📺 AMA With Andy | Fractional

welcome to another ask me anything today we have andy 8052 from fractional fractional is a place a new project just came out where you can actually fractionalize an nft or you can buy a fraction of an nft this is a really cool nft money primitive i suppose david because i know you're in the market for a crypto puck right you're still in the market for one yeah i submitted my bid yesterday but it took me a while to like get over the hump of allowing that ether to be removed from my wallet as people know

i'm an ether and so parting with a whole crypto punk's worth of ether was a was a tough decision but it hasn't been accepted yet though so so maybe i use this you can still change your mind it's still changing also if you do change your mind instead of buying an entire crypto punk with fractional you can actually buy a percentage of a crypto punk that's the idea maybe you want five percent maybe you want ten percent you don't need to own the entire thing so this is super cool money primitive guys we are going to get into it um as always with these ask me any things we are live streaming on youtube so if you have

a question throw it into the youtube chat we will try to get to your question we have a ton of questions lined up ourselves for andy uh before we begin david we should just mention because it's coming up next week the smart con summit this is the uh chain link smart contract summit it is going to be august 5th through the 7th we're going to be hanging out at least on the 5th we've got a panel that day eip1559 we're going to talk about hopefully it will have just shipped like either the day before or or that morning we're gonna be

talking about that we've got some ethe bulls uh on the on the panel list um that that i think you guys will recognize but there's gonna be 200 leading projects there across d5 nft projects three days of keynotes workshops and panels talk about automated market makers layer twos mev everything this is uh an awesome way to get educated on d5 if you haven't yet best thing it's free go sign up for that we have a link in the show notes uh educate yourself guys we are going to be right back with andy from fractional but

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their discord hey guys we are back talking fractional this is an ask me anything we have andy8052 here andy is a d5 d-gen but he's turned nft maximalist at least recently he's known as the guy with the crypto punk with the beanie if you've seen him on twitter he just announced his new platform that's fractional it's a platform to fractionalize nfts across many owners andy great to have you man how you doing how you doing

i'm doing well thanks for having me it's uh exciting to be here after watching very many of these online dude it's it's really exciting that uh that like you built this and and you shipped it i know the nft community is super exciting uh excited about it nfts are not in a bear market despite what people may have told you a month ago or two months ago this is this is boom time man we just had uh mila kunis nft uh sell out last night like it reminded me of the old days when uh cryptokitties brought down the

ethereum network gas prices were spiking so high so nft bull runs is a good time to ship your product um tell me andy answer this question first if you would why would someone want to fractionalize an nft uh tell us why and maybe maybe define what it means to fractionalize an nft for folks as well yeah for sure um and definitely nfts are no way in a bear market it's pretty insane it's been a pretty fun couple months

um but yeah so as far as wanting to fractionalize an nft and kind of what that means fractionalizing iot is taking well currently an erc 721 token and putting it into a smart contract and generating an erc20 token which works basically just like the other d5 token you would see on ethereum or anything like that uh at that point the tokens all just kind of are they're

gonna sit in your wallet like in metamask or or in your like your zapper and you can trade them on unisop or sushi swap or anywhere else you would so desire and really the one main difference is that you know there's uh there's a scenario where you could have a buyout where the underlying nft is purchased and then you would have a chance to redeem those uh fractions of your nft for ethereum to what kind of once the nft has been pulled back out into the real world um as far as why someone would want to fractionalize something

you know i think there's a lot of reasons uh one maybe if you're a creator and you exclusively make one-of-one artwork and you want to have uh you want to try to reach a wider audience maybe you're like you're someone like x-copy where any one of your one-of-ones now is going to be hundreds of thousands of dollars but you want to try to have a way to reward all of your early adopters you could fractionalize a piece of work and give everyone five percent of the of the nft fractions for example if you are maybe a collector and you bought some crypto punks that are now

