The Fracton Protocol is a fractional trading platform for blue-chip NFTs. It enables efficient price discovery and distribution of shares of NFTs, allowing users to buy, own and trade Tokens fractionated in the ERC-20 and ERC-1155 standards.
What is Fracton Protocol (FT)?
Fracton Protocol is an NFT liquidity infrastructure, with 2 splitting steps (ERC721-ERC1155-ERC20), provides permissionless liquidity and oracle for all types of NFTs. Based on a deeply reformed ERC1155 mid-tier standard, Fracton is building a statusless smart contract system to increase protocol efficiency, reduce gas fees and maximize asset security.
This project is dedicated to abstracting the financial layer beyond the utility of NFTs, Fracton can be easily integrated into CEXes and Dapps, and also offers solutions for inter-protocol liquidity providers and fractional NFT market makers. The Fracton Protocol currently supports BAYC and PUNKS slicing. However, the project looks to expand into other flagship NFT projects over time.
What is NFT fractionation?
NFT splitting refers to the splitting of a complete NFT into smaller parts, thus allowing multiple people to obtain partial ownership of the same NFT. Users can think of NFT as a cake, and slicing is cutting the entire cake for multiple people to enjoy.
Highlights:
Compared to other fractional protocols, there are several distinct functions of the Fracton Protocol:
- Fully decentralized: Fracton users can pre-select NFT collections before slicing, actively manage NFTs, and distribute related benefits.
- Dual Fraction: Fracton creates the Meta-Swap mechanism that supports swapping between ERC-20, ERC-721 and ERC-1155.
- Price Discovery: Fracton aggregates valuation information from many users to provide fairer pricing for NFTs, laying the foundation for building NFT financial products such as perpetual NFT and ETF.
- Fee Collection: Fracton captures value through transaction fees to stabilize and reinforce the system.
How does Fracton work?
Upon arriving at the Fracton Protocol, you can participate in open capture, which is the first step in the fractional process of the target NFT. Once you have received your People’s NFTs (i.e. ERC-1155 Fractions), you can exchange them for smaller pieces of ownership FFTs (i.e. ERC-20 Tokens) at a ratio of 1:1000.
If the fundraising round is successful, Fracton Protocol will acquire the target NFT and deposit it in the treasury. Then fractional owners can redeem any NFTs with enough People’s NFTs instantly. If the fundraising round fails, Fracton will use the funds raised to repurchase the accumulated $FFT released in this round, ensuring the exchange rate is valid. Meanwhile, fractional owners can trade FFTs on DEX and CEX cooperatively, seeking arbitrage opportunities.
Unlike other NFT trading platforms, Fracton Protocol allows users to buy, own or sell major NFTs fractionally. This approach helps more people get on board the NFT space and actively participate in trading the most coveted NFT collections. There are several innovative mechanisms in the Fracton Protocol.
For example, he creates Meta-Swap, a One-Stop liquidity tool for NFTs, so that various standard tokens break the traditional paradigm. Meanwhile, Fracton has rewritten the ERC-1155 standards, making it convertible for the fractionation process. Additionally, Fracton introduces the Non-Fungible Crew, a collection of 10.000 profile picture NFTs (PFP). Holders of these NFTs will be empowered to become decentralized verifiers in the Fracton ecosystem.
Fracton Protocol Academy — Blind Box and People’s BAYC
The following rules will apply to other NFT collections such as CryptoPunsk, Sandbox and Otherdeed.
What is People’s BAYC?
Each People’s BAYC represents a 1/1000 ownership of a BAYC in the BAYC Vault, i.e. a user can redeem a BAYC from the BAYC Vault in Fracton Protocol with 1000 People’s BAYC. You may ask yourself – fundraising is carried out through the sale of Blind Boxes.
Where does the People’s BAYC come from?
When the fundraising is successful, i.e. 1000 Blind Boxes are minted, Fracton will use the ETH from the fundraising pool to randomly buy a BAYC around the floor price and deposit the BAYC into the BAYC Vault. BAYC’s random selection aims to prevent price conspiracy. When the newly acquired BAYC is deposited into the Vault, smart contracts will grant permission to open the Blind Box and users can instantly open their Blind Boxes on the website.
Blind Box — People’s BAYC
The Blind Box’s full name is “Blind Box — People’s BAYC”. The Blind Box, like the People’s BAYC, is an ERC-1155 token. The Blind Box exists to isolate the potential impact of the new fundraising on the valuation of the existing People’s BAYC and to ensure that each People’s BAYC is backed by its share of the actual BAYC NFT, with the ownership share remaining constant.
Imagine raising funds directly through People’s BAYC if a fundraising round fails, there won’t be a new BAYC added to the Vault while a certain amount of People’s BAYC is minted and circulated in the market. As a result, the number of People’s BAYC versus the number of BAYC in Fracton’s Vault is no longer 1000:1. Therefore, the Blind Box mechanism solves this problem by acting as a reservoir to absorb additional funds before a BAYC is added to the Vault. As a result, this mechanism only allows conversion to People’s BAYC when that value can be tied to an actual BAYC in the Vault with a constant ratio, ie 1000:1.
For NFTs from the same collection, there will be different fundraising rounds, and each round will be carried out independently. A failed round does not affect subsequent rounds, while People’s BAYC has no rounds and is considered undifferentiated fractions that users can use to rescue random BAYCs from the Vault.
To summarize, there are similarities between the Blind Box and the People’s BAYC, with the main difference being that the Blind Box is pegged to the value of the target BAYCs that have still been bought. In contrast, People’s BAYC is pegged to the value of BAYCs purchased in Fracton’s BAYC Vault.
