Fractional NFTs: The Good, the Bad, and the Weird

BY Langston Thomas

April 26, 2022

NFTs can be difficult to understand. Blockchain tech itself makes for some pretty dense reading material after all, and the idea of digital asset ownership — especially when art is concerned — definitely doesn’t help simplify things. But if there was any subsection of NFTs that should (in theory) make more sense than any other, that would surely be fractional NFTs.

Fractional ownership is an investment approach that has been around for decades. With fractional ownership, the cost of an asset is split up into fractions and is shared between individual investors — a.k.a shareholders. Of course, fractional ownership can apply to almost any shared asset, be it a private jet, a single share of a company, or even NFTs.

Fractional NFTs offer NFT enthusiasts a way to collect and own a fraction of an NFT — and this has created a smaller microeconomy of fractionalized digital assets. Within this now quickly-growing microeconomy is a wide array of interesting (and sometimes very weird) use cases.

The good

When it comes to fractional NFTs, holistically the good almost certainly outweighs the bad. At their core, fractional NFTs make it possible to buy and own a percentage of an NFT. This allows users who have been priced out of collections time and time again the ability to become partial owners of an NFT from famous projects like Bored Apes and CryptoPunks, to Autoglyphs, and beyond.

With popular platforms like Fractional Art, NFT owners can set a name, supply, symbol, and more for their fractional tokens. Essentially, when an NFT is fractionalized, it becomes a tradeable token whose value is directly tied to the value of its parent NFT.

Aside from fractionalizing fine art and expensive PFP NFTs, fractional NFTs have become useful for philanthropy. Recently, UkraineDAO launched an NFT auction to raise funds for the Ukraine humanitarian crisis. The auction took place on PartyBid (a platform where users can crowdfund to bid on NFTs), with the NFT being fractionalized via Fractional Art soon after the piece sold.

Going forward, the success of fractional NFT platforms like Fractional Art, NIFTEX, NFTfy, and more will likely reflect the value of fractional NFTs within the ever-growing NFT market.

The bad

Considering the volatility of the NFT market, the line between good, bad, and weird can become blurred. After all, there are those who could easily take an alternate stance to fractional memes, labeling them nothing more than a scam. As far as SEC commissioner Hester Peirce is concerned, fractional NFTs could present major problems down the line. He warns that fractional NFT creators need to be careful to not create something that could be considered an investment product, or, a security.

Securities are fungible and tradable financial assets used to raise capital. In contrast with NFTs (non-fungible tokens), they are interchangeable. As fractional NFTs provide partial ownership of an NFT, they more or less could be viewed as fungible securities in the eyes of the SEC. Such securities are legally required to be registered with the SEC, with complete information about the seller and the offering made available to investors — which would be a huge ask of developers involved in a community that values decentralization and anonymity above all else.

Beyond the regulatory issues that continue to plague the NFT market, possibly the most dangerous, or, ‘bad’ aspect of fractional NFTs is the same issue that afflicts the NFT ecosystem as a whole: anyone can join in, and not everyone has the best intentions.

Just as we witnessed with the early 2021 NFT boom with celebrities jumping on the NFT bandwagon, influencers are now becoming increasingly involved in digital collectibles and more specifically, fractional NFTs. Most recently, Logan Paul announced the launch of his very own fractional ownership platform, Liquid Marketplace. Billed as a marketplace where owners of expensive collectibles and assets can fractionalize nearly anything (digital and physical), Liquid Marketplace is the latest entry into the quickly growing sector of fractionalized collectibles.

Now, this isn’t to say that Liquid Marketplace itself is bad or unethical, but considering that both Logan and his brother Jake Paul have been accused of involvement in NFT scams in the recent past, the sustainability of celebrity and influencer-backed projects continues to be called into question throughout the NFT community.

The takeaway here is that influencer involvement should be taken seriously as it becomes more regular in fractional NFTs. Considering that traditional collectibles like trading cards, video games, and sneakers have continued to see a resurgence in popularity over the past few years — especially with influencers and YouTubers — it seems that a crossover between physical and digital collectibles is still imminent. We could very well see a new wave of collectors jumping head-on into celeb projects only to be burned down the line, just as we did towards the start of 2021.

The weird

The weird thing about fractional NFTs? They open the door for a wide variety of use cases that both mirror and exceed the oddities of collections like CrypoDickbutts and Ether Rocks. The aforementioned Fractional Art undoubtedly opened the door for fractional NFTs in early 2021, and now many other similar marketplace endeavors have followed suit.

Dank Bank is one such endeavor that is both undeniably weird yet seemingly sensible. A new marketplace that launched back in March 2022, Dank Bank allows users to trade and collect fractionals of memes and other iconic moments in internet history.

Over the years, memes have become more than a simple and fun way to share a collective sense of humor. They have proliferated into units of cultural knowledge and have become a way to quickly and effectively share and disseminate cultural information. Because of this, memes have become an important facet of internet culture.

Considering the fact that numerous influential memes were minted and sold on the blockchain over the past year, it would seem that Dank Bank has simply expanded upon the idea for memes to live in their own subsection of the NFT market.

Is this weird? Definitely. But it’s also indicative of the importance of shared culture in a digital age. And this digital age is proving to be an era where original creators of iconic memes are able to fractionalize and sell their intellectual property in a way that positively benefits collectors and artists.

The conclusion

The fractional market seems different than the wider NFT market. Smaller and more niche, sure — but it may present just as much opportunity for innovation as that of the overarching NFT ecosystem. And fractional ownership is becoming more popular among those who would be hard-pressed to generate the capital to obtain any NFT from a leading PFP project.

Fractional NFTs must be taken with a grain of salt though. As with the greater NFT market, not every token will increase in value. Both monumental gains and losses are to be found throughout the ecosystem.

Furthermore, it will yet again be up to the consumer and the market to decide, over time, what fractional NFTs have value and to sus out if projects like Dank Bank and Liquid Marketplace provide innovation in a way that pushes the NFT space forward, or simply leverage internet popularity for profit.

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