How to Invest in an NFT Index
You've got options, like NFT index products and fractionalized collections!
Metaversal is a Bankless newsletter for weekly level-ups on NFTs, virtual worlds, & collectibles
Dear Bankless Nation,
NFTs can be quite illiquid.
This means there’s big potential around projects that are tokenizing NFTs as ERC-20s in order to make them more liquid and easily tradable.
These projects are in the limelight now because so many people are researching NFTs lately and many have started looking for approachable ways to capture some of the upside of these novel assets.
Where even to start though? NFT index platforms and fractionalized collections, I say! Let’s explore the possibilities in this issue of Metaversal 👇
-WMP
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How to Invest in an NFT index
An index is simply a financial instrument that tracks the value of a group of assets. Now that the nascent NFT ecosystem is starting to explode in popularity, we’re seeing a ton of demand for index-like products people can use to easily get exposure to NFTs accordingly.
The good news is we have options here, so what are the best and easiest of these offerings already available today? In this write-up, I’ll outline five avenues of note across two categories of projects, namely NFT index platforms and fractionalized collections.
NFT Index Projects
1) NFTX
NFTX is a platform for creating NFT-backed index funds. It notably offers single fund tokens and combined fund tokens.
Single fund tokens let investors get exposure to a specific kind of asset within an NFT asset class, while combined fund tokens let investors get exposure to a range of different assets within an asset class.
For example, one of NFTX’s most popular single fund tokens right now is $PUNK-BASIC, an ERC-20 token backed 1:1 with average CryptoPunks in order to track the floor price of these OG NFT collectibles. Then there’s combined fund tokens like $PUNK, a tokenized basket of single fund CryptoPunks tokens like $PUNK-BASIC, $PUNK-ZOMBIE, and more.
Source: gallery.nftx.org/collections/cryptopunks/
NFTX also has single fund tokens live for other NFT projects including Hashmasks ($MASK) and Bullrun Babes ($BABES-BASIC), and more funds are on the way around Autoglyphs, Axie Infinity, CryptoKitties, and beyond.
If you’re interested in investing in any of these NFT-centric tokens and have considered the risks, get some ETH ready and then follow these steps:
Head over to the NFTX gallery.
Click on your desired Collection, e.g. CryptoPunks, and then on your desired token, e.g. $PUNK-BASIC.
On the right side of the ensuing dashboard, you’ll see a “Buy Token” button.
Click on that and you’ll be taken to your desired token’s SushiSwap liquidity pool, as NFTX facilitates its liquidity through SushiSwap.
Once you’re on SushiSwap, connect your wallet and then you can buy/sell as much of your target index as you’d like.
2) NFT20
Created by NFT dev studio Very Nifty, NFT20 is a decentralized exchange for NFTs. The platform lets collectors permissionlessly deposit into a given NFT pool in exchange for another NFT or for ERC-20 tokens representing a position in said pool.
So let’s say you want to get some exposure to Hashmasks collectibles but you’d prefer to buy your first one steadily over time. You could head over to NFT20’s Assets dashboard, find the Hashmasks collection, and then click on the “Uniswap” button next to the “TRADE $MASK20” option.
Source: nft20.io/assets
From here you’ll be taken to Uniswap, where you can pick up $MASK20 at whatever pace suits you.
Fractionalized Collection Projects
3) B20
Rolled out by the Metapurse team, $B20 is a token representing a basket of NFTs centered around Beeple, an artist whose iconic pieces have recently taken the cryptoart world by storm and who’s currently auctioning an NFT through legendary auction-house Christie’s.
Needless to say, $B20 offers investors the ability to easily take up fractionalized positions in this basket, which includes no less than 20 Beeple 1/1 NFTs and other prized NFTs. If this is a token you’ve researched and want in on, your easiest avenue is Uniswap’s ETH/B20 pool.
4) WHALE
Launched by prolific NFT collector WhaleShark, $WHALE is a social currency that is underpinned by a trove of rare, valuable NFTs secured in “The Vault.” Regularly audited by the NonFungible team, The Vault’s holdings are now worth well into the millions of dollars.
If you think WhaleShark’s NFTs and community are something you want exposure to, you can trade the WHALE/ETH pair on Uniswap any time.
5) NIFTEX
NIFTEX isn’t a fractionalized NFT collection itself, though it is a protocol for fractionalizing individual high-value NFTs or larger NFT collections.
For instance, last year the GrowYourBase team turned to NIFTEX to release the ONEz token, a fractionalized ERC-20 representing a stake in 20 NFTs from talented cryptoartists. This is just one example, but it shows what NIFTEX is capable of. Check out the exchange sometime and maybe you’ll find a tokenized basket of NFTs that suit your fancy.
Conclusion
The opportunities I mentioned above are easy ways to get exposure to NFTs in the here and now, but there are certainly more possibilities to explore, too, and more are coming all the while. For example, with Set Protocol you can already create your own tokenized basket of NFT-centric ERC-20s, and the Index Coop community is separately discussing the launch of a new Metaverse Index product. You’ll definitely want to be watching this space going forward!
Action Steps
Buy some of an NFT index fund token or part of a fractionalized NFT collection via Uniswap or SushiSwap.
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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.
Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. I’ll always disclose when this is the case.
One more: Index Coop (the folks who brought you the DeFi Pulse Index) just approved a proposal to structure a gaming NFT Index. You can read about it here: https://snapshot.page/#/index/proposal/Qmeaho3rEC8pM9t3FwhCQ86rdYtrpo2iDqHSxMcf2nu51Z
This proposal passed, which means they'll study further and vote on a final index. But, judging by how resoundingly this passed, it seems likely they'll go forward with something at some point.
You should have mentioned that anon founders own upwards of 50% of all tokens of $WHALE and $B20. It’s not Bankless if one individual holds the keys for all the NFTs in an index like $WHALE.