Decision Gate 2 is the final vote for onboarding products to the Index Coop. A full overview of the product onboarding process can be found here.

A passing vote here signals a commitment by the Index Coop to launch the NFT Blue-Chip Index ($JPG) in a timely manner.

Product Requirements

The PRD for the NFT Blue-Chip Index ($JPG) can be found here.

Passing Thresholds:

• 10% or more of circulating supply must participate (2,181,385 * 0.10 = 218 138)
• 60% or more of participating tokens must vote FOR

The full-text NFT Blue-Chip Index ($JPG) proposal exceeds Snapshot’s character count limit. Below is an abbreviated proposal. Check out this forum post to read the full proposal.

================================================ Title: DG2 - Final - Launch the NFT Index token (JPG) Authors:@JosephKnecht (MoonRock), @oneski22 (Index Coop)

Reviewer: @DocHabanero

1.0 Simple Summary

The NFT Index (JPG) is a diversified portfolio of blue-chip and leading NFT collections. JPG provides exposure to the top NFTs through a single liquid token.

2.0 Abstract

JPG is a index token of blue-chip and premier NFT collections. The index is composed of fungible versions of NFTs including fractional and liquidity vault tokens, curation DAO tokens, NFT currencies, and wrapped NFTs.The JPG token can be implemented using the simple (aka composite) Set Protocol with a medium amount of additional engineering effort.

2.1 Motivation

Non-Fungible Tokens (NFTs) are a revolutionary cultural, artistic, and financial phenomenon. However, despite the massive size and growth of the NFT market there is no NFT index token.

For institutional investors, benefits of an NFT index token include access to a highly illiquid and fragmented market, a single instrument for long/short positions, enhanced diversification, faster order fulfillment, reduced transaction fees, and automatic rebalancing. Advantages for retail investors, in addition to the above, include easier onboarding, mitigating unit bias, and lower capital entry requirements.

2.2 Rationale

JPG is designed to provide liquid access to the top NFT collections through a ‘simple’ Set index token. The tokens are drawn from fractional and liquidity vaults, curation DAOs, and currencies. The tokens were selected based on having high liquidity and sufficiently high market cap. The allocation uses a very high liquidity weighting to minimize the price impact and transaction costs for issuance, minting and redeeming.

In general, there are 4 ways to make NFTs liquid: liquidity vaults, fractional vaults, collection DAOs, and wrappers. Liquidity vaults (eg NFTX, NFT20) let you exchange your NFT for tokens and vice versa. NFTX vault tokens are termed vTokens. Fractional vaults (eg Fractional, SZNS, Unicly) let you turn an NFT or collection into tokens but then require an auction to sell the NFTs. Collection DAOs (eg WHALE, uJENNY, BPT, FISH, APED and many others) have membership tokens, the value of which is backed by the DAO vault. And wrappers (eg WGK, WG0) let you wrap your NFT and receive tokens in exchange.

Feedback from the community included the following points:

• ‘Launch with a simple index.’ Based on this feedback we have decided to launch with a simple index that requires only medium engineering effort according to EWG. We have deferred the ability to trade NFTs directly and restricted ourselves to ERC-20 tokens which provide NFT exposure. We have also relaxed our inclusion criteria to include not only fractional and liquidity vaults, but also curation DAOs, and wrapped NFTs. This has had the added benefit of dramatically improving the underlying liquidity. The sole engineering request is to add support for claiming the ETH from auction proceeds.
• ‘Allocate 10% to Ether’. We have added a 10% allocation to Ether based on a recommendation from @overanalyser. This allocation serves to reduce the price impact at issuance. Additionally, it provides a reserve for acquiring future tokens without incurring the price impact of selling a low-liquidity position. The index may also acquire Ether in the future following a successful auction of a fractional vault.
• ‘The maintenance costs will be very high because of the low underlying liquidity.’’ To address this we have heavily optimized the token inclusion criteria and weighting for liquidity. Also, we have removed rebalancing and dramatically reduced the recomposition frequency in order to minimize the associated AUM decay and gas costs. As a result the maintenance costs will be minimal.
• ‘There are not enough vaults from the Fractional protocol.’ The Fractional vaults tend to have very low liquidity. Only 2 Fractional vaults (i.e., DOG and NFD) met our liquidity requirements and so were included in the index. We will monitor new Fractional vaults for future inclusion in the index.
• ‘Consider using synthetics.’ We are open to using synthetics provided they satisfy the inclusion criteria. The only potential synthetic is $uPunks from Yam Synths. However, this token has negligible liquidity and expires monthly so it would be very expensive to constantly rotate.