Index Coop <> NFTX : Sector Leaders and Composability

Ahead of the AMA with ChopChop of NFTX tomorrow (June 24, 2021) ( Discord ), I have been considering what composability might be available should our organizations joint-venture on a project or product. This is where I landed.

A strategy among sophisticated investors is buying one asset and shorting another to gain targeted exposure to an industry. By way of example: Let’s say I think that the gold mining industry was ripe for expansion (maybe a new type of ground penetrating radar is invented to easily find gold underground) but I’m uncertain as to the effect on the price of gold itself (or am simply not well-versed in this area); given that the price of gold is baked into the bottom-line and valuation of miners to a degree already, I would go long on an ETF of gold miners, and short an ETF tracking the price of gold.

For your consideration and discussion: A single token that would incorporate a metaverse long position ($MVI) and short a basket of NFTX offerings with high liquidity ($PUNK-BASIC, etc. … or maybe NFTX do a synthetic fund-of-funds so to speak down the road). This would provide upside exposure to innovation in the industry while mitigating exposure to price action in the NFT space, which can be somewhat sentiment driven and speculative.

Challenges (specific to any leverage strategy):

  • Liquidation risk
  • Rebalance cost and effort
  • Available liquidity (to my knowledge, most current NFTX products are not available to borrow/lend yet)

Risks (specific to this strategy):

  • NFT prices broadly increase at a rate faster than the representative industry valuation (aka: thesis is wrong, strategy should have been reversed)
  • Adoption: Is there PMF? (I tend to think ‘not yet’)

Disclaimer: Event spearheaded on the IC side by @Crypto_Texan with support from @Pepperoni_Joe (much thanks!) - I’m just one owl riffing over here. This is meant to drive discussion around a topic rather than an attempt to hammer out a workable product at this time. There appear to a bevvy of currently insurmountable technical blockers to this, but these are the types of unlocks that organizations like The Index Cooperative and NFTX (on-chain indexers) can leverage to provide trustless investing solutions that tradfi organizations simply can’t.

I’ve already dropped a more general question regarding what a potential partnership might look like in the discord channel, and am genuinely interested in ChopChop’s take, and yours - this is merely one potential option I see in a sea of unlimited potential. If you find this topic interesting, please participate in the discord discussion and call: [ June 24, 2021 at 14:00 UTC: Discord ]. Any errors in logic or fact on this post, @mel.eth and I will expeditiously correct.