In this episode, Bobby Ong, co-founder of CoinGecko is joined by Joël Hubert - Co-founder, NIFTEX. Bobby interviewed Joël on the background of NIFTEX, their updates for NIFTEX V2, their NFT bundle, as well as Joël’s advice for beginner NFT collectors.
[00:02:38] What is NIFTEX?
[00:08:01] What happens to the fractionalized NFT when there’s a bid on it?
[00:19:09] Updates on NIFTEX V2
[00:27:00] Interesting stats on NIFTEX
[00:31:45] NIFTEX’s R64X NFT bundle
[00:41:02] Thoughts on NFT on Layer 1 chains
[00:44:08] Advice for beginner NFT collectors
Quotes from the episode:
“Coin Artist from Neon District, she fractionalized herself and you know, and she used this coin as like a community membership, proof of community membership.” [00:20:27]
“If Almace would have remained in one piece, we always say it might've traded a few times in the year and it might have done a few hundred ETH in volume. But then when we fractionalize Almace it did like a thousand ETH of volume in the first two, one or two weeks” [00:25:22]
“I think for beginners, they're going to be super confused with these fractions of NFT stuff. And so they just need to have a very solid foundation in NFTs themselves, so I would advise them to start with arts.” [00:44:47]
Watch the Podcast on YouTube
NIFTEX - https://www.niftex.org/
CoinGecko - https://www.coingecko.com/
NIFTEX on CoinGecko - https://www.coingecko.com/en/exchanges/niftex
Bobby Ong [00:00:00]:
Welcome to the CoinGecko podcast. I'm your host, Bobby Ong. Each week, we will be interviewing someone from the blockchain industry to learn more about this fast moving cryptocurrency economy. If this is your first time listening, then thanks for coming. The CoinGecko podcast is produced each week to help you stay ahead of the curve. Shownotes can be found at podcast.coingecko.com. I highly encourage you to join our newsletter, where we send out top news in the crypto industry every Monday to Friday. Come back often and feel free to add the podcast to your favorite RSS feed or iTunes. You can also follow us on Twitter and Telegram at CoinGecko.
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Bobby Ong [00:01:41]:
Welcome to the CoinGecko podcast. For today's episode, we have Joël Hubert, co-founder of NIFTEX. Joël has degrees in Econs and Finance and got into blockchain from 2012 and NFT in 2017. He's a self-taught full-stack developer with background in on-chain corporate governance and a passion for digital scarcity. He co-founded Metalith, NIFTEX's parent company in 2019 to provide advanced tooling for the NFT markets. So NIFTEX is very interesting project. Disclosure, TM and I invested in NIFTEX as angel investors and what NIFTEX does is basically fractionalizing NFTs. So rare NFTs, which could cause, for example, like the Beeple's piece costs millions of dollars. You fractionalize them and get it for smaller amount. So yeah. Very happy to have you on the CoinGecko podcast, Joël.
Joël Hubert [00:02:26]:
Thank you, Bobby pleasure to be here.
Bobby Ong [00:02:28]:
Yeah. So I guess to start things right, Joël. So I tried explain NIFTEX, but I don't know if I did justice in trying to explain NIFTEX. Do you have a better explanation of NIFTEX than I do, for example?
Joël Hubert [00:02:38]:
Uh, Yeah, so I think NIFTEX is first platform of its kind for the fractionalization of NFTs. And the concept is pretty simple, right? If you're looking to, you know, have a little liquidity out of your NFT or if you're looking to maybe build like a governance, a little DAO around your NFT, do a creative campaign with it, or you want to add a fraction of the NFT, then you can use NIFTEX to do that. So all you kind of have to do is bring your NFT, put it into custody, which is a smart contract, just to expand, which is auditable. And in return, you get ERC-20s, which are nicely compatible with the rest of the blockchain infrastructure that represent pieces of that NFT. So those are the very basics, which are very simple. And then you get into more advanced things, for example, how do you get the NFT back? Because once you've fractionalized that NFT, you kind of want to make sure that there's an efficient way of getting the NFT back. Otherwise, if you can't get it back, it means that the fractions are potentially worthless, right? Well, one easy thing you could say is, okay, you can get the NFT back. You can get it back from custody, if you have a hundred percent of the fractions. But the problem is once those fractions have spread out across the blockchain, across many different wallets, it's very unlikely that you'll ever be able to recover all of them, right? Because people disappear or they lose access to the private keys or many other reasons. So we said, okay, we need kind of like, we need to enhance these ERC-20s. These tokens represent a piece of the NFT. We need to enhance it with some additional kind of like governance clause that can allow you to get the NFT back more efficient.
And so we also introduced when we first launched last year, there's the, what we call it back then the shotgun clause, which we call nowadays the buyer clause, but in the end it's kind of the same. It's inspired from traditional governance. It means that if you own some of the pieces of an NFT, you have the right to make an offer for all the other pieces. And then people have to respond, you know, positively or negatively. And according to that, you can either get the NFT back or you are bought out by everyone that disagrees with that. So we kind of like pioneered a bunch of stuff, right? So we started building your NIFTEX in January, 2020. Back then there was no NFT hype. NFT market was still pretty small. We have no idea if people would care about pieces of NFTs, if fractional ownership was a concept that lived with users. And so the first NIFTEX that launched in May, 2020, it was very much a proof of concept. But we ended up doing a decent amount of volume in our markets. So back then we also used Uniswap to bootstrap the markets for these fractions of NFTs. And we ended up doing a decent amount of volume, which kind of validated our thesis. And then, you know, we said, okay, let's take it to the next level. Let's really build this POC out into something that is production ready. That is usable by everyone that takes in all that feedback, all that experience that came from the first situation and really starts pushing fractionalization as a part of the NFT stack.
