NFT: A Sum of its Parts.
by Shiju K S on April 1, 2021
Imagine owning a rare 1909 Honus Wagner T206 baseball card valued at over half a million dollars, by spending only $50. A little fanciful for those late to the party, for them, I present Mr. Sharpe. He’s one of the thousands of people who are the ‘fractional owners’ of the above rare collectible card which was recently issued as 10,000 NFT shares at $52 apiece on the fractional ownership collectibles site Rally Rd.
Non-fungible tokens (NFTs) are non-interchangeable, unique, and non-divisible tokens that represent a unique asset or a scarce physical property. Similar to a deed to a house, which is a record of your ownership.
As our daily life and social, cultural, and financial engagement go digital-first, NFTs are ushering in a digital paradigm shift in ownership of real-world possessions, assets, and cultural items. With blockchain and cryptocurrency chipping away at the old institutions and ushering in the decentralized revolution, fractional NFTS is enabling thousands of global digital citizens to participate in an economy, considered halo ground for the very wealthy until recently.
As OpenSea’s co-founder Alex Atallah puts it, “If you spend 10 hours a day on the computer or eight hours a day in the digital realm, then art in the digital realm makes tonnes of sense – because it is the world,” . An NFT is an electronic record representing ownership of the NFT but not necessarily the asset underlying the NFT.
Fractional- NFTs or F-NFTs is an emerging sub-asset class where several unrelated parties can share in the risk and ownership of high-value tangible things.F-NFTs features an additional piece of logic, the Buyout Clause, that enables people to use what they want when they want without having to truly own things. Touted to be the next big thing in Decentralised Finance (DeFi), some of the features of F-NFTs that make it exciting are; Live Valuation, Democratization of luxury assets, and more Liquidity.
Live Valuation enables dynamic, real-time updates of asset value every time a fraction is traded on the open market. This has been missing so far in the NFT space. Moreover, now that you can buy fractions of NFTs, there will be a nearly infinite number of collectors/buyers. The ability to buy a fraction of a rare CryptoPunk for as low as $1 instead of putting up $10,000 makes diversification of portfolios across NFTs much easier. F-NFTs mean more buyers and sellers that means better markets. Governance and Rights are other areas ripe for disruption by F-NFTs. Voting, revenue sharing, and digital governance become more tangible concepts encouraging wider participation.
The business of high-end luxury, music, videos, e-books, games, photography, etc. is being transformed by fractional ownership. Startups in the DeFi space are offering consumers a chance to own fine art pieces or unique collectibles, if only a fraction, like never before. Innovative business models are changing our concept of ownership of assets. In recent times, fractional ownership structures have sprung up around for vintage cars, thoroughbred racehorses, vintage sneakers, and other physical assets.
Just as crypto emerged as an intrinsic part of a well-balanced portfolio, F-NFT portfolios will be used as a further hedge against the primary crypto market to its growth and risk tolerance.Just as fractional ownership offers a buyer the chance to own partial equity in a valuable asset, it provides brands the opportunity to harness scarcity and drive demand by dropping limited-edition iconic pieces as F-NFTs. As the asset value appreciates, buyers will see net capital gain should they decide to sell his/her share or the group of owners decides to sell the entire asset.
Billionaire & Tech futurist Mark Cuban, who has been dropping NFTs lately, says, “The crypto natives, particularly Gen Z, their most valuable assets are on their phone. Unless you have a house or a car, everything that you value, your brand is your Instagram, or Snapchat, or TikTok account. Everything that you’ve ever captured in your life that you find dear to you, you keep on your phone. That’s why people my age don’t fully understand that this is not a transition, this is not hard, this is natural.”
Instead of buying merchandise with pop culture references, very soon, it’ll be a reality to own a small share of a Da Vinci painting or a full supercar without the hassle of maintenance, insurance, security, or storage. F-NFTs won’t evangelize alternate investments just yet but will take participating in this world on a different level. Metakovan and Twobadour Paanar, of the Singapore-based crypto fund Metapurse, bought and fractionalized 20 Beeple artworks, placed them in a virtual museum that can be visited for free and now co-owned by 5,400 people.
Their experimenting with tech-driven collective-ownership models has since increased the value of these artworks sixfold as of March 16. Now executing a similar move with their latest $69 million purchase, the duo recently revealed their real-world identities as serial crypto entrepreneur Vignesh Sundaresan, and Anand Venkateswaran. The idea, says Twobadour, is to “open up both the experience of art and its ownership to everybody.”