Hello Index community, today I’d like to introduce the Metaverse Index.
Summary
This year has seen the bolstering of an already widespread trend, the increase in communication intermediated by a computer screen. Whether that is voice chat in Discord, live streaming on Twitch or business meetings over Zoom, the world is moving to a more persistent virtual environment. That’s before we talk about the rise of console and computer gaming which is set to grow in revenue by 30% over the next 3 years.
It has been said that the biggest changes happen at the intersection of two technologies, and I think with blockchain and virtual reality there is just such an intersection. I thought initially about calling this a gaming index, as a primary example of this emerging sector is what Sandbox are doing with in-game items and their related marketplace, but there are so many more applications of the technology it made more sense to refer to the ‘Metaverse’. So while there are a lot of projects in the crypto space focused on gaming, examples like Decentraland offer so much more with the ability to host events, build headquarters and run a business all in the virtual realm.
Consequently the tokens that make up this index would represent more than simply the performance of the underlying projects, each one has unique uses that can include creating in-game objects or purchasing virtual plots of land. Enjin even created a whole new token standard to enable these converging ideas to flourish [1].
[1] Enjin Blog: NFT News, Guides and Insights | Enjin
Motivation
The opportunity here is to create an index that rewards long term investment in a decentralized and virtual future. Holders of the Metaverse Index are taking a view that the future of entertainment, sports and business will shift to a virtual environment and that transactions will take place on the Ethereum blockchain within this metaverse.
Questions and Answers
What do we call it?
Well I suggest the Metaverse Index, ticker $MVI (Meta is already taken and might also be confused with mStable’s MTA token). I also like the idea of including an I at the end of every index ticker as this makes each Index product more easily identifiable and strengthens brand identity. Of course the community might feel differently, I’ll leave that for another IIP!
Size of the opportunity?
Unlike the current craze for yield and the narrative of blockchain replacing traditional financial systems, the gaming/VR sector is flying somewhat under the radar. If we look at the mainstream gaming market, it’s currently valued around $155b (2020) predicted to rise to $200b by 2023[1]. A quick back of the envelope calculation for the top 5 crypto gaming projects (using MANA, ENJ, SAND, UOS and CUBE) gives a market cap of roughly $360m, that’s 430x smaller…
In terms of holding virtual meetings and other remote working opportunities, ZOOM’s current market cap is $140b [2]. One stock. 140 billion dollars. What happens when we are all meeting in the local Decentraland office? Popular crypto educator Alex Saunders of Nuggets News is looking to build a HQ in Decentraland and established businesses like Rarible and Matic are already there [3]. In the last month there have been a number of forums and conventions held in Decentraland and prominent figures in the crypto space continue to use it as a way to engage with followers.
Finally, aside from the gaming and virtual meetings that can take place inside these projects, there is also the ‘virtual object’ aspect, underpinned by Non Fungible Tokens (NFTs). In Somnium space, Decentraland and Sandbox it is possible to use their tokens to purchase objects or land as NFTs. As mentioned earlier Enjin have created a technology that allows user created content to move between games, something not seen in the world of Sony or Microsoft. This adds some depth to $MVI as the underlying tokens represent more than just face value, they are a substrate for virtual creativity.
[1] Report: Gaming Industry Value To Rise 30%–With Thanks To Microtransactions
[2] Zoom Video Communications, Inc. (ZM) Stock Price, News, Quote & History - Yahoo Finance
[3] https://decentraland.org/ (walk over to crypto valley)
How is it different?
I have seen the proposal from Michae2xl [1] which has some overlap to my proposal, but as that index is for NFT’s specifically I think there is a difference between the aim of each. $MVI is a straightforward bet on the the world moving to a more virtual environment to conduct both business and pleasure. I would not propose $MVI holds NFT marketplace governance tokens like RARI, or tokens like WHALE or GHST which have more limited scope related to collectibles. These are however perfect for an NFT index which aims to capture growth in digital scarcity.
To make it clear, in the future any tokens that might be added would have to fit the criteria of something that furthers the adoption and utility of the metaverse. That could be tokens that are used to purchase/create objects in a virtual environment (MANA, ENJ), as something that facilitates or bridges across the gaming space (RFOX, WAX) or as the underlying token for a creative/entertainment economy (UOS, BAT).