Bobby Ong [00:05:24]:
Yeah. Were you guys the first to fractionalized NFTs in the market?
Joël Hubert [00:05:29]:
Yeah! We were. Well, okay, so, nuance, before we started, as far as I'm aware and I'm not like a blockchain historian, but as far as I'm aware, there was one other project that kind of combined fungibility and NFTs, and that was Wrapped CrytoKitties. So WC0, right? I don't know the exact details of WC0 because it's not super high profile, but I do know that they kind of pooled generation zero CryptoKitties to make them more accessible and easier to deal with. And then if you own, some of that fungible tokens that WC0 that you were allowed to claim back an origin kittie if you want it. Right. So that already existed. And there was kind of like an instance of what our platform enabled. So with our platform, theoretically, you could create many more WC0s. Yeah, but I do think that in terms of like the [inaudible] industrial fractionalization, we were pretty much the first.
Bobby Ong [00:06:22]:
You know, that buyout clause that you guys implemented in NIFTEX, sort of reminds me a little bit of like the on block rule in Singapore where the government's will say, if 70% of the condominium owners like decide to sell their units to a third-party developer, then everyone else, whether they agree or not, will have to kind of accept that and sell. Was that kind of like the inspiration how you got the buyout clause idea.
Joël Hubert [00:06:47]:
Yeah. So one of the other names for this is the drag-along clause and so what you're describing is exactly this drag-along, right. So you've got the majority that wants to do something and the minority is not able to kind of counteract this, or resist, and it's just kind of like dragged along. So definitely the buyout cause we didn't invent it. It already existed in traditional governance. I think it's actually quite common. Especially for smaller startups where, you know, one founder wants to go one direction, another founder wants to go another direction. And so you need these mechanics to, you know, solve these conflicts, and that was something we were trying to figure this out and then we spoke to some that had a lot of experience with these clauses and said, you know, why don't you look at the shotgun clause, the drag-along clause as a method of dragging people along with you, because this is the problem of blockchain is that you don't have a small group of people that you can talk to on Telegram, or in person, or anywhere else, right. You have all these anonymous addresses. It's really hard to reach these addresses in the first place. So when you decentralized control over an asset like an NFT, you're going to have a really hard time speaking to any of these people, right? So you almost need a such clauses that drag along people automatically, to be able to achieve this type of governance on-chain.
Bobby Ong [00:08:01]:
Let's say there's an NFT and then there's been fractionalized and someone makes a bid on this NFT, and then what happens then, the process, like do people who host the token, the fractionalized tokens, do they need to kind of decide whether to approve the buyout? Yes or no? And then is there a quorum on how many percent of people that has to vote before this buyout takes place, for example?
Joël Hubert [00:08:24]:
Right. It's pretty simple. So if someone has made an offer, so has started like a buyout round, then there are two options for those that are on the receiving end. So I'm holding some fractions, someone else made an offer. I have two choices, either I approve this, in which case I don't have to do anything. So this helps us a love with this dragging along of people on the blockchain, right? You don't need their input. You just kind of assume that they approved because they haven't said. And the opposite requires explicit actions. So if I want to reject this offer, I have to buy out the person who made the offer at their price, right? So you made an offer for 90% of the fractions at one Ether each. That means that if I disagree and I hold, you know, the remaining 10% I have to buy you out at the price of 1 Ether for all the 90% that you own. Right. And the reason why I have to buy you out at the price you offered is to ensure that people make fair offers. Because if you make a lowball offer, right, if you make an offer of a few Satoshi per fraction, or a total evaluation that is very, very low, then I have to be able to punish you to do that because otherwise you can just spam, and spam, and spam. Right. So what you're doing with the system when you're making a low offer is you're kind of painting a target on your back because you're saying, "Oh, I want to buy your fractions at this very cheap price. But because of the mechanism, I'm also giving you the right to buy me out at that price, right. So I am also offering my own fractions [inaudible] at a very low price. And then if I get bought out because I made such a lowball offer, I get punished and it's the exact opposite of what I'm trying to achieve, right? So by giving others the right to buy me out at my price, we're making sure that I will make a decent offer to start because if I don't, I run the risk of losing my fractions.
Bobby Ong [00:10:18]:
And so, I mean, you mentioned, I make an offer of 90% of all the fractions at say, less than $1 per fraction, for example. But does the 90% work? Do I need to already own some fraction before I can make a bid? Let's say, there is a NFT that's fractionalized a rare Mystic Axie that's fractionalized and I don't own any fraction, but I want to buy out this entire Axie that is fractionalized. So do I need to already have some fraction before I can make a bid or can I just go in and just put a high-ball number? Yeah, I'm just curious to hear.
