Sale Types

The functionality of the Fraction Protocol allows covering large number of use-cases where an asset needs to be fractionalized, and sold to potential buyers. All use-cases can be housed under the two asset sale types described below.

Sale

The Sale refers to a process in which an asset is fractionalized, allowing individuals to purchase the newly created fractions. These fractions can be utilized for use cases defined by the project that issued them or for other potential applications that may arise. A common example of this is TGE tokens, where the use case varies depending on the specific project.

Sale with Buyback option

Sale with Buyback option follows a similar principle to collateralized lending. In this case, the underlying asset serves as collateral, which could be a tokenized real-world asset such as a real-estate, a factory, or any other tangible asset, such as a car. The asset is fractionalized into tokens, and these tokens are sold to buyers who have the option to participate in a buyback arrangement.

In the Sale with Buyback Option, the fractional tokens represent partial ownership of the collateral. The creator of the fractions acts as the borrower, selling fractions of the collateral to raise funds. Buyers are entitled to an interest rate upon purchasing a portion of the collateral. When the buyback occurs, the creator repays the buyers by returning their initial investment along with the agreed interest.

If the creator is unable to repay the borrowed funds, liquidation is triggered, and the collateral must be sold. For example, if a factory is sold for fiat currency, the fiat is then converted to cryptocurrency, and the buyers are repaid by the eligible liquidator. In cases where a buyback occurs, buyers redeem their fractions to acquire the principal and interest.

Softcap and Hardcap

Each sale can be configured with softcaps and hardcaps to define the minimum and maximum fundraising thresholds for the asset sale.

• Softcap refers to the minimum amount of funds that must be raised for the sale to be considered successful. If the softcap is not reached, the sale may be canceled, and the funds raised could be refunded to the buyers. This ensures that the project can move forward only if sufficient support is received from the market.

• Hardcap represents the maximum amount of funds that can be raised during the sale. Once the hardcap is reached, no further tokens can be sold. This helps to limit the total amount of fractionalized ownership in the asset, ensuring that the project's creators do not dilute ownership excessively or over-issue tokens beyond a predefined limit.

Together, softcaps and hardcaps provide a clear framework for investors and project creators, helping to manage expectations and maintain a balanced sale process.