I understand this is subjective but I would welcome community engagement to help solidify exactly what would be permitted in $MVI and flesh out stricter requirements. What I propose here is a starter to ensure investors can capture a long term trend that is only just beginning.
In terms of differentiating from other products that exist this isn’t a yield farming play, it functions more like a traditional equity ETF in that it simplifies the expression of a particular trade. In this case the belief that virtual environments hold huge growth potential over the coming years. A similar product in the tradFi world is the Van Eck e-sports ETF [2]
[1] NFT Pulse Index - #9 by Michae2xl
[2] https://www.vaneck.com/etf/equity/espo/overview/
What is liquidity like? (all figures from Uniswap, ETH pairs, correct as of 12th Oct)
SAND $2.6m Uniswap Info
UOS $0.85m Uniswap Info
ENJ $0.8m Uniswap Info
MANA $0.2m Uniswap Info
CUBE $0.03m Uniswap Info
RFOX - ERC20 token planned for October 2020 DocSend
WAX - Should be considered but the tokenomics are complex and may not be suited to holding the token in an index. WAXE needs to be staked in a contract to receive the WAXG governance token which accrues value through burning. I will need to discuss this with someone who knows what they’re doing before proposing to add the token! https://wax.io/blog/coming-to-wax-a-new-wax-tokenomic-model
BAT $1.2m I have not included in the main group as I would like to get the thoughts of the community on how the token fits into the metaverse theme. I like the idea of a flywheel based on rewarding users for their data which can be used to tip content creators, it facilitates growth of the metaverse after all.
THETA - not on Ethereum but is the type of project that will grow as the metaverse does and represents exactly the kind of project that should be included in future
Who is it for?
This is by no means a large cap index. To begin with it will be more suited to smaller investments either from smaller investors or as a portion of a larger portfolio. As discussed already the index is designed to express the fundamental idea that the space has large growth potential and anyone investing now is an early adopter. Of course as the space begins to realise it’s full potential the market cap will grow and MVI with it.
Methodology
Market cap rebalancing will be based on the DPI set methodology and frequency: assessed monthly during the 3rd week and implemented on or after the first business day of the following month.
Selection of the $MVI tokens would be based on the following basic criteria*:
- Protocol total market cap must be over $15m
- Uniswap liquidity must be over $0.2m
- Protocol must have at least 3 months history of operation
- An independent security audit should have been performed on the protocol and results reviewed by index community and set manager. In the case that no audit has been performed, a community vote can take place based on subjective judgement of the protocol, with a weighting reflective of the increased risk
- In the event of a security issue the set manager should work with the project team to understand the issue and any effects to the $MVI holdings. Upon resolution the index manager and community should review together and vote to keep the token or not
- Tokens in the index should not be staked into a time locked contract
- In the case of a token being staked and providing yield, the interest should be added to the set to compound value
- Additions and deletions can be first discussed and then voted on by the community, they must however meet minimum requirements above
- The index manager will be responsible for seeking new additions and steering discussion around the index, working closely with Set team for technical implementation
*I intend to create a more formal and detailed set of criteria if and when this proposal gains traction.
Portfolio example
I included the price change to help illustrate volatility as it was one of my concerns when thinking about the portfolio. For comparison tokens that make up DPI have seen downside of around 57% percent (looking at you, YFI) in the last 30 days. So now I don’t feel it’s a major concern.
Author background and commitment
I have been invested in crypto since 2017 and recently quit my job as a mechanical engineer to become a trader/investor full time. My goal is to have a provable track record worthy of becoming a social trader on token sets cough Sassal if you are reading this! cough.
I’m passionate about the idea underlying the creation of this index and bullish on the future of the virtual space, I would be prepared to work with the team up until the launch of $MVI to overcome issues, design and implement the index and manage the community polls/discussion. Once launched I would need to understand what is involved with rebalancing but given the simple market-cap calculation I would expect it to be manageable with technical oversight from Set.
In terms of the thesis behind this index, I would never propose something that I wouldn’t want to invest in personally. The DPI index is great and I picked some tokens up during the recent pullback, I would certainly want to add MVI in future as I believe it has great long term prospects. As for actual figures it depends on the depth of liquidity at the time but I would add 18 ETH to an MVI/ETH uniswap pool for at least six months to help seed liquidity.
