[Discussion] Possible updated DAO strategy: putting more emphasis on D1 funds

Note: This post is not a formal proposal, and is only meant to kickstart the discussion on the subject in the forum.

In light of the recent success of the $MASK fund, a recent topic has been coming up quite often on governance calls and in the discord. It is the idea that D1 funds might have much more product market fit than D2 funds and should get the majority of DAO-provided or incentivized liquidity.

D1 funds are more simple to understand, to arbitrage, and see much more volume than d2 funds, especially if compared on a ‘‘volume-per-liquidity’’ basis.

For example $MASK



versus $PUNK



D2 funds are also complicated to arbitrage, as they have multiple components with sometimes very high prices.

In practice, it is very hard to arbitrage the PUNK d2 : to do it properly with all the underlying components would require 2500eth*, and doing so would by itself, would at the moment be unprofitable since the PUNK cannot absord 2500ETH, it only has 500ETH of liquidity.

*NFTX math v2 - Google Sheets

If this has interest, I think it would be a good idea to have a snapshot to poll NFTX holders on the matter and see if they would support adopting a new strategy/vision where D1 funds get the majority of liquidity and focus.

If this has consensus, there are multiple path fowards and different proposals possible:

  1. We can propose to remove part of the PUNK-ETH liquidity and reallocate it to PUNK-basic.
  2. We can propose an updated liquidity plan to the recently approved plan to launch new funds to something that follows this new strategy (Draft Proposal: Liquidity allocation for all additional DAO-managed funds - #4 by 0xchop)
  3. We can propose to remove some liquidity from the NFTX-ETH and re-allocate it towards specific D1 funds
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This is the fundamental issue at hand. At the moment with current liquidity d2s (combined funds) do not work as well as d1s (single funds).

The simplest option to me would be 3. in addition to 2. As discussed in today’s governance call, launching all d1 funds proposed by Chop may not be worth it if we don’t launch d2s. Revising that proposal and moving forward with modified liquidity is imo the best move forward.

Regarding 1. I think that it will take more time to plan out than the other options if we want to respect current LPs


I am strongly in favor of using PUNK-BASIC from the treasury to bootstrap initial liquidity.

The concerns raised about structural inefficiencies in the D2 PUNK fund are valid, and I would support winding it down gracefully.

That said, the quickest and lowest impact way to get the necessary ETH is to purse option #3 (remove some NFTX-ETH liquidity)


Hey guys, deleted my first long ranting response. You all make good points and I haven’t had enough time to really dig into them all.

My two cents is that I would really, really like for us to experiment with adding farming rewards first. I have a strong belief that it will all work out and that incentivizing the top level funds, the bottom level funds will automatically suck in more TVL.

Hate to pull this card, haha, but focussing more on D2 funds is more to the original vision and I would like for us to try throwing everything at that first even if it is just to see how things go.


A couple of points from someone new to this (so take with a grain of salt). All of my comments are coming from the point of view of a small investor, someone with a couple of ETH or a few thousand dollars who wants to dip their toes into something they have never been exposed to.

I’m not sure this has anything to do with whether it was a Single or a Combined fund, whatever was launched that was MASK focussed was in a good position to perform well due to the groundswell of the Hashmasks in the market, although I would still question how many people would buy a combined MASK fund if the single MASK basic was $2k and the combined $10k.

It’s never too soon to change tact, but with only two kinds of funds launched do we have enough data to make key decisions around switching focus (I think the latter, but also more than finesse and state’s instincts).

The downside I see about moving away from the combined funds is that it is one of the most requested things on the Discord channel.

Most people that are new to the discord often come with the same question. “I’m new and I don’t understand NFTs. How do I get exposure to all of the NFTs? Is the NFTX token a fund that contains all the NFT’s in the treasury? Are you creating a fund that contains all the best NFT’s like an S&P500?”

It seems a focus on the single funds and a move away from combined or meta funds is a step away from what people are asking for. Granted, this could be down to the fact that people who ask the most questions are the least aware and the smallest investors, and those more in the know are just buying up single funds.

My only other comment is around options 3. If any of the NFT funds go up or down I don’t see much chatter, but when the NFTX token drops or rises sharply there are often negative comments in the discord and telegram. Maybe this is just what happens everywhere, but any reduction of liquidity that might cause greater fluctuations could have an impact on the attitude towards the overall project from token holders.

Thanks State/Finesse for the work!

Weighing in a little here too.

Good discussions going on in here and through calls/discussions on the Discord, and I am all for shifting liquidity over (if needed) from something that looks appealing (combined funds) towards something the market needs today (lower slippage on single funds).

When we look at stats and the organic growth of i.e the HashMask & Bullrun Babes fund it’s pretty clear that íf our goal is to cater to the market today, we focus on enabling (and prioritizing liquidity support) to funds that have the lowest path of resistance for their users, which seems to be a combination of (relatively) low-per-NFT price + enough availability on secondary markets to kickstart pool growth.

Another stat to look at is the difference in growth of organic liquidity in single funds since the start of Onsen yesterday. While they’re incentivized the same (1 allocpoint), the growth difference between i.e. Punk-Basic & Punk-Zombie is pretty clear.

I’m all for supporting moving strategical focus over towards promoting & working on the (closest to) floor pools available per category.

