## Introduction 
We are thrilled to announce that Upshot will be the inaugural partner/ strategist for [Astaria](https://astaria.xyz/), a new on-chain NFT lending platform. Astaria’s protocol introduces an innovative three-actor-model where strategists, such as Upshot, can outline the terms of NFT loans through dedicated vaults. These vaults accept capital from liquidity providers, which is subsequently lent out to NFT borrowers, enhancing the transparency and efficacy of the NFT lending process. 

By bringing [Upshot’s industry-leading machine learning models](https://upshot.xyz/post/how-upshots-ml-models-work) to Astaria's lending platform, we unlock an innovative frontier in NFT financial markets, ensuring seamless and accessible lending practices. With a proven track record of appraising over 104 million NFTs from a diverse range of over 87,000 collections, our robust quantitative analyses offer unprecedented breadth and accuracy. As Astaria strategists, we employ our sophisticated recovery rate models and risk management framework, not only to gauge the probability of loan default but also to maintain a diversified loan portfolio, protecting both liquidity providers and ourselves from potential market volatility. This collaboration embodies our shared vision of propelling a new era of NFT financialization, where seemingly “illiquid” assets can be leveraged for a new wave of DeFi opportunities. 

## A Very Brief History of NFT Lending Today
Historically, the NFT lending market has primarily operated on a peer-to-peer basis, similar to archaic barter systems. In this model, borrowers and lenders agree on terms and a smart contract handles the transactions trustlessly. This process allows for great flexibility, matching terms on a case-by-case basis. However, the peer-to-peer model inherently requires both parties to reach an agreement on terms, a process often encumbered by a divergence in perceived values and risk factors. Borrowers, often emotionally attached to their NFTs, may overvalue them, while lenders, cautious about the borrower's credibility or the volatility of the collection, might assign a higher risk premium. This mismatch in sentiment often leads to less efficient market-clearing outcomes.

In response to these challenges, the peer-to-pool model has emerged as an alternative option to allow for a smoother user experience by removing the need for individual agreements. Lenders contribute to a pool which manages liquidity, allowing borrowers to access instant liquidity. Despite pooling risks for all liquidity providers, this model offers a more scalable path that closely mirrors the fungible market where LPs can deposit capital and earn. Peer-to-pool models depend heavily on accurate valuation methodologies to set loan terms. Over-reliance on oracle-based price calculation methods (such as floor price) can leave the system vulnerable to manipulation as well as limited in usefulness. 

The alternative to avoid oracle-based manipulation is to use specialized appraisers employing nuanced, machine-learning-based algorithms to estimate NFT value, incorporating factors such as traits, previous owner history, and other relevant data points. This takes us to Astaria's unique approach - the three-actor model.

## Introducing Astaria’s Three-Actor Model
[Astaria](https://astaria.xyz/) is an on-chain NFT lending platform designed with the native DeFi user in mind. The protocol provides a system for strategists, like Upshot, to publish loan NFT terms through vaults, which accepts capital from liquidity providers and extends it to borrowers. For example, one strategist may allow a 10 ETH loan with a 10% interest rate to be taken out against a specific NFT for one month. These terms can be continuously updated as markets fluctuate, and borrowers can refinance to take advantage of more favorable terms.

This unique, three-actor model fosters competitive yields for liquidity providers and instantaneous liquidity for borrowers, all while mitigating the need for traditional, time-consuming bid-and-ask negotiation processes. With a dynamic ecosystem of strategists, borrowers, and liquidity providers, Astaria ensures market competitive rates and flexibility for loan refinancing, without the fear of forced liquidations on price changes.

![Astaria-3-Actor-Model](//images.ctfassets.net/lhkcghnr8ql4/37dWByvTEQMljUMghW73ej/3cf966af4c8ee0d56bbbd10559818102/3AM-ccb5b9d756e22d102d2c5eeba160f03a.png)

Strategists, including Upshot, within Astaria's framework have the responsibility of deploying vaults complete with loan terms matched to supported NFTs. These terms can be dynamically adjusted as market conditions change, creating a lending ecosystem that's highly responsive to real-time fluctuations. All of this contributes to a healthy, competitive balance that ensures fair and accurate terms, striking a balance between attracting borrowers and securing sufficient capital.