A little depends on how the Index Coop and Set relationship shakes out, it’s still not entirely clear to me how this is all designed to work. Certainly the way I have treated it when drafting this proposal is that the Index Co-op exists to allow everyday users to generate and build an index proposal, leaning on community members for marketing and the Set team for technical implementation when the time comes. I have no marketing or smart contract skills so while I’m keen to learn and push the product, MVI will rely partly on Index Co-op and Set team to launch successfully.
Fees
Fees should be kept simple on what is a very simple index.
I propose:
- 0.55% fee on holdings first 6 months, charged per block. This is a subsidized rate initially to incentivize growth of AUM.
- 0.95% after 6 months also charged per block
- 0.3% fee on sale of the index to discourage selling but not arbitrage (should be tuneable so it can be adjusted)
This is in the same ballpark as the VanEck esports product which currently has a net expense ratio of 0.55%, with a 0.44% reimbursement until Feb 2021, so will likely rise to 0.99%.
Fee split
As no precedent has been set I’m happy to be flexible based on feedback/community votes but for this particular index proposal I suggest the following:
- Fees split 50/45/5 between Set team/Index Coop/Proposer (me) for the launch and during any liquidity mining event.
- After the initial launch period (end of liquidity mining or 3 months, whichever comes last) 50/50 split between the index manager(s) and Index Co-op treasury as this will be a community created Index.
- Ideally I would like to see this proposal through to launch and continue to manage the Index thereafter. If it is the same as being a Social Trader then I should have the capacity to do it, if it takes more technical knowledge then the Set team will have to support. Hopefully the community call this Friday will shed more light on this.
Whats the downside?
As shown in the onchain liquidity section some of these projects have lower liquidity on Uniswap and as such weightings will have to change accordingly. If we assume this index will be 10-20x smaller than DPI (based on market cap being roughly 20x lower between top 10 MVI and DPI tokens) that would mean a target of $0.5-1m invested in MVI over the first 60 days. Based on current Uniswap liquidity this would mean MANA weight would have to reduce and potentially CUBE too. The mere act of launching the index and beginning to purchase these tokens should naturally bring more LP’s to the pools, however we could consider rewarding INDEX to LP’s on smaller pools to help increase liquidity. This will have the added bonus of spreading the word to a wider group about the index, a group that is already aligned with the vision of what $MVI aims to achieve. I think this is a great opportunity for the Index community to deploy some of the treasury for the benefit of the protocol overall. If MVI is voted for by the community I will put together a plan for liquidity mining in greater detail.
As a nascent space built on a nascent technology the index would likely be quite volatile over short timeframes and holding for 6+ months would be recommended. The volatility also reflects the large upside potential for these projects and as such it is a high risk high reward index. Having said that, as mentioned earlier the volatility of the proposed MVI tokens are in most cases a lot lower than that of the DPI index which has been a runaway success.
If tokens such as WAXE and WAXG are included there will be more complexity in the contract and during any rebalancing.
With reference to WAX I am aware of my own limitations as the proposer of this index but will work with the Set team to understand the technical limitations of this index proposal and how they might be overcome. Clearly the ability to stake benefits holders and Index overall so it would be good to include if possible.
As with everything built on Ethereum there is underlying smart contract risk.
Ok, so what’s the benefit?
- Reduced gas fees when compared to buying/selling tokens individually
- Volatility of individual tokens is offset by holding an index
- Simple way to capture a broad market trend based on the idea of the metaverse, without having to constantly research and rebalance a portfolio
- It’s a unique product. To carry out the same trade today you’d have to buy tokens individually or create a Balancer pool and risk impermanent loss.
- Opportunity to use the Index treasury to increase relevant Uniswap pool liquidity and thus awareness of the wider Index protocol
- Potential to be first community proposed index
Next Steps
- Community feedback on this post will determine any changes before a vote is put forward to create the index
- Awaiting the outcome of the community call this week to understand how Index Co-op is supposed to operate
- Will speak to Michae2xl about splitting the NFT index to reduce overlap between that and MVI. I definitely see them as two separate trades and think there is room for both.
- If feedback is positive I will create a proposal for Index farming on smaller token pools to increase liquidity prior to MVI launch
- I will draft a more detailed set of criteria for adding tokens to MVI
I appreciate this is a long post so thanks for reading and I look forward to your feedback. DFC
Further token info
