The Fractionalisation of NFTs is now becoming a key factor in the development of the NFT market. We’re able to see how these digital assets are amounting to more than just a fad for creators and artists, looking to sell their digital creations at sky-high valuations. These Non-fungible tokens are now also being used in sophisticated ways such as collateral for lending products.
So splitting up ownership of highly sought-after NFTs, enables more people to invest into a piece of the underlying asset. Like with a lot in DeFi, it is unclear how top-tier regulators intend to regulate NFTs. However, ventures offering fractional NFTs to any investor may not have realized the regulatory vulnerability of these assets — in short, they are morphing from collectibles into securities.
You would be hard-pressed to argue how giving fractional ownership of an asset could not be classed as equity. This will no doubt trigger securities laws and enforcement in multiple jurisdictions, especially considering that Gary Gensler, the hard-charging chair of the Securities and Exchange Commission, has taken a broad view on what types of cryptocurrency offerings are defined as securities. U.S. companies offering fractionalized NFTs should school themselves on the law before regulators knock on their door.
Given that many NFTs are selling for significant amounts of money (in both fiat and digital currencies), the idea of fractionalization is taking shape to allow smaller investors to pool resources to purchase fractional interests of an NFT. Additionally, there is great interest in the opportunity to buy fractional interests of large NFT collections. For example, it was recently reported that a collection of fifty CryptoPunks, which are early, now valuable NFT pixel art collectibles, were fractionalized into millions of tokens. The interest in fractionalization is not surprising given the high sale price of some NFTs and the widespread adoption of crowdfunding in many areas in e-commerce and investing.
Time will tell, but regulations in the US is clear on many of these aspects, and for investors, investing in registered security may be the only option.