### Core Benefits of Astaria 
Astaria has three core benefits for users: 1) instant liquidity, 2) competitive yields and loan terms, and 3) no forced liquidations. Here's a closer look at these benefits:

- __Instant liquidity__: This feature eliminates time-consuming bid-and-ask negotiations, allowing users immediate access to a variety of loan terms offered by expert strategists.
- __Competitive yields and loan terms__: Astaria fosters a competitive environment where strategists compete for capital, ensuring beneficial market rates for both liquidity providers and borrowers.
- __No forced liquidations__: Borrowers are only subject to liquidation if their loan expires with outstanding debt. This eliminates forced liquidations due to market price fluctuations, offering additional security for borrowers amidst market volatility.

#### Benefits for Borrowers 
For borrowers, the Astaria vault system presents a unique combination of flexibility, immediacy, and value. By holding their NFTs as collateral, borrowers gain immediate access to liquidity in an instant and permissionless protocol. This design enables NFT holders to unlock the financial potential of their assets immediately, without the hurdles often associated with traditional peer-to-peer systems. Even as the NFT is locked as collateral, borrowers can still tap into its utility. 

Astaria's FlashActions feature allows temporary unlocking of the NFT to perform predefined actions, such as collecting Uniswap fees or claiming airdrops, all while ensuring the NFT is returned within the same block. Additionally, Astaria enables borrowers to take multiple loans against the same NFT, up to five times, provided the maximum potential debt does not exceed the strategist-set limit. This multifaceted borrowing process, complete with the possibility of refinancing, offers borrowers an unprecedented level of freedom and control over their digital assets.

#### Benefits for Liquidity Providers 
On the other side of the coin, liquidity providers reap significant benefits from participating in Upshot’s vault on Astaria. When they contribute capital to PublicVaults, they receive yield-bearing ERC-4626 VaultTokens, thereby earning interest on their provided funds. This model presents an attractive proposition for liquidity providers, enabling them to earn from their capital while contributing to a DeFi ecosystem. The epoch-based operational system of PublicVaults also provides liquidity providers with a sense of stability, as withdrawals need to be signaled at least one epoch in advance.

### Loan Mechanics on Astaria 
Loan mechanics on the Astaria platform are shaped by the fine-tuned parameters defined by strategists, offering flexibility and precision in the lending process. Here's a quick overview of these parameters:

- __Loan Amount__: The loan amount, denominated in the ERC20 token used by the Vault.
- __Duration__: The loan duration in seconds.
- __Interest Rate__: The interest rate of the loan. All rates on the Astaria protocol are in simple interest and non-compounding.
- __Maximum Potential Debt__: This is the highest possible debt that can be accrued against an NFT considering all existing loans. It's a vital factor when strategizing multiple loans against the same collateral.
- __Liquidation Initial Ask__: The requested starting price of the Dutch auction if the collateral is sent to liquidation. Note that the initial auction price is set by the most senior lien in the lien stack.

These mechanics contribute to the versatility of Astaria's lending platform, allowing users to have diverse and strategic engagement with NFTs. For more in-depth information about these mechanics and how they function within the larger Astaria ecosystem, we encourage you to visit Astaria's loan term [documentation](https://docs.astaria.xyz/docs/protocol-mechanics/loanterms). 

## Upshot’s Vault Management Strategy 
At Upshot, our lending strategy is designed to minimize risk for the lender while maximizing value for the borrower. To accomplish this, we leverage Upshot's industry-leading appraisals, recovery rate models, default probability estimates, and our proprietary risk management framework. This ensemble of models and analyses ensures that our lending strategies provide fair, accurate terms, and a healthy yield, all while mitigating the risk exposure for our liquidity providers and ourselves.

From selecting high-quality NFT collections to considering future collateral value when determining loan amounts, each element of our strategy is tailored to provide optimal benefits for all stakeholders. Borrowers can take advantage of our flexible lending process where our quant team fetches all the loan terms, which are then fed into the Astaria SDK. This system allows us to offer borrowers the most current and relevant lending terms, frequently updated every 30 minutes, and lenders the opportunity to stake in our vault. 

