Fractionalized domain ownership becomes a reality
In 2020 we asked if fractionalized domain ownership was the future of domain investing. Well, the future has arrived. It’s an exciting time as platforms welcome different ways of investing in domain name assets.
Fractionalized domain ownership
Typically, a domain investor buys a domain name outright without partners. They own the domain name and decide what to do with it, including when to sell it and for how much.
But premium domain names are expensive and outside the reach for most domain name investors.
Fractionalized domain ownership allows multiple investors to buy into the same domain. Instead of having to invest $100,000 in a valuable domain name, 100 domain investors can each pitch in $1,000 to own 1% of the domain.
It’s kind of like owning a share in a company. While no one can afford to pay over $2 trillion to buy Apple, they can afford one share for under $200.
Similarly, few people can afford to pay $100,000 or more for a domain. And even fewer can afford to buy a bunch of good domains at that price. Buying multiple domains diversifies an investor’s holdings. Diversification is essential for domain investing; while it’s unlikely that any single domain will sell during the year, owning 10 or 20 good domains increases the odds.
With fractionalized domain ownership, someone can theoretically spread a $100,000 investment across 100 or more domain names. This diversifies their investment. It also allows smaller investors to invest in domains they could otherwise not afford.
Factionalized ownership in practice
The first mainstream offering of fractionalized domain ownership occurred earlier this year on Rally. Rally is a platform that lets people buy shares in collectibles like rare comics, video games, sports cards, and fine wine. So why not domains, too?
In January, Rally offered shares in the domain directions.com for just $10 each. The company sold 14,000 shares, valuing the domain at $140,000.
The company is also selling shares in hotspot.com, valuing it at $195,000, and a basket of five three-letter domain names for $170,000.
Few people reading this can afford a valuable domain name like directions.com or a three-letter .com domain. But they can certainly afford to chip in $10 to own a fraction of the domains.
It’s a bit more complicated
Before you invest in fractions of domain names, take a step back and think about what you’re investing in. Sure, it’s a domain name. But how will you make money from the sale of the domain and who gets to call the shots?
Fortunately, Rally has a history of selling assets owned by multiple people through its platform. Rally lets each fractional shareholder vote on any asset sale. For example, in February fractional owners of a 1958 Alifabolaget #635 Pele rookie card agreed to sell it for $1.33 million. In the case of the soccer card, 57% of shares were voted in favor of the deal.
The original share offering for the Pele card valued it at $315,000. Even after taxes, it was a nice return for those who invested in the card.
You can envision how this would play out for a domain name owned by many people, too. If someone wants to buy the domain, they just submit an offer through Rally. Then, Rally puts it out to a vote of everyone who owns shares in the domain and sells if it hits the required threshold.
Upsides and downsides to fraction domain ownership
A downside to fractional domain ownership is that you don’t get to decide what offer to accept. It’s up to all of the investors.
But there’s a hidden upside in this. It can take a long time for a domain name to sell on the domain name aftermarket, but there’s also a secondary market for fractions of assets.
For example, Rally offered a first edition copy of Harry Potter and the Philosopher’s Stone. The initial share price was $24 for a total value of $72,000.
Fractional owners of the book don’t have to wait for someone to come along and buy the entire book. They can sell their shares on the secondary market. At the time I’m writing this, the most recent share traded hands for $45, valuing the book at $135,000.
So when you buy a fraction of a domain name, you can offer your fraction on the secondary market rather than waiting for someone to buy the entire domain.
It’s important to note that the secondary market might not be very liquid, and some items at Rally are trading for below their initial offering price. Rally restricts when shares can be traded, too.
It’s also worth noting that this is just an example of how a single platform (Rally) works. Anyone offering fractionalized ownership in a domain name can set their own terms as long as they comply with securities laws. Read the legal documents for any domain you purchase.
An exciting future
Fractionalized domain ownership opens up premium domain names as an asset class. People who could never afford to invest in a premium domain can now. This should help introduce more people to the world of premium domain names. It will also introduce institutional buyers to the idea of buying domain names because of their value.
Much like how fractionalized ownership opened up new markets for collectibles, it could do the same for domain names.