With NFT creators like Beeple selling an art piece for $69M or Jack Dorsey selling his first tweet for $2.9M, it’s clear that the NFT market has blown up in the recent months. In this article, while we will touch on NFTs themselves, we will mainly be focusing on a new kind of platforms popping up in the crypto space, ‘NFT fractionalisation platforms’. As the crypto industry loves anagrams (DeFi, DEX, NFT, …), we will call these new gen protocols “FraNis” (Fractionalised NFTs). Don’t worry, I’ll try to define all the jargon in a bit.
First thing first, for the crypto noobs out there; What is an NFT?
“Non-fungible” more or less means that it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible — trade one for another bitcoin, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible.
Second question, what is an ‘asset fractionalisation’?
“[…] It’s the concept of splitting up ownership of something so that many people can receive benefits from it in a proportion to the amount they own.“
You’re probably asking yourself, why would we split up something that has been designed to be unique and not interchangeable, in other words, why would we make non-fungible tokens, well, fungible?
This concept can be quite puzzling at first, but think about real life “NFTs”, a Picasso painting, a Hollywood mansion or a rare Baseball card. These types of assets are usually not accessible to most of us, their rarity and appeal usually make their price skyrocket and only a few people will be able to buy them, benefit from their usage and eventually resell them one day.
Now imagine if we could issue tokens on top of those goods, and each token would represent a portion (fraction) of the underlying asset. This process would “liquify” the asset and depending on the amount of token issued, make it accessible to way more people.
The second major advantage is that tokens can be traded after their initial issuance, instead of having only one sale event like an auction. Even if you are late to the party, you would still be able to get some of those Picasso tokens, maybe at a higher price, but maybe not, the market will adjust along the way and the price will fluctuate.
FraNis protocol comparison
Now that we’ve seen what NFTs are and some of the benefits we could get from fractionalising them, let’s have a look at the different new platforms that appeared in the couple last weeks/months.
I’ve identified four so far (Please comment below if you know other ones):
I’ve identified four so far (Please comment below if you know other ones):
Can you notice something already? 😏
They’re all trying to achieve the same thing but have chosen very different approaches. Let’s dig into it!
NIFTEX
Niftex — Browse page
NIFTEX seems to be the first FraNis platform, at least on my radar. They came up with a very smart way to fractionalise (or sharding as they’re calling it) a single NFT. The process seems a little “manual” but still quite effective, once you submit your NFT, the NIFTEX team will check it and deploy a contract if no issues are found.
So far so good.
Now the de-fractionalisation process. Yes, for everything that gets fractionalised, we need a way to de-fractionalise it, otherwise NFTs could stay locked in a smart contract forever (poor things).
On NIFTEX, fraction owners can claim the economic value of the underlying NFT through a carry-on clause. In other words, while the token gets traded, users have the ability to bid on the NFT itself, the token holders (shareholders) have to choose between accepting or counter-bid this offer. This is the first weakness in my opinion, as a single NFT can be pretty expensive, a high bid has less chance to be countered. Let’s say the underlying NFT is valued at $1M, someone makes a $800k bid and other users don’t have enough liquidity to counter-bid, there is no way to pause or stop the $800k bid from being accepted and the bidder would get a nice discount on the NFT.
The other issue I’m seeing here is that you can only fractionalise one NFT which reduces the possible use-cases.
Nice try NIFTEX, but I don’t think we’re there yet.
NFTX
NFTX is pretty exciting at first glance, it lets you factionalise one or more NFTs.
While going through their tutorials, I must say the fractionalisation process looks a little daunting but I’m sure we can do it. Not the smoothest experience I’ve seen but it gets the job done, our NFTs get fractionalised, yay!
When digging deeper though, the de-fractionalisation process is even more hazardous…
Their documentation only mentions the redeem process for one NFT but as said earlier, you can create an “index fund” with multiple NFTs. I had to look under every stone until I found the answer. On NFTX, during the de-fractionalisation process, fraction holders get randomly assigned an NFT from the collection. 🤨
I know, this doesn’t sound right, because it is not. It would work with collections of perfectly similar NFTs in value and quality, which is extremely rare to say the least.
I believed in you NFTX, and you disappointed me.
NFT20
NFT20 - Assets page
NFT20 added an interesting social twist to FraNis collections, everyone can contribute to a collection and add one or more NFTs to it. Collectors even get 100 shards for their contribution and earn the right to redeem those shards for the NFT of their choice. 🤨
Yes, raised eyebrows again… This mechanism sounds fun but it means users can contribute a low quality NFT and swap it for a great one. This will go very wrong, very fast, if it hasn’t yet. Even if some pools end up getting some quality NFTs, they would get stripped along the way and the token representing fractions will become worthless. Top tier NFT owners will never take the risk to shard their collections if they could get “stolen” in seconds.
Unic.ly
Unic.ly — Discover page
This is our last FraNis platform candidate. I have high hopes for you Unicly!
First of all, I must say Unicly really stands out from the crowd, the name, the brand, this is something else already. I really hope it lives up to the promise. 😏
Going through their tutorials, sharding looks really easy to process, login with your wallet, setup token settings, import one or more NFTs, and boom, token issued.
Once the token is issued, collectors can bid on specific NFTs that are viewable on the token dashboard. Bids are not definite until the fractionalisation is voted by the token holders, and cherry on top, the voting threshold can be set during the token issuance phase.
Shards are treated equally and rewards are not randomised, even better, the benefits made from NFTs are shared equally among token holders (called uToken on Unicly btw).
All this already sounds really great but there is more, the UNIC token. UNIC is Unicly’s governance token, for which there has been no private sale and there never will be one. Whitelisted NFT collections receive UNIC rewards through staking of their shards and UNIC token holders will have the ability to vote on future white-listings. Those are additional incentives for NFT contributors.
There is one last thing that struck me when reading their documentation, it is so powerful I will quote it;
“Each month, the mint rate of UNIC tokens will decrease by 5%, starting at a monthly mint amount of 50,000 UNIC. Therefore, the supply will never reach 1M UNIC.”
In short, UNIC can only be minted through staking, monthly mints are decreasing through time and there’s a max supply that will virtually never get reached.
You had me at first glance Unicly, and you kept your promises. 😍
Conclusion
I think we have a clear winner here, Unicly’s anonymous team clearly got it right. I’m really excited to see how their platform will evolve and I can already imagine various use cases; Artists raising funds (NFTs ICOs), collectors maintaining a tradable collection on it like an Art ETF or top tier NFTs being traded for better price discovery. Feel free to comment below and share your ideas.