It’s easy to make money when you already have tons of it. When you have millions of dollars burning a hole in your pocket, this kind of muscle opens the door to numerous very enticing opportunities that don’t just promise, but often deliver very big returns.
Assets such as real estate, fine art, and music royalties don’t come cheap, but for those who can afford them, they provide strong guarantees of long-term profits. Take the world of luxury watches, which was valued at a cool $42.21 billion in 2022 and is forecast by Grandview Research to grow by almost a third, to more than $62.2 billion, by the end of the decade.
Clearly, luxury watches are an enticing asset, but the downside is that most people cannot enter this market because they lack the cash to buy such an expensive item.
Fortunately, this state of affairs is changing with the emergence of “fractional ownership”, which refers to having multiple users pool their resources to acquire high-value assets. By doing this, retail players don’t need to pay the entire amount upfront to take advantage of such opportunities, and they can share in the expected returns.
With fractional assets, each user owns a share of the underlying asset proportional to the amount, entitling them to whatever benefits that asset is likely to bring its owners. This gives retail players a unique opportunity to diversify and infuse in alternative assets outside mainstream stocks, bonds, and mutual funds and potentially generate much higher returns than they’d find elsewhere.
Where Did It Begin?
Fractional assets are a relatively new concept that first appeared in the 1970s with the rise of timeshares, deemed revolutionary at the time. Timeshares were designed for holidaymakers who wanted to own a luxury vacation property but didn’t have the cash to buy it outright. The way it works is that you put up a small amount of capital in return for using that luxurious property for a limited time — say, two weeks a year. So there would be multiple owners of that property who would all take turns utilizing it.
Since the emergence of timeshares, fractional asset has spread to other industries. For instance, NetJets launched a fractional ownership model for private jets in 1986, allowing businessmen and other individuals to co-own the most exclusive form of long-distance travel.
More recently, we’ve seen the rise of modern-day crowdfunding platforms such as Kickstarter, where entrepreneurs can sell a small stake in their venture in return for those providing the capital for them to fund it. This concept has proven popular in the real estate industry, with platforms such as Crowdspace expected to help grow the market by a compound annual growth rate of 50.9% from 2024 to 2029, according to a GlobalMarketEstimates report.
A Risky Business
Interest in fractional ownership-based opportunities is growing rapidly, and with that increased demand, the sector has begun to attract the attention of fraudsters and scammers.
Another famous case was RealtyShares, a U.S. crowdfunding platform that allowed retail players to become part-owners of rental properties across the U.S. The platform raised more than $60 million from venture capital firms and saw thousands of retail players sign up and commit money, only to collapse in 2018, taking those funds with it.
Horse racing is another area where fractional ownership has become common, offering individuals the chance to own a small stake in promising racehorses and bet on their success. But this market too has become increasingly impacted by fraudsters selling stakes in horses that they didn’t own, weren’t properly registered, or had fake pedigrees.
For fractional ownership to become a worthwhile opportunity, the industry needs to find a reliable way to fight these fraudsters. Most legitimate offers will attempt to create the proper legal structures and custodial agreements to verify that they do indeed have ownership of the assets they’re purporting to sell, but such mechanisms clearly aren’t enough.
Take the example of George C. Parker, who also went by the names James J. O’Brien, Warden Kennedy, Mr. Roberts, and Mr. Taylor. He was one of the most infamous con men in U.S. history, notably “selling” New York’s Brooklyn Bridge to naive immigrants in the late 1800s. He would produce extremely convincing but false paperwork showing he owned the bridge and speak of the potential returns from charging tolls for people to use it. He was highly successful, repeating the scam multiple times before being arrested and jailed.
Greater Legitimacy With Blockchain
Had blockchain been around back then, Parker would likely have found it much more difficult to perpetrate his scams. Distributed ledger tech can make it much harder for scammers to misrepresent assets by tokenizing them so anyone can verify their legitimacy.
With tokenization, the provenance of fractionalized assets can be recorded on a public blockchain that everyone can access, but no one can edit. This immutable record ensures that these assets can be authenticated and the ownership traced, ensuring their legitimacy. Users can then purchase digital tokens representing shares in the underlying asset, with smart contracts enforcing the payment of dividends to token holders and granting them voting rights. The tokens themselves can be bought and sold freely on a decentralized marketplace without any intermediaries, dramatically increasing the liquidity in asset markets.
The security of blockchain-based assets has received considerable attention, and multiple platforms offer the chance in tokenized art and real estate. For instance, when you purchase Gleec’s Raphael Coin (RAPH), you’ll become a fractional owner of Raffaello’s Renaissance masterpiece, “Recto: Study for the Battle of the Milvian Bridge.”
The regulated nature of Gleec’s blockchain ecosystem helps to reinforce trust. Gleec is a well-known provider of crypto services, including Gleec Pay and Gleec Card, which enable merchants to accept crypto and consumers to spend their digital assets, as well as Gleec DEX, a decentralized trading platform. Lending further legitimacy to Raphael Coin is the Emirati racecar driver Aliyyah Koloc, who recently announced a sponsorship deal that will see her become an ambassador for the project and advertise RAPH on her vehicles.
Moreover, by tokenizing Raphael’s masterpiece, Gleec allows everyone to obtain a small share of an artistic masterpiece and help preserve it for future generations. This is another, little-known benefit of tokenization. Many of the world’s most famous artworks are bought by private collectors who keep them under lock and key, out of sight of the public. Through its fractional ownership model, Gleec ensures that “Recto: Study for the Battle of the Milvian Bridge” will be displayed in museums for the foreseeable future, where everyone can enjoy it, due to its trustless ownership structure.
With thousands of RAPH token holders already, it’s highly unlikely that someone would ever be able to acquire them all and take it out of the public view.
A Decentralized Future For Fractional Ownership
Fractional ownership breaks down the barriers for retail players in many previously exclusive markets, giving them greater options to diversify their assets and build wealth faster. With the arrival of blockchain and the added security it provides, the risk of fraudulent assets is significantly reduced.
Moreover, blockchain’s truly borderless nature means that fractional ownership becomes accessible to everyone, no matter where they are located.