Fractionalization

Fractionalization is crypto’s killer use-case.

  • Problem: High transaction costs limit public access into finance, real estate, etc.
  • Solution: Fractionalize complex assets using smart contracts and digital mirrors.

High costs per transaction Winning crypto use-cases

  • How many lawyers can we replace with smart contracts?
  • How much of finance is just entities securing each others’ assets?

Imagine what increased fractionalization could do for startup investing:

  • VCs (1-10+ wires) → Angels (10-100+ checks) → Crowdfunding (100-1K+ credit cards) → Crypto (1K-1M+ wallets).
    • Legal innovations like SAFEs started this trend. Crypto can supercharge it.
  • Crypto’s fractionalization and smart contracts will add 1000x more access to startup investing.

Fractionalization is a solution to the Social Token Paradox:

  • There is a risk that social tokens lose value as their communities grow.
    • This is especially true if a community mints new tokens for new members.

Scarcity and fractionalization solve this problem:

  • Example: Right now you need a whole Ape to be in the BAYC.
    • In a few years you might only need a fraction of an Ape to join.
      • There will be levels to this club, so Whole Apes are in a different group than Satoshi Apes.
    • Fractionalization allows for different tiers of value, like with Bitcoin:
      • Everyone with a Satoshi is in the BTC club, but whole Bitcoiners are at a different level.

Look for businesses with high transaction sizes to get disrupted by crypto first:

  1. Industries with a lot of legal friction.
    • Example: Real estate (escrow, title, collateral, insurance).
      • Crypto will need to solve its trust and transaction cost issues before going mainstream here.
  2. Assets too difficult for one person to own/manage.
    • Example: NFT demand is growing the market for fractionalized art.
      • Crypto could take Masterworks to the next level.

I would personally love to help spark the fractionalization of startup studios.

  • I own 100% of Utopic, my indie startup studio.
    • If I ever sold equity in my studio, I want to do it via public crowdsale.
  • My idea to fund founders’ studios is called Utopic Ventures.
    • I want to invest in founders’ whole portfolios, not individual startups.
      • Success with my studio will attract founders to my fund.

Fractionalization is on my list of the World’s Biggest Problems.

  • This idea is a work-in-progress. If you’d like to riff on it, hit me up @neilthanedar on Twitter.
In life, art, and crypto, every part is valuable to the whole.

Published by Neil Thanedar

Neil Thanedar is an entrepreneur, investor, scientist, altruist, and author. He is the founder & CEO of Utopic, his startup studio. He is also the founder & chairman of Air to All, a 501(c)3 nonprofit medical device startup, and Labdoor, a consumer watchdog with $7M+ in funding and 20M+ users. He previously co-founded Avomeen Analytical Services, a product development and testing lab acquired for $30M+ in 2016. He has worked with community organizations since 2007 and political campaigns since 2016 to fight for better education and economic opportunities in Michigan.