The most basic reason for buying NFT fragments is in order to buy the underlying NFT. People recognize the value of that NFT and are willing to hold it, so they want to acquire the NFT by buying fragments. This model of buying fragments first and then converting them to an NFT essentially uses the value of the NFT to prop up the fragments' popularity in the secondary market.
This, in turn, contributes to the second type of demand - speculative hype. Speculators may not like this NFT, but they believe that the NFT has a possibility of speculation. Good liquidity, quick transactions, and the ability to purchase a flexible number of NFT fragments are a significant advantage for speculative trading. Such speculative demand in turn pushes up the price of the NFT, making more people want to hold it.
The demand for hype and the demand for NFT collecting complement each other. This is entirely due to the abundant liquidity that fragmentation technology brings to the NFT market.
Fragments act as a medium for trading NFTs. Those who buy an NFT need to pay for the fragments and those who sell the NFT receive them.
To make it easier for market makers to price NFTs, we have designed a new NFT market making model. You can set filtering conditions, and all NFTs that meet the filtering conditions are treated as homogeneous and have the same price.
By setting the right filters, you can construct a floor price for a certain type of NFT, e.g.
- All CryptoPunks are divided into 100 fragments each; the price of 100 fragments reflects the floor price of a CryptoPunk.
- All Artblocks with ids less than 100 are divided into 10 fragments each; the price of 10 fragments reflects the floor price of an Artblock with an id less than 100.
- All 0-generation Cryptokittys are divided into 5 fragments each; the price of 5 fragments reflects the floor price of 0-generation Cryptokittys.
The value of a fragment under the retail model is not artificially specified, but is maintained by the arbitrage path. There is room for arbitrage between the fragmentation market and the regular NFT market.
If the market price of a fragment rises, then there is an incentive to buy NFTs from the external market and subsequently sell them in the fragmentation market (turning NFTs into fragments before selling them for dollars). The price of any given fragment then decreases until the combined value of the fragments is the same as the external market floor price of the NFT and the arbitrage space disappears.
If the market price of the fragment falls, then there is an incentive to buy NFTs from the fragmentation market (first buying fragments with dollars and then converting them into NFTs) and subsequently selling the NFTs in the external market. The price of the fragments then rises until the combined value of the fragments is the same as the external market floor price of the NFT and the arbitrage space disappears.
Arbitrageurs in the market will maintain the price of the fragments so that they are tied to the price of the NFT. This maps the value of the NFT to the fragments, which are ERC-20 tokens.
The retail model is very flexible and we can create a variety of products with it. Here are a few possible use cases to throw in the towel.
For illiquid NFTs with a high unit price, a fragment pool can be set up for them. aThis fragment pool redeems NFTs with a constant number of fragments, and once someone buys a fragment and makes its price go up, an arbitrageur will inject NFTs into the pool in exchange for the fragments. This essentially creates a kind of index fund, where users buy shares and the fund uses the money it receives to buy the underlying assets. In this case, though, this process is done completely spontaneously by the market, without the need for anyone to maintain it.
By analogy, shards are the gold in the game, and NFT is the equipment in the game. You can build a game arcade with just a few mouse clicks. You can flexibly set the sale and recovery prices for each piece of equipment, or you can use liquidity mining and other means to stimulate the secondary market liquidity of gold coins. If there's a game you're bullish on, you don't need to play the game or buy the gear, just buy the game gold!
You can put all the NFTs into a fragmentation pool and specify that only one of the NFTs can be redeemed at random with a fragment, so that the fragment becomes a blind box.
You can also create multiple fragmentation pools depending on the rarity of the NFTs, so that blind boxes of different qualities are achieved.
If you take the blind box a step further and set different recovery prices for different NFTs, the pieces become lottery tickets. As the draw goes on and the value of the prizes left in the pool changes, the market price of the lottery tickets fluctuates. This creates a multi-party gaming situation that will make the secondary market for lottery tickets more active. If multiple rounds of draws are set up (e.g. weekly draws), then the lottery itself becomes a financial speculative item.