Fractional NFTs, or F-NFTs, are smaller parts of an NFT to lower investment thresholds and allow a wider pool of investors to buy and own a fractional ownership of that NFT. F-NFTs also enhance market liquidity and enable more efficient price discovery.
Currently, the most common way to fractionalize a NFT is staking it into a pool. In this way, it can be fractionalized into a certain amount of ERC-20 tokens through a smart contract. Each F-NFT owner can enjoy proportional ownership of the original NFT. Also, those ERC-20 tokens can be swapped in a secondary market.
The biggest difference between an F-NFT and an NFT is that the latter is a non-fungible token with unique features. Besides, an NFT cannot be divided with its smallest unit being one. In contrast, F-NFTs are fungible tokens although they are a part of an NFT.
It is worth noting that fractional NFTs are reversible, meaning that they can be turned into a complete NFT later. Generally, with a buyout option in the smart contract, an F-NFT holder can buy all other parts of the NFT to put it back in one piece.