What Are Fractional NFTs? Are They Worth Investing in?

Fractional NFTs are a small niche market in the world of crypto. Due to the niche’s small size, it might just be ripe for stratospheric growth in 2023. In this article, we take a look at the concept of fractional NFTs, a novel way for NFT enthusiasts and investors to own a part of a digital collectible.

Fractional NFTs are exactly what their name implies – NFT tokens representing fractions, i.e., parts, of one complete original NFT. A fractional NFT entitles you to ownership of a part of the asset represented by the original full NFT.

For example, the image of the famous Shiba Inu that inspired the DOGE coin has been fractionalised into nearly 17 billion small pieces, each represented by one fractional token. By buying one, or more, of these fractional tokens, you become the owner of the digital masterpiece.

How does the NFT fractionalisation work?

Although fractions of an original NFT are commonly referred to as fractional NFTs, each of these fractions is actually a fungible crypto token (similar to cryptocurrencies), rather than a non-fungible (NFT) token.

The process of fractionalisation involves creating multiple, often many, parts of the original NFT in the form of fungible tokens (e.g. ERC-20 tokens on Ethereum).

When the owner of the Doge NFT decided to fractionalise it in 2021, they essentially created a new ERC-20-based cryptocurrency, aptly named DOG, that has a supply of nearly 17 billion tokens. You can buy DOG coins just like you can buy Ether, Bitcoin, or any other crypto coin.

What are the benefits of fractional NFTs?

FracNFT Benefit 1: A ridiculously affordable way to own a piece of famous artwork. The original Doge NFT was sold for $4 million. After fractionalisation, each of the 17 billion pieces now costs small fractions of a cent.

FracNFT Benefit 2: Availability. When a popular NFT is not fractionalised, you might not be able to buy it regardless of the amount you are willing to pay unless the NFT’s owner puts it up for sale. With FracNFTs, plenty of sellers willing to trade their fraction are available.

FracNFT Benefit 3: Become part of a tight-knit community. All those people who have paid for fractions of the Doge NFT have one common interest – the cute Shiba Inu dog herself and the entire online culture surrounding the famous canine.

How big is the fractional NFT market?

Fractional NFTs are still a small niche market. Typically, reasonably famous NFTs (Doge, CryptoPunks, etc.) get fractionalized. Only 5 fracNFTs (see image below) have market caps > $1mln
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As a digital collectibles investor, should you own a fractional NFT?

So far, fractional NFTs have typically lost value soon after fractionalization. All the top 5 fracNFTs with > $1mln caps have had negative returns over the last 12 months.

As of early 2023, fracNFTs are less useful for digital collectibles investors looking for returns. Right now, they are for die-hard NFT enthusiasts. Could 2023 become the year of the fractional NFT revolution?