When day traders grew tired of spending sleepless nights trading Tesla stocks, they turned to index funds: passive investment vehicles that exposed them to huge swathes of the market at once. But the crypto market has offered little respite to exhausted NFT traders – until today.
Index Coop, a DAO that creates on-chain indices for the cryptocurrency market, has just released an index fund for NFTs. Called “JPG,” the index exposes holders to high-value NFTs, such as CryptoPunks, Bored Ape Yacht Club, Meebits, and Tyler Hobbs’ Fidenza.
JPG’s lead product designer, pseudonym Joseph Knecht, told The Defiant that the index was made possible by “the emergence of a number of new protocols for efficiently liquefying NFTs.”
Rather than holding NFTs themselves, the index exposes holders to DeFi projects that split ownership of NFTs, such as NFTX, WHALE, and Jenny DAO. Knecht said the DeFi products that JPG relies on have only been released in the past two months.
While JPG features most major NFTs — the criteria for inclusion is “high liquidity” and a market capitalization over $2 million — Knecht said the NFT market is too illiquid to grant exposure to multiple projects. majors. Notable omissions include Doodles and the Mutant Ape Yacht Club.
Liquidity is an issue for potential NFT indices because every NFT is unique – an alien CryptoPunk, for example, is more valuable than a human – and willing buyers aren’t always available for these high-value assets. Projects like NFTX provide a vault for all NFTs in a given collection, essentially producing a fungible token redeemable for a CryptoPunk.
“We worked closely with the underlying protocols to increase their liquidity,” Knecht said, citing NFTX, Unicly, and Fractional as collaborators.
Voting on index weights
While many index funds are passive, JPG invites owners to determine fund weightings. JPG is experimenting with dividing governance between two parties – holders of the JPG token and holders of a set of NFTs called “Collectooors”. Holders of both tokens will be able to influence the holdings, as well as their weightings, of the index.
Users who provide liquidity for the JPG token will also be enrolled in a daily raffle to earn NFT Collectooors.
To buy into the index, traders can buy the fund’s token from the Index Coop website, just as they would buy the index provider’s other tokens, such as the DeFi Pulse Index, which tracks top tokens. DeFi Governance Index, or the Metaverse Index, which tracks major investments in the Metaverse.
Combined, the Coop’s products have a total locked value of $221 million, according to data from DeFi Llama.
While some may be skeptical (or worse) about the future of NFTs, Knecht envisions better days ahead. “What we’re seeing now is just the first instantiation of NFTs,” he said. “Soon kids will be trading NFTs in the playground on Layer 2 without gas.”
Of course, some kids prefer playing hopscotch to NFT day trading, and will buy Knecht’s NFT index instead.
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