We have also added a "kill-switch" feature that quickly responds to significant market events, further ensuring the protection of our liquidity providers. As we embark on this journey with Astaria, we remain committed to continuously improving and refining our lending strategies, based on market trends and user feedback

### Upshot’s Vault 
Upshot's initial offering will feature one unified vault, presenting several advantages:

- __Simplicity__: A single NFT lending vault simplifies management and operations, making it easier for users to understand the lending process.
- __Greater liquidity__: Consolidating NFTs from various owners increases overall market liquidity, facilitating borrower access and enabling lenders to earn interest.
- __Reduced risk__: Pooling NFTs from multiple owners spreads default risk across a broader pool of borrowers, reducing loss risk for individual lenders in case of a default.

This setup will be reviewed and potentially revised based on user feedback and demand, with plans to launch additional vaults over time to cater to varied risk profiles and lending strategies.

### Supported Collections (As of May 25, 2023) 
As of the initial launch, Upshot will support the following collections as part of our initial vault: 

- Azuki
- BAYC
- Beanz Official
- Chromie Squiggles
- CloneX
- CryptoDickbutts
- Doodles
- MAYC
- Milady
- Moonbirds
- Pudgy Penguins

We look forward to expanding our collection and vault offerings in the coming months.

### Upshot’s Methodology 
Upshot’s strategy embraces "conservative NFT lending," with terms designed to minimize lender risk while still providing value to the borrower. Core elements of our strategy include:

- __Collateral__: Borrowers provide an NFT as collateral for the loan, selected from high-quality collections with a history of stable or appreciating value.
- __Loan amount__: The amount is a function of the future collateral value, less a margin for forecasting uncertainty, offering adequate protection to the lender in case of default.
- __Loan duration__: The duration is based on the highest future recovery value over a 30-day time horizon, ensuring maximum recovery value in the event of a default.
- __Interest rate__: The rate compensates the lender for the risk involved in lending the NFTs, such as default risk and illiquidity risk.
- __Leverage__: Our initial strategy does not permit second or third lien loans.

Please note that this design is flexible, and adjustments will be made based on feedback regarding parameters such as loan amount and interest rate. 

### Our Risk Mitigation Framework
In our commitment to maximize value and mitigate risk for Astaria Vault participants, Upshot utilizes a sophisticated Portfolio Optimization framework, deeply rooted in Modern Portfolio Theory (MPT). MPT emphasizes the power of diversification, aiming to create an optimal asset allocation with superior risk-adjusted returns through careful optimization strategies.

Upshot's approach to portfolio optimization is methodical and data-driven. We begin with a collection's time-series data, utilizing daily floor prices and our in-house generated appraisals to construct robust time series. From these data points, we calculate risk and return approximations, employing different modeling methods such as mean, exponentially weighted average, or machine learning-based algorithms like Auto-regressors and GARCH.

After determining return and risk approximations, we move to portfolio selection. We employ optimization solvers to determine collection weights, thereby constructing a portfolio that meets investors' objectives within set constraints. Upon establishing collection weights, we then proceed with our capital allocation strategy.

Recognizing the limitations of traditional MPT techniques, particularly in the dynamic and sometimes unpredictable NFT market, we've integrated alternative portfolio construction methods. These include minimum spanning tree (MST) and centrality-based methods from Graph Theory, which offer a more nuanced approach to diversification and have shown promising results in terms of out-of-sample performance. This innovative strategy not only ensures that our portfolio is robust against market fluctuations, but it is also highly scalable.

## Conclusion 
This partnership between Upshot and Astaria presents a promising new horizon NFT financialization. To learn more about Upshot and our strategic approach, visit our [website](https://upshot.xyz/). For a closer look at how we're utilizing our robust machine learning capabilities with Astaria's on-chain NFT lending platform, check out our [Astaria-Upshot vault](https://astaria.xyz/lend/vaults/0xe5149d099b992e3dc897f3f4c88824eac2a6a59d). If you're interested in diving deeper into Astaria's protocol or need help navigating the platform, you can find comprehensive guides and helpful details in Astaria's [documentation](https://docs.astaria.xyz/). 

