Thread by @mikeyimp

Summary of “How to Fractionalize NFTs” by @BanklessHQ for @scribeDAO

What is NFT fractionalization?

Fractionalizing allows you to take an NFT and split it into pieces (fractions!), usually in the form of ERC20s.
🧵👇

You can use the ERC20 fractions in DeFi: trade them on a DEX or in the future list them on @AaveAave. Fractionalizing improves NFT liquidity with efficient pricing!

Importantly, it democratizes access to NFTs via collective ownership. Can’t buy a punk?
Own a piece with others🤝

@fractional_art is one of the new protocols doing this.
(The newsletter also hinted here at a retroactive airdrop👀)

There’s also @uniclyNFT and @NIFTEX🧩

How to use @fractional_art (not fi-advi)

Two types of users:
🛒Buyers: Users who buy NFT fractions to gain exposure to the assets.
👩‍🎨Curators: Users who mint NFTs into fractionalized ERC20s through the protocol and earn fees; inflationary fractions of the underlying NFTs.

Fractional centers around three main smart contracts:

1⃣ Single fractionalized NFT Vaults
2⃣ Multiple fractionalized NFT Vaults
3⃣ Governance Vaults

As open SCs - anyone can build an FE or interact directly with the protocol via a Web3 wallet

The process (simplified):

1⃣ Pick NFT to use
2⃣ Connect to fractional.art and “Fractionalize”
3⃣ Pick NFT/s, input vault’s name, token supply, symbol, reserve price, and fee.
4⃣ Transfer the NFT/s to the vault
5⃣ Select “Fractionalize” to confirm final mint(s).

Note for multiple NFT vaults, each NFT will need to be approved & transferred separately before you can mint your ERC20s.

Once your vault is live, you can use a dashboard to edit its description, update its auction parameters, etc.

💲Reserve Prices:
For potential buyouts, vaults rely on a price system in which the fraction holders “continuously vote on a reserve price” & the “weighted average of this vote decides the price to initiate a buyout.”

Two examples to help clarify ⬇️

1⃣ If you own 100% of the tokens with a reserve price of 100 ETH, the reserve price will be 100 ETH.

If you own 75% of the tokens and the other 25% of owners vote for a price of 50 ETH, the reserve price will be 81.25 ETH.

Another example ⬇️

2⃣ If you own 49% of the tokens and vote on a reserve price, but no one else who owns the remaining 51% of tokens has voted on a reserve price, there will be no reserve price set for the vault.🕳️

💰Buyouts:
Begin whenever a person or group deposits enough ETH to meet or exceed a vault’s voted reserve price. An auction takes place and if the buyout succeeds, that vault’s fraction holders are able to redeem their ERC20s for ETH.

Fractionalizing is an empowering new money lego💪

@prtyDAO released partybid.app to facilitate collective bidding on NFTs. Allowing groups to bid on NFTs together gives strength in numbers against whales for the first time with NFTs!

They've copped Punks & more🎉

Fractionalization provides exciting new innovations to NFTs with liquidity, token utility, communal participation, and more to come!

However, it’s not without risks. Beyond usual SC risks, some jurisdictions like the US treat fractionalized artworks like securities...

If this all sounds cool to you, then check out some of the protocols mentioned like @fractional_art

For more summaries, follow me and @scribeDAO ✌️