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Audio and transcript from the April 14th, 2022 installment of “Conversations with the Coop” with Caps - Founding Member of FloorDAO and Product at NFTX.
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Crypto Texan: All right. Hello, everyone. Welcome to Conversations with the Coop. This is where we source questions from the Index Coop community to gain insights from today's leaders in crypto and DeFi. I'm your host, Crypto Texan and on today's episode, we are joined by Caps, who is on the product team at NFTX and the co-founder of FloorDAO. Caps, thanks for being on the show with us today. How are things going in the NFT world?
Caps: Thanks for having me on. Things are going pretty well. Volatile as always, and volumes are up and down. But yeah, we are building in the MetaFi world now and it's an exciting place to be.
Crypto Texan: Yeah. And before we get into what MetaFi is, do you mind sharing with us your background and how did you find yourself in the DeFi and NFT space?
Caps: So, going back all the way to 2011 was when I first heard about Bitcoin, this was at the time where I was playing a lot of online poker. Poker was banned in the US, a famous, I think it was called Black Friday at the time, or Black Thursday I forget now. But yeah, online poker was banned in the US and that was around the same time that Bitcoin was coming to prominence, and made it clear that there was... Back then it was play money. It wasn't considered to be anything that would be of any major value. But it was like a bit of a sign that alternative money was being created. So, I had an interest in there, built some like Web2 businesses out around crypto. And then in 2016, got into Ethereum. Again, it's Web2 side only.
And then it wasn't until 2020 when yield farming started to go quote, unquote mainstream with compound that I got into DeFi. And then went through the whole of DeFi summer and up to the end of that year, just hugely immersed in all the new applications and things that were coming out, and just having experimenting and playing with those protocols. Then I stumbled across NFTX in February or January of 2021. What was really striking about NFTX was that DeFi summer had ended and the hype had died down, but then NFTX had come out with this product that was combining NFTs with DeFi. And yeah, super, super early in what I think is now becoming quite clearly a big, big trend. So, I've been at NFTX for last year as head of product, and then has spun out FloorDAO as well on that.
Crypto Texan: Yeah. It's interesting. You talk about Black Friday in poker, because I think I was in college when that happened and I was playing quite a bit of online poker at the time. What websites were you using for online poker back then?
Caps: Yeah, so that was PokerStars and Full Tilt, but mostly PokerStars.
Crypto Texan: Oh yeah. I remember Full Tilt. I was doing Ultimate Bet for a while too.
Caps: Yeah, I forget, was it Phil Hellmuth was a big Ultimate Bet guy?
Crypto Texan: Yeah, that's right. Yeah, he was, yeah. Oh, that's just interesting. Wow, that takes me back. Good times. Anyway, but yeah. So, you were on the product team at NFTX. So, what does that mean exactly to be on the product team? What's your day-to-day like there?
Caps: So, building out features, integrating the Web3 technical elements as well. So, interfacing with all the smart contracts that we've got deployed as in the NFTX protocol and improving UX, improving UI. And yeah, hooking up all the technical stuff and planning where we're going to go. For example, we're looking at a more specific MetaFi product right now, but yeah, day-to-day is working with UI and the dev teams to connect it all together. My background's also pretty technical having built a lot of websites in the past and also messed around with solidity quite a bit. So, it was a good spot for me to tie the technical smart contract side into the front ends and make it all work together nicely.
Crypto Texan: Yeah. And you've mentioned MetaFi twice. So what, what's your definition of MetaFi and is that just the intersection of the metaverse and DeFi or how would you define that?
Caps: So the need for MetaFi or a term that describes the kind of mix between NFTs and DeFi. So, I'd say up until NFTX launched, these two worlds were very separate. So, you had NFTs and you had DeFi, but there was absolutely no way you could start doing yield farming strategies with NFTs and there was nothing in DeFi that would be work with NFTs. So, there's a need for like a name, which is combining DeFi and NFTs, which we always just used to call just like DeFi plus NFTs. Now, I think there's GameFi is being used, but I think MetaFi, even if Facebook is trying to cover up the name Meta, I think, I think we do well to push hard on the MetaFi because it is basically turning metaverse assets into financial assets as well.
Crypto Texan: Yeah and NFTX is a pretty great example of that. I think the majority of the people at the Index Coop are familiar with NFTX as it is a constituent in our metaverse index index. But could you explain for the audience and probably those who might not be aware, what is NFTX and what is its importance and significance in the NFT metaverse space?
Caps: So NFTX makes illiquid JPEGs liquid again. So, what we do is the NFTX has... and it's permissionless, so anyone could create a vault in NFTX, but any NFT. So, let's take the punk vault, for instance, like Crypto Punk vault, anyone can deposit a Crypto Punk into the Crypto Punk vault and mint a Punk ERC20 token off the back of that. And that ERC20 token is then backed by any of the Crypto Punk NFTs are in the vault. So, you are pooling all these NFTs together that were previously non-fungible, and then you're minting a fungible token that's backed by those NFTs that are in the vault. For this reason though, it only works for floors. So, NFTX is for items only. We can pool these floor items together and create this fungible token because everything at the floor is considered to be equal or roughly equal value.