What is hiBAYC?
hiBAYC is the BAYC fraction token in the ERC-20 standard. During the fundraising period, users can exchange their Blind Boxes for hiBAYC at 1:1000. They can also convert their People’s BAYC to hiBAYC at the same rate after opening the Blind Boxes. That is, each hiBAYC token represents 1 in a million shares of a BAYC in Fracton’s BAYC Vault.
How to get hiBAYC
First, users can use the Meta-Swap function on Fracton’s official website to exchange their Blind Box or People’s BAYC for hiBAYC. Additionally, taking into account the better liquidity, lower transaction costs, and smoother user experience of centralized exchanges compared to DEX, Fracton will also work with top CEXs for certain fundraising rounds, with CEXs acting as the agent to support fundraising. Users can subscribe to hiBAYC on the centralized exchanges and trade on hiBAYC trading pairs when they launch.
buy back
You may be concerned about inflation caused by the failure of the fundraising round. In this case, the ratio between the total supply of hiBAYC and the number of BAYCs in the Vault will no longer remain 1.000.000:1. hiBAYC will devalue in value.
Fracton also considered this issue and designed a buyback system to solve the hiBAYC inflation problem caused by any failed fundraising round. Fracton will use the ETH withdrawn from the failed round to repurchase the accumulated hiBAYC, with the repurchase price being the total ETH withdrawn/(the number of Blind Box minted * 1000). For technical reasons, our v1 version cannot perform the rebuy automatically. The buyback will be carried out by Fracton’s core members as a temporary solution. We will include a decentralized and automatic buyback system in the next v2.
Transaction fees
For each on-chain hiBAYC transaction, the contract will charge a 0,2% transaction fee. Due to limitations at the current development stage, our v1 version is unable to decentralize the use of transaction fees. In the upcoming v2 release, the DAO governance proposal will use transaction fees wisely. They will play a more critical role in the Fracton ecosystem, such as providing liquidity in the uniswap, reward early entrants, or reward early fundraisers.
So far, they have covered most of the Fracton Protocol’s fundraising function. Fracton created Blind Box and People’s BAYC tokens in the ERC-1155 standard to overcome barriers to buying blue-chip NFTs for ordinary investors. To further address the issue of illiquidity and inefficient pricing, Fracton created hiBAYC an ERC-20 standard token.
What is Meta Swap?
Meta-Swap is the Fracton Protocol NFT fraction exchange aggregator. Users can use Meta-Swap to convert multiple NFT fractions or blue-chip NFTs in their hands. The system also supports depositing new NFTs into existing vaults or creating new NFT vaults.
token hierarchy
There are three token patterns in the Fracton Protocol operation. Among them, the ERC721, i.e. the BAYC NFT is the highest because it is a real asset in the BAYC vault as well as the base value of the entire BAYC liquidity pool. ERC1155 Blind Box and People’s BAYC tokens are mid-tier assets, connecting the existing BAYC and hiBAYC liquidity token in the system. The number of these erc1155 tokens is directly anchored to the BAYC number, and the ETH generated by issuing the Blind Box will be used to acquire the BAYC for the vault. In addition, People’s BAYC can be used directly to redeem BAYC. Therefore, these ERC1155 tokens can be considered as BAYC ABS.
The ERC20 token, or hiBAYC, is lowest in the protocol hierarchy. They are anchored to the People’s BAYC and Blind Box number, however they cannot be exchanged directly through BAYC. hiBAYC can be considered as the ABS of Blind Box/People’s BAYC mid-tier assets.
Exchange Principle
The exchange principle of Meta-Swap is to lock or unlock high-ranking tokens and minting or burning low-ranking tokens. This project aims to stabilize the Fracton Protocol value system. In the process of exchanging high-ranking tokens for low-ranking tokens, high-ranking tokens will be locked in the Meta-Swap system, while low-ranking tokens will be minted.
For example, when People’s BAYC is converted to hiBAYC, People’s BAYC will be locked in the Meta-Swap pool and the newly created hiBAYC will be distributed to users. In contrast, when switching from low-ranking tokens to high-ranking ones like People’s BAYC to BAYC, the People’s BAYC will be burned and the BAYC in the vault will be unlocked and distributed to users. This mechanism can restrict the issuance of low-ranked tokens, ensuring that each lower-ranked token is backed by the corresponding higher-ranked token, and rigidly allows users to exchange fractions for BAYC in the vault that has the actual value.
Factory Agreement
The factory contract supports splitting any NFT ERC-721 to create splits in ERC-1155 and ERC-20 standards and automatically generates an NFT vault with no initial liquidity. This function brings robust scalability to Fracton, which will support more top-tier NFT collections in the future. Also, relying on this factory contract, the curator system will be released in v2 version, allowing external users to perform NFT fundraising on the Fracton Protocol in a more decentralized way.
reverse tax
Converting low-ranked tokens to high-ranked tokens reduces the overall liquidity of the system, the impact of which is similar to that of contradictory monetary policy. The Fracton Protocol will impose a 0,3% reverse tax on these contracted conversions. Specifically, users need to prepare 3 more hiBAYC for every 1000 hiBAYC exchanged for People’s BAYC. Likewise, users will pay 1003 People’s BAYC in total to redeem a BAYC from the vault. The reverse tax will flow into the treasury and be distributed through DAO governance.
FT Token
The FT token is a vital part of the project’s mission because it serves as the protocol’s governance token. Other use cases for the FT token include encouraging user participation and serving as the primary means of payment in the Fracton ecosystem.
Conclusion
Unlike other NFT trading platforms, the Fracton Protocol allows users to buy, own or sell major NFTs fractionally. This approach helps more people get on board the NFT space and actively participate in trading the most coveted NFT collections. Fracton Protocol wants to build a bridge between the decentralized world and centralized exchanges, attracting more people to the NFT world, maintaining more high quality NFT collections and making the NFT market great again!
