Thread by @yb_effect

Please welcome Azuki 9613 to the garden ⛩️

I was able to raise 17.41 eth from 20 skaters to buy the incredible @AzukiZen. 8/20 bought their first NFT!

Fractional NFTs increase market liquidity, democratize NFTs, & empower sub-communities.

Here's a primer on fractionalization👇

1/ Early January, my friend @madagraye told me they were excited about an upcoming NFT collection called the Azuki.

If you’ve spent just 5 mins on crypto Twitter this past month, there’s a solid chance you’ve seen an @AzukiZen pop up in your feed.

2/ Unfortunately, I was a bit too late to explore the garden.

I loved the art, core team, and discord vibes so much but just didn’t have enough liquidity to get one myself.

The only option left was to ask friends if they’d want to pitch in.

https://twitter.com/yb_effect/status/1488564785981521926

3/ Sure - I wouldn’t have the piece to myself, but some ownership > no ownership.

I used this buy as an opportunity to get some of my normie frens started in our crazy NFT world.

Here’s a snippet of the proposal covering my reasoning to buy an Azuki.

4/ For the next few days, I spent a crazy amount of time on the phone trying to answer questions about NFTs, wallets, tokens, etc.

It was so much fun helping everyone through the anxiety of their first nft transaction.

https://twitter.com/TheFundCFO/status/1493970328556609545

5/ The feeling of owning an NFT with your frens is so incredible.

All 15 contributors make up the 9613 community.

I'll be making a telegram group for us to coordinate the future of the piece.

6/ So, what is fractionalization?

A group of people divide up an ERC-721 token for a proportional amount of linked ERC-20 tokens.

Basically, creating fungible tokens that represent ownership of a non-fungible piece.

Great for retail traders trying to own part of a rare NFT.

7/ How can I buy a fractional piece?

Start or join a party on @prtyDAO.

Party bid is a social layer on top of @fractional_art.

The app is lightweight, fun, and easy to use.

Here was the Bean Party I set up for 9613.

8/ What happens after the group purchases a piece?

Everyone claims their respective tokens - in this case $AZUKI.

Reserve price is the eth required to initiate an auction on the NFT - default is 2x purchase price.

Any token holder can start a vote on a new reserve price.

9/ What about token liquidity?

If the piece is a rare blue chip, the group will likely set up a liquidity pool.

However, for most low demand pieces, if a contributor wants to sell their tokens, they'll need to find a buyer.

Otherwise, they have to wait until the piece sells.

10/ My guess is we see some sort of Robinhood-esque product that lets users easily browse through all sorts of fractional NFTs and trade the tokens.

Hopefully this helps the liquidity issue as well.

11/ Interesting point by @AmitMukherjee on fractional tokens selling at a discount.

Holding a token representing an NFT isn't exactly the same as owning the NFT.

https://twitter.com/AmitMukherjee/status/1491142952818974721

12/ Difference between multisig vs party bid?

Multisig [Utility]:
- The piece is kept "intact"
- Group has control & access to the NFT

Party Bid [Investment]:
- NFT is divided into tokens that can be swapped at anytime
- The piece is locked up & utility is lost.

13/ 2x2 table to think of NFT categorization (h/t @daranda)

14/ Why didn't I tweet out the Azuki party bid link and raise more?

Personally, I didn't feel comfortable pitching an investment publicly.

Felt like there was a legal grey area in terms of me offering a security.

We definitely need to get more clarity on what we can & can't do

15/ 3 variables to control with Fractional NFTs (h/t @bridgesplit)

Product request: E2E Fractionalization Tool

- Buy/sell piece
- Auto generate Liquidity Pool
- Tiered tokens & privileges
- Coordination (messaging, voting)
- Tax & legal support
- Organized cap table

16/ Fractionalization of NFTs = more NFT x Defi opportunities.

- Interest on tokens
- Tokens as collateral
- Options market on NFT token

What else?

17/ Fractionalization will bring the concept of sub-communities mainstream.

These sub-communities will be essential to increasing the core community's brand & value.

It's no different than the dynamic between a mall and the shops inside of it.

18/ I believe NFT founders will start to reserve x # of rare pieces with the purpose of fractionalizing them.

Each fractional piece can be pitched with a certain vision for a sub-community.

This gives the collection an initial boost to a thriving community working together.

19/ Ironically, the Azuki team is trying out a fractionalization experiment of their own.

It'll be interesting to see how the community build out Bobu's character & journey together.

The focus here is governance over the piece, not economic value.

https://twitter.com/AzukiZen/status/1491941441098027008

20/ As fractionalization grows, it'll be interesting to see how that affects the perspective of solo, independent buyers.

More people dilutes the brand.

Imo, it would feel annoying to see the same type of pfp over & over on Twitter.

Should there be a cap on community size?

21/ @prtyDAO is a fantastic product for people new to NFTs - fun & easy to understand UI.

Product requests for the team:
- Curation (weekly twitter thread of current bids)
- Template for the host to pitch the party (goal)
- Notifications (new contribution, purchase)

22/ Shout-out to the Party Bid team!

Got tons of insight on fractionalization from @daranda and immediate help from @john_c_palmer to fix an issue on the frontend.

23/ Recommendation/Challenge: If you're in the NFT space, try out the experience of buying a fractional piece!

It's great way to get your normie frens & family in the space.

Over the last 6 months, most of my personal group chats have all converted over to web3 discussions.

24/ Fractionalization for:

- Retail: access to rare NFTs
- Whales: liquidity on parts of their collection
- Creators: a larger community
- NFT asset class: greater liquidity

25/ Summary

- Party bid (only investment, but very easy)
- Multisig (gives utility, but more ops)
- Need more liquidity options for less rare NFTs
- Request for E2E fractional NFT UX
- Sub-communities will boost main brand
- Fractional NFT = Economic value + utility + governance

Clarifications by @daranda:

Multisig [Custom]:
- Burden is on users to manually figure out how to divide / manage NFT ownership
- Trust is with multisig signers
- However, full flexibility on accessing all functions associated with the NFT (claim, mint, etc.

@daranda Party Bid [Productized]:
- Opinionated product for groups to buy an NFT
- Tracks ETH contributions to determine ownership
- Tightly integrated with NFT marketplaces
- All functions happen on-chain, no trust
- Less flexibility with leveraging NFT functions (claim, mint)