We invite you to embark on this journey with us as we redefine the boundaries of ownership in the world of NFTs. This partnership with Astaria allows individuals to navigate an expansive range of unique use cases for their jpegs, unlocking unprecedented ways of engaging with NFTs. Together, we are transforming the concept of asset ownership, breaking down barriers and bridging the gap between the world of DeFi and NFTs. Join us in this exciting new chapter as we unlock the potential of NFTs like never before by visiting our [vault](https://astaria.xyz/lend/vaults/0xe5149d099b992e3dc897f3f4c88824eac2a6a59d).

Astaria has partnered with Upshot bringing Upshot lending strategies to their platform.

Upshot Unveils Strategic Partnership with Astaria as Inaugural Vault Strategist

Index funds are an indirect way to get exposure to an entire market without having to put in the work to pick the underlying assets individually. Today, various types of index funds exist, including equity indexes, bond indexes, and commodity indexes, catering to diverse investment needs and preferences. 

In the age of digital assets, an NFT index fund is a vehicle that tracks a index of NFTs, typically from similar collections (e.g. Yuga Labs), traits (e.g. hoodie CryptoPunks), or prestige (e.g. Art Blocks Curated). This post will explore how NFT indexes work, what they enable, challenges uniquely faced by NFT indexes, and how those challenges may be overcome. However, before we jump into NFT index funds, it is helpful to understand a brief history of index funds in the traditional finance markets. 

## What is a traditional index fund?

An index fund is a type of mutual fund or exchange-traded fund (ETF) where a portfolio is constructed to match or track the components of a financial market index. Generally, traditional index funds offer broad market exposure, low operating expenses, and low portfolio turnover. 

Warren Buffett famously recommends index funds as a way to build wealth. Rather than training people to pick out individual stocks for investment, Buffett says that it makes more sense for the average investor to buy an index of the S&P 500. 

## How traditional index funds work

Index funds are typically considered a more passive type of fund management. As opposed to hedge fund managers who actively try to stock pick and time the market with buys and sells, index fund managers build up a portfolio of holdings to mirror the securities of a particular index. The idea is that the investment profile of the index matches the performance of a whole, broad segment of the market. 

For example, index fund investors can buy funds that focus on companies with small, medium or large capital values, or they can buy funds that focus on sectors such as technology or energy. While these more specific index funds may be less diversified than the broadest market index, they are still more diversified than if someone were to buy individual stocks within a sector. 

## Key Examples of Index Funds in TradFi

### S&P 500

In the United States, the S&P 500 Index is one of the most popular indices. The S&P 500 Index, or Standard & Poor's 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an exact list of the top 500 U.S. companies by market cap because there are other criteria that the index includes such as liquidity, financial stability, and a history of profitability. As a result, the S&P 500 Index offers a comprehensive representation of the U.S. stock market's health. The S&P 500 index is regarded as one of the best gauges of prominent American equities' performance.

### Dow Jones Industrial Average (DJIA)

Also known as the Dow 30, the Dow Jones Industrial Average (DJIA) is a stock market index that tracks 30 large, publicly-owned blue-chip companies trading on the New York Stock Exchange (NYSE) and Nasdaq. The Dow includes companies like Nike, Salesforce, Goldman Sachs, Visa, Coca-Cola and IBM. 

The DJIA is also designed to serve as a proxy for the health of the broader U.S. economy. Often referred to simply as the Dow, the DJIA is one of the most-watched stock market indexes in the world. Although the Dow encompasses a variety of businesses, each can be characterized as a blue-chip company that consistently generates stable earnings.

## What is an NFT Index Fund?

NFTs represent a new frontier of digital assets, art and internet culture. Composed of unique digital items that cannot be replicated or replaced, NFT index funds provide a novel way for investors to gain diversified exposure to the new asset class of non-fungible tokens without having to research and pick the individual NFTs themselves. 

An NFT index fund works similar to traditional index funds in that it tracks a basket of assets–in this case NFTs. To do this, the index fund manager will select NFT collections that qualify for the index based on specific criteria, such as rarity, popularity, or historical value. For example, the NFT index fund manager may track a basket of Yuga Labs NFTs, which include Bored Ape Yacht Club, Mutant Ape Yacht Club, Bored Ape Kennel Club, and Otherside NFTs. They will also consistently monitor the collections for various risks, as set forth by the index guidelines.

