NFT fragmentation is a liquidity provision strategy for NFTs. The NFT market has long been plagued by low liquidity due to the high prices of many NFTs.
An NFT "fragment" is an ERC-20 token whose value is tied to a fraction of the NFT. By turning an NFT into a collection of fungible fragments, we can boost the liquidity of the market for that NFT, thus greatly improving the efficiency of NFT trading.
The scarcity of high-value NFTs makes it difficult to build communities. Over time, an NFT project often coalesces around a small circle of wealthy and self-important NFT investors. Without a community, there is no mass fanbase - and without such a fanbase, there is no asset liquidity. In order to build liquidity, it is necessary to have many people holding the "same" assets, so as to facilitate discussion and trading.
NFTs that have built a community are therefore much more valuable than NFTs that do not have a community. An example of this effect is the explosion in the popularity of avatar NFTs, which have greatly benefited from being able to get a large group involved in one common enterprise.
The emergence of NFT fragments allows your NFT to be held by more people, which in turn builds a broader community centered around your NFTs.
High-value NFTs naturally act as barriers to entry for many small investors. Imagine how many people would be turned off and how much colder the trading market would be if you could only buy a minimum of one bitcoin! The same situation exists for NFTs without NFT fragmentation. The emergence of NFT fragmentation makes it possible to invest in NFTs without any capital barrier, allowing more traders to participate.
Imagine you had a collection of NFT masterpieces. You feel that these works are currently undervalued and want to wait until they appreciate in value before selling them - but you need cash now! Instead of mortgaging your NFTs, you can fragment your collection and sell a small number of fragments on the open market. This essentially creates a collateralized lending market for NFTs.
There are many established forms of community governance in the ERC-20 space, including DAOs, profit sharing, and mining and derivatives. Once the value of an NFT is split up into a bunch of ERC-20 tokens via NFT fragmentation, it opens the door for all of these community governance strategies to apply to NFTs. Imagine a future where you can use your avatar to participate in governance, buy options on meta-universe props, and enjoy the benefits of NFT deposits - all of this is possible with NFT fragmentation!
These two models use different mechanisms to link the NFT to the value of the fragment and are applicable in different scenarios: