Simetri Selected Report: Analyzing the Characteristics and Potential of the NFT Index Fund NFTX

This article is from Chain News, authored by Crypto Briefing, and translated by Leo Young.

NFTX is a non-fungible token index fund protocol. NFTX brings liquidity to the low-liquidity NFT market, quickly finding market fit and gaining widespread attention.

If NFTX succeeds, NFTX collectors can earn returns on hard-to-price assets, allowing investors to better participate in the market growth of the NFT space without having to pick individual collectibles.

1. Introduction

The trading volume of the non-fungible token market has been hitting record highs. In the past thirty days, total NFT sales reached approximately $400 million, marking a new market high. Despite the astonishing growth, this is still an emerging market, with total NFT trading volume accounting for only 0.1% of Ethereum's trading volume.

Institutions and celebrities like the NBA, Kings of Leon, and Soulja Boy have issued their own NFTs to monetize fan economies, earning millions from these digital collectibles. These celebrities bring new users to the market, many of whom have never participated in the cryptocurrency market.

A close observation of the NFT market over the past year leads us to believe that the market is currently just at a turning point.

While there are many opportunities in this field, it is also fraught with risks. Investing in digital collectibles has many downsides, such as high gas fees, low barriers to minting new collectibles, and poor market liquidity, making investing in NFTs unwise.

Among these issues, liquidity is the biggest obstacle. Collectors purchase expensive collectibles, taking on the risk that they may never be able to sell them again.

Projects that can solve these problems will bring tremendous value to the market. The pioneer NFTX precisely addresses this issue.

NFTX is a platform for minting ERC-20 tokens backed by NFT collectibles. The tokens minted on it represent index funds of popular collectibles, such as

If you want to get involved with Hashmask NFTs but lack the expertise to evaluate them, you can choose to buy the MASK index on NFTX.

In summary, the concept behind the project is simple and reasonable. Increasing liquidity in the NFT market will capture a significant amount of market value. The token supply and roadmap of this project also meet our other selection criteria.

Based on these factors, NFTX is our top choice for March.

2. Unlimited Prospects for the NFT Market

Before diving into the NFTX platform, it is crucial to understand the development of the NFT market and market expectations.

According to DappRadar data, the NFT sector experienced strong growth in February, with NFT sales reaching new highs. Additionally, a small number of NFTs sold for exorbitant prices, indicating either widespread acceptance or a short-term bubble.

NFTs sold for over $200,000

The popularity of the NFT market has surged. A burned artwork NFT by Banksy was sold for 380,000 USD in ETH. Numerous celebrities are also minting NFTs.

As mentioned, even though this may seem a bit overheated in the cryptocurrency space, the NFT market remains a niche market with significant growth potential. According to NonFungible data, only 222,000 wallets interacted with NFT smart contracts in 2020, which is less than 30% of Ethereum's active addresses.

NFT Metrics Source: nonfungible.com

As the NFT market becomes increasingly popular, more cryptocurrency natives will join this ecosystem. Additionally, these celebrities and artists will bring in new users who have never been exposed to the cryptocurrency industry.

The global art market is valued at $67 billion, and the global collectibles market is valued at $360 billion. In comparison, the current NFT market is just a drop in the bucket. There will be more demand growth in this market.

3. Establishing NFT Funds to Solve Liquidity

Trading ERC-20 tokens rarely encounters liquidity issues. For example, buying and selling ETH, each token has the same value. Each token can be exchanged for another, just like fiat currency, where ten dollars is still ten dollars.

Non-fungible tokens are different. They represent ownership of unique items, presented in the form of information on the blockchain. NFTs do not have similarity.

The applications of NFTs encompass numerous artistic media. They can be images, complex videos, or audio, all stored on the blockchain.

With popular peer-to-peer NFT markets (currently dominated by OpenSea and Rarible by market share), anyone can create their own NFTs to sell on the market.

The most popular NFT works should come from social influencers with large followings.

NFT markets have already seen the emergence of "blue chips" like AXIE, PUNK, and KITTY. These are the most sought-after collectibles among NFT collectors.

Some people want to enter the NFT market but lack the time or patience to trade individual NFT works; NFTX meets the needs of these users. This solves the liquidity problem for less popular NFTs, allowing less knowledgeable investors to access the most popular collectibles.

