Unlocking Fragmented NFTs: Innovative Ways to Democratize Ownership

Fractional ownership is a concept where multiple parties can share ownership of a valuable asset, each holding a portion of the total value. NFTs (Non-Fungible Tokens) take this a step further by enabling fractional digital ownership of assets on the blockchain. This innovation allows expensive assets such as real estate, art or collectibles to be broken down into smaller, cheaper pieces, making them available to a wider audience. NFTs ensure secure, transparent and easily transferable ownership, revolutionizing how assets are bought, sold and invested.

What is fractional ownership?

Fractional ownership, especially when powered by blockchain technology, refers to dividing the ownership of an asset into smaller purchasable shares, allowing multiple individuals or entities to share the ownership and benefits of that asset.

This concept is particularly attractive in the context of expensive or otherwise inaccessible assets such as real estate, art, and collectibles. Blockchain technology improves fractional ownership by providing a transparent, secure and efficient platform to record and transfer these shares.

The use of blockchain ensures that each share is represented as a single digital token, usually an NFT (non-fungible token), that can be bought, sold or traded with ease and integrity, thus democratizing access to valuable assets and investment opportunities.

By encouraging fractional ownership of the blockchain, organizations gain several key benefits, including increased liquidity, reduced transaction costs, and elimination of middlemen.

By tokenizing assets into shares that are represented on the blockchain, owners can sell parts of their assets without having to find a buyer for the entire property, facilitating the value of illiquid assets. Additionally, the inherent characteristics of blockchain—decentralization, immutability, and transparency—increase trust between participants, as each transaction is securely recorded and publicly verifiable.

This not only simplifies the process of transferring ownership, but also opens up investment opportunities to a wider audience, promoting a more inclusive financial ecosystem.

How fragmented NFTs can help businesses

The use cases for fragmented NFTs in the consumer space are clear, as they are often used to purchase expensive items in bulk. But there are also ways to apply this technology in the business sphere. Let’s look at some examples.

Generate revenue

Like many NFT business applications, fragmented NFTs offer businesses the ability to unlock new revenue streams. If a company breaks a farm into approachable parts, it can look for smaller investors. This may apply to a work of art, a collection, or real estate.

For example, a building could be represented by an NFT and broken into pieces so that the community can buy a share. Perhaps there is an option to purchase the contract to allow the company to buy back its building when cash is available or to build a relationship with shareholders when the split is left in place. RealT.co is one company that is experimenting with this model, although it is only for accredited investors in the United States.

Fragmented NFTs can be an interesting way for companies to raise capital or crowdsource funding outside of traditional capital channels.

There is also the opportunity to link real estate with parts resale, creating more value for a company as parts are sold on the secondary market.

Price discovery

An interesting application of fragmented NFTs is price discovery. Say we have a piece of intellectual property or want to measure the value of our name, perhaps for naming rights or licensing. We can represent this thing as an ERC-721 token and make parts of it publicly available. This helps us collect market price, better understand interest and demand and add value to their farm.

Raising capital

We talked about making the community a shareholder in a real estate stake, but that can be expanded in many directions. What if we used a sharded NFT to raise capital? While there are traditional tools for finding investors, Web3 offers us new ways to access communities, unlock audiences and crowdsource participation to fund new projects. If we represent our project stake through NFT, then we can trigger automatic payouts or rewards to shareholders as the company grows, the Web3 version of dividends.

Create exclusivity

The NFT market creates exclusivity through technology, as ensuring exclusivity increases value. Fractional NFTs are an interesting mix of exclusivity and inclusion, as splitting a single asset into cheap chunks allows more people to enter the market. It’s a similar technique we’ve seen in fashion, with pop-up clothing stores and sneaker drops. Limited releases create demand.

So how can companies apply the lessons learned from the split monkeys and Jordan?

Say we’re in media and entertainment and we’re releasing an album. It’s a highly anticipated release from our star artist, and we want to create a buzz. We can represent the album as an NFT to sell a limited number of shares later. Shareholders will be able to listen to the album, get exclusive tickets, exclusive merchandise and access behind-the-scenes content. They can then sell their piece to a friend who can listen. Every time a share is sold, we are paid a royalty. For a while, our album, which was once delivered directly to box store shelves, functions as a viral underground letter, and by the time we get it out to the public, we’ve created a community interested in supporting the art.

How to split an asset

Splitting an asset involves dividing its entire value into smaller units or shares so that multiple investors can own a portion of the asset. This process can be applied to a variety of asset types, including real estate, artwork, and even digital assets.

The steps to sharding an asset, especially when leveraging blockchain technology or NFTs, are generally:

1. Asset valuation and legal structure: The first step is to assess the total value of the asset. This may require professional appraisals, especially for tangible assets such as real estate or art. Along with the valuation, the legal structure of the fractional ownership must be established, which may include creating a legal entity to hold the asset and defining the terms of ownership, rights and obligations of the shareholders.
2. Tokenization: Once the value of the asset is determined and the legal framework is established, the next step is tokenization, where the value of the asset is converted into a digital token on the blockchain. Each token represents a portion of the asset. This process is facilitated by smart contracts, self-executing contracts with the terms of the agreement written directly into code, which govern the issuance, ownership and transferability of these tokens. A tool like our asset tokenization platform can make this process much easier at scale.
3. Offer and Distribution: Tokens are offered for sale to potential investors, often through a platform or marketplace specializing in fractional ownership or digital assets. This may include private sales, public offers or auctions, depending on the asset and legal considerations. Interested buyers can buy as many tokens as they want to invest, thereby acquiring a fractional share of the asset. Institutions may want to create their own marketplace, especially if they sell financial products.
4. Management and trade: After the initial sale, token owners can manage their investment through a digital wallet, and these tokens can often be traded on secondary markets, providing liquidity to an otherwise illiquid asset. Smart contracts can facilitate the automatic distribution of profits or dividends derived from the asset, in proportion to the number of tokens held by each investor.

Throughout this process, blockchain technology ensures transparency, security and efficiency. It provides a way to manipulate the ledger of ownership and transactions, reducing the need for intermediaries and reducing transaction costs.

By fragmenting assets in this way, it opens up investment opportunities to a wider audience, allowing smaller investments in assets previously unavailable to the average investor.

Popular sharding platforms

Popular Fractional NFT Marketplaces include Uncly, Fractional.art, and Otis. Each takes a different approach to segmenting NFTs. For a company looking to build an NFT platform or expand to create market stickiness, we can learn from these consumer-facing platforms. Fun applications of the technology give us ideas on how to apply blockchain technology to do better business.

Final Thoughts

The blockchain space is constantly evolving with innovative applications, and fragmented NFTs are a prime example. When implemented carefully, they can generate revenue, foster community, and create exclusivity. Kaleido’s NFT platform makes it easy to create scalable gas-free NFTs. To explore more, get started with our tutorial on creating an NFT using the Kaleido platform. Unlock the potential of fractional ownership and take your business to the next level.