Joël Hubert [00:10:50]:
Right. So this comes back to spam prevention. So in the first version of NIFTEX, we allowed you to make an offer, even if you own some very, very small amount of the fractions, but you could not make an offer if you didn't own anything. However, as long as you own 0.0001% you were allowed to make an offer. And what we saw was that people that have 0.0001% don't have much at stake. So they were still not deterred from making lowball offers and we still had a decent amount of spam. So that's one of the things that we really took with us to NIFTEX V2 and said, you know, we're going to improve this. And with NIFTEX V2 you now have a minimum threshold percentage ownership that you need. So you need to own, for example, 3% of the total supply in order to be able to make a buyout offer. So we can make sure that you have something at stake and you're going to be serious about your buyout offer. Otherwise you kind of just wasting everyone's time, because it's unlikely that anyone will ever agree with your lowball offer but you can continue spamming it if you don't have, you know, actually can just buy like a very small fraction over and over again. Right. So with NIFTEX V2 you have greater, I think, greater restrictions in terms of the offer you can make, however, what we're also introducing with NIFTEX V2 is local governance, which means that you have kind of like a mini DAO around each NFT or set of NFTs that has fractionalized, and one of the things you can do with the DAO is change, for example, this threshold, this buyout threshold, right?
So if you don't like the minimum 3% and you want it to be more, or you want it to be less, you can make a governance proposal and say, I want to change it to 1% or 5%, and then everyone else that owns a fraction of this NFT, you know, like normal governance in a DeFi, DAO or something will accept or reject your proposal. And very excited about this. This is slightly less, you know, the governance side of things is slightly less financial and more about just organization and kind of encouraging very small ecosystems to kind of emerge around NFTs and sets of NFTs. And of course, people to work together towards a common goal, which again, I don't think was really possible.
Bobby Ong [00:12:54]:
So for example, if I have 3% of a rare Mystic Axie for example, what I need to do to buy out this thing is to make a bid on the remaining 97% that I don't already own. And then if, I can still make a lowball offer, but then the remaining 97% of the token holders will have to kind of buyout whatever that I have made an offer, and if...
Joël Hubert [00:13:16]:
Bobby Ong [00:13:17]:
I make a stupid low offer, then I lose out on my 3%, that sort of the right way to think about it?
Joël Hubert [00:13:23]:
Exactly. And you're making life easy for them by offering a low price because they get to deal with that same price against you. Right. So they get to buy you out for cheap, and get rid of you for a low amount of money. Well, the whole point is that if you would've made a decent offer that actually gets close to the market value of the NFT, they would have to take it into consideration seriously and say, okay is this offers something the price at which I would sell my fractions or do I have the money to buy this person out, right? So when you're trying to buyout someone that made the initial offer, you can also pool your Ether. So people, the 97% can pool their Ether together to buy you out. It's not like one other person needs to buy you out. It can be a group of people that buy you out.
Bobby Ong [00:14:08]:
And it's the default answer is it a yes or no. So like once I made this offer to buy the remaining 97% is the owners on the token, the remaining 97% to kind of reject my offer or if they don't do anything it is accepted automatically?
Joël Hubert [00:14:23]:
So if they don't like it, then the owners, it's on them to reject it by buying you out, they have to buy you out to get rid of. If everyone approves, and this is where you kind of have like the special approach where, which is nice because you don't have to involve everyone on the blockchain, then no one has to do anything. And then after a period we see, okay, has there been a counteroffer, if there has been no counteroffer, then you get control of the NFT or the set of NFTs, and they get the Ether that you offer initially.
Bobby Ong [00:14:51]:
And what's the timeframe for that drag along for the offer to be accepted or rejected by the...
Joël Hubert [00:14:57]:
So, in NIFTEX V1, we decided to do this in a two week period. So for two weeks, people can consider this offer and see how they like it. You know what they're going to do? Are they going to organize themselves to buy you out, etc., etc. But in hindsight, or not in hindsight, but we kind of later on it became clear to us that two weeks was kind of long and that everything in crypto is permanently on steroids and it goes very fast. And so in most cases, people will have made up their minds within the first few days. And so for NIFTEX V2, we've reduced this to five days only, right. But again, you have that governance, kind of mechanism where you can say, I want to increase this period or I want to even decrease this period even more. So what I'm trying to say is all these things that we're discussing, things like constants of like two weeks, 2% minimum, all of this, NIFTEX V2 is such that you can change all of these things for your fractions if you want to, right? So you can lower the buyout partials, you can increase durations. You can even do this for the governance proposals themselves and duration of the governance's proposal and the minimum required and such. And on top of that, you can also buy a governance to make use of the rights of NFTs. So if you have an ENS domain name or a Decentraland parcel, when you own a Decentraland parcel, you have the right to build something on that parcel, right.
Or appoint someone that can build on that parcel. And the problem is that when you fractionalize such an NFT, it goes into a dumb contract and a dumb contract doesn't know how to use this NFT. So you kind of lose the rights. And the governance that I mentioned, these mini DAOs actually allow you to continue making use of these rights, which we think is really. Something with a, quite an amazing amount of potential. Even now, already, you can imagine that maybe you have a big Decentraland estate or in another virtual world, a big amounts of parcels on which you're building something that generates money. So you can, first of all, organize yourselves as a group of people that own this land, right? So the financial pressure is distributed across people. And then if this land generates revenue, then you can redistribute it among these people. So you've got these like mini shareholder structures kind of that we think have an insane amount of potential. I mean, these are obviously early days, but if NFTs really start making a digital impact into general digital world this is going to be huge by itself.