This also makes NFTX one of the most sought-after investment assets in the NFT space, especially for users who do not want to delve deeply into individual NFT works.

Purchasing funds on NFTX is easier. Currently, there are two types of funds:

• D1 Fund: ERC-20 tokens minted 1:1 with individual NFT contracts.
• D2 Fund: A mix of multiple D1 funds in a Balancer pool.

How the D1 Fund works: If Zhang San owns three Hashmask works and deposits them into the MASK D1 fund, he receives MASK tokens. These tokens can be traded on Sushiswap, providing better liquidity.

By depositing his Hashmask into the D1 fund, Zhang San relinquishes ownership of his Hashmask but releases liquidity for these Hashmasks.

Of course, if Zhang San's Hashmask is popular, putting it in the D1 fund may not be a good idea, as selling it on OpenSea could yield better returns. For other less valuable Hashmasks, depositing them into the D1 fund will provide decent liquidity for these assets.

However, this type of index fund has a drawback. The D1 fund does not proportionally reflect the value of all Hashmasks but rather represents the average price of all Hashmasks. This results in the NFT components of the fund being less popular.

The D2 fund mechanism is similar. It mainly allows users to invest in aggregated value without needing to hold multiple tokens.

4. Medium to Long-Term Goals

Currently, NFTX has 22 funds. The majority are D1 funds, with only one D2 fund. Most popular NFTs in the market can issue index funds on NFTX, such as CryptoPunks, CryptoKitties, Axie Infinity, and Hashmask.

The ultimate goal of NFTX is to become the Binance of the NFT world by aggregating market liquidity. This will make the NFTX token the sole index for all NFTs in the market.

Currently, the only function of the NFTX token is platform governance. NFTX token holders have the right to vote on changes to the NFTX smart contract. Similarly, holding governance tokens is akin to holding voting rights in a publicly listed company.

The platform currently does not charge any fund management fees. However, as the platform grows, adding fees could generate revenue for token holders.

It is important to note that the platform has only been around for a few months. The initial free model makes it easier for users to adopt.

The free cold start is similar to the early cold starts of DeFi projects like Curve Finance and Compound. As more people join, the team is likely to add fees to enhance the token's value capture ability.

The team also plans to introduce more features in the future. Several plans on the roadmap include:

• NFT - ERC-20 token loans. Users can collateralize NFTs to obtain loans (similar to minting Dai with ETH). This feature allows owners to unlock the value of NFTs without giving up their tokens.
• Blind boxes and gift cards. The team plans to launch NFT blind boxes. This opens up various possibilities, with functionalities similar to popular gameplay in games like "Fortnite," "World Cup Soccer," and "Counter-Strike."

5. Risks

Like many decentralized applications on Ethereum, NFTX also carries similar risks. Despite undergoing security audits, users still need to exercise caution. Audits do not guarantee security. Several well-known DeFi protocols have suffered significant hacking incidents even after being audited. Therefore, there is no guarantee that NFTX will not face attacks in the future.

Translator's note: Recently, a vulnerability was discovered in NFTX. See “NFTX Proposes to Allocate $50,000 ETH to Security Researcher Samczsun as a Bug Bounty”

The NFT sector as a whole also presents risks. Despite the market's upward trend, it could be a short-term bubble. Some people compare the overheating of the NFT market to the ICO craze. If you participated back then, you would know that 99% of the fundraising companies are now defunct. If NFT prices drop, this will directly affect the prices of NFT tokens.

6. Conclusion

As mentioned above, NFTX meets various standards ideally.

First, the project is in a rapidly growing segment of a fast-growing market. In short, the potential is enormous. The NFT craze is just beginning, and as the Bitcoin bull market continues, NFT prices are likely to keep rising.

Second, the project already has a mature product that addresses user pain points. Liquidity is a major issue in the NFT market. Bringing liquidity to the market can provide tremendous value to users. This value can be converted into platform revenue.

If governance goes smoothly, NFTX token holders have the opportunity to benefit from these cash flows.

Finally, NFTX has already partnered with several NFT projects, showing considerable growth in daily active users.

All these factors contribute to NFTX's potential to become a decentralized "dark horse" in the NFT sector. If it gains market acceptance, it will be unstoppable and rise to become one of the top-ranked projects. Therefore, NFTX is our top choice for March.