What is a fractional NFT? Can an NFT have multiple owners?

Non-fungible tokens (NFTs) are generally considered a part of the broader cryptocurrency world, which is presently dominated by Bitcoin. Nevertheless, NFTs have their own independent path, and some of the assets, like Beeple’s Everydays, and HUMAN ONE, have fetched millions of dollars in auction sales. Be it Bitcoin, an altcoin like Ether, or an NFT asset, all of these are tradable in nature. Just like specialised cryptocurrency exchanges, there are dedicated NFT exchanges as well.

The question is, when a single NFT like Everydays can be so costly, can it be owned by multiple enthusiasts? Is it possible to fractionalise an NFT’s ownership and allow a number of people to have a share, similar to how one Bitcoin or Ether token can be fractionalised? To explore this, let us start from scratch and then know how fractional ownership in NFTs works. That said, be it a full token of Bitcoin, an NFT asset or a fraction of it, price volatility can hit anytime. Bitcoin, which was approximately US$47,000 per token at the start of this year, has sustained heavy losses in 2022.

No single NFT is like any other

It is usually claimed by all NFT sellers that the asset is unique and holds a certain differential that can justify the price. However, what is lost in this argument is that it is not the NFT that is unique, but artwork or any other asset that is attached to it. Take, for example, the first tweet by Jack Dorsey. Dorsey’s tweet was created more than 15 years ago, before it would sell as an NFT. The tweet’s ownership was registered as a non-fungible token on Ethereum’s blockchain, and Dorsey forfeited this ownership in favour of a buyer who paid a whopping US$2.9 million.

It is clear that the said tweet is rare and cannot be exactly reproduced. The underlying asset, the tweet, is unique, but it may not be right to say that the NFT that holds its ownership record is unique because Ethereum has numerous NFTs registered on its network, all classified as ERC-721 standard tokens. In the case of Dorsey’s tweet or Beeple’s Everydays, the respective buyers single-handedly entered into the deal regardless of the heavy price paid by them.

Fractional NFTs

By one measure, artist PAK’s artwork titled The Merge was sold in the form of fractional NFTs. Last year, the creation was reported to be bought by nearly 29,000 collectors, who collectively paid a sum of US$91.8 million for ownership. This is one reason The Merge is often excluded from the list of the most expensive NFTs, which is topped by Everydays (sold for nearly US$69.3 million to a single buyer).

The ownership record of any NFT is by the way of the creation of a new block and information validation and recording, all powered by blockchain smart contracts. NFTs can be traded on an exchange if the holder wishes to list them. Fractional ownership, however, is not too common at the moment, especially because many new NFTs, including that of Madonna’s, have failed to match the prices at which these assets were sold last year.

Bottom line

It is being said that a single ERC-720 standard NFT can be ‘fractionalised’ into multiple ERC-20 assets to enable the distributed ownership of the NFT. Proponents say that because some NFTs could be very expensive and hence may fail to attract an interested single bidder, fractionalisation can add liquidity. There are, however, concerns that the distributed ownership of an NFT can create new problems, like a part-owner triggering a full buyout in anticipation of further gains.

Fractional NFTs are an emerging concept. For now, both the cryptocurrency and NFT worlds are subdued, and prices have dropped very sharply. It might take some time before fractionalisation finds takers because part ownership seems to make more sense only when the price of a single NFT is high.

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