In that line of thought, I do have a couple of questions:

  • Additional floor pool: If we take the current “liquidity allocation” plan that passed a vote earlier, should we create & include an $Axie-Basic pool which does not have an allowlist (and no Axies in it - full organic growth oriented)? This way we can gather additional stats on the difference in growth looking at $Axie-Basic v.s. i.e. $Axie-Mystic-1.
  • Naming-conventions: Do we keep current naming convention on floor pools ($…-Basic) or do we move floor pool naming to the main $NFT name (i.e. $PUNK)?
  • New combined funds: While this talk is mainly focused on liquidity % alloc as a DAO, do we still feel like launching the D2s for other categories in general & create the documentation/instructions for people to arb/create their own?
  • Incentivized liquidity growth: Looking at current growth of $Punk-Basic (i.e. Ethereum Transaction Hash (Txhash) Details | Etherscan) due to Onsen rewards, is it still needed for the DAO to pick option 1, 2 or 3 at all? If anything, Onsen has proven that for floor pools specifically liquidity farming works. At this point I’d be more in favor of an option where liquidity is taken from PunkCombined and/or NFTX/ETH for healthier treasury management while working on our own liquidity farming program.

@state.eth / @finesseboi For next steps, are you gathering up points once discussions calm down & will you move that into a draft proposal format > Snapshot? If any help needed feel free to ping me.

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Those are very good points Chop!

My initial reactions reading these questions:

I am answering assuming the DAO would support d1 being the strategic thing to focus on for now.

Additional floor pools: All NFT assets we bring into NFTX need their own fund with no allowlist. They should in my opinion be the point of most focus an liquidity for now. In the case of axies, they indeed need one.

Naming conventions: Personally, I would go for something called ‘‘the X base fund’’ for D1 funds with no allowlists. So for example, $punkbasic would be called ‘‘PUNK base fund’’. Other ‘‘specific funds’’, that track specific sub-classes like zombies would keep the current naming convention. D2 funds could be called ‘‘broad exposure funds’’ or ‘‘diversified funds’’. For what is currently known as $PUNK, it could be called ‘‘broad PUNK’’, or something like that.

Launching new D2s : I have no opinion so far on that, I think we can keep launching D2s on top of D1s, but they would get a less important % of liquidity than currently.

In general, I would remake the liquidity spreadsheet, but in a way where so-called ‘‘base funds’’ (currently called basic) get most of the liquidity, then special funds like punk-zombie, and D2s, get the rest of the liquidity. For punks, i would re-arrange the liquidity in a way ‘‘punk-basic’’ or the ‘‘punk base fund’’ gets a lot of the liquidity, then the rest is distributed to specific funds and D2.

Farming incentives : I think exactly like you here. We should get things figured out with our own DAO liquidity, re-arrange and launch all of this, and then only when that is ready launching farming IMO. And also farming needs to be launching in a really thoughtful manner, once we have all our pools set up we will see which ones are popular and work well.

Again all I’m saying here is assuming the idea that D1 should have temporary strategic focus from the DAO has consensus. I’m aware that’s still not a given.

On the topic of snapshot votes, I imagine a good way to do a formal proposal would be something like this:

The snapshot and proposal states the general ‘‘new vision’’, and at the same time proposes a re-arrangement of liquidity.

  • removal of some liquidity from NFTX-ETH
  • new ‘‘liquidity from the DAO’’ spreadsheet, including how much liquidity from the DAO should be spread between PUNK funds and all the new funds. This would include increases and decreases in PUNK and punk basic liquidity, for example.

That would be a very major proposal, so it might be a good idea to have it come from the core team. I don’t mind doing it myself otherwise or with finesse, but it would be such a pivotal proposal that I wonder if it would be better if it came from you or Alex for example. I’m genuinely not sure here, it could be broken down between multiple proposals, too.

Edit : Here’s an example of how an updated for d1 strategy focus ‘‘liquidity provided by the DAO breakdown’’ plan could look like.

agree with all the points raised here, but I think it would be better to break this into smaller proposals for the sake of expediency. We can validate the thesis by simply removing some NFTX/ETH liquidity in favor of PUNK-BASIC liquidity.

It’s true we need greater liquidity around the board (both D1 and D2), but I don’t think that means we should shift liquidity away from D2 funds. We have a liquidity problem across all the funds, which should be solved by farming (I think we all agree here).

D2 funds lack of usage may be due to a lack of understanding/education rather than product-market fit. It is a forum post by Alex that explained the pricing of $PUNK and its underlying components that made me understand exactly how the d2 fund works. If we did a marketing campaign (even a simple page I can mockup) for $PUNK it may change it’s usage.

Furthermore D2 funds nail the value prop of NFTX, which is an index fund for NFTs. This is a new use case within NFTs and a core part of the original NFTx vision. As people get priced out of high-end punks like Zombies, or people want a blended approach towards assets like PUNKs, an index fund approach makes sense, & we should be ready for that demand. I personally think we are early with the D2 fund idea and shouldn’t stop supporting it.

Like it’s been mentioned, farming is how we get serious liquidity and is my preferred method. If we believe D1 funds deserve more liquidity, we can simply incentivize market participants by adding more farming rewards for those funds, using an ‘Onsen’-like program. We can keep shifting these rewards around until we get ideal levels across all the funds–both D1 and D2. Rather than detracting from a fund and adding to another, we should influence external actors behaviors through farming rewards–so we get a high level of liquidity across the board. Moving around liquidity ourselves to D1 funds seems a bit like a futile effort IMO.

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