Bobby Ong [00:17:09]:
Yeah. Yeah. I completely agree. I mean, as you were saying that, the thought that came to my head was kind of like, renter agreements on digital land because digital lands are going to be, it's so expensive these days, and people are renting them to build their galleries, for example, on three months, one year basis. But yeah, and then having a fractional ownership and distributing it across at a fraction will be pretty interesting, I would say. Do you already have such fractional lands on NIFTEX?
Joël Hubert [00:17:35]:
And so actually like the very first NFTs that we fractionalized were our own NFT, so of course to test our platform. And so we had a decent amount of Decentraland parcels, so we fractionalize those, but like I said, for NIFTEX V1, we didn't have access to governance. So you lost the rights there, and that's definitely is something we wanted to solve for NIFTEX V2. So for NIFTEX V2, we haven't done, I think, any really official NFT governance actions on the main net yet. However for the test that we did something pretty cool. I don't know if you're familiar with Async Art, the NFT art project, right? So Async has this like painting that they divide into layers. And each of these layers is an NFT. And then when you own one of these layers, you can set the content yourself, right? So you can change the background of the painting or colors or symbols asorsomething, which is really cool. And so what we did on testnet uh, and they were very generous with providing a layer to us, is I took this layer that allowed me to change the contents of the painting and I fractionalized it. And then of course these fractions were distributed across different wallets, different people owning this layer. And then I made a governance proposal to change something in that layer, and that's all on-chain. So, I made this transaction that I propose to change something on that layer and then it passed the governance and that layer was effectively changed, so this an example. So that's something we [don't test after this, an example of how people can come together and coordinate on how to make on-chain state changes like distributing Ether, changing the content of the layer, changing the builder for a parcel, etc.
Bobby Ong [00:19:09]:
Very interesting. So you spoke a lot about NIFTEX V2. You kind of briefly mentioned some of the updates that are coming with V2. Any other changes that are coming that you haven't really mentioned yet with V2? It's live on Ethereum main net now as well, right?
Joël Hubert [00:19:22]:
Yeah. So it's live on niftex. org. We also have a test net version. You can find it at alpha.niftex.org. So the alpha has been live for, I think more than a month already. It has a lot of fields that been into tests. And yeah, in terms of what is different, everything is different. So we basically just grown a massive upgrade at everything within V1, and we kind of started over also with everything from smart contracts to UI. Right? So again, for a proof of concept, you're not going to invest as much in UI/UX and that kind of thing. But at the same time, if you aim to be like a self-service platform for fractionalization, UI/UX is very important. So that's something I would pay special attention to for the second version of the website, which was completely reworked, pretty different. It does a much better job at presenting information and organizing information and assisting people with creating fractions. So we figured that one of the most important things for us to do in order to continue pushing fractionization forward is education, right? And so we've made a special room on the homepage with like an introductory video. We want to add case studies or kind of like famous things that were done with NIFTEX V1, for example, Coin Artist from Neon District, she fractionalized herself and you know, and she used, she used this coin as like a community membership, proof of community membership and she has a really active, vibrant community.
They've done really cool DeFi experiments with fractions. Then CloudWhite from the Axie Infinity Community has done a lot with fractions as well, for COKE and CREAM. And those are things that we think are just very inspiring and we should document them properly to also, you know, educate people about what fractional ownership is, what you can do with it, the fact that anyone can do this, the fact that gas fees are also a lot lower on NIFTEX V2 than NIFTEX V1, et cetera, et cetera, et cetera. Everything bigger, better you know, whatever you want to mention. And we have lots of plans like coming plans as well because NIFTEX V2 is really built as a protocol. And so that means that you can easily add more add ons, new features to the protocol or remove features that maybe are deprecated that you want to replace with other things. It's really hyper modular, and it's really meant to become the backbone of fractionalization.
Bobby Ong [00:21:30]:
I understand that in NIFTEX V1, you guys use a Uniswap as the matching engine but you've kind of gone one up and run your own AMM in NIFTEX V2 if I understand correctly. So trying to understand, like why do you guys make this change and I suppose that you guys have a lot more flexibility when you guys run your own AMM, I'm just trying to hear what are the benefits running own AMM versus just putting it on Uniswap?
Joël Hubert [00:21:56]:
Yeah. So Uniswap was fantastic for us to bootstrap because we didn't have to invest time into, you know, coming up with a matching engine if we wanted to do something centralized or an AMM design. So it was extremely convenient. However, over time it became clear that there are some downsides to Uniswap type platforms that are specifically related to fraction because in the end a fraction is not your average ERC-20. A fraction has additional powers and also is backed by an underlying NFT. There's an underlying NFT. It's not just a vanilla fungible token. And so you would have these awkward things where, for example, let's say we fractionalized an NFT and then there has been a buyout, a successful buyout, which means that the NFT has been recovered by someone and everyone else that have fractions received ETH, right. But those fractions are not automatically burned because it will be too technically intensive. So you're still sitting on those fractions and the union Uniswap pool that contains the fractions continues trading but the NFT has been recovered. So there's no, nothing underlies this fractions anymore. Practically, they're basically worthless. However, we can shut down the Uniswap pool because the whole point is that they are permissionless, right? So there's kind of an awkward divergence there between normal fungible tokens that will never really be shut down and fractions that are naturally shut down as, you know, something happens to the underlying assets.
