Can’t Afford The NFT You Want? No Problem, Get a Shard!
Fractionalized NFTs give groups of people shared ownership over valuable NFT assets, but how do you invest in these so-called shards, and what are they exactly? This guide explains everything you need to know about fractionalized NFTs.
Non-fungible tokens or NFTs as they are known for short have dominated the blockchain and crypto narrative this year. As million-dollar sales hit the headlines, many potential buyers might be feeling left out, worse yet, that they missed the boat completely. However, what many don’t know is that it’s possible to buy small chunks of certain valuable NFTs. Sold at a fraction of the price of the total NFT value.
The process, known as fractionalization, gives new shard holders equity in a valuable item and the NFT owner a chance to release some liquidity in their digital collectible. According to DappRadar, the current market cap of total fractionalized NFTs is $397,596,226, signaling a growing interest in this new asset class.
Piece of the NFT pie
Given that NFTs are selling for notable amounts of money the idea of fractionalization is popping up, giving smaller investors a chance to get involved. The technical process of fractionalization, or sharding as it is also known, is quite simple. Take an NFT, lock it into a vault, and receive tokens in return. These tokens then represent ownership over the NFT that has been locked away, and their value increase or decrease means value fluctuations for the NFT asset.
Additionally, there is great interest in the opportunity to buy fractional shares of large NFT collections. For example, a collection of fifty CryptoPunks, one of the most valuable NFT collections on the market, was fractionalized into millions of tokens. Earlier this year the Metapurse NFT fund fractionalized their $2.7 million Beeple collections and the accompanying virtual museums. The B20 token now has a market cap of $4.3 million and one B20 token is $0.86.
Zooming in on the tokenomics more closely we see that the B20 token has an all-time high of almost $23, and a low of $0.47. This is a huge price range that started very positively and was affected in the same way as all tokens in the May 2021 crash. However, unlike other tokens, the B20 has not really recovered as yet. However, it is trending up by almost 10% in the last 7 days.
Arguably investing in an NFTshard is nothing more complex than investing in any other token. Potential buyers still need to do their homework, understand the value of the underlying asset and also weigh up the likelihood of a price surge or drop in the future.
How does it work?
As mentioned, platforms such as Niftex and Fractional.art lead in the space, but there are several more services offering the fractionalization of NFTs, with more arriving as demand increases. Moreover, the fact there is already almost half a billion dollars on these two platforms speaks volumes for the popularity of sharding NFTs even at this early stage.
At the top of the pile, we see the Doge NFT. With a market cap of over $193 million and a total supply of 1 billion tokens. Simply put, this means an asset with a value of $193 million has been broken into 1 billion pieces and the value of each piece is now $0.0113. For example, an investor could own 1000 DOG tokens out of the total supply and therefore have an $11.30 investment in the Doge NFT. If the value of the NFT rises then the value of each shard would increase in line.
Considering the total market cap of all shards tracked by DappRadar is almost $400 million, the fact the Doge NFT holds $193 million, or almost half of that is significant. Of course, this is the NFT attached to the now infamous DOGE token popularized by tech billionaire Elon Musk. The “Doge” meme from 2010, which portrays a Shiba Inu dog named Kabosu, inspired the creation of DOGE. A photo of that same dog went on to sell for $4 million as an NFT in June 2021. PleasrDAO, the collective that bought the Doge meme NFT, then offered fractional ownership over it, starting on Wednesday, September 1st.
A further example to dig into due to their massive popularity and the fact many would love to own one are CryptoPunks. Punk #7171 has been sharded into 1,060 pieces with each piece having a value of $108.69. Currently, 670 wallets hold shards in the form of HOODIE tokens.
Arguably, as the OG NFT collection, the value of CryptoPunks will only ever increase. Having the ability to jump in at around $100, rather than $400,000 obviously gives back a lesser reward but arguably comes with the same bragging rights. Perhaps, fractionalized bragging rights are more accurate.
Why sharding matters
Around two years ago you could scoop up a CryptoPunk for around $800, and many did. Moreover, at that price, It’s easy to see why sharding NFTs was not being discussed back then. Now, the floor price of a CryptoPunk is almost $400,000 and arguably more people than ever want to get in on the action. However, not everyone has $400,000 lying around to buy a pixelated face. Additionally, the person that bought for $800 two years ago could now probably release one shard for that amount, or more. Whereas selling the entire NFT may prove more difficult.
This is a key reason to shard an NFT. Fractionalizing an asset can release value, or liquidity in the item. Imagine you have a 10 bedroom house for sale in central London. Is it easier to sell the whole house for $5 million or sell each room to a separate person for $550,000 each? Arguably, in London both are easy. But option B not only starts to release value as soon as one room is sold, but it will also return a higher value in the long run to the seller. The same can be true of sharded NFTs.
Importantly, a lot of people ask ‘can a sharded NFT can be made whole again, and can one person become the sole owner once again?’, the answer is simply “yes”. The methods to achieve this differ per platform, but in general, users will need to make a bid to buy out the rest of the market.
Hopefully, the main points are very clear now. The reason for holders sharding an NFT is to release liquidity or value. Secondly, sharding the NFT can increase the value as more people own a piece of it. Thirdly, as an NFT owner, you could choose to shard it and sell pieces. As a potential buyer, you can own a piece of a high-value NFT.
Find NFT Shards on DappRadar
One year ago DappRadar built ShardMarketCap.io, a dedicated website hosting the key metrics attached to sharded NFTs. Now, it’s fully integrated into DappRadar.com on our comprehensive NFT page. To get an overview of the market or make a purchase click here.
Newsletter
The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds positions in ETH, BTC, NIOX, AGIX, MATIC, MANA, SAFEMOON, SDAO, CAKE, HEX, LINK, GRT, CRO, OMI, GO, SHIBA INU, AND OCEAN.