worth an irresponsible amount of your portfolio but you don't want to sell all of them you still love your crypto punks uh maybe you have a an ape that's worth four million dollars now and you want to fractionalize it and sell 50 and that way you still kind of own that ape and you're you're still connected that ape but you can maybe be a little more responsible with your money uh i don't know who would want to do that but i'm sure there's someone out there who would want to be responsible and lastly i think a really like basic example is i have a lot of friends who have bought crypto punks together or

bought other nfts together and they're just sitting in one person's wallet or they're sitting in a multi-sig and this is just a really easy way to kind of create a trustless scenario where you all can can hold something together wait you mean your friends uh bought something together they went in on purchasing a crypto punk like they pulled their ass like their money and bought a crypto bunk yeah so i i've done that uh as well before um but i also have friends who like five different guys who all own one fifth of a crypto punk really cool so andy

is this specifically meant for like one nft at a time or could you also do like bundles of nfts and put multiple erc 721 tokens into the same contract and then fractionalize that is is that also what you're going after or is that a different product that maybe you're not as focused on yeah so uh i would say yes and no it kind of depends uh there are some really great products like nftx and nfc 20 that are focusing on kind of this like

you know you can pool multiple nfts that are all like kind and kind of create like this floor index of nfts we're not really going after after that specific use case but we do support multiple fractionalizing multiple nfts at the same time and a really cool example of that is there's the art blocks curated set on fractional which is one of each of the first 31 art blocks curated uh drops and so that like is a really awesome basket of 31 nfts that has

a meaning and a reason why you would want to own a piece of all of them as opposed to just one individual one so yes but we also like to have kind of a little more meaning behind the baskets as opposed to just a bunch of random stuff all put together andy would you say ryan you're muted andrew would you say that this is um a financialization application of nfts or and like as in it's less about the nft world and more about adding finance upon a layer of

nfts or is this also uh unlocking cool new things specifically in the nft realm uh you know i think it's it's kind of a bit of both and it really depends on the the person who's using the platform in a way that that's pretty pretty cool i think where um there are some people who after we launched yesterday just said i'm really excited that i now own five percent of an x copy or two percent of an x copy and so for that person it's not a it's not a financialization thing it's just that they couldn't afford to own a full

x copy and now they now they feel like they're a collector and that's special to them uh but it does you know breaking down a a non-fungible token into a fungible asset does obviously unlock a lot of really powerful things that have already been made and battle tested in defy which don't totally work with nfts and so for example i'm very excited about the idea of being able to use like a lending protocol with the fractionalized nft um for a lot of really small nfts that are fractionalized it might not make sense it might you know we probably are going

to need some new products and new primitives to be built as far as how those would work but if you have a an nft that's say like the people uh first 5000 days that sold for 69 million dollars that's a large enough nft where if you were to fractionalize that those you could make a good case that you know either makers should support that or ave or compound so there definitely are going to be cool use cases that can be unlocked like that for some of the really high value stuff um and then there's also you know there's so many cool things that are being built and defined so this does

allow nfts to be plugged into those relatively seamlessly and you have a quick question just to clarify when you were talking about um how like this is set up to begin with so if let's say somebody owns um you know 51 of a crypto punk and i own 49 percent um who decides uh whether that crypto punk could be sold i think you mentioned something to the effect of like if i am maybe a minority uh fractional

owner of that crypto punk then i if if it is sold then i um get the eth proceeds from that sale is that how it works or like who actually decides how this thing could be sold and if i'm a maybe a minority owner um am i just kind of along for the ride i just get you know immersed i don't have a choice whether this thing is sold or not how does that work yeah good question um so probably this that whole portion of the platform is probably the most complicated part of what we're doing um and it just kind of

comes by the nature of the beast it's a hard mechanism design to to build around just in general okay you fractionalize an nft how do you put it back together and that it's pretty important um the way that our we call it a buy out the way that our buyout system works is we have a reserve price which is if you've ever bid on something on like zora or foundation when an auction hasn't started yet they have their reserve price that once someone deposits that amount of ethereum then an auction will actually start and it'll create like a

