A few folks have asked me about our future plans, and I decided not to go with a roadmap because I didn’t want to box ourselves into a corner before we got started. MixDAO has many things planned to reward our community, and we want to share some of those plans here, as well as some more distant ideas that are not quite as fleshed out yet.
With the launch of Alpha Pass officially upon us, I thought it would be important to go into one of the benefits mentioned in the previous article (the tl;dr for this article can be found here):
We have been hard at work on our first 10k generative project, (which will be the subject of our next article) which we are dubbing our first “seasonal drop”. We have already determined that the price of that collection will be 0.04 ETH per piece, and we are offering each Alpha Pass holder a free claim of one Season 1 NFT. This will make up half the actual “value” of Alpha Pass, as the price of Alpha Pass is 0.08 ETH.
Investing as a Group
When the concept of MixDAO first came about, community members asked me if we could invest & pool funds together to purchase some blue chips. I thought that was a great idea since it would allow us to go in together on some more out of reach blue chip NFTs like BAYC and Cryptopunks. If you want to skip to what our plans are for this, you can skip down to “The Seasonal Drop Concept”.
Existing Fractionalized Projects
When looking at existing models in the space, we considered options like Mutant Cats, Zombie Cats, and Punks Comic. All of these projects share one main thing in common —they all use funds raised from the initial sale of their tokens to purchase a basket of blue chip NFTs that are stored in a community vault. That basket of NFTs is fractionalized using tech from fractional.art, a platform built expressly for this purpose. From their website, we can see that Mutant Cats are:
Mutant Cats is the first DAO that purchases and fractionalizes Cool Cats, CryptoPunks and more valuable blue chip NFTs to be distributed to its members.
The $FISH token represents fractional shares of Cool Cats held in the vault. Each Mutant Cat NFT earns 10 FISH per day from staking.
In addition, each Mutant Cat NFT grants access to the exclusive DAO community and voting rights over the DAO’s assets.
The Mutant Cat DAO will provide holders with exclusive access to NFT drops, periodically claimable NFTs, and much more future utility.
Analysis on Mutant Cats
So all of this is exactly what we want to do, but it presents some problems. The main issue with this method is that the basket of NFTs is divided into ERC-20 tokens ($FISH). $FISH is inherently a really good way to split something into fractions without incurring a lot of cost for the team, but the problem is the valuation. The total amount of $FISH tokens is supposed to represent the value of the entire basket of assets. How do we know precisely how much this basket of assets is worth at any given time? Sure — we could look at the floor price of each individual asset, and I’d assume this is the most fair way to assign a value for the whole. However, without actually selling and locking in a price, it’s hard to tell what each NFT is worth at any given moment because some are extremely illiquid and volatile.
This issue is “solved” by placing a “reserve price” on the entire lot. In order to start an auction, anyone can place a bid on the entire basket by meeting the reserve price. However — the reserve price is set by the community and in the case of Mutant Cats, (at the time of this article being written) is sitting at 548 ETH (~$1.676 Million). Now — the basket of NFTs may be worth that much, but if we add up all the items assuming we use floor price as valuation — we arrive at a total of ~450 ETH. Of course, if we were looking at these NFTs individually, we might value some of them higher, for example the 3 BAYC tokens in the vault. None of them would be considered “floor” apes, because they all have the “Zombie” trait, so if we looked at the Zombie floor, we can add roughly 30 ETH each above the floor of BAYC since that trait makes them more valuable. This brings us closer to the 548 ETH valuation, which leads me to believe the reserve price is set not based on floor, but rather based on rarity.
This is totally fair, and you might be getting your money’s worth if you bought the entire lot, but I think you’d be hard pressed to find someone to buy the entire thing outright (of course, it is totally possible — other VC funds/DAOs/groups all could be potential buyers as well). If everything was valued at floor, you’d be able to sell pretty quickly, as rares tend to be more illiquid because you need to find the right collector to sell to. So, even though the lot may actually be worth the reserve price, you might never find a buyer for the whole basket at market price.
On the flip side, the implied valuation of all $FISH tokens at current market price is ~283 ETH. If you were to buy 100% of all the $FISH tokens, it would cost you that much and you would then be able to claim all the NFTs in the vault. Since the market values $FISH at about half the price of the reserve, we can see the effect that an illiquid basket of NFTs has on token value — it just about halves it. We should also mention that the value of $FISH may be “subsidized” by the value of your Mutant Cat, since you need one staked in order to earn tokens. Since your Mutant Cat is decoupled from the price of $FISH, it has it’s own value, and thus we have a lot of different moving pieces at play which leads to an unclear market valuation.
The Seasonal Drop Concept
To combat this uncertainty of value, we came up with our own novel concept for a system of fractionalization. Instead of having a basket of NFTs that are vaulted indefinitely and might never actually realize a sale, we decided to create a seasonal system where the entire vault gets liquidated at or before the end of the season. Each season will be a predetermined amount of time and have it’s own multisig vault with NFT purchases chosen by the community.
The inaugural season will consist of 10,000 generative art ERC-721a NFTs with varying rarity. The idea here is that each NFT will represent your slice of the community wallet. After the initial sale is done, proceeds from that sale will go to the community wallet and be deployed to purchase blue chip NFTs that the community will have a chance to vote on. Throughout the season, the community will decide whether to flip NFTs for a profit, cut losses, or just HODL until the end of the season.
At the end of the season, whatever has not been sold yet will get sold at market value, and the claim window will begin. So for example, if there is 500 ETH in the community wallet, you will be able to redeem 0.05 ETH per Season 1 NFT in your wallet by burning it. This opens up a bunch of interesting decisions, however. Each NFT will have it’s own unique art, traits, and rarity so you may not want to burn it (since it may be worth more than the base value backing it, or you may just really enjoy the art).
For those that want to cash out after the end of the season, they can burn their token and redeem ETH. For those that want to continue their journey, they can burn their NFT & roll the ETH backing the NFT into the next season’s vault! Rolling your value over will also give you an allowlist slot for the next season to mint at cost. For those that want to keep their NFT art for whatever reason, the third option is to burn & swap your NFT for an identical 1:1 version of it on what we’re calling our “Hall of Fame” collection. You will not be able to redeem the ETH backing if you choose to go the “Hall of Fame” route, but you will be automatically given an allowlist slot for the next season to mint at cost.
These decisions lead to gamification of the collection, and the idea is that the “Hall of Fame” will be pretty limited and cross-season. We think this will be a really cool opportunity to showcase the “best of” MixDAO projects over time as the seasons progress. Trait rarity and aesthetics will all play into these decisions, as the value of the NFTs themselves may greatly exceed the so called “backing value” of the claimable ETH from the community wallet. Either way, MixDAO participants will benefit from any “Hall of Fame” rotation because the ETH backing those tokens will rotate to the next season.
Season 1 Drop & Alpha Pass
The mint price of tokens for each upcoming season will be equal to the finishing price of the previous season. The price to mint a Season 1 token will be 0.04 ETH. This is where the value of the Alpha Pass will start to grow over time. Right off the bat, each Alpha Pass holder is entitled to one free claim of the Season 1 drop. Alpha Pass holders are also automatically allowlisted for all future MixDAO projects, including Season 2, Season 3, Season 4, etc!
Of course I will go more in depth for our plans in future articles, but this was extremely lengthy so I will wrap it up here. Looking forward to Season 1!