Anybody can own a fraction of valuable digital assets

Robert Hoogendoorn

2 months ago

Owning digital collectibles as non-fungible tokens on the blockchain is something that's slowly getting traction in the mainstream. Major brands are already involved in these blockchain-powered collectibles, like for example Dapper Labs with their NBA Top Shot and trading card company Topps. At the same time some digital collectibles are already becoming extremely valuable. That's why Joel Hubert founded Niftex, an exchange that's all about shared ownership over digital assets through something called fractionalizing.

Niftex was launched in May 2020. According to Hubert it was really just a proof of concept. The exchange launched and offered some valuable virtual land from Decentraland up for sale. There were some people checking it out, but Niftex didn't get a lot of traction. According to Joel Hubert the company's first real success was with artwork from Miss Al Simpson and XCOPY. After that the exchange fractionalized a ten thousand dollar Cryptopunk, followed by a rare triple mystic Axie Infinity creature called Venom. "That really got the ball rolling on the secondary markets", the CEO told us.

CHART - VNM number of transactions & token value in ETH (2 lines)

How does it work? First Niftex takes a valuable asset and determines the value of that digital item. After that it's up to the asset owner to determine how many fractions he wants to sell. For example, they valued a character from Axie Infinity called Venom at 111 ETH. The owner wanted to sell 9500 out of 10 thousand shards. This automatically meant that each shard was valued 0.0111 ETH. Currently Venom is valuated at 133.7 ETH, which is an increase of 20.5 percent.

Venom was a big moment in the history of Niftex, but this July came the big bang. In the week of July 6th Niftex had more than 1000 ETH in trading volume. This volume was pushed by the launch of a new fractionalized Axie, named Almace. This Axie was valued at 40 ETH with only 10 thousand ALMX shards available. As a result each shard had a value of 0.004 ETH. When the fractionalized assets launched in Niftex, demand went through the roof. At one point this one digital asset was worth 300 ETH, which means that each shard was worth 0.02 ETH! Even though the value of the Almace fractions is now much lower at 0.008 ETH, the tokenized digital asset is still double of its original value.

CHART - ALMX - number of transactions & token value in ETH (2 lines)

This validates the business case that Niftex is trying to create. “People want to trade fractions of rare assets”, Hubert emphasized. This has clearly been a signal for the exchange that they are moving into the right direction. However, development is far from done. They have a lot more improvements in the pipeline, and of course a lot more products that will be fractioned.

It's important to note that not every digital asset that gets offered on Niftex increases in value. Three out of 21 listed assets have dropped in value. For example, an artwork by Max Osiris lost 73 percent of its value, while one of listed creatures for Axie Infinity lost 30 percent. "We consider them experiments rather than failures", the Niftex boss said. "Right now almost everything is in the green, but that's not at all a guarantee that things will continue that way."

Shared assets, their problems and how to solve them

Having shared ownership over digital assets comes with its pros and cons. For example, it allows more people to own a rare and valuable asset. However, when a game asset is locked away behind a smart contract and split into ten thousand fractions, nobody can use them in the game. Venom, Almace, Mystic Balloon Axie and Hauteclere can't be used inside Axie Infinity at the moment. Joel Hubert is looking past those problems.

"Extra things like governance and in-game benefits [can be bolt] onto the fractions, and that will new exciting angles separate from trading that will make the entire concept more complete", he evangelized. Fractions could for example give investors voting power over virtual land. However, these systems have not been incorporated yet.

Fractionalizing everything is not the end goal for Niftex. Ultimately someone should be able to regain full ownership over an NFT. That's why they have developed two ways so that investors can recover an NFT from its fractions. The first option would be to acquire all the shards. However, it's likely that this is very difficult to accomplish because the fractions are widely distributed. "That's why we added a second option that we call the Buyout Clause", Hubert explained. "Anyone with some fractions [in their wallet] can make an offer for the rest of the fractions. If people like the offer, they do nothing and the offerer gets the NFT and everyone else gets ETH for their fractions. If people don't like the offer, they can buy the offerer out - at the offerer's price! This makes sure he doesn't make a very low bid. So far, only one Buyout Clause has been activated, and this was done by Hubert himself.

Currently all the action takes place on the blockchain, and Hubert isn't keen on introducing shared ownership over physical objects. He prefers to maximize the company's on-chain efforts before exploring new directions. To do this, Niftex is currently fundraising. They want to improve their user interface and user experience. For the near future Niftex and Hubert are working on a couple of exclusive partnerships with NFT projects. In addition the team is working on something special. "We also have ideas for a new complementary product that could take things to an even higher level. More info Soon™!"