Forefront Social Token Index

IIP: [to be assigned]
Title: [IIP title]
Status: [WIP]
Author(s): Forefront DAO, 1kx, Carlos Gomes
Created: 11/08/2021

Purpose

To provide the industry with an investment product providing passive exposure to the social token sector.

Objective

The FF Social Token Index is a digital asset designed to track tokens’ performance within the social token industry. It aims to incorporate projects and communities that have significant usage and show a commitment to ongoing maintenance and development.

Motivation

“My view, as I’ve stated many times, is that social/community tokens are going to be one of the biggest changes to global business models in history.” ~ Raoul Paul

In 2021, the total market cap of key social tokens surpassed $580m, a ~615% growth from 2020. The amount of addresses holding social tokens grew by ~200% from 6000 to 19,000. This year alone Coinvise has helped more than 280 communities and creators launch a social token.

Social Tokens have potential to become the next ‘big-thing’ in crypto, yet there will be thousands of them. Investors of all sorts will need a curated list, and Forefront is best positioned to provide that service. Over the past few months we have been inundated with requests to provide an investment vehicle.

The FF Social Token Index is our response to that demand, offering investors with a professional product providing exposure to the social token sector. It gives them passive access to a vehicle which captures value-weighted upside from the most promising social token communities and projects. As depicted above, Forefront has been tracking this index for months.

Forefront’s Unique Value Add

Forefront brings a strong reputation and expertise to the table and has an audience which represents many of the core personas this index seeks to serve. Forefront’s platform is the leading insight aggregator across the social token landscape.

The social token index would not be launched in isolation; Forefront has developed an entire ecosystem providing industry-leading research for beginners and investors alike.

We have built a social token marketplace offering detailed breakdowns of each social token featured in the index, providing both on-chain and offchain data.

Forefront’s FF Daily provides links to the day’s best articles enabling serious investors to stay on top of market trends. Meanwhile, our FF Newsletter curates the week’s best articles and insights.

Our FF Learn platform provides background information, educational material and deep dive case studies into some of the most successful social token projects. Forefront profile pages curate the leaders in the space, offering brief summaries and serving as a portal for those looking to dive deeper.

Criteria, Methodology & Composition

Token Inclusion Criteria

Forefront has a collection of criteria to determine which tokens will be included into the FF Social Token Index. The social token industry is evolving quickly, exploding with new business models, and growing fast. Forefront is uniquely positioned to track this growth and has developed the following criteria for inclusion:

Token’s Descriptive Characteristics

  • The token must be available on the Ethereum blockchain.
  • The token must be associated with a decentralised social community.
  • The token must be listed on Forefront’s Marketplace and adhere to Forefront’s Marketplace selection criteria.

Token’s Supply Characteristics

  • It must be possible to reasonably predict the token’s supply over the next five years.
  • At least 5% of the five-year supply must be currently circulating.
  • The token’s economics must not have locking, minting or other patterns that would significantly disadvantage passive holders.

Project’s Traction Characteristics

  • The project must be a clearly established social community operating towards a shared goal.
  • The project must have at least 500 unique token address holders.
  • The project must have a large community (2000+ Discord members and/or Twitter followers).
  • The project must have been launched at least 60 days before being able to qualify to be included in the index.
  • The token must have a minimum fully diluted market cap of $25 million.
  • The token must have a 90-day average trading volume of at least $50k per day.

For those interested in diving deeper, including comparing a few of the methodologies we are testing, Forefront is tracking a variety of social score and liquidity metrics available here. We have also developed a Dune Analytics Dashboard here.

Index Composition

The current index composition, as of October 31, 2021 looks as follows:

Adventure Gold ($AGLD) - 24.8%
Rally ($RLY) - 25.0%
Whale ($WHALE) - 16.2%
Friends with Benefits ($FWB) - 17.3%
Bankless DAO ($BANK) - 8.1%
Metafactory ($ROBOT) - 5.8%
Forefront ($FF) - 2.7%

Weighting = 75% * Sqrt Market Cap Allocation + 25% * Liquidity Allocation

Forefront proposes using a square-root market cap weighting with a liquidity multiplier.

With the explosion of innovation in the sector, we thought it was important to offer investors greater diversification and exposure to newer projects (relative to a pure market cap weighting). Furthermore, each token’s respective weight will be capped at 25%. Excess weight for a given token will be redistributed to the remaining components of the FF Social Token Index on a weighted basis. This will provide stability and ensure a diverse portfolio.

Liquidity is an important consideration in the nascent social token sector and we look forward to working with the Index Coop methodologists to determine appropriate liquidity thresholds. The liquidity multiplier for our non-investable index is currently set to a default of one.