The index fund manager will also determine how often each index is rebalanced, generally monthly, quarterly, or bi-annually. This rebalancing process involves adjusting the weight of each collection within the index, typically based on factors like their floor price, appraised value, or overall market capitalization.

## Benefits of NFT Index Funds

### Ease 
With the rapid growth of the NFT market, NFT index funds offer a familiar and easy way for investors to gain exposure to the burgeoning market of digital assets in a manner that is very similar to how TradFi investors already operate. By leveraging the expertise of index fund managers, potential investors can enter the complex world of NFTs with greater confidence and reduced barriers to entry. 

### Diversification
The average investor does not have the capital to buy a breadth of NFTs to represent all of the various blue-chip NFT collections out there. With floor prices of blue-chip NFTs rapidly climbing, even one NFT purchase can eat up the majority of dry powder for an individual investor. NFT indices are a great way to gain broad exposure with a smaller amount of capital. Investors can enjoy the benefits of owning a diverse portfolio of NFTs, reducing the risk associated with concentrating investments in just a few assets. 

### Lower Time and Knowledge Requirements 
The NFT market moves lighting fast—collections can take off or dump within a weekend of news. It is exhausting for the average NFT participant to keep up with the major sources of news, especially when much of the information lives on Twitter or private Discord servers. Similar to how average TradFi investors are not listening to every public company earnings call, NFT indices allow people to participate in a broad manner without having to understand every detail. This not only saves time and energy, but also helps mitigate the risk of making financial decisions based on incomplete or inaccurate information.

### Liquidity 
One of the challenges NFT investors face is the lack of liquidity in the market, as buying and selling individual NFTs can sometimes be difficult due to their unique nature and varying demand. NFT index funds can help address this issue by providing investors with an investment vehicle that is easier to trade in and out of compared to individual NFTs. The pooled nature of index funds typically allows for greater liquidity, making it more convenient for investors to adjust their positions as needed.

## Complexities with Building NFT Indexes 

### Some Only Track Floor NFTs
Today, the NFT index funds that do exist typically only track floor price. Floor NFTs are not indicative of the entire collection, especially when some collections have grails (or rare NFTs) that are worth several orders of magnitude more than the floor NFT. The limited scope of floor NFTs does not accurately reflect the true diversity and potential value within a collection, which can lead to suboptimal investment performance. 

### Pricing 
NFT indices typically weight-adjust their portfolios based on the floor price of a collection. This does not take into account the collection as a whole, which would require pricing algorithms to better understand the value of the entire collection. Developing sophisticated pricing models for NFTs can be challenging due to the unique characteristics of each asset and the lack of historical data compared to traditional financial assets.

### Liquidity and Capacity Issues 
NFTs are non-fungible assets that often have low-velocity. Given that each asset is unique, they change hands much less frequently than traditional ERC-20 tokens or stocks. It is difficult for an NFT fund to curate an index and have the right capacity on the open market to rebalance it as needed. Additionally, the process of acquiring and disposing of NFTs can be time-consuming and costly, which may limit the fund's ability to efficiently and effectively manage its portfolio.

## Possible Solutions to Building NFT Indices 

### NFT Appraisals 

NFT appraisals allow NFT indices to place a better basket of assets that more accurately reflect the broader collection, beyond simply adding floor assets. They can better index the higher end of the NFT market by taking into account rarity, metatraits, and historical trading patterns, among other factors. Developing comprehensive appraisal methodologies and leveraging advanced ML models can help index fund managers more accurately assess the value of each NFT within a collection, leading to a more representative index.

### Capacity
NFT index funds may face capacity constraints due to the illiquid nature of the assets they hold. To address capacity issues, NFT index funds can implement strategies such as limiting the size of the fund, focusing on more liquid NFT collections, or utilizing derivatives and other financial instruments to gain exposure to the underlying assets without directly owning them. This approach can help improve the efficiency and flexibility of portfolio management while minimizing the impact of liquidity constraints. 