Yeah, the value can be roughly equal because there's a lot of value in minting the Punk token from depositing. So, people are quite willing to put... even if it's slightly above floor, they'll be quite happy to mint a Punk token by depositing their NFT into the NFT vault and they lose access to that particular NFT and instead, they have a claim on the vault, like a random NFT within the vault. So, it's not for using with assets that you really have some connection with, but it's just useful for any floor assets that you're not too attached to.
Crypto Texan: Okay. So essentially, NFTX takes non-fungible items like NFTs and makes them fungible by basically a token that is collateralized by a pool of that collections' floor-level NFTs. Is that fair to say?
Caps: Yeah, that's exactly right. And it unlocks a few things. So, NFTX is actually what we turn it into and it was originally like an index, where it was going to allow you to speculate on the value of Crypto Punks by having this Floor token that you could track. But now it's actually turned into a marketplace. So, that ERC20 Punk token can be burnt to redeem a specific Crypto Punk from the vault. So, if you see a Crypto Punk gets dropped into the vault and you actually think, "Okay, I'd quite like to take that out." You would buy the Punk token on Sushi and then burn that token to then redeem the NFT. What we do is rather than buying one Punk token to redeem one Crypto Punk NFT, you'd have to buy like 1.03 and that extra. .03, like 3% additional, goes to the LPs. So, the people that are actually providing liquidity to allow you to make that purchase of the 1.03 Punk, and that starts generating yield for people that put their Punks into the vaults. This of has this flywheel effect of the more volume that happens, the more fees that happens, the more LPs come into the pool and so on, and it just scales that way.
Crypto Texan: Okay. So, the users are individuals that stake their NFT inside the vault, get the benefit of now having a fungible token and they also generate yield it on top of it. So, those are the two main benefits and can you purchase these minted tokens just on the open market, like Sushiswap or Uniswap?
Caps: Exactly. So, NFTX at the moment uses Sushi under the hood. So, you can just buy Punk tokens on Sushi, but we will move to Uniswap V3 eventually. So, you can start playing with concentrated liquidity strategies as well. One of the selling points as well around NFT X is the other side of this trade. So, the buying stuff is kind of cool, but you can buy assets that are listed anywhere quite easily with other markets, but with NFTX, you can also instantly sell. So, in the same way, it's kind of like the reverse flow. So, with selling, you would put your Crypto Punk into the vault, you'd mint your Punk token, and then you would sell that Punk token on Sushi straight away for the ETH. So, you have this access to instant selling and we recently introduced instant swapping as well, which works in a similar way.
Crypto Texan: Right, so that is nice because typically on an NFT marketplace in general, you do have to wait for a buyer. You set your price, you wait for a buyer. So how does NFTX determine what the floor price is of a Floor vault token?
Caps: So, that's in the same way that any token would have the price determined on Sushi. So, it's just the pool waiting, like 50/50 pool waiting just is being traded and that moves the spot price up and down. You have then the spreads of that price, so like the difference between the buy and the sell and that difference becomes smaller with the more liquidity that's added. So, if you get closer to the spot price, the deeper the liquidity goes, which allows for more trading and more volume and more fees for the LPs that are supporting all of this activity.
Crypto Texan: So, who are NFTX's competitors in this space? I know that there's Nifty Museum is one, but do you also... I guess if it's becoming a marketplace. Do you also see OpenSea and Lux as competitors as well? And then how do you feel like NFTX stacks up against those competitors?
Caps: We are a marketplace, but I don't think we consider ourselves first and foremost a marketplace. We are really a liquidity protocol. So, our key metric is around liquidity and if we can increase liquidity, which we just so happen to do by creating this marketplace function, because that drives fees and then helps to deepen that liquidity. But yeah, liquidity is our main thing and in terms of competitors, I believe NFT20 is the main one, and Nifty Museum, but I think the liquidity protocol that they've got is NFT20 and that's a similar thing. I haven't looked too much into them lately, but yeah, they have a similar idea of pooling floor assets and minting fungible tokens as well.
Crypto Texan: Yeah. But I would say that with the rise of NFT marketplace aggregators, like Gem.xyz And Genie, it does make NFTX feel more like a marketplace than, I guess a liquidity provider. But you feel like you're more of a liquidity provider than, than the former. So, I don't know, what kind of impact do you see aggregators, NFT marketplace aggregators, having on the space in general and NFTX as a protocol?
