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.

Published by Neil Thanedar

Neil Thanedar is a scientist, entrepreneur, philanthropist, and activist. He is the founder & CEO of Air to All, a 501(c)3 nonprofit medical device startup designing low-cost respirators and ventilators for COVID-19 and beyond. He is also the co-founder and CEO of Labdoor, a consumer watchdog that independently tests and ranks supplements and other health products for its 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.