Crypto glossary
Fractional NFT
A fractional NFT is an NFT locked in a contract that issues fungible tokens representing shares of it, so many people can own part of one expensive item.
Fractionalisation turns a single, illiquid NFT into many tradable units. The owner deposits the NFT into a vault contract, which mints a set number of ERC-20 tokens. Those tokens trade on decentralised exchanges, giving holders exposure to the NFT's value. Many designs include a buyout mechanism: anyone can offer to buy the whole NFT, and if token holders accept, they receive their share of the payment.
The idea took off in 2021, when the original image behind the Doge meme was bought as an NFT and split into billions of tokens, and platforms let collectors fractionalise expensive artworks and avatars. Later experiments such as ERC-404 in 2024 tried to blend NFTs and fungible tokens in one contract, so that holding a whole number of tokens automatically gives you an NFT.
Fractional ownership adds complexity and risk. Liquidity for the fractions can dry up, buyout rules can be gamed, and holders depend on the vault contract's security. Regulators may treat fractions of a valuable asset sold to the public as securities. Several fractionalisation platforms have shut down, leaving users to manage vaults themselves.
Example
A DAO buys a rare NFT for 500 ETH, locks it in a vault and issues 1 million tokens; a member who buys 1,000 tokens effectively owns 0.1% of the artwork.