Caps: That's a really good question. Aggregators are part of the midterm plan that we had was looking at NFTX marketplace as like a proof concept and showing people that you could use NFTX liquidity to actually do marketplace activities and then the idea at that point would be, well we demonstrate the proof of concept and then aggregators will plug into our inventory. They don't need permission. This is the great thing of Web3 and all this composability is the Gem can just use our liquidity. We didn't know they were, they just built it out and plugged it in. These are huge volume drivers for NFTX. I don't have the numbers, but I keep a track, just like an anecdotal track, of everything that's happening in terms of activity in NFTX. I'd say half of the activity on the buy side is through Gem and there's is some through Genie as well, but predominantly Gem. These aggregative wars that are probably going to come, and they're ultimately offering a better experience than OpenSea, I think, these are going to drive significant volumes to us. So, LPs are going to really, really benefit from this kind of aggregator competition.
Crypto Texan: Yeah. As a liquidity protocol, I don't know. I guess my next question is, what is the importance of a liquid floor for an NFT project? What significance presents itself for a user that holds an NFT to get instant liquidity? What is the importance of that liquid floor?
Caps: Yeah, if you got a real liquid floor, then you know you can exit anytime and you'll be paid a pretty decent market rate. So, there's some comfort there knowing that there won't be a lack of liquidity, so you won't have an issue exiting. You'd also be able to swap your asset as well. So, you can have instant swaps if you want to like trade up, which is something we're going to introduce to NFTX. But if you want to trade up your asset, you could and also swap for other floors that you might prefer. There's some kind of nice effects there. And also you don't need to cut undercut the floor if you're trying to sell. Some people try and get instant sell OpenSea, so they'll to cut the floor and that's not healthy for the project really. So, it's good to have this kind of instant sale price.
Then you have composability, which is where MetaFi comes in. So, with the liquid and FTX vault you can then have a price oracle from Sushi, or from UV3 once we move with there and that price oracle will allow DeFi apps to use the token, because now they've got a reliable price feed to conduct liquidations and other things. So we're already seeing, for example right now, one of the benefits for Wizard, Forgotten Runes, is... they're now in RARI, so we've got enough liquidity in Wizard to create a price oracle, and the same goes for Punk as well. Users can now use their Wizard Floor token to borrow from RARI and they could then apply that you could borrow stable coins and do some farming strategies and they can actually deposit their staked Wizard, which is yield earning NFTX Wizard, and then borrow stable coins against your staked Wizard position and then you can earn additional yield on top. So, you have now these yield stacking abilities.
So, this is much more for the financial user. The average NFT user probably not so fussed about this, although I think they might find it more interesting in the future as there's more products built out. But yeah, composability is definitely a big one. Then finally, there's also Punk as money or Wizard as money, actually using these fractionalized NFTs for day-to-day payments in some way, or bonuses, or using them to incentivize work for a project. Wizards could start paying contributors in actual fractionalized floor Wizard tokens, which is kind of cool.
Crypto Texan: Yeah. Are there any projects doing that right now? And just looking conversely at the Ape token, that was dropped, all the Bored Ape Yacht Club, what are the benefits of using, I guess, a community token that's collateralized by the floor assets, versus air-dropping your own community token out of thin air?
Caps: Yeah, good question. There's probably a lot more tokenomics and flexibility you have around an Ape coin. You can mint as much as you like, you can distribute it in any kind of way you like, whereas if you're using the collateralized NFT coins, you have to have that collateral in the first place, then it's just a little bit less scalable in that sense, but there's a lot more reality to it, it's fully backed where maybe there's more speculation with just a minted coin like Ape. So yeah, I imagine it's more like the capsule efficiency of just being able to mint a coin and throw it up on the market.
Crypto Texan: I guess you have more of an opportunity to create your own Ponzinomics with one that you just mint out of thin air probably.
Caps: Yeah, for sure, for sure.
Crypto Texan: So let's talk about FloorDAO, which is built on top of NFTX composibility. What is FloorDAO, whose idea was FloorDAO? And was this created to address a need for NFTX specifically or the ecosystem in general? I just asked you like 10 questions, so take your time.
Caps: So, starting from the start, I guess, FloorDAO was an idea from a conversation at the pub back in June last year, which was more thinking, "Oh, how can we help build liquidity for NFTX?" We think we have this awesome product that honestly, the yield that could be generated, it's just stuff that people just won't know about. How can we showcase this and demonstrate it? Originally it was going to be a quite a simple... or some kind of just capital raise that would then go and acquire assets and put them into NFTX. And it kind of evolved from there around the time of Olympus with their bonding mechanism. FloorDAO took on that idea of a way to do continuous capital raising, but then continued down the path of, right, let's build a ... I guess yeah, to sum up FloorDAO's vision, it's basically building a treasury of yield-generating blue chip NFTs. So, making acquisitions of NFTs, like floor sweeps, putting them into NFTX, earning yield on those and then extending that to other collections. So, that's where FloorDAO is at now and how it's evolved. I forget the other question, Texan, if you don't mind jogging my memory?
