What are the benefits of holding a fraction of an NFT? Find out here ⤵️
to generate multiple ERC-20 tokens linked to an indivisible ERC-721 NFT. This way, anyone who holds any of the ERC-20 tokens generated can own a percentage of the linked NFT.It’s possible to reverse the fractionalization process and turn a Fractional NFT back into a whole NFT. Typically, the smart contract that fractionalizes an NFT has a buyout option that lets a Fractional NFT holder purchase all the fractions to unlock the original NFT.
Typically, a Fractional NFT holder can initiate the buyout option by transferring a specific number of the corresponding ERC-20 tokens back to the smart contract. This will start a sort of buyback auction, which will run for a fixed timeframe. The other Fractional NFT holders then have some time to make a decision. If the buyout is successful, the fractions are automatically returned to the smart contract, and the buyer gets full ownership of the NFT.
Fractionalizing the NFT makes it more affordable and allows more people to trade the asset, making it easier for buyers to find the NFT's actual value.With fractionalization, digital creators can get even greater exposure online because they are able to reach a wider audience in a more liquid market.The most significant benefit for Fractional NFT holders is that they get to own a percentage of a larger and more expensive whole NFT.
Some Fractionalized NFT projects even support staking, letting holders lock up their Fractional NFT on a platform or protocol to receive staking rewards and other benefits.Fractionalized NFTs are as secure as the smart contracts they are built on, so it depends on the quality of the code. In some cases, however, a potential buyer or a part-owner of an NFT can trigger a buyout auction by sending the total amount of all fractionalized parts to the smart contract.
If the other fraction holders outbid the person who triggered the auction, they can keep control of their share, but at a higher price. If the person successfully outbids the other fraction holders, their payment will be distributed to each owner according to the size of their holdings. While they still get paid for their share, this might cause you to sell your fraction even when you didn’t want to.
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