The world of non-fungible tokens quickly rose to fame back in 2021. Many NFT millionaires surfaced thanks to buying and selling NFTs on different marketplaces. However, a major problem that accompanies the NFT market is liquidity. The NFT market is known to be most of the time “illiquid”, rendering most investments unworthy. However, this all changed thanks to NFTX crypto. In this article, we’re going to go back to the basics and explain everything you need to know about NFTs, fractional NFTs, NFT investing, and NFT staking. Let’s go!
What are Non-Fungible Tokens (NFTs)?
In order to be able to explain what Non-Fungible Tokens are, we need to break down the words that compose it:
- Fungible: this word represents a property, and gives something interchangeability. An example would be the fungible Dollar bill, since you can give it to someone else without its core or value changing.
- Token: cryptocurrency tokens are cryptocurrency assets, that represent something other than a monetary value. An example would be loyalty points, ownership of something else…Think of it as a stock, but instead of having ownership in a company, it can be ownership in anything else.
NFTs are basically digital ownership tokens, that run on blockchains that support smart-contracts, such as Ethereum. Their non-fungibility is similar to real-world contracts, where you can’t trade one contract for another, because the “actual content” differs from each other. Same things for NFTs, where you can’t interchange them as their underlying “contract” changes with each one, hence their non-fungible nature.
What are Fractionalized NFTs?
To explain what fractional NFTs are, we’re going to take an example of a building. Fractionalized NFTs allow you to split “ownership” of the building with your wife, without destroying that building into two. The building stays the same, but now contracts arise giving a specific ownership percentage to you, and another percentage to your wife…perfect, for your wife!
Fractionalized NFTs allow contracts that split ownership of anything digital. This is a game-changer, as traditionally we reverted back to centralized entities to preserve our rights. With FNFTs, no need to go to your ol’ public notary guy as everything resides on the blockchain, 24/7. This also allows for automation and opens up a whole new different field. From investing to real estate, to gaming and art…NFT applications are coming big time!
What are Problems of NFTs?
Non-fungible tokens are most of the time illiquid. This means that if you ever wanted to sell your NFT, you would need an “actual buyer” to come and make you an offer that might differ from your offer price. This process is tedious and takes a while most of the time. Another problem arises if you want to actually dip your toes in NFT investing. In this case, you would need to actually go online, search for an NFT which you think might increase in value, and buy it.
This process is risky, as there are tons of NFTs that have never picked up, and whose owners simply manage to rug-pull the entire community. Not cool! Fractionalized NFTs allow you to invest a small portion of your investment without the risk of buying the entire amount of that cool NFT cat you always wanted to buy.
Enter NFTX: a simple way to buy a fraction of an NFT
NFTX is a platform that helps liquidate illiquid NFTs. They aim to do so by creating “vaults” that contain a specific collection of NFTs. Every user that deposits an NFT in this vault receives an ERC-20 token that represents a claim on a random asset from within this specific vault. It’s pretty much like CFD trading, where traders buy and sell contracts of ownership, rather than the actual underlying asset. This creates more liquidity in the market.
For users who have high-value NFTs, they can basically add their NFTs to the vaults and create liquidity for it. Those users would be basically tokenizing their NFTs. They would in turn earn high yields on them, rather than the NFTs just sitting in their wallets.
From where does the interest come from? Well, from another side of the story, there are many users who can’t afford to buy a BAYC NFT. By tokenizing those NFTs, other users can easily buy a “fraction” of that NFT. They in turn pay fees in doing so, and can buy and sell those tokens that represent a share of the original NFT. Those fees are distributed among the NFT yield farmers. The buyers will benefit from the rise or the fall in the actual NFT value, reflected by the tokens they hold.
How to Buy Fractions of NFTs on NFTX
In the following guide, we’ll try buying a fraction of CryptoPunks NFTs listed on NFTX. If you already have a Metamask wallet, skip to step 2.
1. Download Metamask. For a full guide on how to do so, click here.
2. Go to the NFTX website
3. Explore and look for your favorite NFT collection
4. Search for your NFT collection (for this example, we’ll look for CryptoPunks). Click on the info tab. You will see all details relating to the NFTs. On the right-hand side, there is a link to sushiswap where you’ll swap your ETH to the PUNK token.
5. Click on the Sushi Pool link, and you’ll be redirected to swap your ETH to PUNK. Connect your Metamask, choose how much you’re willing to invest and make the swap.
6. Once done, voila! You now are the proud owner of a share of the CryptoPunks NFT project. You can check your Metamask to confirm the status of the transaction once it’s completed.
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Source: https://cryptoticker.io/en/major-problem-with-nft-investing-solved-nftx/