Crypto Texan: Yeah. Was this kind of idea generated to address a specific need for NFTX, maybe around liquidity of certain NFT vaults? Or was it created more to just generate revenue for the DOA that you were creating? Or maybe both?
Caps: Yeah, it is both and the DOA... So the DOA is only owned, like 2%, is owned by NFTX because NFTX provided this 500 ETH loan to kickstart the floor liquidity, and then the rest is like 6% to the team and then like 1% to advisors. So, it was really important from the start that FloorDAO would be... it's not decentralized in the sense that there is multisigs involved currently, but at least the token distribution is heavily weighted towards community. So, like 91% is community. We didn't want it to be an NFTX tied thing. I don't think it can work and I think if you've got a goal of acquiring 100, 200 Crypto Punks, you can't have that treasury just sat with a handful of people.
So, the goal is very much to have this owned almost like a public good, but there's definitely other sides to it. And yeah, the Floor token holders also deciding, where should these assets be deployed? I think for now, the obvious plate is NFTX, and maybe there will be other strategies that come out that are higher yield generating, but they don't seem... we're still very early. So, who knows like where that goes, but yeah, it's not tied to FTX.
Crypto Texan: Okay, interesting. So, what is the process that FloorDAO goes through in choosing which collections to add that Floor liquidity to? I guess you're not really deciding which to add Floor liquidity to, you're choosing which floor, or which NFT Floor you want to sweep, in order to add to the treasury. So basically, how do you decide which projects receive the liquidity or which projects that you add to the DOA treasury?
Caps: Yeah. So, it's all voted on by Floor token holders. So the way it works is communities fill out like a research report, which is follows a particular framework that puts the case forward, does this NFT have the potential to generate significant yield for the FloorDAO treasury? Is there going to be high volumes for whatever reason? And is there potential capital growth, what might that look like and why, and how. Once that's been done, then there's a collection crew that reviews and just sense checks everything and after that, it all goes to vote. So right now, there's a vote up on Floor.xyz, and that vote is to decide on which NFT collection to put into the FloorDAO treasury next. So currently we've got Crypto Punks, Mutant Apes and Wizards. The next vote is at the moment, being a race between two emerging assets and there's a fair amount of backstory to this as well, but it's between Milady Maker and Tubby Cats. So, we're now seeing what we thought we might see, which is communities really seeing an opportunity here to direct the FloorDAO treasury into building liquidity for their collection, because of all the benefits that these projects understand from having that liquidity.
Crypto Texan: Okay, interesting. So, how are these communities, I guess, getting their name on the ballot? Well, I guess it's important to talk about the tokenomics of the Floor token as well, because you've got similar to how Olympus DAO operates, you've got the Floor token, and then you've got the sFloor, which is staked floor, and then you can wrap the staked floor into gFloor, which gives you governance or the ability to vote in governance proposals. So, are these NFT DOAs, or NFT communities acquiring gFloor in order to put their name on the ballot? Or what are they doing to make that happen?
Caps: Yeah, they are. So, in the very first instance, it was, it goes through this research report template and to review. After that, once they're actually up to vote. Yeah, anyone could buy the Floor token, stake it for gFloor and then vote. We did see that with Milady, that one of their core team was ... rallied their community around to kind of buy up Floor and vote and then dump Floor straight away afterwards. So, there was almost like a civil attack, kind of a semi governance attack, although very well-intentioned and lighthearted, I think, and like an indication as to the kind of dynamics we might see play out, but currently, you'd have to have gFloor and then moving forward as we move the floor protocol on chain, because a lot of the stuff is off chain at the moment, but once you move it on chain, then you have the buying vote kind of angle as well, which you see with Convex and Curve, if you're in the DeFi world.
Crypto Texan: So, just like there's the Curve wars and the Tokamak wars, there's the future potential for there to be Floor wars as well?
Caps: Yeah and I think probably much stronger and more, more exciting than maybe some of these others, because there's just so much passion behind a lot of these communities. The discord today in FloorDAO was just completely manic because Tubbies and Milady Maker were fighting it out for who might be next in the treasury. There's just so much more ... even if it's not more financially at stake, it's just more as a community, like you really want to see the success of your project and you're tied to that artwork. So, there is potential for some really heated and exciting votes in the future.
Crypto Texan: So, aren't people selling their gFloor votes, or bribes, I guess, is the term that's used in a DeFi space. Is that something that's happening right now in FloorDAO?
Caps: Not right now. We are looking at Redacted who launch their hidden hand bribing mechanism as another way to give utility to gFloor in that, other people can use, through you, use your gFloor to vote for a collection they want by paying you. So yeah, we're looking at that. I think we wanted to test the water to see how much demand there was for voting in these things. But clearly there would be some level of bribing because then it would mean that these collections don't need to actually maybe put up a big outlay for purchasing gFloor. They could just do a much more capital efficient bribe in that sense.
