Explained: What is a splittable NFT? How does it work?

NFTs represent a new era of decentralized and transparent asset ownership, and one of the key defining characteristics of NFTs is their guaranteed exclusive ownership. An NFT cannot be copied or counterfeited, it is essentially a unique token.

However, this exclusivity creates certain constraints for NFT holders, which has prompted innovators in the field to push the boundaries of what is possible, and the emergence of fractional ownership is one result.

Slicing NFTs allows crypto investors to own a small slice of the full “big pie,” a concept similar to owning a stake in a company that opens up NFT ownership to small and mid-sized investors, not just to those with huge bank assets Giant whale.

So, what exactly is a splittable NFT and how does it work? How is it different from NFT? Let’s look down together.

What is a splittable NFT

Fractional NFT (Fractional NFT), also known as F-NFT, actually means that a complete NFT is divided into multiple small blocks, which allows multiple people to jointly own a small part of the same NFT.

NFTs are subdivided using smart contracts and generate a certain number of “fragmented” NFTs associated with the original NFT. F-NFT can give each holder a certain percentage of NFT ownership and can be traded on the secondary market.

Making NFT ownership more accessible

As an emerging asset class, the popularity of NFTs has grown substantially since last year. Some NFT collectibles have very high value and are also very expensive.

While not every NFT collectible is as expensive as an NFT like Bored Ape Yacht Club or Beeple’s Everydays: The First 5000 Days, the price of a collectible NFT may still be out of reach for the masses. This makes the threshold for ordinary people to collect NFTs higher.

Also, acquiring such NFTs in the crypto market can be very difficult due to lack of liquidity.

Therefore, segmenting NFTs becomes a potential solution to these problems.

Splitting NFTs into smaller pieces will democratize this new market, allowing parties with limited funds to invest in an affordable way.

Generally speaking, this is not only good for investors, but also good for the development of NFTs because F-NFTs bring liquidity to the market. It injects a lot of affordable NFTs into the market, so people can also get a percentage of ownership of some popular NFTs.

Essentially, a buyer with limited funds who buys a fraction of the full NFT actually gets a fraction of the total market value of the entire NFT project. This enables multiple investors to each acquire fractional ownership of the same asset.

The mechanism behind the “fragmentation” of NFTs is very simple: a certain number of shares are created for a complete NFT, each share is sold at a fixed price, and the shares can be bought and sold on the secondary market.

One of the most well-known cases of NFT subdivision is artist Grimes selling his NFT works Newborn 1 & 3. The NFT was auctioned at Otis in July 2021, and it was divided into 640 shares at $10 each to be sold as part of the NFT.

Another famous case is related to the iconic “Doge” meme NFT. In June 2021, this meme NFT sold for $4 million (now worth much more than that).

The NFT was bought by PleasrDAO. After the purchase, PleasrDAO subdivided the NFT into 17 billion small parts. Anyone can own a part of the NFT for just a few cents.

How NFTs are split

The core of NFT is actually a token using the Ethereum ERC-721 standard. Before an NFT becomes fragmented, it is first locked in a smart contract, a program stored on the blockchain that executes automatically when predetermined conditions are met.

The smart contract then splits the ERC-721 tokens into smaller pieces in the form of multiple ERC-20 tokens based on instructions provided by the NFT owner. The NFT owner provides the quantity, price, metadata and other properties of the ERC-20 tokens that will be created.

Each small part of the NFT, that is, each ERC-20 token, represents partial ownership of the entire NFT. These “shards” can then be sold for a fixed price for a period of time or without a specific time limit until they are sold out.

It is important to note that NFTs and “fragmented” NFTs are not limited to the Ethereum blockchain. NFT “fragmentation” can take place on any blockchain network that supports smart contracts and NFTs. Alternative networks such as Polygon, Cardano, and Solana all support smart contracts and support the creation and transfer of NFTs.

What is the difference between F-NFT and NFT?

There is a clear difference between the two, that is, NFTs are a whole, while F-NFTs are part of a whole .

It is worth noting that the subdivision process can be reversed, which means that after being subdivided into an F-NFT, it can also be converted back to a full NFT. Smart contracts capable of subdividing NFTs often have a buyout option, allowing F-NFT investors to buy all the subdivided parts and “synthesize” the original complete NFT.

Specifically, F-NFT holders transfer a certain amount of ERC-20 tokens back to the smart contract, which can activate the buyout option and trigger the buyback auction mechanism, which will last for a fixed period of time, which allows other F-NFTs -NFT holders have time to make a decision.

If the buyout is completed during this period, these subdivided NFTs will automatically return to the smart contract, and the buyer will be able to obtain full ownership of the NFT.

Why do you need to split NFTs?

Here are three core reasons.

democratization

Some expensive NFTs may deter ordinary investors from participating, while splitting expensive NFTs can reduce the cost of ownership and make it more accessible to a wider range of investors.

However, when the price of an NFT increases, the value of all its subdivisions increases proportionally. If the value of the NFT falls unexpectedly, so will the value of the tiny fraction.

price discovery

Fragmented NFTs can provide a price discovery mechanism to determine the value of a particular NFT. Since fragmented ERC-20 tokens are sold on the open market, their prices help provide a reasonable valuation for the price of NFTs.

more liquidity

Unique, unreproducible, and undivided are the most critical defining characteristics of NFTs, and this uniqueness creates certain limitations, which means that only a few wealthy investors can obtain NFTs, especially valuable NFTs.

And F-NFT solves this lack of liquidity because ERC-20 tokens can be easily traded on the secondary market. Many investors may prefer to buy a portion of an NFT immediately at a lower price, rather than waiting weeks or months for an NFT to be released.

How can F-NFT owners benefit?

The biggest benefit for splittable NFT owners is that they can own a portion of a large, popular and high-value full NFT.

Depending on the NFT and the provisions for purchasing the F-NFT platform, holders may gain some local governance rights associated with a particular F-NFT.

For example, there are only 10,000 NFTs in the existing CryptoPunks series, and they are sold in relatively small numbers due to their high price. In April 2021, the set of 50 CryptoPunks was split into 250 million tokens, each token representing a portion of the set.

Explained: What is a splittable NFT? How does it work?

50 CryptoPunks are tagged as 250 million uPunks on Unicly. These divisible NFTs, known as uPunks, had a combined market cap of $12.9 million in February of this year. uPunk token holders can choose to bid on any CryptoPunk in the collection.

*Unicly is an NFT fragmentation transaction protocol for combining, splitting and trading NFTs.

The NFT market continues to explode in popularity and demand, and we’re sure to see more interesting developments and use cases as blockchain technology develops further.

While the concept of splittable NFTs is still in its infancy, it looks set to be the next big trend in the growing crypto industry.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/explained-what-is-a-splittable-nft-how-does-it-work/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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