24-hour auction our system works relatively similar and so much as we always have a live reserve price where someone can come in and deposit that amount of ethereum to start a buyout the bios are a little bit longer they default to seven days and uh could be anywhere from three to fourteen based on kind of what the initial person who fractionalizes the nft thinks is best so with the live reserve price anyone who holds tokens is able to vote on what they think the reserve price should be

and we take a weighted average of everyone's votes at any given time to decide what the reserve price is so if you will say in a situation where you owned 49 and someone else owned 51 the 51 person would have a slightly larger say in in the reserve price than you would but one other important caveat there is we also have a minimum quorum of 50 so you don't have to set a reserve price and if you are if less than 50 of of the fractional token holders are not setting

a reserve price then it's essentially not for sale and you would need 51 to all agree that basically just come to say we agree that it should be sold they don't have to all agree on the exact same reserve price but they have to agree that the piece is for sale okay so in order for the crypto punk to be sold over 50 of the fractional owners effectively have to um like agree that the thing should be sold and then the remaining

you know call it forty nine percent if there's 51 eight months or so this thing the remaining 49 they would be along for the ride but they also get to like vote on the price at which they'd sell it proportional to their fraction of of ownership so they're along for the ride in that like it's a forced sell if you're a minority uh owner i guess um but uh you do have some influence into the price at which you sell is that the case yeah yeah exactly and so say

you know say the 60 of token holders all all have agreed say one guy owns 60 and he's like i want to sell this thing for 10 ethereum but then you own 20 and you're like no i think that's way too low i want to sell it for 25 ethereum um the reserve price then at that point would be you know based on the math and your average like your token weights somewhere in between those two desired prices interesting why why do some token tell me the logic between behind why

some token holders can dictate the prices that others sell their tokens at isn't that kind of like getting in the way of the free market uh no i think there's a little bit of confusion here so it's not that yeah basically so essentially if you do not set a reserve price you essentially have set your reserve price to zero that's what the default is and so when you have set your reserve price to zero you are not voting on a live reserve price you said i i'm actively not participating in this

everyone who is actively setting a reserve price is creating the current live market for what this nft can be bought at as long as 51 of people are actively voting on that reserve price then it is effectively for sale and if you come in and say hey if you're one of the people who isn't voting and you think people are voting poorly you can then actively start to vote as well and have an active vote and say in what the price should be uh and so then at that point say you had 10 of the tokens

and 51 were voting at any given time then there'd be 61 voting because you've now started to also be a part of the group of people who are token holders and voting so it's it's like essentially an opt-in uh vote of what any nft should be sold at at any given time and you have as much agency as you want in that system to participate and if you don't feel like participating you don't have to but assuming majority wants to

that's what's going to win out so where in the process does this uh reserve price and voting actually become relevant so this this is not when after this is some point after where somebody who owns a high value nft comes to fractional put it in the contracts and then they fractionalize it those fractionalized tokens go out into into the world into into of all throughout ethereum and then once people buy those fractionalized tokens that's when this voting takes place to dictate the reserve price

for future buyers who are now interested in the secondary market market of these tokens is that correct yeah so essentially the the reserve price is uh just for anyone who would want to buy the entire nft ah so for example currently uh like taking a very explicit example of like the art blocks curated um fractionalized bundle based on numbers that i had from like this morning it might be different now the the live like

trading valuation of the art blocks curated bundle was about 175 ethereum um the reserve price was 230 ethereum so essentially token holders were saying that you know even though we're hold like the the tokens are currently trading at one particular valuation right we are not comfortable selling the entire bundle of them unless someone were to start an auction at 230. okay and so this is actually how you can give assurances to defy apps like maker or ave or compound to use these tokens as collateral

because uh if they were to ever be sold and that was one of my questions is that like if you can actually forcibly sell these tokens um that is that's scary for a defy app because then the token will sounds like it'll just get revoked from a collateral in maker dao or compound but because you can give assurances that it's going to be sold for a certain amount of value you can actually tell you know ave compounds like well the token is going to get revoked but instead it's going to be ether there as a replacement and ether is the best collateral in d5