Crypto Texan: Yeah. Could you foresee a situation where let's say, Tubby Cats wins and you have that liquidity in your treasury now and you're generating revenue off of that. Could you foresee a situation where all the Tubby Cat communities, holders, they sell their gFloor and then now the gFloor holders remaining in the DAO say, "Okay, well they've old all their gFloor. Let's sell that Tubby Cat liquidity," and, I guess, redirect it somewhere else. Is that something that could happen in the future?
Caps: There's like a social contract here, which I was in the original vision. I guess it's always open to change, but I'm personally quite keen that this stays in place, which is that when a collection's added to FloorDAO, liquidity won't ever come out, it will only ever increase. So, liquidity for a collection that's in FloorDAO would just have its liquidity added to all the yields from NFTX will be compounded. We have this rough goal in mind of each collection needing to have a 0.5%, or at least under 1% price impact on a single purchase or sale. Once we get to that point, the yield that's being earned could start being sold or profit could be taken, but the liquidity that's there needs to stay there. That's the value of a FloorDAO asset, is one that's going to only get more liquid over time.
Crypto Texan: Yeah. So basically, once the Floor NFT collection is added to the treasury, that treasury is holding it to zero?
Caps: Yeah and I think that, yeah, Floor holders need to kind of recognize that and make these decisions based on long-term value rather than what might be a very fly by night trend, which is going to always happen. I mean, we start off with blue chips, so we have Punk and Mutant Apes, not necessarily blue chips, but ones that have gone through a bear cycle. They've experienced some pretty rough times and come out the other side, but then there's going to be some allocation that's going to have to be towards more like speculative plays and still in those in instances, it's all in and it' liquidity only goes up. There's no selling, there's no dumping of the token or anything like that.
Crypto Texan: Yeah. Can you imagine any, I guess, unforeseen implications of a non-blue chip NFT DAO or NFT community accumulating gFloor to add to their NFTX vault? I mean-
Caps: Like a full on governance attack?
Crypto Texan: Yes, yes.
Caps: Yeah. I haven't run the numbers exactly how much that would cost right now to go against some of the larger holders, which I know are extremely aligned with the longer term vision. So, you'd be talking about millions of dollars to make that play. While we have these social contracts in place and every asset that gets voted in gets a bonding pool and potentially gets swept, if something was like a real clear governance attack, you would have to be fully confident in the DOA actually executing those transactions and to spend millions of dollars on something that isn't on chain and deterministic, is just quite a ballsy play. So, I'm not sure if anyone would necessarily have that level of confidence to do that, but once we move on chain, then absolutely those... to stop any kind of governance attack really do need to be strong because at that point, it's completely out of anyone's hands and it's very much more adversarial.
Crypto Texan: Yeah, absolutely. I think you touched on this a little bit earlier, but just want to dig in a little bit on what does the current treasury make up look like? I think you said Punks, Mutant Apes, and wizards right now. Is that an accurate breakdown of the FloorDAO treasury? And then also, are those successful investments so far? What does that breakdown of the FloorDAO revenue stream looks like because of those investments?
Caps: Yeah. So, I'll have to of pull up some of the yield, but in terms of treasury makeup, yeah, we've got 7.5 million of Punk ETH liquidity, and then about 1.3 million of Wizard ETH liquidity, and then about 850K of Mutant Ape ETH liquidity, as well as some singles-sided, non-liquidity assets. So, maybe we could talk about it as well, but yeah, it's not just liquidity that earns interest. With NFTX at the start of the year, we introduced something called Inventory Staking. So you didn't need to take on the risk and the capital of providing ETH-paired liquidity. You can actually just stake Punk, and you can just stake Wizard, and you can earn a percentage of all the fees without any of the permanent loss risk or anything like that. So yeah, we have about 500K of Punk, just single-sided staked, and then 250K of Mutant Apes as well.
So, it's a bit of a mix, but we want to focus more heavily on liquidity. Then we also have our critical and liquidity of like the Floor WETH token as well, which is about like $6 million of liquidity there. So, that's the makeup of the treasury. In terms of yields, we've seen a lot of volume in the Wizard vault, everything that's been going on, they've got Beasts coming and they've got Warriors coming. Alexis Ohanian from Reddit recently announced, I think, some investment in Wizard, so there's been quite a lot volatility there.
In the last, I forget exactly how long it's been, I think it's been just over a month, or yeah, about a month. We've earned about 8.3 Wizard tokens from our liquidity. So, that's about, what is that at the current price? It's like 8.3 times 3,000. So yeah, that's currently about, I think, 80K or so on that 1.25 or 1.3 million of Wizard ETH liquidity, and that's in about a month. So, our run rate is like a 50% APY or 58% APY, or APR I should say, this is not compounding. So, if we get this right with, with collections that have significant yield at significant volume, then the yield can be extremely high because the fees on NFT trading is just inherently higher than on ERC20, like Uniswap trades.