So we said, okay, this is kind of just a deal breaker. And there were other things we wanted to improve as well, like for example, artists royalties. So what we did is we came up with our own bonding curve design, which really optimize this refraction. So for example, there's also less slippage when you trade because naturally the supplies of these fractions are much lower than you would have for your average DeFi fungible tokens or something. So there were some technical adjustments or some mathematical adjustments that we made as well. And now, for example, the curve properly shuts down after there has been a buyout. And also, it charges the same LP fees that you would normally get on other AMMs but it also has, for example, artist royalties, which is very interesting. So artist royalties, whenever I trade an NFT, right? No fraction. So I'm just buying, selling an NFT. If an artist made that NFT, they will get royalties, right. Again, the problem with fractionalization is that the NFT is not moving. The NFT is just in a custody contract, right? So there are no royalties being charged, even though people are trading the fractions of the NFT, so that artists should still have exposure to people trading this fraction.
Right. So in the first version of NIFTEX, what we did is we would give artists a part of the supply of the fraction supply as kind of like a one-time royalty. But artists are not traders. And so, you know, artists would be sitting on this fraction and they wouldn't really know what to do with them, and it was a pain in the ass to manage it, whatever. So we figured that a better replacement for this would simply be to allow them to earn trade fees. Like the LPs earn trade fees. Right? So now artists will have the kind of like scalable benefits of having active fraction markets because they earn every time a fraction is traded. And we think that, again, this doesn't really exist at all at the moment. And at the same time, we think fractions unlock an entirely new skill of volume, which could you know, have a great financial impact on artists as well as they benefit from much higher volume than if their NFTs would have remained in one piece. A famous example that we always give is Almace from Axie Infinity. So if Almace would have remained in one piece, we always say it might've traded a few times in the year and it might have done few hundred ETH in volume. But then when we fractionalize Almace it did like a thousand ETH of volume in the first two, one or two weeks. Right? So you're looking at an entirely different scale of things. And we're now allowing artists to also benefit from the huge potential scaling up.
Bobby Ong [00:25:44]:
And like, trying to understand the fees involved here. So with Uniswap there is a 0.3% AMM swap fee, right. And now with your AMM, from what I'm hearing is the same as the Uniswap one. So I suppose 0.3% goes to the LPs, and then how much add on will go to NIFTEX, and then how many percent would it go to the artists?
Joël Hubert [00:26:04]:
Right. So we don't really know what's gonna work in terms of artist fees and NIFTEX fee. Yeah. Right. So the NIFTEX fee, by the way, zero at the moment. There will be a DAO at some point, and that DAO will then decide to enable that for you if they want to and how much their fees should be. For the artist royalties, we're assuming it's like 0.1% at the moment, but we don't know the attitude of our fees of this yet. We don't know the attitude of artists of this yet. We've had people say, "Oh, I want to use governance to increase the artists fees, so like 1% or 10%, but imagine paying 10% on every fungible. That's kind of insane, you know, as you compare to a normal exchange where we're talking about [inaudible], usually. So again, it's very experimental. We do think this is the right direction. And we hope that over time, you know, we can find a balance between the interests of the users, of the LPs, of the artists, you know, and just bring the ecosystem generally together across these markets.
Bobby Ong [00:27:00]:
Share with us some interesting stats on NIFTEX. So how many NFTs have been fractionalized so far? What's the highest and lowest valuation on NFTs on NIFTEX, for example?
Joël Hubert [00:27:10]:
So lowest valuation, you can go as low as you want to because people have fractionalized lots of NFTs that, you know, are completely unheard of and that maybe only they had interest in. So low as low. And then in terms of high, I think either Almace or Haute has reached, or has already reached a thousand Ether valuation in their markets, which I think is somewhat just worth it because those markets are tend to be liquid, but then you also have more exotic things like Cloudwhite's COKE which has a very, very strong story behind it because he's been campaigning for it for so long. And there's been lots of material written about it. Lots of people making art. He's actually involved. And that also has reached absolutely crazy valuations, but that was on pretty low volume. And that's still a Uniswap market. So you've got the huge slippage, right? So that valuation is going to move around a lot and it's not going to be particularly accurate. And obviously our expectations is that these valuations will continue to increase as more people discover the benefits of fractions, being able to own something of a super exclusive asset, being able to benefit as an LP from activity in the markets and also just an emotional bond. People do develop emotional bonds between especially as symbolic assets, iconic assets, and this just is, you know, right in the direction of what they would want to.
In terms of how many fractionalization we've done, I think we've done hundreds, if not, like, I don't know if we've done a thousand, I would need to verify if we've come that far yet. But what I think is the coolest thing is that we basically fractionalized any type of NFT under the sun, you know, from arts, which is very straightforward to game assets, which already have a richer context, and to utility NFTs that we think are a third category that is kind of a dark horse at the moment and a little unexplored, but that in the long-term could actually eclipse both art NFTs and game NFTs, because utility NFTs are NFTs without like, ENS, Decentraland parcels, but also for example, when Andre Cronje, I think that's how I pronounce his last name, I'm not sure, from YEARN was working on his insurance policies, his insurance policies were NFTs with Uniswap V3, LP positions are also NFTs, right? And so here you suddenly see this kind of like third area emerging where NFTs are not used to, you know, represent anything visual, or even gamified to an end-user, but are more used as a unique components in a wider system. We think that in the longer term this could be absolutely massive. And again, fractionalization for those types of NFTs also makes no sense because, for example, you can have multiple people owning a policy. If the policy generates money, people could, same concept goes for Uniswap V3 positions. And yeah, you can just continue, that pattern just repeats and repeats.
