Challenges in Today's NFT Industry

Liquidity is a significant factor in the NFT market. The better the liquidity, the better the price for the NFTs. In typical NFT marketplaces like Opensea, the liquidity on NFT projects is limited due to the fact that NFTs are not divisible in nature, making the buying and selling of blue-chip NFTs extremely costly and difficult. NFT fractionalization is an innovative solution where NFTs can be broken up into fungible tokens, therefore allowing pricy NFTs to be easily owned and traded despite their high value.
However, most of the current NFT fractionalization protocols are extremely siloed. While at the core of them all, they try to make the barrier of owning blue-chip NFTs low and allow them to be more liquidly traded, very few actually managed to do so. This could be attributed to the foundation on which they were first built.
Some significant pain points that the users of these alternative protocols face are as follows:
  • High fees: Most fractionalization protocols charge a high fee for minting and redemption; users face a discouraging cost for interacting with the protocol.
  • Little to no improvement in ease of ownership: There is limited or no improvement in ease of ownership after the fractionalization of NFTs. The user experience of buying and selling fractionalized NFTs is fragmented and troublesome. In fact, most fractionalization protocols make trading NFTs more costly and complicated than before due to high minting fees and high slippages.
  • Limited to no use cases: Fractionalized NFTs are inherently superior in financial applications than NFTs, hence should be more interoperable. However, in most cases, users are stuck with their fractionalized NFTs where they can not even sell them easily.
    For example, fractionalized NFTs could unlock more liquidity, and significantly improve the capital efficiency of NFTs, whereas current NFT lending protocols can only offer a low Loan to Value ratio to borrowers.