In traditional finance, the high-yield bond market, also known as the "junk bond" market, faces similar capacity constraints due to the illiquidity of these assets. To manage these constraints, some high-yield bond index funds employ strategies like sampling, wherein the fund invests in a representative sample of the bonds in the index, rather than holding each bond in the index. This sampling approach allows the fund to maintain a more manageable portfolio while still aiming to achieve a similar risk and return profile as the overall index. By adopting similar strategies, NFT index funds can address capacity constraints and provide investors with diversified exposure to the NFT market, even in the face of illiquidity challenges.

### Synthetics & Perpetuals
A synthetic asset is an asset that tracks the value of another asset, essentially mirroring its price movements without the need for direct ownership of the underlying asset. One common form of synthetic asset is a perpetual contract, or perp, which is a type of derivative that does not have an expiration date. In order to create a synthetic asset, a pool of capital and a reliable price feed that consistently updates are required. A well-known example of a synthetic asset is DAI, which tracks the value of the US Dollar. Utilizing price feeds for an NFT index can provide investors with synthetic exposure to the index through instruments like perpetual contracts. This approach may help mitigate some of the capacity issues and potentially simplify the design of an investable NFT index product, making it more accessible for a wider range of investors.

## The Future of NFT Index Funds with Upshot
For several decades, traditional financial markets have offered investors the opportunity to get broad exposure to various asset classes by simply buying into a basket of goods that serve as a proxy for the market. As NFTs emerge as a novel class of digital assets, investors are increasingly eager to have vehicles that give exposure to the asset class without having to put in the time and effort to pick various jpegs individually. 

As the NFT market continues to mature, innovative solutions to these problems will play a crucial role in addressing the complexities and challenges associated with building and managing NFT indices. By providing robust and accurate pricing methodologies, Upshot can empower index issuers to easily overcome obstacles such as liquidity constraints, capacity issues, and accurate valuation of assets within a collection. As a result, the development and adoption of NFT index funds will become more seamless and efficient, ultimately making the world of NFT investing more accessible and attractive to a broader range of investors. Ultimately, NFT indices will be an increasingly important frontier in allowing individuals to interact with the new digital renaissance. 


Introduction To NFT Index Funds

NFTs offer an entirely new way to collect, trade, and make profits from digital assets. And thanks to increasing opportunities in the DeFi space for NFT liquidity, creators and investors have been able to access greater returns on their collectors. 
This article will review some of the highest-valued NFTs and [NFT](https://www.financestrategists.com/wealth-management/cryptocurrency/nonfungible-tokens/?gclid=CjwKCAjwiOCgBhAgEiwAjv5whHSQtARhRXLFfP07R0Ddthp4z-9G3n7L_qWMUbSpBLpv_KbFYIv1CBoCkAgQAvD_BwE) projects, from individual sales to the most expensive NFT mint event–ever. 

## What does it mean for an NFT to be expensive?
When an NFT is “expensive,” it could be referring to: 
- An individual NFT: The price of an individual NFT can vary widely depending on its reputation,  rarity, history, and functionality. 
- An NFT Collection: A collection that has the highest floor price would be a more expensive collection. The floor price of an NFT collection refers to the lowest price at which an NFT from that collection can be purchased. For example, if the floor price of an NFT collection is $10,000, then the lowest-priced NFT in the collection is worth at least $10,000. 
- Trading Volume: An NFT can also be considered expensive if it has the highest trading volume within its collection. 

## Most expensive NFTs by individual sale
Here is a look at the most expensive NFTs ever sold in individual sales, highlighting the incredible potential of this emerging asset class.

### The First 5000 Days 
Price: $69.3 million USD
![collage](//images.ctfassets.net/lhkcghnr8ql4/4lk5qwhzClSRfPFzLNbdWS/371ae51c32e9ca9c8982cf2a44123d7b/collage.png)
Artist: Beeple

[The First 5000 Days](https://onlineonly.christies.com/s/beeple-first-5000-days/beeple-b-1981-1/112924) is an NFT artwork created by digital artist [Beeple](https://www.beeple-crap.com/) (real name Mike Winkelmann). The piece was sold at Christie's auction house for $69 million in March 2021, making it the third most expensive artwork sold by a living artist at the time. The artwork is a digital collage of every image Beeple created from May 1, 2007 to January 7, 2021. Beeple created and posted a new digital artwork every day, without fail, for 5,000 consecutive days. 