Bobby Ong [00:29:59]:
Yeah, for me, I completely agree with you. I look forward to the future because NFTs can represent anything. And technically NFTs, they're quite good to represent intellectual property in my opinion. And IPs may have cashflow from it. So if you are the IP creator, instead of you waiting to get your cashflow stream over to you in the next, I don't know, 20 years of the shelf life of the IP, I mean fractionalizing it is actually quite a good idea because you get to get the cash upfront at a start and then the purchaser gets to go through the stream of income over the period of time. So NFTs that generate income is actually very interesting to me.
Joël Hubert [00:30:35]:
It's a fantastic addition to just the general concept of programmable finance, right? This is just such a great application and I would actually argue core components of programmable finance. And it's going to be absolutely massive in the future, and the cool thing is you can also slap DAOs on top, right? So if you, when we talk about creating IP, it can be one person, but it can also be something like [inaudible] Dao, where multiple artists congregate, right, with an idea or a concept and creates, whether it's art or more involved unique assets that then have immediately have different interests baked in. And so they can fractionalize it, or they can just engage in other, you know, more advanced DeFi applications. Yeah, I mean, it's a bit of a cliche, but it is Cambrian explosion as they like to call it. It's just a huge bomb going in all directions and there's going to be a lot of dust and it's a bull market. So things tend to get a little detached from the basics from the fundamentals. But the cool thing is once that dust settles, we will have a layer that has never existed before, where you know, artists are empowered, smaller budgets are empowered and just, yeah, I think people in general, should be empowered by if we do a good job.
Bobby Ong [00:31:45]:
Do you know like some of the NFTs on NIFTEX, they're all individual NFTs and you have people like NFTX, which goes around creating NFT index, like NFTX Hashmasks Index is for example kind of, there's a sort of fractional NFT, which has a collection of Hashmasks in there? Can NIFTEX support a collection of NFTs as well or is it kind of mainly targeted to individual NFTs?
Joël Hubert [00:32:10]:
Yeah, so we have in fact done bundle since the beginning. So even on NIFTEX day one, there are multiple bundles, I think the most famous ones are the ones from GrowYourBase. So GrowYourBase were the first to create an art bundle that I think contains 19 artworks, called the Nifty Onez with a Z at the end. And the Nifty Onez have been live for at least, I think, half a year by now. And the first real instance, first of the bundle after they also created the metaverse ones, which is a bundle of different metaverse assets that contain like Sandbox Land, I think Somnium Land, Cryptovoxel is in there. I don't know if Decentraland is in there, so this stuff has existed for a long time. It's just that we've made it a lot more efficient with NIFTEX V2. So for example, with NIFTEX V2, you have active management of the bundle. You could continue adding assets after the bundle has been created, so that bundle can represent an ever-growing, you know, [inaudible] themes group of assets, whether it's art or some other thing that you're interested in and via governance, you can also cooperate with everyone else that owns fractions in that bundle and say, "Hey, I want to sell this particular NFT. And then I, the proceeds from that sale, that Ether can be distributed across everyone that owns a part of this bundle."
Right. And so you've got kind of like, people actively managing these groups of assets, which we think has a lot of potential in itself. It really becomes yeah, a platform to kind of create your own little shared portfolio at that point. And we already have like one bundle of R64X, which was created on NIFTEX V2, which is used to be like a gallery, like a real-world gallery that they then transformed into an NFT gallery, fractionalized, so everyone can own a piece of this gallery. All the artists in that gallery are earning these trade loyalties as the fractions trade. And that bundle started with like 51 NFTs. And I think we're up to 80 NFTs now, so that the curator keeps sourcing new NFTs and adding them and expanding the gallery, which is just super cool dynamic in itself. I think it's valued at more than half a million dollars at the moment. So I think it's got something really interesting going there. We just put an interview with this person online. He's called Musho He's from the West.
Bobby Ong [00:34:23]:
What's this NFT called again?
Joël Hubert [00:34:24]:
R64X. So if you just search for R64X on niftex.org or even I think elsewhere you'll find the details page which shows all the NFTs in a bundle like this, like horizontal score, the volume, the current price, I think the evaluation is pretty good at the moment. And yeah, this [ianudible] also just been very inspiring. We didn't like specifically targeted to galleries or anything, but this person saw the potential and said, "Hey, I'm going to turn this collection into something that anyone can own." And then all the artists can also benefit from, as their artworks are traded in this unit, instead of like as individual artworks lost in the wilderness of Rarible, or OpenSea, or wherever else.
Bobby Ong [00:35:04]:
And how does it work? Like once you have like, say you take 20 artworks, you put together, you fractionalize them, and then you add another artwork to it, do you guys just issue new tokens and give that new tokens because you added a new NFT into this shard, I suppose?
Joël Hubert [00:35:19]:
So basically minting, when you add an NFT, that's an economic decision, right? That's a decision to kind of dilute the existing fraction holders because new assets have been added. And so this isn't really something that's up to NIFTEX to decide. That's something up to the owners of the bundle to decide. So, what we are expecting to happen is for governance to take place and someone saying, okay, I added a bunch of new NFTs to this bundle, now I want to mint more tokens to represent this bundle, and they would, like in any other DAO, kind of actually make a proposal to mint more tokens, and everyone else that owns a piece should approve this, right, or should say um, "I'm okay with being diluted if I get some of these tokens." So that's a really cool application of these mini DAOs right there. We are not making the decision for them. This is a decision that should be made through governance, through consensus of everyone that owns a piece of the bundle. And that's exactly how we've kind of enabled the platform to work.
