatives for NFTs. And as anyone with sufficient financial experience will tell you — derivatives are amongst the surest signs of market maturity. That’s precisely what we’re aiming for, with Fusible!

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Price Discovery Protocol for NFTs