What is NFT Fragmentation?: An Overview
NFT fragmentation refers to the process of breaking down a non-fungible token (NFT) into smaller, more manageable pieces. As the value of NFTs has risen in recent years, many people have been priced out of the market, unable to afford a single, whole NFT. By fragmenting NFTs into smaller pieces, more people are able to purchase a piece of an NFT, making it more accessible to a wider audience.
This is done by creating multiple "child" tokens that represent a fraction of the ownership of the original "parent" token. These child tokens can then be traded or sold separately, allowing for greater flexibility in terms of ownership and liquidity.
Another benefit of NFT fragmentation is that it can help to reduce the risks associated with investing in NFTs. By owning a piece of an NFT, rather than the whole token, investors are able to spread their risk across multiple assets. This can help to reduce the impact of any potential downturns in the market, as the value of one child token may not be as affected as the value of the entire parent token.
Additionally, NFT fragmentation can help to increase liquidity in the market. When an NFT is fragmented, it allows for more people to buy and sell pieces of it, increasing the number of potential buyers and sellers, and making it easier for people to find buyers or sellers for their NFT pieces.
Types of NFT Fragmentation
For high-value NFTs with low turnover rates, DODO recommends the Buyout model.
For low- to medium-value NFTs with high turnover rates, DODO recommends the Retail model.
Retail Model
In the retail model of NFT fragmentation, a parent NFT is broken down into smaller, child tokens that represent a fraction of the ownership of the original token.
These child tokens can then be sold to the public at a set price, allowing for more affordable access to NFTs.
The retail model allows for a larger audience to buy and sell fragments and increase liquidity in the market.
Buyout Model
In the buyout model of NFT fragmentation, a parent NFT is offered for sale as a whole, and a single investor can purchase the entire NFT in one transaction.
This model allows for a single investor to own the entire NFT, but also allows for a single point of failure if the investor is not able to resell the NFT at a higher price.
This model also allows for a larger ownership of the NFT but also a higher risk of market downturn as the value of the NFT is affected if the investor can't resell the NFT.
Similarities | Differences |
|---|---|
Both methods allow for more affordable access to NFTs by breaking them down into smaller pieces. | Retail model allows for the public to purchase fragments at a set price. |
Both methods can increase liquidity in the market by making it easier for people to buy and sell pieces of an NFT. | In contrast, buyout model allows a single investor to purchase the entire NFT in one transaction. |
Both methods can help to reduce the risks associated with investing in NFTs by spreading ownership across multiple assets. | Retail model allows for a larger audience to buy and sell fragments, while buyout model allows for a single investor to own the NFT entirely. The value of the fragments in a retail model may not be as affected by any potential downturns in the market as compared to buyout model, where the value of the NFT may be affected if the investor is not able to resell the NFT at a higher price. |