Inside the NFTX NFT Index Fund Project - TokenSmart NFT Humpday Report #14
Welcome to the 14th issue of the NFT Humpday Report, a weekly column covering and providing embedded analysis on the NFT economy’s biggest topics du jour. Brought to you by WIP meetup collaborators and nft42 community hub TokenSmart.
NFTX is a new NFT index fund protocol that lets users create and trade ERC-20 tokens underpinned by baskets of NFT collectibles, like CryptoPunks, CryptoKitties, and beyond. The project’s mission, then, is to make it that much easier for people to gain portfolio exposure to highly desirable NFTs. In furtherance of that goal, NFTX just kicked off the second round of its bootstrapping-focused Community Raise campaign.
Source: nftx.org
The big picture: As the NFT ecosystem has blossomed and hit the cryptoeconomy’s limelight this year, there’s been growing demand from within and without the space for index-like products that bring simplicity and liquidity (courtesy of DEXes like Uniswap) to the NFT collecting process. Accordingly, NFTX is the first NFT index fund project of its kind and, while still very young, it’s looking to service that aforementioned demand in big ways going forward.
How it works: NFTX is centered around D1 funds and D2 funds. D1 funds have a 1:1 backing between NFTX’s ERC-20 contract and the associated NFT contract. This means you could redeem 5 of NFTX’s basic CryptoPunks fund tokens (i.e. PUNK-BASIC) for 5 random floor-level CryptoPunks NFTs. D2 funds are underpinned by Balancer pools (think Uniswap, but with more flexibility as to how you can compose trading pools) that’s composed of multiple D1 funds. On this point, the NFTX litepaper explains:
“For example, PUNK will be a D2 fund which combines five different D1 CryptoPunk funds (PUNK-BASIC, PUNK-FEMALE, etc.). The point of this is to offer more diverse exposure without requiring users to hold multiple tokens.”
Not necessarily for NFT power users, but good for them: If you’re a veteran collector of NFTs, then NFTX’s fund tokens may not be all that interesting to you. Perhaps your NFT portfolio is robust as it is! Where these index tokens will really shine is with people who are NFT novices, i.e. those folks who aren’t super savvy with all the details but know enough to know they want a stake in these novel and promising digital assets. This in turn will help with price discovery and could lead to an influx of buy pressure over time that may drive up NFT prices in general, even if steadily.
Supported NFTs: Out of the gate, NFTX supports a handful of NFT projects. The number of these projects will increase going forward as NFTX’s governance kicks in. In the meantime, the initially supported collectibles include:
The NFTX token: NFTX is the governance token of, you guessed it, the NFTX protocol. The asset affords holders voting rights in the Aragon-based NFTX DAO (“decentralized autonomous organization”). For now, a community proposal to modify the protocol’s smart contracts can only pass if 80% of NFTX holders agree to the proposal. In extension, NFTX is allocating 60% of the 650k NFTX token supply, i.e. 390k NFTX, to distribution through the project’s Community Raise program, which is meant to help bootstrap liquidity around the protocol.
The Community Raises: The first phase of NFTX’s Community Raise program, launched on Dec. 22nd, promptly brought in 1,500 ETH in funding. The second phase kicked off on Dec. 29th and is still ongoing.
Safety first: NFTX is developed by a known and public Ethereum developer, Alex Gausman (a.k.a. gaus.eth). That’s good. Gausman’s reputation and public remarks precede him, so at this point it’s clear he’s well-intentioned and wants the best for NFTX. Moreover, the NFTX protocol has received an initial audit, and no glaring code flaws were discerned therein. But this is crypto, so we have to be cautious anyways. We’ve seen DeFi protocols with multiple audits get hacked and attacked this year, so these darker possibilities can’t be ruled out around a young NFTX for now. My point? If you’re determined to jump into the early NFT project, just know the process isn’t risk-free and you may lose funds! Over time, hopefully such risks will be smoothed out. Presently, though, you have to face them head on.
The future: We’ve already seen the early inklings of an organic community spring up around this index fund project. As governance kicks in and community members have more say, expect to see NFTX evolve considerably from its initial genesis rendition and to see more varieties of NFTs supported accordingly.
Thanks for reading the 14th NFT Humpday Report! Check back this time next week for more excellent NFT ecosystem coverage! Cheers🌠