With all the call about tokenization In recent years, another related term has crept into the discourse around blockchains and digital assets: fractionation.
Because infinite number of tokens can theoretically be coined against someone Real asset (RWA) claims advocates for fractionation that it will enable anyone, anywhere, to own a little bit of something. The promise is that a Picasso painting or a skyscraper in New York City could be owned by thousands or even millions of people all over the world, improve liquidity and make global markets available as never before.
But as with most things in this industry, fractionation is a double -edged sword, and reality is far from the ideal vision. Let’s dig deeper in fractional ownershipits potential and its limitations.
A fractional world
With scalable toolblockchains like BSVIt is simple enough for everyone, anywhere, to coin tokens that represent all assets. With 1sat prescribedJane was able to mint 1,000 unique symbols representing the fractions of a painting she owns, or John could mint 5,000 symbols against his 1950s Pontiac GTO. Technically, given Blockchain’s global character, anyone can trade with these symbols. Our two sample characters could sell their symbols to buyers in America, Australia, Europe, Africa or even The Heard and MacDonald Islands.
Fraction in itself is not new. Timeshares about apartments in popular holiday destinations have been popular for decades, and there are platforms such as masterpieces that have enabled ordinary people to buy fractions of works of art for several years. However, the tokenization part is relatively new and the idea that everyone with one Blockchain-linked wallet Can mint and trade -rooted assets are revolutionary.
It is an appealing idea, for sure. Fractionalized ownership lowers obstacles to entry for retail investors, improves liquidity in markets that need it, opens markets for people all over the world and gives investors more options to diversify their portfolios. All this happens on state -free blockchainsAs anyone can access, only improves all the above benefits.
However, there are limits to this permissible, frictionless, fractional world. To get a realistic picture of what we can and cannot do in the future, we must now turn our attention to the other side of the coin.
The limits of fractional ownership
The questions related to fractionation are many, but they fall into three wide buckets. Therefore, they are presented as such below.
Platform risk
Technical and platform risks are a well -known feature in the digital asset industry. Anyone who has been involved for more than a couple of years knows only for well how Blockchains can implodeHacks can empty wallets or insiders can shop against their customers.
Part of this risk can be mitigated by mint and shopping tokens directly on safe, scalable blockchains like BSV, but not all will. Many people choose to use centralized platforms such as Binance or Opensea For the simpler user experience, but these platforms introduce a counterpart risk; More than an exchange has been shut down or hacked and lost valuable digital assets belonging to its users.
Custody and responsibility
Disputes about the custodians’ rights and responsibility will inevitably arise in a fractional world, just as they do today in every asset class. Where people use exchanges and platforms, there will inevitably be disputes about what rights belong to who. For example, if Jane loses $ 25,000 of tokens that grant partial ownership over a penthouse in London in a hack, is the custodian on the hook for them? If the platform detects a problem and moves tokens to another wallet, which has thousands in fees on a blockchain like Ethereum, is Jane responsible for them?
It is too easy to dismiss all this and advocate for self -relationship, parrot “not your keys, not your symbols.” Most, however, do not have the technical sophistication or desire to self -tied digital assets, and law Do not agree with that mantra. In order for fractional ownership to become mainstream, it must be as simple and secure as using a bank account or e -mail address is today. Few people will accept losing thousands of dollars in a hack, fraud or platform error without any legal pushback.
What rights have fractional owners actually? What happens if the majority holder does a deal to sell to someone who wants to take things in a different direction, e.g. Extend London Penthouse? Who is allowed to make decisive decisions that can jeopardize the value of everyone’s holdings, and how are these decisions made? All of these issues complicate the idealistic vision of a frictionless, factioned world.
Legal and regulatory issues
In another paragraph about the limits of tokenization, we noticed how the law can complicate issues. First, laws are mostly local while blockchain is global, but also, there is ambiguity and vagueness, which can lead to legal disputes that require human mediation.
For example, if John buys a token that represents 1% ownership of one of Lewis Hamilton’s F1 cars, does this represent really legal ownership? Is it equity, debt or just a synthetic requirement for something? Regardless, what rights and obligations confer to the token? These are tough questions, but they have to be answered.
There are further complications as well. If a sanctioned Russian person buys a symbol that represents the ownership of a Manhattan apartment, is it valid? What if he bought it before the sanctions kicked in or through a company based in Japan? If he refuses to sell, can the token be frozen or burned, and must he be compensated for it?
Many fractional assets can also fall below securities laws. Failure to register before offering these symbols can invite enforcement from Securities and Exchange Commission (SEC), Financial Conduct Authority (FCA) or other supervisory authorities. Similarly, fractional assets can be a playground for money launders that use thousands of wallets to buy just enough an asset per wallet to stay under the knowledge and threshold values for money (KYC/AML). What should we do about it?
Despite all this complexity, the momentum does not decrease behind fractionation. But can it ever deliver its promise completely?
Can fractional ownership become reality?
Yes, and it does, but all these questions must be answered before fractional ownership can become a reality on a scale. Even when the questions are answered, it will require massive coordination and cooperation between several jurisdictions. Regulatory clarity and coordination all over the world are needed, standardized frameworks and protocols must be developed and real registers signed by relevant authorities must be part of the equation.
Is fractionation worth it? It is a subjective question, and what someone thinks, it quickly becomes reality. But if it is to be part of the overall tokenization trend that is proclaimed by Blackrocks (Nasdaq: Blk) Larry Fink with several, Revolutionary financing Together with everything else, it must be done properly and according to the law.
What maximumists and cypherpunk types can say, ownership is absolute, financial laws are real and anyone who believes that either can be ignored should not be part of the discussion. We must build blockchains, platforms, protocols, wallets and tools with the bigger image in mind. Fractionation can reshape global funding, but only if we first answer the tough questions.
Watch: Blockchain is much more than digital assets
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