Fractionalized NFTs. What exactly are they?

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What exactly are fractionalized NFTs? 

Fractionalized NFTs are a collection of fungible tokens associated with a specific collection or item of NFTs, allowing multiple buyers to participate in ownership and related transactions of a single entity of NFTs. The original NFT is typically locked up in a vault, and a limited supply of fungible tokens are released to represent ownership of the NFT. ​

Because most NFTs are built to ERC-721 specifications, the fractionalization process is frequently a smart contract that locks in the NFT and divides it into multiple ERC-20 tokens whose specifications are determined by the NFT's owner.

The Benefits of Fractionalized NFTs

Buyers can now gain access to premium-priced blue chip NFT assets such as the Bored Ape Yacht Club Collection, which had previously been out of reach due to a high financial barrier. ​

Fractionalization adds liquidity to an otherwise illiquid market; fungible tokens can increase the number of potential buyers and transactions. By fractionalizing NFTs, the risks associated with them are also fractionalized. This can lead to increased trust in market security as well as higher overall transaction volume. ​

Disadvantages of Fractionalized NFTs​
NFTs can now serve as the foundation of ecosystems, particularly in areas such as metaverse and DeFi gaming. Instead of expending energy curating new utility tokens that unnecessarily complicate the system, games can now issue fractionalized NFT tokens as rewards.

The value of NFTs, whose original selling pitch focused on their exclusivity, may decline as non-fungibility decreases. This also holds true for the fractionalized tokens themselves; individual token transactions might affect the tokens' aggregate value. ​

NFT reconstitution is still difficult because the original owner of an NFT must purchase all of the fractionalized components in order to trade the NFT once more as a single digital asset. There is a chance that the owners of those items won't agree to sell them back, and pricing disputes can lengthen transaction delays. In this case, fractionalization is equivalent to the piece's destruction or irreversible displacement.

Resource: blog of mexc.com