Fractionalised NFTs: Know Your NFTs? You Can Own One Too! At Least a Part of It

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The newest craze in the world of crypto – and yes, there is a new one every other week it seems – is owning a slice of Non Fungible Tokens (NFTs).

These tokens, that came into prominence after Twitter CEO Jack Dorsey decided to sell his first-ever tweet as an NFT, for $2.9 million, are becoming increasingly popular among artists, sport stars, and the video game industry. But why slice them up?

The original Doge meme NFT, an ode to one of the largest active cryptocurrencies, grew in value after being fractionalised into 17 billion parts. The meme was sold as an NFT for $4 million in June and now its value has exploded to over $220 million.

Fractionalisation, thus, makes NFTs more affordable to all – a democratisation of the space if you will.

It is based on the concept of splitting up ownership of an NFT in millions, even billions of tiny pieces, so that several people can buy it, share, trade and earn of them. Sounds familiar? That's because this is no different from the existing stock markets – barring the regulations, and safety measures involved.

But Wait, What Are NFTs Again?

NFTs are unique tokenised representations of assets including real and virtual assets. They are used to represent ownership of digital art, collectibles and virtual avatars. The ownership and trading of these digital goods can be tracked on public blockchains.

Blockchain ensures that the record of ownership is tamper-proof and therefore guarantees authenticity.

NFTs are not similar to popular cryptocurrencies like Bitcoin as they are unique and cannot be interchanged.

Interestingly, very little attention is paid to what ultimately might be the most interesting development in this space, that is, the rise of F-NFTs. Here we explain everything about F-NFTs.

What Are F-NFTs?

Fraction is a part of big things, ie, the number 5 can be divided into 5 fractions of 1. Similarly, an NFT can be further tokenized or broken down into fungible tokens by fractionalisation.

The Quint spoke to Sharat Chandra, an emerging tech evangelist and a blockchain expert, to understand more about F-NFTs.

Chandra explained that the process of fractionalisation of an NFT begins by locking the token into a smart contract. The smart contract then splits or fractionalises the NFT into fungible tokens. Tokens which can be exchanged with other tokens of the same type are called fungible tokens.

What Are the Key Benefits of Owning a F-NFT?

Fractional NFTs have the following benefits, as explained by Chandra :

  • By virtue of fractional ownership, multiple investors can be offered a choice to co-own a piece of real-estate, a costly antique item, virtual art, a collectible or even shares and stocks.

  • Artists and content creators get a better chance to monetise their work in a capital efficient manner.

It is worthy noting that fiat money such as Indian rupee is fungible and can be exchanged at par. NFTs , when broken down into fungible tokens, can unlock liquidity and attract investments mostly in secondary market.

Fractionalised NFTs – the New Stock Market?

With tokenisation, possibilities are immense and endless. Shares, stocks and even bonds can be tokenised. Small and Mid-cap companies can widen their access to capital and improve tradability of shares by tokenisation.

Several platforms have emerged to enable the fractionalisation of NFTs. These platforms allow users to buy and sell their piece of F-NFT, similar to buying shares on a stock market.

Chandra told The Quint that tokenisation would make owning a fraction of Tesla or Apple stock affordable and lower the entry barrier for millennials and small retail traders.

For instance, Bittrex Global Exchange allows investors to own tokenised stocks of big tech like Apple, Google, Tesla, Amazon and many more. Regulators are also exploring tokenisation of green bonds.

What's the Catch?

While F-NFTs as a concept is new and interesting, legal and regulatory guidelines around the burgeoning asset are unclear – this includes rights of publicity, intellectual property and ownership rights, as well as contract issues.

It is worthy noting that if F-NFTs are seen as investment contracts by law makers, then they will need to be regulated by other securities markets.

Meanwhile, it is also not clear what rights you get as a F-NFT investor, and the benefits seem to vary from project to project.

Tokenisation on SEBI’s Mind?

In August , SEBI (Securities and Exchange Board of India) urged depositories to use blockchain for creation and monitoring of securities.

""Tokenisation of securities is the next step. Tokenised securities and shares can be settled in real-time using blockchain technology. This will make capital markets efficient, resilient and attract investors."" - Sharat Chandra, a Blockchain and Emerging Tech Evangelist

Comments have also been made by the RBI and the government, and reports suggest that a framework is being contemplated for digital currencies.

“From the Indian perspective, the legal situation is unclear. Therefore, you are not legally allowed to exchange, trade, sell or buy NFTs under the present Indian laws. However, it may be possible to do a peer-to-peer matching decentralized exchange (DEX), because it isn’t an exchange but a matching portal, where you only match buyers and sellers," Mathew Chacko, partner at Spice Route Legal, a law firm, was quoted as saying by LiveMint.

(With inputs from LiveMint)

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