NFT3.0 era: Why is NFTX not yet popular?

Recently, NFT market aggregators like Gem and NFT lending protocols like BendDao are on fire, but oddly NFTX, the form of NFT + DeFi, is still unknown. What’s wrong with NFTX itself? Does it still need to be saved? The author will elaborate on this issue in this article.

Complex Design of NFTX

NFTX is actually a good NFT indexing platform, where you can find the most popular NFTs on the market. But NFTX’s DeFi will be simpler and more complex. Users can convert a basket of NFTs into ERC20 tokens, which can then be exchanged with NFTs.

NFTX has two types of funds, D1 and D2. The D1 fund consists of NFTs themselves, D1 tokens represent the NFTs in the fund, and D1 tokens own the NFTs in the pool at a 1:1 ratio. The D1 token then acts as a component of the D2 fund, and many D1 tokens can be grouped together to create a more diverse asset index.

DeFi can make this fun. In particular the mechanics of D1 tokens and how they value assets in D1 funds, then the first fundamental question arises. In a D1 token, every asset in its D1 fund has exactly the same value. But the problem is that when the asset values ​​in the pool are different, the arbitrage space appears uncontrollable. It is very likely that users have no incentive to add above-average NFTs to the pool. These pools are not only dedicated to floor assets, but over time they are traded for less valuable assets as some assets actually rise from the benchmark price, allowing fund owners to hold the cheapest in each category assets that are not attractive in terms of yield.

Mechanism problems of NFTX

Problems with NFTX include unreasonable token distribution, most tokens go to a few NFT whales, 10% goes to founders, and no funds are reserved for other team members and future development. Poor initial distribution coupled with a lack of future funding pools may be the reason the project has been tepid.

In the long run, almost all pure blue-chip NFTs will outperform their index offerings, as the pool average in the index always tends towards the floor price. This complex and inefficient design, in addition to attracting a small number of users who understand both NFTs and DeFi, actually defeats the purpose of the index. D2 Fund improves the source of asset diversification, but destroys its simple original design, so its products have a very narrow audience, which also led to the near silence of NFTX during the NFT boom. In the long run, this model has no value at all for token holders and fund participants, and most of the gains are used by traders to arbitrage.

However, the NFT index will undoubtedly be the inevitable development area of ​​NFT + DeFi in the next stage. It’s too early to see the leading projects in this space, which means there’s still plenty of room for NFTX to tweak it. The incentive system of NFT value requires a more flexible index prediction design to provide a breakthrough for the index market and smart contracts. Decisions about the value of NFTs may be best combined with AI and big data algorithms. Without this core infrastructure, many key NFT index products are doomed to be failed.

How does NFT market valuation pay off?

Valuation models are critical to NFTX’s index products. How to incorporate a reasonable valuation model and its participants into the project and the token economy is an important topic, so the people who are ultimately paid from the index should be the ones who contribute to the asset valuation. The valuation of NFTs in the index is a core part, so it is important to find a predictor that can reasonably reflect the value of the index product in NFTX.

NFTX can consider combining excellent algorithm teams and yield farming to form a more accurate NFT valuation model, and the index design should have incentive consistency and network effects. NFTX can change its thinking and find more stable asset prices. Currently, real estate is one of the few NFT underlying assets with stable market price consensus. So if NFTX wants to quickly find a breakthrough, it can consider this field.

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SuperChain Capital is a venture capital and investment banking service organization oriented towards ecology and value in the crypto sector.

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SuperChain Capital

SuperChain Capital

SuperChain Capital is a venture capital and investment banking service organization oriented towards ecology and value in the crypto sector.

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