In the world we currently live in, the most valuable asset is no longer tangible. Although virtual assets have existed for many years, it is only recently that these digital commodities have become a new asset class.
Now, with the combination of blockchain technology, virtual assets no longer have the opportunity to be limited to traditional use cases, such as games. In today’s sharing economy, as more and more assets (including physical and virtual assets) are tokenized, a new protocol is essential to ensure security, transparency, ownership, liquidity and shared use . To quickly recap, tokens are virtual assets on the Internet, and their functions are similar to cash or existing bearer instruments, such as tickets, coupons, stock and bond certificates, certificates, food stamps and contracts, giving the holder the right to use Different things, similar to what we use cash. Organizations operating on Ethereum can issue tokens to grant holders the right to use their goods and services, so that they have the right to receive company dividends and participate in the governance of its business model.
Here, we introduce the next generation of token economy: divisible NFT token (F-NFT)
If you are not familiar with the concept of tokens, please don’t worry, because we will briefly review the main types of tokens and their role in virtual assets.
Does F-NFT currently exist? Yes, not at all!
The Ethereum Official Improvement Proposal (EIP) community has had some heated discussions about similar solutions for subdividing NFTs.
Billy rennekamp also has a post introducing some potential applications and theories of divisible tokens. The co-authors of this article intend to explore the possibilities, risks and use cases of this potential new asset. Our article is based on “Should we barter? 》Read quickly to understand the current limitations of today’s NFT.
Limitations of today’s non-fungible tokens (NFT)
First, let us quickly remember what NFT (also known as “ERC721”) is. This is a new type of token that has been processed and stored on the blockchain. After security tokens and utility tokens (they are standard “ERC20” tokens), non-fungible tokens are defined by the following characteristics:
One NFT cannot be interchanged with another NFT
Each token has characteristics that make it unique
To give a few simple and specific examples, NFT can be: a piece of land in the virtual world, a unique collectible card, your role in role-playing, the sword used by your role, (whether digital or not) Artwork… The use cases are virtually limitless.
Today, most of these NFTs are considered proprietary and exclusive. In other words, once you get the token, you are the sole owner. Again, you are the only one who can benefit from these services.
Today’s situation limits the use of NFTs, and has proven to be contrary to the decentralization ideas proposed by blockchain technology.
How do we imagine a divisible NFT (F-NFT)?
Why can’t an NFT have multiple co-owners? Dividable non-fungible tokens (F-NFT) will be various non-fungible tokens that are specifically designed for decentralized ownership and use.
The token will be based on the following foundation:
Co-ownership of NFTs is not enough. The benefits of the functions and/or services provided by the token must also be shared.
The purchase or resale of all or part of the tokens held by other stakeholders should not harm other owners in any way.
The use of tokens by one or other stakeholders must not harm other owners in any way. Ideally, different owners must use tokens at the same time.
What is divisible and what is not divisible?
In order to further define these F-NFTs, we need to study actual use cases and quickly classify assets:
Almost every asset can carry two values independently. This typology puts any type of asset in the right perspective, and focuses on the value and use of parts.
Conceptual representation of video game assets
In this diagram, the financial value of the asset is a gray circle. This value is of course defined by the elements that compose it, that is, metadata. From a value perspective, this gray circle can be shared and completely independent of the metadata or the characteristics that make up the metadata. Metadata and features cannot be divided in the same way.
Value is divisible.
Skills or character are unnecessary.
This situation today represents a restricted use range and proves to be against the idea of decentralization proposed by blockchain technology.
How to design F-NFT?
These unruly nfts only need one thing: thinking and designing for shared use. Token design is the key to ICO, and NFT design is also the key to f-NFT.
In order to illustrate our ideas, we chose to use specific use cases to counter the F-NFTs principle in order to clearly divide the boundary between tokens designed for personal use and tokens designed for decentralized use.
Examples of NFT and some NFT asset types
Which industries may be disrupted by F-NFT?
Although the initial adoption of F-NFT will have the most practical and easiest use cases for virtual goods, it will span to real-world goods such as artworks, collectibles and traditional investments. We can imagine that more and more world assets will be tokenized, thus opening the floodgates for fragmented use cases.