Bobby Ong [00:36:19]:
And this governance, are they on-chain governance, or sort of like snapshot off-chain no gas kind of governance?
Joël Hubert [00:36:26]:
So you need to get the core, right. So if you can't enforce anything on-chain, then it's not real governance, right. It's all about those zeros and ones in the end. So this is purely on-chain. And then, I mean, since again, it's very early and we don't know what's going to work, what's not gonna work, et cetera, we're waiting to add off-chain solutions, like for example, snapshots to get an idea. I mean, you also need to reach a certain scale, right? You need to reach a certain amount of people that are interested that are fraction holders in order to really need these advanced professional governance solutions [inaudible].
Bobby Ong [00:37:00]:
Yeah. You're right. I mean, we kind of get too far ahead of ourselves. I mean, this is what the future can be but people are ready for you today, right? That's another thing. Education is important.
Joël Hubert [00:37:10]:
I don't think you're getting ahead of yourself. I think that that's the natural progression, right? I mean, we are going into the same [inaudible] Compound, before the DeFi hype, Compound was a quiet platform, right? There was some stuff happening, but it was nowhere as big as it is now. All of a sudden, you know, just a number of steroids came in and it's basic model was proven over and over again larger and larger skills. That same pattern should take place for these mini DAOs around these NFTs. If these NFTs have intrinsic value if they have intrinsic value and if you've properly executed on having distributed control, then it will go in the same direction. I'm not saying that any set of NFTs is going to be as big as Compound, but I'm saying it will scale up in the same way, you know.
Bobby Ong [00:37:51]:
Buying and selling NFTs, I think it's pretty clear that it's not a security, but fractionalizing an NFT and turning them into a fungible token, like I don't know, do you think that's kind of a gray area with regards to securities laws and all? I just wanna hear your thoughts about such things.
Joël Hubert [00:38:06]:
So I think it's very early days, right? So I'm not a lawyer. I don't give legal advice. But these things are just, I think this is part and parcel of what everyone kind of does in blockchain all the time. You're just continuously innovating and there is always a financial aspect that may or may not clash with what is in the real world. Right? So what we're kind of waiting for is just regulators to catch up and understand. NFTs are, and see what their opinions, right. Again, I don't give advice and I'm not legally trained, but to me, a fraction, if a painting is not a security, then I don't directly see why a fraction of the painting should be because in the end, it's just a painting. It's a thing on the wall. And so, there's a lot to be figured out. And yeah, I can't really comment on anything.
Bobby Ong [00:38:48]:
Exactly. So I've got a question here, right? Which do you think will hold value better over time rare NFT, a common NFT, a Wrapped NFT Index, like the NFTX by Hashmasks or CyptoPunks, or a sharded rare NFT on NIFTEX?
Joël Hubert [00:39:08]:
I mean, in the end, if the base unit, which is the NFT, if that doesn't hold its value, then nothing else. Then the card house just comes crashing down, right. So you do need people to continue appreciating the NFT standard, but what an NFT represents, which to me means scarce digital assets. And then if that holds true, if people continue valuing it, then the rest of the evaluation and where exactly it's going to go, whether it's NFTX or a NIFTEX asset or something else is execution. Right. So actually with with regards to NFTX, I consider them more compliments than substitutes because we take different approaches to the composition of these bundles of NFTs, right? With NFTX, I think the focus is on NFTs that are similar to each others. You can have the uniform price that can be applied to each of them. Well with us, we don't assume that NFTs are the same. And so you get more, you know, heterogenous combinations, which kind of makes pricing it] harder just simplify. But at the same time, I think it's maybe sometimes a little more accurate in terms of actual value stored. And so it just generally, I think it all comes down to execution and the execution depends on what people really want. Right. And what just kind of works best for them. Part of that is also by the way, something that is not really financial, which is the simple presentation of NFTs. What do you own when you own a fraction of an NFT? How can you display this? It requires integration with wallets to show it off to your friends. It requires big platforms to recognize it like OpenSea. We did some early work where we made fraction show up on OpenSea, and we've had recent requests to kind of start doing that again. A lot of it is also just social standards, or just how it has been agreed to be shared with other people, you know, how people normally do this. I don't think it's all that different with NFTs. And so a lot of it is may actually not be purely financial, but there are also be important social aspects.
Bobby Ong [00:41:02]:
We're starting to see a lot of Layer 1 chains grow in popularity this year. So BSC, Binance Smart Chain, is a very obvious example of them gaining traction this year. Do you think NFTs will also take off on other Layer 1 chains like BSC, Polkadot, Avalanche or other Layer 1 chains, or do you think most NFTs will most likely sit on Ethereum for the long term?
