-on the current state and future of fraktionalisation by 0x1dad
People have been discovering, trading and collecting things since the dawn of time. In fact, collecting is such an ubiquitous human activity that it spanned all ages and all types of societies. Assigning value and meaning to things, material or imaterial, is deep rooted in human psychology and this is the main driver of the need to own and collect.
Blockchains and custodial wallets have enabled people to custodially own digital assets in the form of tokens and more recently, unique NFTs. This was the start of a revolution in the way humans think about owing and collecting digital assets. The NFT revolution started in 2017 with the first NFT collections on Ethereum but it really picked up steam in 2021 when a set of unique economical and social circumstances favouring investments in digital assets put NFTs in the limelight. Soon, the demand for quality NFT projects on Ethereum far surpassed supply and prices for individual NFT pieces skyrocketed. The NFT market on the Solana blockchain has seen spectacular growth as well. Solana NFTs were one of the huge catalysts in the growth of the network and retail user adoption.
Many people were priced out by the high gas fees on Ethereum but more were simply priced out because of the high barrier of entry for buying an NFT. When the whole NFT is expensive, there’s most likely a very good reason for it. Many people want it and some are willing to pay more to buy it. That, combined with uniqueness or scarcity drives the price up.
Fractionalisation solves this by breaking up any NFT into pieces and making those pieces more affordable. The total fractionalized NFTs market cap just on Ethereum is $259,435,063 at the moment of writing. Clearly fractionalisation has lowered one of the biggest barriers in NFT ownership: the high prices of valuable NFTs.
People want to own fractions of valuable NFTs as they prefer getting exposure to quality assets. Almost every valuable project on Ethereum has been fractionalised: Crypto Punks, Etherrocks, Cool Cats, Meebits, Art Blocks Curated Sets, BAYC and many more. As NFT culture is built on memes, the top of the leaderboard belongs to the original Doge picture NFT, valued at over $100M with more than $18M in liquidity. People love memes and NFTs.
Still, a great barrier to entry to Ethereum NFTs is the relatively high gas costs incurred by transactions on the Ethereum network. But where there is a will there is a way. A few developers chose to develop NFT projects on the Solana blockchain where transactions cost fractions of a cent, practically removing the gas fee barrier. This is why, over the last 3 months the Solana NFT market grew to a market cap of around $930M. That might look impressive but when we take a step back, it’s still an order of magnitude lower from the approximately $14B market cap of NFTs on Ethereum. The good news is there’s plenty of room to grow.
With the growth of the Solana NFT ecosystem, the evolution of markets and trading instruments, the prices of individual pieces from the first original NFT collections quickly surpassed thousands of dollars. In mid September, the floor prices for NFTs from the OG collections released in August (Solana Monkey Business, Degenerate Ape Academy and Thugbirdz) were all above $10,000. In fact, back in September the rarest SMB sold for an amazing 13k SOL, roughly $2M at the time of the sale while last week another SMB was sold for 6k SOL or $1.43M. The floor price for owning one NFT of these projects is still a huge barrier for investing in NFTs. Whenever there is a problem there’s somebody already working on a solution. Like the devs who built FRAKT, the first generative art collection on Solana.
On the 9th of November, Fraktion.art launched the first fractionalisation protocol on Solana. As the first demo, they fractionalised the first NFT on the Solana Blockchain at the Hacker House in Lisbon during the Solana Breakpoint Conference.
Technically, the protocol locks the NFT in a vault and emits tokens representing parts of the original NFT. Those SPL tokens are emitted to the wallet of the owner of the original NFT. In this way, the owner now owns the same NFT in the form of the fraktions in their wallet. Each fraktionalised NFT is stored in a separate vault and locked until the buyout procedure is completed. While it is fraktionalised it cannot be accessed or traded, it’s locked away in the vault. This guarantees the unbreakable connection between the value of the fraktionalised asset and the fractions.
Right now there are a few fractionalised NFTs in the fraktion.art vaults but I believe the future looks very promising. I believe that when the next generation of NFT owners will own NFTs through fractions. There are many reasons I believe this to be the future:
The first and foremost reason is custodial ownership of value. It’s an idea deeply ingrained in the human mind and one of the reasons humanity has adopted the blockchain technology. Once the fraktions are in your wallet you own them in every sense of the word. This comes with all the benefits of custodial ownership e.g you can do what you want with them (hold them, trade them, borrow against them, gift them, etc).
The second reason has to do with removing barriers to entry and ownership. With gas fees close to zero and fraktionalisation anyone can own and get exposure to any Solana NFT, regardless of its value. Anyone can own a piece of a fraktionalised SMB, Thugbirdz or Degen Ape now. Fraktionalisation even allows investors to purchase baskets of fraktionalised NFTs. This helps them get exposure to multiple assets and lowers the risks of owning just one type of NFT.
Third, the market caps of Solana are tiny compared to Ethereum. A lot more people will come to Solana and there are only so many OG NFTs on the market. Right now there’s about an order of magnitude difference between the market caps of NFTs on Ethereum and Solana. I believe NFTs are just starting out and I think both will attract many more people for different reasons. Thanks to a financial lower barrier of entry, I believe more people will enter the Solana NFT Ecosystem over the next 2–5 years. When they get here they will want to own parts of original collections and they will do so through fraktions.
This is why I believe that the next generation of NFT owners will own NFTs through fraktions. We’re still far from mass adoption and Fraktion.art will be the protocol which will enable the next hundred million people own NFTs.
Disclaimer: The content covered in this article is not to be considered as investment advice. I’m not a financial adviser, and these are my own opinions and ideas. You should always consult with a professional/licensed financial adviser before trading or investing in any cryptocurrency related product.