Crypto Texan: Yeah. I can only imagine, with an NFTX Uniswap V3 integration, that less slippage for the vaults deeper liquidity and higher yields, that would only be better for the Floor DAO treasury too, correct?
Caps: Spot on, yeah. One thing I'm particularly excited about is the 1% fee from Uniswap V3. So yeah, we got concentrated liquidity strategies that we can apply, but unfortunately it isn't possible to stake concentrated positions in NFTX, at least not in our first version of this because it's extremely complex to try and do that. So, it's still a full range Uniswap V3 position, but we get the 1% fee and we also get the inbuilt price oracles as well. But the 1% fee would just mean that for something like Punk where there's much less NFTX vault activity, but there is a lot of trading activity. If we're earning like 1% fees, especially if we start looking at Punk getting involved in DeFi in the sense that it could be used to take out loans, so we have liquid liquidation volumes and we'd have volumes for re-balancing of index funds and that kind of thing, that 1% fee on Punk could be a really significant yield generator over time, especially given that we have like 25 Punks, I want to say. There's not a huge number of punks going around, so owning the Punks and owning the liquidity for Punks, right now may not seem like a crazy, great opportunity, but I have a feeling that in the years ahead that it could be a very important piece of liquidity to own as an asset.
Crypto Texan: Yeah, absolutely. I think another thing that we talked about earlier was FloorDAO's initial funding. You said that a large portion of it came from NFTX in a loan, but there's also 91% community ownership. I think the initial funding was through Copper, the Copper Launch protocol, correct? So you actually had this aFloor token initially, which you could then convert to Floor after the launch. I haven't heard a lot of a lot of projects that have gone through the Copper Launch protocol process, so I just wanted to get your take on what was that process like?
Caps: Yeah, it was really good. I mean, in terms of setup, I can't say. I wasn't privy to that, so I don't know exactly how smooth it is to set up, but basically it's a reverse Dutch auction, but the auction you can be bought and sold at any time. So, it's not like you buy in and that should a price. If you buy in, you can then sell again, during the duration of the auction. So, there's lots of trading activity that happens while the auction's going on and the price just falls over time and it increases. If there's lots of demand suddenly, then the price goes up, and if there's none, then it starts declining again. So yeah, very cool mechanism. What was really interesting as well is we didn't take any seed rounds. We didn't take on any investors. We had a core team from NFTX that was more than capable of building this thing out, but we did need liquidity to bootstrap. And rather than take on investment from someone that may want to exit at some point, the benefit of what we did with NFTX was we took a 500 ETH loan and paired that ETH with the aFloor token. So, there was like $3 million of liquidity just straight off the bat, and that allowed the sale to happen, then the loan, which was interest free, was paid back at the end of the auction.
Then as a result, NFTX got 2% allocation. That 2% is almost certainly never going to be sold because NFTX has a very strong interest in holding those tokens and directing governance. So, we've like got away with this bootstrapping of significant liquidity and size without having to take on any investment at all, so there's no like seed or anything that's got this 50X gain that they really need to exit at some point. So, I really hope we see more of that kind of thing moving forward.
Crypto Texan: Yeah, absolutely. I might need to get Copper Launch Protocol on the podcast, I think that would be a really interesting one, but that's just the side note. So, let's talk about FloorDAO and its comparisons to Olympus DAO, just the similarities and differences there, because I think on the surface without digging in, if you look at the Floor, sFloor, gFloor tokenomics, I think an outsider could just say, "Oh, this is just another OHM-Fork." So, in your opinion, what are the difference and similarities and why is FloorDAO different?
Caps: Yeah, that's a good question and a good criticism as well from a lot of people. So, first of all, like the reason for using Olympus was that they have a very cool bonding mechanism and we're using their V2 protocol and it is a great way of bootstrapping a treasury. That was the purpose of V2, of Olympus V2, that the fork that we did was to bootstrap the FloorDAO treasury. So, it's not like a long-term... we don't want to become the reserve currency of NFTs or anything like that. We are looking at it as a very midterm bootstrapping exercise, and then moving on from there you have VE models and just other interesting things that we can look at that involve vote locking and rewards and bribes and that kind of stuff.
So, that's the initial goal with the Olympus fork. And then in terms of how we differ, really the main difference is, well, first of all, we don't have insanely high APY as a lot of Olympus forks do, nothing inherently wrong about that as an initial launch, but we want to get as closer to what's sustainable in terms of what the treasury's actually earning. And that's like the next point, is that the yields that we earn with NFTs is way, way higher than what you might expect from a treasury that's just got ETH or a treasury that's just got stable coins. You might be getting like 15%, 20% with a stable coin strategy, with what we're doing with Wizard for example, it's a 58% yield over the last 30 days without even thinking about compounding at that point. Sorry, that's an APR, so that's extrapolate for the year, but the yields that we get on NFT treasury are much higher and that kind of can justify more the kind of reward rates that you get for staking floor. And then over time, phasing it out so that we're not doing these reward rates, and it's coming much more from the sustainable organic yield that's being earned through the strategies that we deploy.
