This is the first of two votes required for a new product to be onboarded to the Index Coop.

A passing vote here signals the Index Coop’s intent to further research the JPG feasibility resulting in a product prioritization score.

FOR - Pass JPG through Decision Gate 1. Begin work to research & assign JPG a product prioritization score.

AGAINST - Do not pass JPG through Decision Gate 1.

DG1 is a signaling step to gauge community sentiment. It is NOT subject to quorum requirements. The full-text JPG proposal exceeds Snapshot’s character count limit. Below is an abbreviated proposal. Check out this forum post to read the full proposal.

================================================ Title: The NFT Blue-Chip Index (JPG) Status: Proposed Authors: @JosephKnecht (Article21), @oneski22 (Index Coop) Discussions-to: https://gov.indexcoop.com/t/discussion-nft-blue-chip-index-jpg/2816 Created: 09 Sep 2021

Simple Summary

The NFT Blue-Chip Index (JPG) is a market cap-weighted portfolio of blue-chip NFT collections. The index provides diversified, liquid exposure to the top NFTs through a single liquid token. According to Index Coop, an NFT Index token is its most frequently requested product and this token can address that demand.

Abstract

JPG is a liquid, market cap-weighted index of NFT collections. The index is composed of NFT liquidity vault tokens such as NFTX, NFT20, and Fractional. The token is based on the NFTX Vault Index token (NFTVI) which fair-launched on August 28, 2021.

The JPG token can be implemented using the Simple SET Protocol provided that only the NFTX and NFT20 protocols are used. If the Fractional protocol is also used, the manager will need to be able to claim the ETH proceeds from auctions. Alternatively, the provision and redemption of NFTs to Fractional could be managed by a separate contract with the fractional shares then supplied to the index contract.

In order to reduce price impact, it would be desirable for the index contract to be able to selectively redeem vault token components for NFTs and conversely to mint NFTs from vault tokens. For example, the index contains PUNK tokens. One PUNK token could be redeemed for a Punk NFT on NFTX and then sold on OpenSea for ETH. Similarly, ETH could be used to purchase a Punk NFT which could then be used to mint PUNK tokens. If these mint/redeem functions are too difficult to implement then we would need to raise additional vault token liquidity.

It is envisioned that supplying vault inventory and creating new collections would be managed by a separate address from the index token address. The two addresses would not need to interface with the exception of providing the vault tokens to the index contract. We do not foresee using synthetic derivatives such as uPunks from YAM synths.

Motivation

Rationale

Non-Fungible Tokens (NFTs) are a revolutionary cultural, artistic, and financial phenomenon. However, despite the massive size and growth of the NFT market there is no NFT index token.

For institutional investors, benefits of an NFT index token include access to a highly illiquid and fragmented market, a single instrument for long/short positions, enhanced diversification, faster order fulfillment, reduced transaction fees, and automatic rebalancing. Advantages for retail investors, in addition to the above, include easier onboarding, mitigating unit bias, and lower capital entry requirements.

Creating an NFT index token is highly challenging however due to the illiquidity, volatility, fragmentation, and price opacity of the NFT market.

Specification

Overview

JPG will be a market cap-weighted index of NFT liquidity vault tokens. Additional functions may be needed to mint and redeem NFT vault tokens and buy and sell NFTs on the secondary market. It is an engineering decision whether this is done from the index contract address or a separate contract.

Differentiation

As the first NFT index token on the Ethereum blockchain, JPG is a highly differentiated product. The JPG token is unique in providing liquid access to the NFT market at scale. The product does not overlap with any existing Index Coop products and could be cross-sold with MVI.

Other nominal NFT index tokens such as NFTI and NFTP hold NFT protocol tokens (ie, AXS, ENJ, SAND, SUPER, etc) and not NFTs themselves. One potential, future overlapping token is the PFP (profile pic) index planned by PieDAO. However, this product will only cover PFP NFTs and the proposed holdings include many highly-illiquid microcaps. Zilliqa recently launched an NFT index token $NFTDEX; however its components are restricted to NFTs on the ZIlliqa blockchain. Strudel Finance has an NFT index consisting of a Balancer pool of 25% each of wBTC and the NFTX vaults PUNK, BAYC, and COOL. However, this pool is diluted by wBTC, is not diversified, and has a constant allocation.

JPG is based on the NFTX Vault Index (NFTVI) which fair-launched on August 28, 2021. As of September 18, the Net Asset Value (NAV) of NFTVI is up 69% since inception. See Zerion for NAV performance and index composition.

Article21 is the author of the current proposal and also the creator of NFTVI. If this Index Coop proposal is successful, Article21 will retire NFTVI and be fully dedicated to the success of JPG.

Example composition

Performance

See the historical NAV performance of a similar index token NFTVI.