To own them all, you must first "flip a coin"! New mechanism RICKS solves NFT fragmentation through regular auctions and arbitrage.

The cryptocurrency investment firm Paradigm released an article on the 6th, proposing a new NFT fractionalization mechanism called RICKS (Recurrently Issued Collectively Kept Shards), aiming to address the liquidity and buyout issues currently faced by fragmented NFTs.

Challenges of Fragmentation Mechanism

Assume that a well-known NFT is fragmented and distributed to 100 individuals, each owning 1% of the original NFT. If a buyer in the market is very interested in the NFT and wants to buy up all the fragments to reconstruct it, they would encounter two troublesome issues. First, they would need to confirm that all 100 individuals are willing to sell their fragments so that they can purchase them all at once. Secondly, each individual may have a different selling price, making it difficult to estimate the total cost. Additionally, if any fragment is accidentally destroyed, the NFT would forever lose its value as it cannot be reconstructed.

Buyout Auction by fractional.art

To address the potential issues of fragmentation, fractional.art has introduced a buyout auction mechanism in their protocol. When an NFT owner is ready to fragment the NFT, they can set a reserve price. After fragmentation, if a buyer is willing to pay above the reserve price, they can directly acquire all the NFT fragments.

However, this method is not without drawbacks. Apart from requiring agreement among fragment owners on the reserve price, if the market value of the NFT is significantly higher than the reserve price, fragment owners may be forced to sell their fragments below market value.

Addressing Issues with RICKS

RICKS, which stands for "Recurring Issuance of Collective Kibbles," introduces a mechanism where NFT fragments are not all issued at once but are regularly released as new RICKS NFT fragments, such as 1% daily or 5% monthly, gradually decreasing the original owner's share from 100%. Collectors interested in the NFT can no longer purchase it outright at a specific price but must continually acquire shares through auctions. The proceeds from the auctions serve as collateral rewards for fragment owners proportionally.

When a bidder repeatedly participating in auctions acquires over 75% of the RICKS shares, but some RICKS are owned by other collectors, they can trigger a "flip a coin" mechanism. If the coin lands on heads, the bidder will receive an additional 25% of the entire NFT. If it lands on tails, the quantity of RICKS held by other owners will double (losing the original 25%).

RICKS Arbitrage Mechanism Ensuring Price

Similar to other fragmented NFTs in the current market, RICKS will be traded on AMMs like Uniswap. This provides a convenient arbitrage mechanism to ensure that RICKS auctions are not undersold. If the closing price of the auction is significantly lower than the RICKS price on Uniswap, arbitrageurs can profit by buying RICKS in the auction and immediately selling them on Uniswap.

The current fragmented NFT market is not mature enough, and if the value of the original NFT surges due to market speculation post-fragmentation, it could significantly reduce the liquidity of the fragmented market, as seen in the recent Dogecoin meme fragmentation. RICKS attempts to improve this situation through its recurring issuance and AMM market arbitrage mechanisms, but the actual risks during operation remain to be verified.