In this blog post we’re going through the entire process of becoming a Hashmasks liquidity provider on popular exchanges such as Sushiswap, using the NFTX Hashmasks index fund.
NFTX is a protocol that allows anyone to create and invest into index funds which are 1:1 backed by NFTs. This brings the DeFi and NFT communities together, enabling NFTs to be used as collateral for use cases such as AMM liquidity providing, yield farming and borrowing/lending.
$MASK Index Fund
Visual Bug Notification: We are aware that the current Index fund on our front-end does not automatically update it's supply & holdings. Use the vault page on OpenSea to view all current Hashmasks in the index fund.
Why would I provide liquidity?
Before getting our hands dirty, let’s look at the reason why you would want to put your Hashmask into an index fund to become a liquidity provider.
The Hashmasks NFT launch has been a big community success since it’s launch a few days ago. With all Hashmasks being minted and artwork now being indexed to NFT IDs, there’s lots of price discovery on secondary markets such as OpenSea. We can see a clear trend of this popularity by looking at the past 7 days trading volume.
While the volume is clearly trending upwards, secondary markets such as OpenSea don’t allow anyone to take a cut from trading fees. This is where becoming a liquidity provider becomes lucrative, allowing you to take a % fee on every single trade that is made trading the Hashmasks index fund whilst bringing trading liquidity to the entire Hashmasks ecosystem.
Meet the Hashmask basics Pool
With the NFTX Hashmasks Index Fund, you can now supply one or multiple Hashmasks as collateral which gives you back an index fund token called $MASK, which tracks the ETH-floor price of all Hashmasks in the index fund.
This token allows you to become a liquidity provider on SushiSwap (or any other ERC20 AMM) by pooling it together with ETH.
The Hashmasks basic pool is set up to accept any Hashmask #ID and does not take into account specific attributes of the NFT. Because of this, this index fund will organically become a fund that attracts the least valuable Hashmasks, often referred to as floor Hashmasks. Floor prices are able to stay in parity due to arbitrage opportunities which arise when the price is either too high, or too low.
Note: Redeeming your collateral from an index pool will give you back a random other Hashmask from the same index fund - there is no guarantee you get back your original Hashmask, including its' name attribute that is attached to that specific Hashmask.
To get started, the first thing you will have to do is supplying one (or multiple) Hashmasks to the Hashmask Basic Index Fund.
ChopChop has recently recorded a video tutorial that takes you step-by-step through the entire process of putting an NFT in an index fund as collateral. While the video tutorial talks about Punk-Basic as an example, the entire process except the difference in NFTs stays the same for setting up your Hashmasks.
Note: Hashmasks, as opposed to Cryptopunks shown in the tutorial below, do not have to be wrapped before being used to mint a fund token.
Note: As gwei prices are very high at the moment, the costs of minting a D1 token are rather high. If you are not providing significant collateral, it may be worth to wait until gwei prices normalize.
How to add my $MASK as liquidity on an exchange?
After successfully going through minting your index fund tokens by following the tutorial above, you will be ready to become a liquidity provider on an AMM (Automated Market Maker) such as SushiSwap.
The process of becoming a liquidity provider is a fairly simple process and requires you to provide your $MASK token, in combination with a second currency you want to pair it against, to the liquidity pool of an exchange. As ETH pairs are often in highest demand, we will take ETH as an example.
Taking SushiSwap as an example, you can provide liquidity by going to the MASK/ETH pair page and provide liquidity by clicking on the +liquidity button on the right side of the page.
Redeeming a Hashmask from the index fund
When you are done being a liquidity provider, or just want to arbitrage an NFT out of the index fund, you can do so by using the redeem function on the NFTX website. As index funds are 1:1 backed, redeeming an NFT out of the fund decreases the supply of index fund tokens.
A video tutorial is available below where ChopChop walks you through the entire process.
That’s it! If you have any questions regarding the Hashmask fund, need assistance in providing liquidity or redeeming Hashmasks from the index fund, make sure to join our dedicated Hashmasks Discord channel!