I wrote about NFTs last Wednesday and figured I’d take a break from talking about them for at least a couple of weeks, but so much has happened over the past few days that the topic seems unavoidable.

So where to start? Well besides multiple 7-digit NFT sales, I think the most noteworthy news is surrounding the fractionalized sale of a Shiba Inu picture (a cultural icon for the Dogecoin community) that made it, briefly, the most valuable NFT in the world, with a 9-figure implied valuation.

There’s a lot to digest regarding how this happened, as it wasn’t just a simple NFT sale where one buyer paid a fixed amount for the image to a single buyer. The key concept to understand here is “fractionalization” — which I’ll dig into further.

The Next Big Thing for NFTs: Fractionalization

Before I talk more about the captivating picture that at one point had a market value of over $100m USD, I think it’s important to dive into the concept of fractionalization and what it means for the NFT sector.

The general idea is quite simple and has been done in other forms in the traditional art world via trusts over the past few decades. A user who owns a valuable NFT can deposit it into a smart contract, and issue tokens that act as shares of the NFT. These “shares” can be bought and sold freely on the open market.

For example, let’s say I own an NFT worth $1m and want to get instant liquidity without having to wait for a buyer with deep pockets — I could simply deposit it on a platform like Fractional.art and issue shares that users can purchase using ETH. Users with just a few dollars can buy a piece of this NFT (in the form of an ERC-20 token), with hopes that the implied value will rise with time, or that someone will make a fixed price offer for the entire NFT and payout all the holders in Ethereum.

This democratizes access to more exclusive NFTs and allows anyone — regardless of the size of their crypto wallet — to gain exposure to top-tier art.

Despite some concerns about fractionalized shares of NFTs being securities, most traders and investors don’t seem to be too bothered by this possibility. It’s probably not an issue that regulators will dig into any time soon, but I digress.

Behold, A Nine-Figure Dog Picture

When one thinks of nine-figure art, the likes of DaVinci, Rothko, and Van Gogh might come to mind.

But it’s a gilded new age, and the modern renaissance is beginning to place a heightened monetary value on photos, art, and memes that are defining the digital era we live in.

One such example would be the “Feisty Doge” picture that has roots within the vast Dogecoin community. While the image sold in auction for a relatively low price a few months ago, its implied valuation rocketed after the owner — a young crypto-savant who goes by the name CryptoPathic (or Path, for short) — fractionalized it.

After depositing the image into Fractional, Path issued shares of the image in the form of ERC-20 tokens called NFD. News that the general public could take ownership of a partial share in this legendary image spread quickly on Twitter, causing demand for the NFD token to explode.

Its price quickly went parabolic.

As you can see on the above chart, the fractionalized shares of the image trade just like any token. Users go on decentralized exchanges like Uniswap or Sushiswap and buy/sell just as they would Ethereum, Wrapped Bitcoin, or any other cryptocurrency.

However, unlike many tokens, there’s no underlying protocol, team, mission, or revenue-producing product when it comes to most fractionalized NFTs. People who buy are purely speculating on what the cultural value of the underlying image will be down the line.

Or they’re simply cultured art collectors who want to own a piece of history.

Based on the total NFD supply sitting at 100 billion, the token’s price briefly gave the NFT a valuation of $110 million, making it the most valuable NFT ever. Even now it is trading at roughly a $60 million valuation, which is just a hair shy of the previous record of $69 million which belonged to Beeple’s “Everydays: The First 5,000 Days.”

I personally believe (and no, this is in no way financial advice of any kind!) that fractionalization is going to give rise to a whole host of absurd nine and possibly even ten-figure valuations for culturally significant images, songs, and videos that are tokenized.

Will these images’ cultural significance justify these valuations? I’m not sure, and that’s anyone’s guess. But it is clear that the crypto market assigns wild valuations to wild things, and the NFT craze still appears to be in its infancy.