When day traders grew tired of sleepless nights day trading Tesla stock, they turned to index funds: passive investment vehicles that exposed them to huge swathes of the market at once. But the crypto market offered little respite to exhausted NFT traders – until today.
Index Coop, a DAO that creates on-chain indices for the cryptocurrency market, 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’s Fidenza.
JPGs lead product designer, the pseudonymous Joseph Knecht, told The Defiant that the index was made possible by “the emergence of a number of new protocols for effectively liquifying NFTs.”
Rather than holding the NFTs themselves, the index exposes holders to DeFi projects that fractionalize ownership over NFTs, such as NFTX, WHALE and Jenny DAO. Knecht said the DeFi products on which JPG relies only launched in the past couple of months.
While JPG features most major NFTs – the inclusion criteria is “high liquidity” and a market cap over $2 million – Knecht said that the NFT market is too illiquid to grant exposure for several major projects. Notable omissions include Doodles and the Mutant Ape Yacht Club.
Liquidity is a problem for would-be NFT indexes because each NFT is unique — an alien CryptoPunk, for instance, is more valuable than a human one – and ready buyers may not always be available for these high-value assets. Projects like NFTX, provide a vault for all NFTs in a given collection together, essentially producing a fungible token redeemable for a CryptoPunk.
“We worked very closely with the underlying protocols to increase their liquidity,” Knecht said, listing NFTX, Unicly, and Fractional as collaborators.
Voting on Index Weights
While many index funds are passive, JPG invites owners to determine the weightings of the fund. JPG is experimenting with splitting governance across 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 weights, of the index.
Users who provide liquidity for the JPG token will also be entered into a daily raffle to winearn Collectooors NFTs.
To buy into the index, traders can buy the fund’s token on Index Coop’s website, just like they’d buy the index provider’s other tokens, such as the DeFi Pulse Index, which tracks the top DeFi governance tokens, or the Metaverse Index, which tracks leading metaverse investments.
Combined, the Coop’s products have a total value locked of $221 million, according to data from DeFi Llama.
While some may be skeptical (or worse) of the future of NFTs, Knecht envisions brighter days ahead. “What we’re seeing now is just the first instantiation of NFTs,” he said. “Pretty soon kids are gonna be exchanging NFTs in the playground on Layer 2 with zero gas.”
Of course, some kids prefer playing hopscotch to day trading NFTs, and will buy Knecht’s NFT index instead.