Joël Hubert [00:41:24]:
So I'm not a maximalist, right? So I encourage everyone to experiment and, you know, start their own chain if they have to or whatever. If they raised an insane amount of money for that chain, I will be a little skeptical, but mean, everyone just kind of just experiments the way they want to, right. That's kind of the whole point, especially for people that are interested in doing the type of things you can do. So BSC also makes that easy then, sure go ahead. And from that perspective, I don't think we should say things like, "Oh, you know, it cannot happen outside of Ethereum." There's good reason to say such a thing, right. There are other chains that can do a decent job of hosting NFTs. And so I don't think it will be exclusive to Ethereum and we don't even know if Ethereum will exist in 20 years. I mean, we can't anticipate what's going to happen, right. So if by that time, everything has been replaced by another chain then naturally, Ethereum wasn't the only issue. What I will say though, is that Ethereum by now is light years ahead of anyone else, right. Not just in terms of standards, know-how experimentation, et cetera, but also culture and history. We have an extremely rich NFT history, right, CryptoPunks, and then we started discovering all these things that existed even before CryptoPunks, and MoonCats, and God knows what else. And I think it was like an OG NFT meeting yesterday, like a clubhouse or something, where they were discussing things that were even before MoonCats and maybe at the time of Bitcoin. And by the way, I should mention Rare Pepes Bitcoin, right? It was a CounterParty Bitcoin.
Bobby Ong [00:43:00]:
Yeah. A lot of people forgot that Pepes, the first NFT and they're on Bitcoin chain. I used to play with CounterParty and Pepes over there. I was like, the frog was a cute thing. And everybody thought like CryptoKitties were the first NFT. They're not. I mean, they were probably one of the first on Ethereum, but not the first on a blockchain.
Joël Hubert [00:43:16]:
Yeah. And, and that's OG as hell. And people love OG stuff in crypto, but somehow they're still very under the radar, I'm not sure why. But the point remains that Ethereum has this insane history. And so I think, for normal people, will continue to be the default chain of inspiration at the very least, right? So may be for a certain amount of people, there's a jump they have to make when they decide where to mint their NFT, knowing that the OG NFT's almost all came from Ethereum, and why would you not want to be on the same chain because it kind of assures you that your target group, NFT buyers are going to be on Ethereum, right? So if you choose another chain, I mean, not everyone cares or not everyone is aware, but some people will be aware and will have to make a conscious business decision to go to a chain, where it is not guaranteed that they have a target market as big as on Ethereum.
Bobby Ong [00:44:08]:
Yeah. So I guess I like to ask this question. If someone's a beginner listening to this podcast, a beginner in NFT, what sort of advice and this beginner would like to start collecting NFTs, what sort of advice would you give to the beginner on starting his NFT collection journey?
Joël Hubert [00:44:24]:
You know, I could be shilling my fraction and stuff, but I don't actually think that I don't think that's actually good advice. Because it's, fractions are like, I call it like a micro level. It's a different level under NFTs. Right. And so you need to have gone through the NFT who in order to kind of get to the fractional part or you just need to be a very savvy person generally. But I think for beginners, they're going to be super confused with this fractions of NFT stuff. And so they just need to have a very solid foundation in NFTs themselves, so I would advise them to start with arts because arts is really, and that's also why arts has been so prominent, I think, during this NFT hype, it's really the easiest and most straightforward place to start. It's a Mona Lisa, but it's digital. And it's represented by this token that you can have in your wallet. I don't think it gets easier than this because even your pitch for game NFTs will have to be, you need this NFT in your wallet, and then you have to this creature in the game and the creature can earn money, and that money goes to... So it's not necessarily harder, but it's more for them to process, right? So art is a good place to start. And especially maybe if they listened to what the creators have to say, like the creators of crypto kitties, what their intentions were, the creators of the Punks and the Glyphs, what their intentions were. If you can get like the basic philosophy rights of what they were trying to do, which to me is just creating digital scarcity or in enforcing digital scarcity, then you already, like a long way, I think down the rabbit hole. And then you get to a point where you just have to decide what type of NFT you like, you know. If you like game NFTs or art NFTs, and if you like art NFTs, what kind of artists, and as your portfolio grows, you were likely to just become an expert in your own rights, in that specific parts of NFTS, right?
Bobby Ong [00:46:09]:
Sounds like a good advice. Uh, I think we're running out of time. Anything that you think I should have asked that I haven't already asked yet? Any last words that you want to say to the audience.
Joël Hubert [00:46:18]:
I mean, everyone is of course welcome to niftex.org. It's very easy to create your own fractions. All you have to do is, you know, have them in your wallet, connect your wallet and you can get started. So definitely check that out. We will also be launching probably a DAO later on. So I think that's going to be a big story in itself. We've got a bunch of projects cooking that I can't quite disclose yet, but make sure to keep an eye on it. And just generally we're in a bull markets. Don't go with the flow too much, stay grounded. Don't spend money that you shouldn't be spending. And, you know, give it a bit of time and see where things go because every other week nowadays, it's like this new thing that comes along. I think this week the flavor is BSC projects. And you know, we had Hashmasks hype and then we have Doge going crazy. So, you know, don't go too fast. Take it easy.
Bobby Ong [00:47:05]:
Thank you very much. Very good advice. All right. Really appreciate that. You take the time to come on the CoinGecko podcast and share your point of view on NFTs and fractionalize NFTs with what you guys do at NIFTEX. So thanks a lot once again.
Joël Hubert [00:47:19]:
Cheers, Bobby. Thank you for having me. It was a pleasure.
Bobby Ong [00:47:21]:
Alright, that wraps up the show. Thank you for listening to the CoinGecko podcast with Bobby. If you like our show and want to know more, check out podcast.coingecko.com or please leave us a review on iTunes. If you have any feedback do drop us an email at email@example.com. Join us for more next week. See ya.
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