Adventure Gold ($AGLD)
Loot is randomized adventurer gear generated and stored on-chain. Stats, images, and other functionality are intentionally omitted for others to interpret. Loot DAO is a community initiative of Loot Project to govern $AGLD.

Rally ($RLY)
Rally is a platform for creators and their communities to build their own independent digital economies.

Whale ($WHALE)
$WHALE is a social currency (cryptocurrency) that is backed by tangible and rare Non-Fungible Token (NFT) assets, while embodying scarcity through definitive limited issuance.

Friends with Benefits ($FWB)
Friends with Benefits is the ultimate cultural membership powered by a community of our favorite Web3 artists, operators, and thinkers bound together by shared values and shared incentives.

Bankless DAO ($BANK)
Bankless DAO is a decentralized community focused on driving adoption and awareness in bankless money systems like Ethereum, Bitcoin, and DeFi.

Metafactory ($ROBOT)
MetaFactory is a community-owned culture studio and marketplace focused on the creation and sale of digi-physical goods that celebrate crypto. Artists of all types are invited to create products that promote their art, community, project, protocol, token, etc.

Forefront ($FF)
Forefront is an insight aggregator across the social token landscape. Forefront is built as a tool to aid in the curation of resources, data and insights on how to navigate the ever-changing social token landscape. It’s the home for exclusive content on social tokens, a weekly newsletter, and profiles for 20+ projects and counting.


Market Research

Size of opportunity

Ultimately, this index could be the preeminent social token crypto product. We expect that this portfolio is appealing for the vast majority of crypto participants as everyone will want exposure to social tokens.

The combined market cap of the proposed index is just over $1.4 billion (with Rally accounting for $800m). This was a mere $170 million 90 days prior. The social token sector is growing fast and it’s not unreasonable to expect a sector market cap north of $5 billion in 2022. If the FF Social Token Index captured 0.25% of that market cap it would have an initial AUM of $12.5 million (for reference, DPI holds ~0.55% of DeFi).

Differentiation

FF Social Token Index is different from any product in the crypto ecosystem. The FF Social Token Index will be the first large passive-index opportunities for investors to get access to the Social Token revolution.

There is nothing comparable on the market.

Index Maintenance

The index is maintained monthly in two phases:

Determination Phase

The determination phase takes place during the third week of the month. It is the phase when the changes needed for the next reconstitution are determined.

  • Circulating Supply Determination: The FF Social Token Index currently references CoinGecko’s circulating supply number. The circulating supply is determined during the third week of the month and published before the monthly reconstitution.
  • Additions and deletions: The tokens being added and deleted from the index calculation are determined during the third week of the month and published before monthly reconstitution.
  • Weighting: Any token that has a weight greater than 25% during the determination phase will have its weight capped at 25%. Any excess weight will be redistributed to the remaining components of the FF Social Token Index on a weighted basis. This same process will be repeated for every token exceeding the 25% allocation cap.

Reconstitution Phase

The index components are adjusted, added and deleted as per the instructions published after the end of the determination phase. New index weights, additions and deletions are incorporated into the index during the monthly reconstitution, which will take place on the first business day of the month. As assets tracked by the index grow, the reconstitution window will expand to more than one day to lower the reconstitution’s market impact.

Liquidity

Forefront is actively working on solutions to liquidity constraints for the underlying tokens in these early days of the social token sector. We look forward to continued discussions with the Index Coop community around appropriate liquidity thresholds (eg. acceptable slippage per trade size) for this index product.

With respect to liquidity for the trading pairs of the proposed index, we envision a combination of Forefront, Index Coop and external partners providing initial liquidity.

Streaming Fees

To be discussed with the IndexCoop team, but Forefront would envision a split fee between both DAOs.

About Authors

Forefront is an insight aggregator across the social token landscape. Forefront is built as a tool to aid in the curation of resources, data and insights on how to navigate the ever-changing social token landscape. It’s the home for exclusive content on social tokens, a weekly newsletter, and profiles for 20+ projects and counting.

21 Likes

Generally supportive of this index and will definitely be a holder! I have questions on AGLD’s inclusion and weighting and would be open to hearing more about the thought process behind that particular position.

Big thanks to Carlos, Forefront and 1kx for putting this together.

5 Likes

Heyy love this concept and would like to contribute in making this into a huge success.

Attaching this doc to express my interest ForeFront - Google Docs

LinkedIn

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Hi everyone, due to a few schedule conflicts we have cancelled the ForeFront Social Token community call. We will announce when it has been rescheduled (most likely next week).

3 Likes