yeah and that was actually like a really important part of kind of how we were building this is so say there is a buyout and all of a sudden so you you own some tokens for the the five eyes x copy piece and you have them deposited in uniswap and you're providing liquidity if there's a buyout and uh now you have some redeemable amount of ethereum it's your tokens don't go anywhere they basically are now just pegged to some kind of ethereum and uh and then at that point you can

whenever you're ready pull those out of uniswap and then go to the go to fractional and redeem those tokens and get your ethereum so uh andy you and i are both a part of uh pleaser dow you're a much more active member member than i am but pleaser dao is famous for owning a bunch of high value nfts uh and i would imagine that pleaser dow would be very very interested in leveraging this platform in order to get further and further liquidity on their on their nfts so this seems to be like um as perfect

product for specifically high value nfts with a lot of prestige to them to see how how liquid can we actually make these things and i think that's actually going to be the big experiment coming out of fractional is a question of like how liquid can we actually make like the edward snowden nft or the people-pleaser nft um so that's actually kind of a question to you like i know this is entirely speculation fractional is just a couple a couple days old um but how liquid do you think these things can get

yeah you know who knows i think one of the one of the fun challenges with this is trying to figure out what the best way for people for there to be secondary market trades of these things like right now we're super actively not participating in that um you if you if you fractionalize something and you want people to be able to trade it you can go to uni swap and make a liquidity pool it's been pretty surprising so far uh i guess i've never really had used uniswap v3 with um some of the like a

significantly lower value asset so for example i think the the five eyes fully delivered valuation is maybe like 450 000 or something like that which naturally if you wanted to try to trade any like serious amount of value there to buy into that you'd expect really bad slippage but people were providing liquidity on unisoft v3 and it really wasn't very bad i was really impressed it was i think there was almost like 300 000 of volume in the

first day of buying these uh these nft fractions which is really cool uh ryan you are muted did you say 300 000 of value of volume yeah of volume not volume yeah buying crazy trading five eyes yeah so what's super interesting here is i'm kind of like racking my brain i mean like there's there's some things um that i feel like um you know are natural to share right like i'll you know i'll share my bike uh i'll

you know i have a pizza i'll share a slice of pizza with you right and like there are other things where like in life you kind of want your own you know like i'm not sharing my underwear with anyone you know like that's mine right like but like art is sort of interesting because um you haven't previously in the physical world been able to share it right if you think about like a um you know a banksy piece of art it's not like you can take that piece of art and like chop it into pieces

and like give it to all your friends it's not like you can like get a thousand people and go in on a piece of art and each own some percentage of what you're you know where you're trying to best because these are like physical things like you know i don't want just a slice of a painting i want the whole painting in my house i can't fractionalize it but with nfts you can fractionalize it um i guess maybe my question is this is like a it's not just a new primitive for

d5 it's a new primitive for ownership in general if that makes sense and like i'm wondering what it's like because i've never owned a collectible with a group of strangers right if i had magic the gathering cards like they were mined like they weren't mine plus my friends we didn't like pull things together they were just mine what is it like to own a collectible with a group of friends or a group of even a group of strangers that you have to share is some of the magic lost when you do that of like owning a specific

thing you know i think sometimes probably and it depends kind of what your goals are what your end game is but i think there's also something really awesome about it because like one of the things that's been very evident in crypto and ethereum and primarily and nfts especially is like community is so important with all this stuff and there's something to be said for having a random group of people all who came together in a decentralized protocol online who now all have a

vested interest in this thing and maybe they want to display it in crypto voxels and they say in order for you to see it you have to own one percent of the of the nft fractions or if you want to like have your name on the plaque to own it and you can create these like really really cool communities and stuff and that's something i'm really excited to like continue to build we haven't had a ton of time to really start getting into that yet so we've been trying to build much more of an mvp but i think that you know with the right with the right technology and the right tools in place it can actually be like very empowering