Crypto Texan: Yeah. And Caps, why are the yields on these NFTX vaults so much higher for LPs than in other parts of DeFi?
Caps: So, every time someone sells into an NFTX vault, they pay like a 10% fee. That 10% fee is, it' fairly reasonable. You're getting instant liquidity on your sell. You might find OpenSea fees, being like 5% or so. So, that trade into the vault generates this 10% fee and then that fee then goes to LPs. That's quite sizable chunk on what is relatively small liquidity. When there's volatility and if the liquidity's large enough, then you can get lots of volume that generates enough fees that the APRs suddenly are really quite high. 58% is quite middle of the road for NFTX, you have like Tubbies and Miladies, which is like 300%, 600% right now there's no pool two, there's no governance token boosting that there's purely just yield from trading activity.
So, a big part is just that with NFTs, there are higher fees. You just don't get that kind of yield from trading other assets. So yeah, there's just a lot more to be earned as an LP, for LP-ing NFTs. And obviously, it's not without risk as well, but yeah, the rewards do help balance that out.
Crypto Texan: Yeah. You also mentioned that maybe the sFloor, gFloor tokenomics model is temporary, and you might move to a more of a VE floor model in the future potentially. So, are you saying that you might not use bonding in the future to drive NFTs and liquidity to the DAO's treasury? Or would you just use proceeds from other investments to deploy to other, I guess, LP positions in NFTX?
Caps: Yeah, so that's a good point. Bonding will likely remain for the foreseeable future, but the economics behind it will be more around handing over the bonding parameters and decision-making to token holders and then rewarding them for bonds that are successful and that sort of thing. So yeah, but I think bonding is going to remain as an important aspect of generating capital to then purchase these NFTs, or to just increase the treasury size, but it'll just be done in a different way that isn't just as simple as the Olympus V2 model is currently.
Crypto Texan: Yeah. With the Curve war comparisons that we've made related to FloorDAO, have you received any criticisms of, like we said, similar to an Olympus fork, that it's a Curve fork, or what are the differences there in your mind?
Caps: Yeah, we definitely got concerns from people that you don't want to have a Convex style DAO spin up and take full control of governance for Floor, or at least take like a really heavy stake in Floor and determine stuff that's out everyone's control. So, that's something that we're looking at with the tokenomics and the upgrade here, but it's so early on that, we're just exploring different architectures at this point. Even a VE model isn't necessary exactly how it's going to look, but just something that is different and adapts to what we've learned from everything that we've done the last few months.
Crypto Texan: Well, okay. Let me think here. Yeah, I guess, what are some other topics maybe that we haven't touched on during this conversation that you wanted to make sure to address about NFTX or FloorDAO?
Caps: I guess NFTX, maybe NFTX is a really low... because there's a lot happening in metier at the moment. There's a lot of borrowing and lending protocols that are coming out. I think with NFTX, I think there's probably a lack of understanding that NFTX has been able to power borrowing and lending for a really long time. So, the Punk token, for example, was in RARI maybe six months ago, and anyone who had Crypto Punk, a floor Crypto Punk could have minted it to NFTX and then borrowed stables against that Punk token from RARI. So, any vault that goes into NFTX is immediately capable of doing anything that DeFi apps are currently doing today. So, it is interesting to see what's happening, but yeah, it'd be great to see more integrations into just ERC20 vault tokens because those DeFi apps already exist and it's relatively trivial to add these NFTs into existing DeFi architecture.
Crypto Texan: Yeah. It almost makes it seem like in your example, that the Floor Punks maybe have a little bit more utility, then you're more rare, sought after Punk attributes. Would you say that's fair?
Caps: Yeah, yeah. It's much more efficient, so with a rare asset, you have to go through these like valuation models and stuff, which I know that people are working on and maybe there's a way of handling that at scale, but with Floors it's really easy. There's no permission. There's no review. You just, you just deposit your Floor and it's immediately financialized. So in that sense, definitely more utility. There's yield that you can have with it. I was saying before you could stake your Punk token and then borrow against that staked Punk token. So, you've now got two yield-generating strategies stacked together. For me, and I would say this, it's like all Floors in my mind should just be ... if you don't have like a particularly personal attachment to them, they should just be in NFTX at the moment, or in something, doing something to generate yield off the back of it because yeah, Floors are great. A perfect fit to be financialized, in my opinion.
