Fractional Ownership Of Real World Investment Assets

How NFTs could revolutionize collective fractional investing

Often, people outside of WEB3 wonder what NFTs are, how they can improve real-world use cases, and the extent of the technology's innovation. In today's article, we focus on fractional investing into real world assets and how ownership tied to NFTs can innovate the industry.

Fractional investing into real-world assets

Investing in alternative real-world assets, such as alcohol, cars, art, collectibles, watches, and more, has become a popular way to diversify investment portfolios. However, these assets often require additional maintenance, storage, and management to retain or increase their value. High initial and maintenance investments are often inaccessible to regular investors.

To address these challenges, investment companies have introduced a solution: fractional ownership of assets. Investors can collectively invest in a real-world asset, obtaining a fraction that suits their budget. The storage, maintenance, and management of the asset remain under the investment company.

Holders of these fractions can vote on the future of the asset, deciding whether to sell it when an offer emerges or not. However, this model has some flaws, particularly in smaller communities, where the fractions are rarely liquid due to limited demand. Some platforms have developed their own dedicated marketplaces but those are used only by a small community and usually involve extra paperwork for ownership transfer, making them less popular. Investors find themselves stuck with fractions until the majority decides to sell the asset.

You might also think of this model as resembling a DAO popular in the WEB3 world, but without the decentralization.

Innovating fractional ownership through NFTs

Non-fungible tokens, or NFTs, have the capability to address some challenges of fractional ownership in WEB2. Let's imagine an investment painting by a renowned artist fractionalized into 100 NFTs, each representing 1% of the asset. The advantage of NFTs lies in their ability to resolve accessibility and liquidity issues.

When investors decide to sell part of their holding, instead of searching for buyers on small, local marketplaces, they can list the NFT on a WEB3 marketplace visited by thousands daily. The potential demand is naturally higher, making it more accessible. Ownership of the asset is solely with the person owning the NFTs, allowing a new investor to buy the NFT and gain ownership. This streamlined approach not only broadens market reach but also simplifies the overall investment process for both sellers and new investors.

Another benefit of NFTs is the potential elimination of the need for extensive paperwork that often discourages potential investors. This means that fractional ownership could become a dynamic and accessible arena for a wider range of investors. Not to mention the benefits ensured by utilizing blockchain technology – security, immutability, transparent ownership records, and even actions of the potential DAO.

Conclusion

In conclusion, while collective investing gained traction among casual investors in the WEB2, the liquidity of investment fractions remained a hurdle, mainly due to concentration on small, dedicated forum marketplaces. Tokenization of these fractions through NFTs presents a promising solution. By leveraging NFTs, the potential for larger marketplaces opens up, providing a broader platform for sales of the fractions. This not only expands the market reach but also streamlines the entire transaction process, addressing the liquidity concerns and offering a more seamless experience for investors.

Disclaimer: This article provides general information and summary of projects and protocols on Cardano. This is for educational purposes only. By no means should not be construed as financial or investment advice. Collecting and investing in tokens should be approached with careful consideration and research.