Art and Collectibles (a & c)
The size of the global art market is approximately US$50 billion. Unfortunately, they are one of the least liquid assets. If someone wants to sell Degas worth $1 million, it’s not as simple as listing on eBay. In fact, it is more likely to need to go through an intermediary or auction house, such as Sotheby’s or Christie’s auction house, which charges a premium of up to 25% for the sale of this painting. These two auction houses alone control 80% of the second-hand art market. They retain publicly available sales information, thereby preventing accurate market-based price discovery and prediction.
“The Stars” Edgar Degas
The value of most art and collectibles increases over time. If the value is symbolized, it may be an opportunity to benefit from this value appreciation. If the $1 million “Star” is subdivided into 100 units, this will allow 1,000 investors to hold one share each. These stocks can be traded, and their ownership and authenticity will be verified through smart contracts. This solves the second problem of the art and collectibles industry: mobility. Individual buyers do not have to wait for weeks or months to purchase high-priced goods. Once converted to F-NFT, it will be offered to investors to purchase on the secondary market as a supplement to a well-balanced investment portfolio.
Here, the benefits of each token owner will be the value transfer of artworks, diversification of investment portfolio, potential appreciation through limited tokens, and faster liquidity. In this case, even the smallest investor may be the owner of the painting. Of course, the typical authentication and custody of the original artwork will be required, however, this will be a small price for the benefits of symbolic appreciation and asset liquidity. Of course, unlike digital art, people cannot divide this painting into a thousand, so the value here will be the value of asset owners and speculators who want to use the art collection category to help balance their financial portfolio.
Traditional investment
Compared with traditional assets such as art and collectibles, stocks, bonds, derivatives, or gold, cryptocurrencies are a fairly new market. This new asset class accounts for less than one thousandth of the current total global wealth:
Courtesy of Fred Wilson, CEO of venture capital firm Union Square Ventures
F-NFT will be an emerging sub-asset class that can be used to further hedge against fluctuations in the primary crypto market. Just as a password can be used as part of a balanced investment portfolio, F-NFT can also be used as part of a password because of its growth and risk tolerance.
game
Today, the value of virtual goods has exceeded US$50 billion. Although it may not be worth it to subdivide the $100 CryptoKitty, you may want to focus your resources on more expensive products. Just recently, a virtual game product has become one of the most expensive products ever-a virtual planet worth 6 million U.S. dollars.
Turning game virtual goods into F-NFT means you can now pool resources for crowdfunding and jointly own this asset. Although not many people may have the ability to buy 6 million US dollars of global F-NFT stocks in the future, this will make liquidity faster, and at the same time allow people to mass obtain the originally expensive virtual goods.
The future market of F-NFT?
Today, there are many exchanges that provide liquidity for standard ERC20 and ERC721 (NFT) tokens. F-NFT will need a new exchange that can provide services to verify irreplaceable assets that seek to segment. It needs to be able to help establish markets for trading these F-NFTs to maximize exposure and liquidity of this new asset class. Here are some of the features that this new type of exchange can provide:
Asset certification: Every asset, whether it is a physical artwork or a high-value digital asset, requires authenticity verification. Once verified, the record will be placed on the chain for reference by any other party.
Segmented smart contracts: This will allow asset creators and owners to specify the attributes or metadata of the token, including the shares to be created and ownership details.
F-NFT Listing: This function will list FNFT on the exchange and provide traditional exchange functions such as order book, matching and token trading. It will also provide complete transparency and inform owners of new ownership or redistribution of rights to assets.
Today’s centralized exchanges specialize in larger ERC20 tokens, while decentralized exchanges (DEX) provide liquidity for ERC20 and ERC721 tokens. Since liquidity is one of the biggest challenges facing DEX, promising new protocols (such as KyberNetwork, 0x, and Loopring Protocol) can pool liquidity between DEX. FNFT’s collective capabilities will also allow greater liquidity while providing arbitrage opportunities for market makers.
in conclusion
Proposing a standard for a detachable NFT may lead to very interesting solutions regarding value and asset liquidity. This new generation of assets may greatly stimulate the entire NFT market. In addition to financial concerns, the use cases proposed by these sporadic NFTs are also promising.
Regarding this new asset class, several questions were raised: Which assets will be the best use cases for F-NFT? why? Which real assets cannot be supported as F NFT? What are the technical components/features of this new standard (the overall user experience of the market, the game and the asset itself must be reconsidered and redesigned for decentralized use)? Feedback is welcome!
