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Introduction

Problem Statement

Most NFT markets today are plagued by illiquidity and inefficiency (in the forms of wide bid/ask spread, arbitrary and far apart prices and low transaction volume). Most of these market inefficiencies today are rooted to 2 core problems that deter market participants from entering the NFT space.
  1. 1.
    Price Barrier: the price growth of premium NFTs in recent years have been so explosive that they have become out of reach for the general public. While many people are willing to spend a considerable portion of their disposable income on premium NFTs, the price barrier is simply too high that they are ultimately still priced out of the entire product segment. As a result, many buyers turn to cheaper NFT projects as alternatives, which more often than not turn out to be lowly funded projects that have little to no value behind them.
  2. 2.
    Unattractive Risk Profile: the combination NFT’s extremely speculative nature (i.e. the fact that an NFT could very well be worth zero in a year) and high entry price means that buyers must be able to and willing to stomach the significant downside risk, especially since there are no existing ways to hedge away the risk of an NFT, to lock-in gains or to quickly unwind an NFT position. The rigidness of NFT as an asset today deters many buyers with sufficient funding from entering the market and from holding NFT.

What is Fractionalization?

A simple way of looking at NFT fractionalization is to basically to think of it as a consortium to buy an NFT.
When an NFT is fractionalized, the original NFT will be pledged into a vault with LIQNFT and the NFT owner will be able to specify the key economic terms of the OT issuance such as number of tokens to issue, token price and also how much he/she wants to retain (i.e. if the owner wants to keep an exposure in the NFT).
After an NFT has been fractionalized, the OT will then be minted through a primary sale facilitated by LIQNFT for the buyers. Once the OTs are minted, the holders can then freely trade on the LIQNFT marketplace.
Through fractionalization, an NFT is converted into a highly liquid and tradable asset, allowing both the buyers and sellers to benefit from a more efficient marketplace.
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