Fractionalized ownership refers to the practice of allowing investors to own a partial share of an asset, rather than requiring them to own the entire asset. This can be especially useful for assets that are expensive or difficult to buy in their entirety, such as real estate or fine art.
For example, if a piece of real estate is worth $1 million, a group of investors may each purchase a fractional ownership interest in the property, allowing them to share in the ownership and any potential returns without having to come up with the full $1 million purchase price. This can make it easier for more people to invest in high-value assets and can also help to diversify their portfolios. Fractionalized ownership can also be facilitated through the use of financial instruments such as mutual funds or exchange-traded funds, which allow investors to own small portions of a diversified portfolio of assets.
How can we fractionalize asset ownership?
Asset fractionalization refers to the process of dividing ownership of an asset into smaller, more manageable and tradable portions. This can be done through tokenization, which creates digital tokens that represent ownership of the asset.
Here are a few ways that asset fractionalization can be achieved:
- Tokenization: By creating digital tokens that represent ownership of an asset, it can be divided into smaller, tradable portions. This allows for investors to purchase a small portion of the asset, such as a piece of real estate or a work of art.
- Securitization: This process involves the creation of financial instruments, such as bonds, that represent ownership of a pool of assets. This allows for investors to purchase a small portion of the assets in the pool, such as a group of mortgages or a collection of art.
- Crowdfunding: Platforms like Kickstarter and Indiegogo allow multiple investors to collectively fund a project or business by buying shares in the company. This allows for smaller investors to participate in investments that may have been previously out of reach.
- Blockchain-based platforms: Decentralized finance (DeFi) platforms and protocols that allows investors to lend, borrow and trade assets on the blockchain, also make it possible to fractionalize ownership of assets, such as real estate, art, and even commodities, which allows for smaller investors to participate in the market.
Fractionalizing assets can open up new opportunities for investment, making it possible for smaller investors to participate in investments that may have been previously out of reach, and it also increases liquidity and diversification in the market.
What are the main reasons for using NFTs for fractionalized ownership?
One of the main reasons for using non-fungible tokens (NFTs) for fractionalized ownership is that they provide a secure and transparent way to track and verify ownership of the asset. NFTs are digital tokens that are built on blockchain technology, which allows them to be unique and easily identifiable. This makes them well-suited for representing ownership of assets that are difficult to divide or transfer, such as art, collectibles, or other digital assets. In addition, because NFTs are stored on the blockchain, they are decentralized and immutable, which means that they cannot be altered or forged. This can provide a high level of security and assurance for both investors and asset holders.
In comparison to crowdfunding however, the current trend has been the tokenization of just about everything. The big value will be from the digitization of security infrastructure for investment. A new type of digital venture fund in a sense.
