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The NFTX Opportunity
What's the cost of illiquidity?
Damodaran defines illiquidity as “buyer’s remorse” — the difference between the price you paid and the price you get if you change your mind after purchase.
In the crypto world, this can be manifested in two different ways. For fungible tokens, it’s a bid-ask spread in the order book. For NFTs, it’s the price you pay for a given NFT and how much you get to sell it right after.
You can notice already that the second proposition is far more challenging to measure. Many NFTs don’t have a liquid enough market. Exemplifying with Hashmasks: the price you have to list for immediate sale is maybe as low as 0.3 or 0.4 ETH.
We’ve discussed NFTX before, and it’s no secret I’m a big fan of their product. It’s a real painkiller, and hard to find that in the world of NFT’s where most protocols or companies are “nice to have” and not “must-have”.
But what happened yesterday was a real-time case study of their use case.
The NFTX team deployed the $MASK fund, where you can deposit Hashmasks and get one $MASK token in return. MASK is tradable on SushiSwap, and has decent liquidity considering it was launched yesterday — 200k+, now trading at 0.54 ETH per mask (price seems to be trending down now)
I sold a couple Hashmasks below market price when I wanted to get rid of them fast. This was clearly suboptimal. When $MASK was released then, I deposited more masks, because the price per ETH was hovering around 1ETH. It was a good deal.
The next step was to actually become a MASK/ETH LP. I don’t have a great experience with LP, but I felt like, since my view on HM was pretty neutral, LPing in this pool could be an interesting way to position, collect some fees and support liquidity for a product from a project that I believe in, NFTX.
By going through the process of minting MASK —I still need to redeem one to go full circle — and thinking more about it, I realized there’s actually an additional use case for funds: swaps for NFTs
The NFTX business model will be to charge a fee on redemption/minting/swap, like an AMM. Pretty unique value proposition, and currently there’s no competition for that. One suggestion Alex Gausman, founder of NFTX, proposed is to have users to pay extra to swap to a specific mask from the pool.
I’m comfortable now holding positions in NFTs I like, but don’t want to take the illiquidity cost.
I’m not really attached to a single item (maybe I’ll be to my first redemption MASK or PUNK). I just enjoy playing the NFT game.
Needless to say, I bought more NFTX.