Over the last year, NFTs, or non-fungible tokens, have cemented their position within the cryptocurrency industry. The total value of assets sold as NFTs surged past $2.5 billion during the first half of 2021, as “NFT mania” took hold.
To accommodate increasing demand, multiple NFT-based platforms have been established for the creation and distribution of such assets. One platform attempting to capture market share is Niftex.
What is Niftex?
Niftex is a decentralized exchange platform for NFTs. Unlike other NFT marketplaces, Niftex was specifically designed to allow the owners of rare and collectible NFTs the opportunity to split digital assets into fractions. Ownership of rare NFTs can then be distributed across multiple investors.
Launched in May 2020, the platform was initially developed on the Ethereum blockchain. It experienced early success thanks to the fractionalization of popular pieces including several CryptoPunks and Axie Infinity creatures. However, high transaction fees on Ethereum made the platform unscalable, and actually resulted in a brief shutdown of operations. As a result, Niftex developers quickly transferred the exchange to the layer-2 Polygon (then Matic) network.
The platform was initially developed with the intention of increasing the fungibility of non-fungible tokens. Niftex believes that by fractionalizing NFTs the friction to enter the market lowers considerably.
The platform is now in its second phase – Niftex V2, which was released in Q1 2021.
What Are NFTs?
Non-fungible tokens, or NFTs for short, are cryptographic tokens that represent ownership of a specific asset. The asset could be digital or physical. Similar to cryptocurrencies, NFTs are stored and transferred across a blockchain. However, they differ from cryptocurrencies due to their fungibility.
If an asset is fungible it can be easily transferred or exchanged. Examples of fungible assets include fiat currencies, such as US dollars or euros. Any $1 bill can be exchanged for any other $1 bill. The same is true for cryptocurrencies such as bitcoin, ether, XRP and litecoin. 1 BTC can be exchanged for any other 1 BTC.
However, NFTs are non-fungible, meaning that they cannot easily be exchanged for something else. Use cases for NFTs have included digital artwork, memes, GIFs, music and website domains. An NFT of a CryptoPunk cannot be exchanged for the NFT of an Axie Infinity creature. The two hold completely different values and represent unique individual assets.
NFTs were first developed on the Ethereum blockchain. Now other smart contract blockchains such as Solana and Binance Smart Chain are capturing market share. Just like cryptocurrencies, all transactions related to an NFT are stored on the corresponding blockchain.
How does fractional NFT ownership work?
The formal name for fractionalizing NFTs on Niftex is “sharding”. Each fraction of an NFT is called a “shard”. After an NFT has been split into a predefined number of shards, the NFT is then listed for sale. Each shard can be purchased by users, which allows for joint ownership of rare pieces.
The number of fractions, or shards, is established by the owner and remains locked within a smart contract. Once fractionalized, Niftex users have a 2-week window to buy fractions. If any fractions remain after the 2-week window, they are returned to the original owner.
All NFT fractions are represented by ERC20 (Ethereum-based) cryptocurrency tokens, which means they are fungible and exchangeable. They can be transferred between Ethereum wallets and traded on Ethereum decentralized applications, such as Uniswap.
The process of sharding can be completed for both individual NFTs and bundles of multiple NFTs.
Does Niftex have a core token?
No. Niftex currently does not implement a core token.
However, Niftex is keen to pursue community ownership. As a result, Niftex V2 has laid the groundwork for a decentralized autonomous organization (DAO). Membership to the DAO will be provided via a future governance token. The governance token is expected to be provided to users of the platform – those that trade, provide liquidity and generally contribute to the community.
How to use Niftex
To begin using the Niftex exchange, a user will require a Web 3.0 digital wallet. A Web 3.0 digital wallet, such as MetaMask, WalletConnect, Torus or Authereum, provides a bridge between a user’s digital assets and the Niftex exchange.
How to buy a fraction of an NFT
The introduction of Niftex V2 enabled 2 types of governance on the platform: local and global.
Global governance outlines the rules of all modules and how they apply to every fractionalized NFT on the platform. Global governance will eventually be controlled by the DAO.
Local governance outlines the rules and parameters surrounding a single or bundle of fractionalized NFTs. All governance rules surrounding an NFT are controlled by fraction holders. Local governance proposals can sometimes overrule global governance conditions.
Local governance of fractionalized NFTs also enables users to control any on-chain rights that may be associated with an NFT. For example, an NFT may be a virtual parcel with certain building rights. If the NFT controls a certain on-chain element, local governance allows fraction holders to vote and then agree before that on-chain element is changed.
As fractions (shards) are ERC20 tokens, they can be traded and exchanged within the Ethereum blockchain. This allows NFT owners to generate liquidity from an otherwise untradable asset.
Fractions of a specific NFT have a unique bonding curve, which dictates the relationship between supply and the price of the fraction. As demand increases and the number of available fractions decreases, price should increase accordingly.
Each fraction bonding curve can be found via the details page of that fraction.
All fractionalized NFTs can be recovered through a buyout mechanism. A fraction owner can make an offer in ETH for all other fractions. This person is known as a triggerer.
If the triggerer’s offer is accepted, the fractionalization is reversed, the offer is distributed to all fraction holders and the complete NFT falls under the ownership of the triggerer. To reject the offer, one or more shard holders must buy the triggerer’s share at the proposed price. If this occurs, the one who triggers is bought out of the NFT. The opportunity to buy out the one who triggers prevents low ball offers from being made.
Niftex is a unique platform within the NFT sector. The opportunity to fractionalize rare NFTs provides an opportunity for owners to gain liquidity from otherwise illiquid assets. It also allows investors to gain access to otherwise unattainable NFTs.
The platform remains in an early phase of development, with many protocols and modules still yet to be released. However, early successes and complimentary user interaction indicate that there is a need for a platform such as this.
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