Gate NFT milestones: Fractionalization, Liquidity pools, Token trading

Gate.io
4 min readJan 6, 2023

According to data from CryptoSlam, global NFT sales declined by 89% in November 2022 from a high of $5 billion in January, Bloomberg reported. The nosedive in NFTs sales is also influenced by a number of added factors like the Fed raising interest rates in the face of record breaking inflation and tourist money rapidly leaving the industry. That leaves retail investors in a tough spot.

That said, the lack of liquidity in the non-fungible token (NFT) market has been a significant issue for some time. Several contributing factors, like the highly specialized and unique nature of NFTs, make valuing these verifiably rare digital assets difficult compared to the more conventional and common ERC-20 tokens.

Furthermore, the high barrier to entry (cost) for more well-known collections like CryptoPunks or Bored Ape Yacht Club, coupled with the industry’s nascency, makes it challenging for potential buyers to compromise or justify the overt risk given the speculative and highly volatile nature of the market.

Despite recent incentives, such as trading rewards that marketplaces like LooksRare provide to help strengthen liquidity, a significant amount of volume on these platforms (up to $8B in January 2022) has been artificially generated via wash trading.

That said, Gate.io has developed several solutions to address these issues — fractional tokens, liquidity pools, and spot trading.

1. Fractional NFTs: makes tokenizing high-value assets possible

On August 10th 2022, Gate.io announced its first initiative, Fractional NFTs. To recap, a Fractional NFTs are parts of a whole NFT that’s simply been divided into smaller pieces, allowing different people to claim partial ownership of the same original token. The concept is similar to owning shares of a company, or a slice of a whole cake. Only the “company” or “cake” is one unique and non-replicable digital asset. When it comes to buying Fractional NFTs, typically the original asset is locked in a vault. From which, the NFT is then fractionalized (or divided into smaller portions) via a smart contract programmed to generate a predefined number of tokens linked to the original indivisible NFT. These fractional tokens represent a percentage of ownership for each holder of the NFT. The tokens can be exchanged or traded on NFT-supported exchanges.

The first two fractional NFT crowdfunding rounds featuring MAYC (Mutant Ape Yacht Club) on the Gate.io platform sold out within a week. The third round, featuring the Azuki collection for 14 USDT per fraction, ended on August 7th and the fourth round, featuring an NFT from the famous MAYC collection for 29 USDT per fraction, ended on August 21st.

Both rounds offered 1000 ownership fractions, or “shards,” with a maximum of 5 per user. Along with helping anyone join exclusive NFT communities, fractional tokens also offer governance privileges, such as voting on commercial rights or outright sales, with profits proportionally distributed to all owners.

2. NFT Liquidity Pools and Automated Market Making: Greater Flexibility for Fractional NFT Tokens.

After fractional tokens, Gate.io launched an NFT Liquidity Pool, which acts as an automatic market maker to encourage the trading of fractional NFTs. Along with increasing liquidity, these pools also help make trading NFTs a faster and easier experience for all parties involved, especially as the AMM component (which uses the same tech as decentralized exchanges) allows buyers and sellers to instantly trade NFTs without relying on a price agreement — the pools instantly match market demand with supply.

Anyone can create an LP and earn rewards from transaction fees, provided they have assets to commit to the pool. In doing so, NFT collectors can benefit from a new means of income (beyond royalty fees) by contributing to or creating an LP with their NFTs.

Upon launch, Gate NFT opened trading on four liquidity pools featuring Mutant Ape Yacht Club (MAYC) and Azuki fractional NFTs. Gate liquidity pools also support USDT for buying and selling NFTs in liquidity pools and creating LPs.

3. Fraction tokens (spot trading): Elevated and Stronger Liquidity for Fractional NFT Tokens

Along with liquidity pools and AMM, to help further amplify the liquidity of fractional tokens, Gate launched a new spot trading feature that helps users trade fractionalized NFTs on exchanges rather than just on the more specialized NFT marketplaces like OpenSea. In essence, Fraction Tokens on Gate.io allows users to buy and sell ERC-20 tokens pegged to an underlying NFT asset, enabling traders to better access and trade NFTs from popular collections.

Following the success of its initial IPUNKS token, Gate.io released IBAYC tokens, which are tradable ERC-20 tokens (paired with USDT) equivalent to 1/10,000 share of a specific NFT from the Bored Ape Yacht Club collection (created by Yuga Labs) in the Gate NFT library. Users can easily buy and sell Faction Tokens on Gate.io’s spot trading market.

Future strategy: Bringing more top-tier NFTs and supporting features

Overall, Gate.io’s unique integration of tokenized NFTs and supporting features like liquidity pools and spot trading of NFT tokens, has greatly improved liquidity in the NFT market and made what were once incredibly exclusive assets more accessible to a broader range of users. In the near future Gate.io will not only include more top-tier collections like Moonbirds, Doodles, CloneX, and ENS to its trading platform (as fractional tokens), but will also launch more supporting features such as token loans to fuel the growth and accelerate the success of the NFT market around the world

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