Non-fungible tokens, in short NFTs, have become a major success story as an application of blockchain technology. It applies this innovative technology to the world of art, culture and social media. NFTs have taken over the crypto community by storm and are already part of pop culture. To make this new asset class even more broadly available, Scalara launched the Scalara NFT Index NFTI. Scalara is the index provider of DeFi Pulse. In this article we describe the index methodology, its main features, and where users can find it.
The Scalara NFT Index is a basket of blue-chip NFT collections. This means that the index provides diversified exposure to some of the most highly-valued NFT projects. Diversification is one of the main features of indices: It means that users avoid the risk of “putting all eggs in one basket.”
The current composition and weights of the Scalara NFT Index are available on the Scalara website. At time of writing, they include
The index components of the Scalara NFT Index are selected following the index methodology. The methodology’s main objective is to represent blue-chip NFT collections. Therefore it applies:
In addition, the methodology ensures that the index is investable. The methodology requires that the index can be replicated and tracked by a token implementation. Therefore, the methodology excludes collections that have characteristics preventing liquidity providers from efficiently minting and redeeming. These characteristics are for example: low supply, low listing/supply ratio, majority of floor NFTs frozen on main market places.
Lastly, the methodology excludes NFT collections with tangible utility. Only NFT collections that derive most of their value from their art, hype, and status generation are considered.
Finally, the collections are weighted by their floor market cap. To avoid concentration risk, very large collections may be capped.
In order to make the index investable, the Scalara NFT Index uses the vault tokens from the NFTX platform as components. NFTX is a DeFi protocol that converts NFTs into ERC20 tokens. This solves two problems: Firstly, the NFTs are fractionalized and become fungible again. Secondly, ERC20s are the standard for most DeFi protocols like decentralized exchanges or index basket protocols.
In addition, as a result of using NFTX vault tokens, the Scalara NFT Index also adds staking yield to its return. More specifically, the index uses the NFTX xToken version that earns rewards from activity on the NFTX platform.
The Scalara NFT Index was implemented as a single token: NFTI. This token has been bridged to chains with lower gas fees already: In addition to Ethereum Mainnet, it is at this time also available on the layer-2s Arbitrum and Polygon. Hence, it is now possible to get access to highly-valued NFTs at a very low cost.
Users can find the index token available on:
Summary: The Scalara NFT Index NFTI provides diversified exposure to blue-chip NFT collections. By utilizing NFTX tokens the index is investable as a single token. Through the power of DeFi it earns yield on top.