IIP-091: Launch the NFT Blue-Chip Index (JPG)

This is awesome, @JosephKnecht - appreciate you working with the COOP and for the level of detail you put into this proposal.

Some overall thoughts:

  • As a general principle, I am fine with “good enough” to test user demand - if people like the jpeg baskets, we could refine the baskets in future iterations. If we could safely get to $10-15M TVL with the “simple” approach, the management fees from that alone could support the additional resources required to develop a V2 with more active liquidity and inventory management.
  • I think it would be good to scope out the resources required for the more “hands-on” approach, but that could be done in parallel to shipping the simple index to market.
  • My sense is that users would be willing to pay a higher management fee (e.g. 3-5%) given the complexity of the more active mgmt approach, but this needs to be tested with the market.

Some ideas around the challenges around low vault liquidity & inventory:

  • Co-incentivize liquidity with NFTX and NFT20
  • Permit a % of the overall index (e.g. ~10%) to be temporarily comprised of synthetic assets → sell the synthetic and acquire the underlying once slippage conditions improve
  • (Temporarily) remove an asset from the Index if the underlying vault inventory drops below a certain threshold for some period of time
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Thanks for the nice feedback.

  • As a general principle, I am fine with “good enough” to test user demand - if people like the jpeg baskets, we could refine the baskets in future iterations. If we could safely get to $10-15M TVL with the “simple” approach, the management fees from that alone could support the additional resources required to develop a V2 with more active liquidity and inventory management.

I fully agree 1000%. I see a lot of value in launching with a simple product and then building it as we go. I see roughly 3 levels of maturity:

Level 1 - “Simple”. Swaps only. $10-15M TVL
Level 2 - Above plus buying/selling NFTs to minimize price impact. $15-$50M TVL
Level 3 - Above plus creating and investing in our own vaults (eg, Fidenza, VeeFriends, Hirst) and then include the vault tokens in our index. This could be done by delegating to a purchasing DAO like PleasrDao, FlamingoDAO, Jenny Metaverse DAO, etc. . >$50M TVL

The one subtlety is that even for Level 1 we’ll probably need to buy NFTs to establish our positions.

  • I think it would be good to scope out the resources required for the more “hands-on” approach, but that could be done in parallel to shipping the simple index to market.

This will be done in PRD.

  • My sense is that users would be willing to pay a higher management fee (e.g. 3-5%) given the complexity of the more active mgmt approach, but this needs to be tested with the market.

Fully agreed. I think we undervalue ourselves and we could charge a lot more for our products.

  • Co-incentivize liquidity with NFTX and NFT20

Yes we’re working closely with NFTX on coordinating LM, and will engage NFT20 and possibly Fractional soon. The main topic is that NFTX plans to stay in un-concentrated liquidity while it may make more sense for us to use automated, concentrated liquidity. We’d then have separate LM programs which is not ideal. Any thoughts here are welcome.

  • Permit a % of the overall index (e.g. ~10%) to be temporarily comprised of synthetic assets → sell the synthetic and acquire the underlying once slippage conditions improve

I’m still undecided but I’m inclined not to use synthetic derivatives, e.g., uPunks from YAM synths. The pro is that they’re inventoriless. The cons are that they undermine the message that investors own claims to the underlying NFTs, there’s a hypothetical risk of depegging, and they track statistics other than the floor price. It also costs a lot of price impact for us to build/leave positions so I’d prefer to only build a position if we’re going to stick around.Chainlink is working on a pricing Oracle for the punk floor price with JPEG’d and I expect people will synth off of it.

  • (Temporarily) remove an asset from the Index if the underlying vault inventory drops below a certain threshold for some period of time

Yes, this is more of an issue than people tend to realize in particular because it goes into a negative feedback loop as the vault token drops due to the declining inventory.

You could get a run on the vault inventory even if there’s token liquidity. In NFVTI for example, the CyberKongz vault went from 6 items to 1 quickly and I had to switch from the NFTX to the NFT20 vault. If the TVL was bigger it would have been very expensive on the price impact. It’s also prone to manipulation since a whale could short the vault token and then deplete the vault. That’s maybe the strong argument for having some synths.

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To be clear, I definitely support the NFT index idea. I think it will be a very successful product. But my concerns are about using open ended pools with hardly any liquidity as benchmarks.

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Many thanks @Beanie Your feedback was definitely taken in the right spirit and is much appreciated. No worries at all. You’re entirely correct that there’s more liquidity in the Fractional pools. The difficult trade-off we need to balance is the deeper liquidity and inventory in these pools vs the wider coverage in the other pools. I hope that’s sensible.

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Hi Everyone, I want to provide a quick update on progress.

As many of your have mentioned, this product is particularly difficult due to liquidity in this market. @JosephKnecht and the team are working on potential solutions so we can be the first to launch a successful NFT Index.

Once we feel confident that we’ve removed all blockers we will move for a DG2 vote.

We always welcome any input and appreciate your patience as we grind to the finish line.

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Great concept.

It will be great to chat with you.

I’m interested in potentially contributing.

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appreciate the update :pray:

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Hi Everyone, anything quick update.

$JPG is waiting to have their PRD reviewed by the EWG team to understand product feasibility.

At the same time, we’re working on fee split agreements. We’re making great progress on getting this to DG2.

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Hi Everyone, quick update.

$JPG has been reviewed by EWG. We’re working through some liquidity challenges while the WTA is set for tomorrow.

We’re on track for a DG2 in the near future.

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Hi Everyone,

We have worked through many different angles, but have decided to put this product on hold until liquidity in the market is sustainable.

We looked at options to limit supply, but this results in the product trading at a premium until the supply limit is lifted. If this product scales to $100M+ (which we think this product could!) there simply isn’t enough liquidity in the underlying tokens.

We are all eager to launch this product so we’ll be monitoring market conditions and will revisit once acceptable.

I’m sure you all have the question, “How will we know when this product is ready”? Another post will be coming in the near future with estimates on what conditions are necessary to safely launch $JPG. Launching products in low liquidity markets is more an art than a science so we appreciate your patience as we work through these challenges.

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Thanks DocH, oneski, mringz, cavalier, oa, jackie, and many others for their hard work and creativity to move JPG forward. As DocH outlined, we look forward to resuming JPG once the liquidity landscape improves. This is not just wishful thinking as there are several major near-term developments that will improve liquidity including uptake of GenieSwap, more NFT purchasing DAOs adding liquidity, and of course the launch of the Coinbase NFT marketplace. I’ve also been working with some Fractional vault holders to add more liquidity. I’m looking forward to working with PWG and EWG to better understand how much liquidity is “enough”. In the meantime we’re here for any questions.

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