Dissecting the Fractional protocol

Buy, sell, and mint fractions of NFTs.

This was first published on substack, make sure to follow 0xkowloon on Twitter and substack for more comprehensive protocol deep dives from us.

Top NFTs can cost tens of thousands or even millions of dollars. They are out of reach for most retail investors and different teams are tackling this issue by fractionalizing a NFT. Fractionalization is the process of locking a NFT into a vault and then mints a number of fungible shares as ERC-20 tokens. Fractionalization benefits both NFT owners and share buyers. Share buyers can now afford a fraction of the NFTs. NFT owners can understand how their NFTs are valued by selling parts of them and see some liquidity without selling their entire NFTs.

There are many teams tackling this problem and Fractional is one of the top projects in this space.

In the Fractional protocol, NFT owners can fractionalize their NFTs by creating a vault. Each vault holds a NFT basket (represented as a NFT token), which in itself holds a number of NFTs. NFT owners are given all the fractional ownership tokens and they can sell them to the share buyers.

Vault creators are entitled to receive an annual curator fee. The vault mints new fractional ownership tokens as curator fees. The protocol prevents…