Crypto Texan: Yeah, absolutely. God, that's so interesting to think about, I guess the next question is, are you familiar with the Index Coops upcoming new index product called the JPEG Index?
Caps: I am, yeah. Not hugely familiar with, but yeah, saw this a few months ago now.
Crypto Texan: Yeah. Well I'm supposed to ask how excited are you for JPEG? That came from one of our methodologists behind the JPEG, Joseph.
Caps: Ultra pumped. How many NFT vault tokens are in it?
Crypto Texan: Actually I think we only have one at the moment, and this is what's great. This is very helpful of what FloorDAO was doing, because it helps provide that liquidated because we don't want to run into a big issue on slippage if we have a large position in a specific NFTX token. I think Punk might be ... maybe XMON, is that one of the ...
Caps: No, it probably is Punk because that is the most liquid by quite a distance and that's fair, and that's one of the criticisms that we have is there is still risk with these. If it's not liquid enough, it might be liquid for a user, but it might not be liquid enough for an app that needs to have guarantees around availability of liquidity, or slippage, or whatever it might be.
Crypto Texan: Right and do you feel like FloorDAO is helping to provide that solution in for NFTX?
Caps: Yeah, that would be the hope is yeah, we reached... something like Wizard could get in there and be in your index because it's got deep enough liquidity. So I mean, if you guys ever had benchmarks as to what level of liquidity would be needed, that would be really helpful for us because a big part of what we're doing is trying to reach a point for each these collections that we add, is try to reach a point where they become very useful in DeFi. We don't want to get to some halfway house where they're they're liquid, but they're not liquid enough. We want to make sure that they get the full DeFi treatment.
Crypto Texan: Yeah, absolutely. That makes sense. Well, we'll make sure that y'all get connected if you're out already on that, but yeah, it looks like... and this is Alpha for those of you who are listening live because, I mean the index will be coming out soon. I will say, I can't say how soon, but this episode is being recorded. It'll probably get out next week, so I don't know, maybe it'll be out sometime around then. But what we have so far preliminary for underlying tokens is Punk, Whale, XMON, SOCKS, DOG, which I get is like the fractionalized Doge, I think is what that is.
Caps: Yep.
Crypto Texan: And then K21, ASH, and then Jenny, but the uJenny token and I'm not familiar with that project actually. But yeah, that's what it looks like so far. So another question that we like to ask our guests on this show is what are some other maybe lesser known, innovative DeFi, NFT, metaverse-related protocols that you are paying attention to, or you think are really interesting, that you think that other people should know about?
Caps: Yeah, that's actually a tough one. I'm head down so much for the last, well, year and a half that it's been a hard time paying attention. I went from like DeFi mania, just finding every new project, to really not being too familiar. I mean, obviously Sudoswap is one that is an interesting take. I really want to learn more about that. It sounds kind of like a V3, use for V3 for NFTs. That would be very interesting to hear about. There's obviously a big trend in borrowing and lending. So, I'm paying attention as to how viable is ERC-721 borrowing and lending with all the valuations that have to come with on with that versus, a Floor-based borrowing and lending platform. So yeah, all I know as well though, is that there are just constant DeFi meets NFT products coming out, Insert Finance is another one, that we've been speaking to and just for me, it seems clear that there's going to be a MetaFi summer, that's going to be the big trend this year anyway.
Crypto Texan: Yeah. Well, outside the cool cats, what are some other NFT projects that you really like?
Caps: Oh man, I have to open up my portfolio. Doodles, for sure, a fan of ... I mean, we got Wanderers, CrypToadz, more stuff from last year and going further back than that, I haven't paid too much attention, picked up recent ones, where I picked up Milady, just because they did such a monumental effort getting into FloorDAO discord and shielding their bags. It was great, so I've been picking up Miladies too, but yeah, again, my collecting and trading days are on hold for the time being while I just spent so much of my energy just building right now.
Crypto Texan: Yeah, and I completely understand. Yeah, when I ask the question about what are your favorite upcoming projects that people should be paying attention to, and if I have someone on the show, who's working on a project, who it's fresh out or they're about to launch, they usually say, "I have no idea. I've been working." So, that's how that goes. But anyway, yeah, we're up on time and out of questions, but Caps, thanks for being here with us today. Anything else you want to touch on before I close this out?
Caps: No, I think that's everything. You asked some great questions. So no, thanks for the chat.
Crypto Texan: Yeah, absolutely. Yeah. To everyone listening live in the discord. Thank you for listening live. This is being recorded and we will get this out to you in about a week. Caps, thanks again. Appreciate you coming on.
Caps: Cheers, take care.
Crypto Texan: Cheers.
Host: @Crypto_Texan
Audio Engineer/Mixing: @LloveraFrank
Marketing Images: @crypto_diller_
Transcript: @0xMitzy / @Crypto_Texan
Conversations with the Coop - Caps - NFTX/FloorDAO