to the group people who are all owning this thing together but there definitely is always a time and place where people want to say like look at this badass thing that i own myself and it just kind of is two different scenarios andy we were talking earlier about uh the blasphemous nature of putting a crypto punk as your avatar if you don't actually own it but when it comes down to the world of fractionalizing it like where do you think that line is uh and i know this is kind of only going to be determined by social consensus but i want to get your opinion so like say

say somebody fractionalizes a an alien crypto punk that they own and they only fractionalize 49 of it so they still own 51 percent are they still allowed to have that alien punk as their avatar that's a really good question it's a really funny you would be shocked maybe not i hear that question all the time but the funniest part is i get people who ask me they're like am i allowed to use this i am not the twitter police i don't really care what you make your profile picture uh but

so those people were talking about this on twitter spaces on monday and it seems like a lot of people were basically saying yeah if if you own a percentage of this thing even a small amount like you own it but do what you want with it uh i'm sure some people will give give someone a hard time or be like oh you don't actually own the full thing um but i think in general if you can signal that you are in some way like attached to this thing

people will probably get over it and and be okay with it but it'll be very interesting to see how that all plays out i i don't really know it'd be awesome to be able to have some type of representation of your your ownership like in the profile picture and what that looks like and it's something we're pretty actively thinking about is how do you maybe issue a special nft to someone who owns 10 of an of an nft or something like that maybe you could use that instead as you're talking andy it's it's just crazy how all of this is like it's all socially enforced isn't it it's all layer zero in forest right like

you know are you allowed to have a crypto punk in your twitter avatar if you only own one percent um well it's not really up to you i mean there's there's nothing legally you're not to get thrown in jail if you do that right there's no there's no ethereum twitter twitter house right but like you know there there could be some social stigma attached to doing that like you could be a larper you could be a poser you could like not be achieving the signal that you're trying to receive with with crypto punks it's so fascinating but i i do wonder

just to follow up on david's question if this could potentially cause actually an unintended side effect which is like a dilution of the value of some of these things so if it comes to pass that social consensus says hey if you own over 10 of a crypto punk you're allowed to use it as your avatar or you're allowed to like you know flash it around in social media um does that dilute the value of owning an entire crypto punk and could that decrease the

value of crypto punks over time what are your thoughts on that thought exercise uh yeah it's an interesting question i would say no uh primarily because even if you if social consensus was 10 of crypto punk means used as your profile picture that's still at most 100 000 people in the entire world who could use the crypto funk as their profile picture um and now if you're making the barrier to entry even lower for getting to that point you probably actually have more people who'd be interested

i think if you told people that you could own a crypto punk for five thousand dollars right now and there were 100 million of them you probably would have a lot of a lot of demand to to do that um i think i think in general like society is always going to appreciate owning single things especially like the uber wealthy like realistically someone who can afford to buy an alien crypto punk is probably not very interested in owning a fraction

of like a zombie crypto punk that's not it doesn't really do anything for them outside of maybe you know they want to be a part of a particular community that springs up around one or something and so people like to emulate really wealthy people in in life in a lot of ways um and so i do think that there is always going to be demand to own to own individual ones uh regardless of whether or not you can vote for actions i i i think i'll i think i buy that andy i think that that

that could very well be the case now i'm gonna i'm gonna flip this and give maybe the the bull case for nfts with something like fractional it's out there which is like you are providing this this protocol is providing nfts um something in the finance world they would call a liquidity premium right so like nfts are not super liquid in like uh erc20s are much more liquid um but nfts you kind of have to sell all or nothing essentially but you are

taking a an illiquid asset and essentially creating a protocol to unlock the liquidity of underlying all of these assets and i wonder if that's actually could contribute to nfts as a whole being more valuable because hey i'm not locked into owning my you know 50 million dollar beeple piece forever if i buy it right like i can always like sell 90 of it and still keep 10 at any point