Is the NFT still the same NFT after fragmentation?

Written by: 0x13, Rhythm BlockBeats

The speed at which NFT prices are rising is much faster than our ability to make money. Many NFTs that were once within our reach are now out of sight, and many NFTs that we could once afford to buy in bulk can now only be purchased in small quantities.

The floor price of CryptoPunks is 86 ETH, approximately $355,000; the floor price of Bored Ape Yacht Club is 45 ETH, approximately $189,000; the floor price of Cool Cats is 8 ETH, approximately $34,000.

Today, the investment attributes of NFTs are becoming increasingly prominent, and the polarization of NFT prices is becoming more apparent. Some series have not gained the favor of KOLs, failing to attract more followers, resulting in stagnant prices without a wealth effect, which leads to gradual price declines and diminishing liquidity, ultimately falling out of people's sight; while other series have received strong recommendations from KOLs, leading to more people choosing to buy in, and the subsequent price increases create an attractive wealth effect, causing the prices of these NFTs to rise higher and higher.

The high unit prices have become an insurmountable barrier for more people to invest in these NFTs, thus "NFT fragmentation" has once again come into people's view.

A Brief History of "Fragmentation" Development

In fact, NFT fragmentation was not initially designed for these "profile picture NFTs." At that time, these "profile picture NFTs" had not yet emerged, and there were not many people paying attention to the NFT space; the floor price of CryptoPunks was only a few hundred dollars.

Back then, people wanted to fragment artworks, and the promotional slogans of these NFT fragmentation platforms mostly spoke of "giving ordinary people the opportunity to collect high-value artworks," allowing everyone to participate in art "collecting." At that time, NFT fragmentation was quite controversial, with debates about what people gained from fragmenting artworks. Could one claim to own a piece of the world-famous painting "Mona Lisa" by purchasing one percent of its fragment? Did the fragmentation of art ownership have any real significance? Due to the niche nature of art collecting, NFT fragmentation gradually fell out of discussion, only appearing in conversations about how to improve NFT liquidity.

As time went on, the NFTs that people were passionate about gradually evolved into what we see today: 10,000 unique profile pictures, a gradually coalescing community consensus, and an increasingly heavy investment attribute.

At this point, NFT fragmentation once again gained people's attention, as hopes for investing in these expensive NFTs were placed on NFT fragmentation. Some chose to team up through PartyBid to buy a CryptoPunk together, others opted to purchase ERC20 tokens obtained from the fragmentation of CryptoPunks by others, and some joined specific NFT investment communities.

At this time, the mission of NFT fragmentation shifted from allowing people the right to collect to granting them the right to invest. But have you ever thought about what relationship your "fragments" have with the original NFT you invested in?

The Problems of "Fragmentation"

Let’s first take a look at some common problems currently existing in NFT fragmentation.

The first issue is that after fragmentation, with the disappearance of entry barriers, everyone can participate in investing in NFT fragments, leading to a massive influx of new funds and a significant increase in the prices of fragmented tokens. The market value of fragmented tokens represents the price of the NFT, and a substantial rise in token prices means a significant increase in the valuation of the NFT, detaching it from its actual value. Many ordinary CryptoPunks have market values exceeding that of Alien Punk after fragmentation, resulting in a situation where it becomes difficult for anyone to spend enough to buy a rare NFT when they can only afford an ordinary one, leaving holders of fragmented tokens unable to receive auction revenue shares.

Secondly, the prices of fragmented tokens cannot be anchored to NFT prices. The emergence of the aforementioned problems is also due to this reason. Here, we mainly discuss the fragmentation of "NFT collections" represented by HeadDAO and Unicly. They typically do not fragment a single NFT but rather perform fragmentation operations on many high-value NFTs together.

The problem with this operation is that most platforms can only distribute dividends to token holders once an entire collection has been purchased, and since these NFTs are already expensive, coupled with the significant increase in market value due to rising token prices, the inherently poor liquidity issue becomes even more exacerbated.

A long-term lack of genuine interaction with the NFT market will lead to a disconnection between the pricing of NFTs within the collection and the actual market, meaning that fragmented tokens cannot reflect the true value of the NFTs, and this fragmented collection becomes another "new project."

Token and Floor Price "Elastic Anchoring"

From the above problems, it is not difficult to see that the core of fragmentation is to continuously connect the fragmented NFTs with the market to constantly correct prices. Although it is challenging to completely anchor to market prices, at the very least, "elastic anchoring" should be achieved.

What is "elastic anchoring"? Let's illustrate with two excellent examples.

First is NFTX. Users can deposit their NFTs into the corresponding project pool on the NFTX platform. For example, when a user deposits a CryptoPunk, they receive a PUNK token. Currently, the price of PUNK tokens is almost identical to the floor price of CryptoPunks because 1 PUNK can be exchanged for a CryptoPunk in the NFTX NFT pool at any time. If the price difference is too large, it will attract speculators to arbitrage, thus achieving "elastic anchoring" between the token price and the floor price.

CyberKongz has set up an official page where users can deposit their origin CyberKongz into the official pool and receive 100 WGK tokens representing ownership of one origin CyberKongz. Since each origin CyberKongz can produce a certain amount of BANANA tokens daily, WGK token holders also receive corresponding proportions of BANANA tokens daily, allowing them to participate in CyberKongz's Hold-to-Earn. Similarly, when users gather 100 WGK tokens, they can withdraw an origin CyberKongz from the pool at any time, achieving "elastic anchoring" of token prices to floor prices just like NFTX.

Currently, the shortcoming of NFT fragmentation is that most fragmented tokens do not liberate the liquidity of NFTs but instead impose greater restrictions on it. The decoupling of prices and the inability to correct them in a timely manner have caused many NFT fragmentations to become "new projects" unrelated to those high-value NFTs.

When investing in NFT fragmentation projects or tokens, it is essential to carefully consider what role the NFT plays in this context, whether the future trends and developments of the project and token are related to the fragmented tokens, and to discern whether what you are investing in is a fragmented NFT or a "new project."