### Clock 
Price: $52.7 million USD
![clock](//images.ctfassets.net/lhkcghnr8ql4/6DG68ey9e2bIyk5ZSXcGpm/44cdb58370b148ef2279ad73e8dbdbb8/clock.png)
Artist: Pak

The NFT 'Clock' by [Assange DAO](https://assangedao.org/) and artist, Pak is a digital artwork stored on the blockchain that depicts a timer counting the number of days WikiLeaks founder, Julian Assange has spent in prison. It was sold to help fund Assange's legal defense and is part of the 'Censored' NFT collection. ['Clock'](https://censored.art/clock) is a revolutionary piece of art that not only serves as a reminder of Julian Assange's imprisonment but also provides insight into the potential applications of blockchain technology in the art world.

### HUMAN ONE
Price: $28.9 million USD
![Human in a glass box](//images.ctfassets.net/lhkcghnr8ql4/3sGqx8ZRnMsu6yPLn4U2ai/71ec837520f57611d26e47cfb4c4f062/Human_in_a_glass_box.png)
Artist: Beeple

[Human One](https://www.christies.com/features/Beeple-gets-real-with-human-one-11940-7.aspx) is a hybrid digital and physical artwork created by digital artist Mike Winkelmann, also known as Beeple. The work — a kinetic video sculpture featuring a corresponding dynamic NFT — has been designed to provide ongoing, ever-evolving artwork. Beeple will have remote access and full control over this artwork forever.
Human One was auctioned off at Christie's in March 2021 for [$28.9 million USD.](https://www.christies.com/lot/lot-6345173) The sale makes it the third highest-selling NFT ever. Noah Davis, head of digital sales at Christie's, praised the artwork as a "triumphant follow-up" to Beeple's renowned EVERYDAYS: The First 5000 Days.

### CryptoPunk # 5822
Price: $23.58 million USD
![cryptopunk](//images.ctfassets.net/lhkcghnr8ql4/5LRfsqflVtQfUypzD2m5w7/37efacbca1cc4fd03130295a81cb22a9/cryptopunk.png)
Artist: Larva Labs

[CryptoPunk #5822](https://www.larvalabs.com/cryptopunks/details/5822) is an iconic digital collectible character created by [Larva Labs.](https://www.larvalabs.com/cryptopunks) It is part of the CryptoPunks collection, a set of 10,000 unique characters built on the Ethereum blockchain. The punk features an alien-style design with a blue bandana and has become one of the most sought-after NFTs. In February 2022, it sold for a record 8,000 ETH (equivalent to over $23 million USD), making it the most expensive CryptoPunk ever sold.

## Most expensive NFT collections and projects 

We’ve seen some record-breaking individual NFT sales, now let’s look at some of the most expensive NFT collections and projects around the world.

### CryptoPunks 
Price: 74.7 ETH
![cryptopunks](//images.ctfassets.net/lhkcghnr8ql4/3QsmZkz3EYo9ef5jXICNlX/be8df54e14dbb915756cf5bddea77984/cryptopunks.png)
Artist: Larva Labs

[CryptoPunks](https://www.larvalabs.com/cryptopunks) is a collection of 10,000 unique 8-bit style characters, each with its own distinct attributes such as hair color, accessories, and facial expressions. Created by software developers Matt Hall and John Watkinson of Larva Labs, CryptoPunks were one of the first NFTs to be created on the Ethereum blockchain. Released in 2017, the collection quickly gained popularity within the cryptocurrency community and has since become one of the most well-known and [valuable NFT](https://upshot.xyz/post/determining-what-matters-NFT-valuation) collections. 

### Bored Apes Yacht Club
Price: 66.65 ETH 
![bored apes yacht club logo](//images.ctfassets.net/lhkcghnr8ql4/3b2d46mhRgAKj0vS66Gtcz/0c35408970a134b0e8fee3e7c24eda0c/bored_apes_yacht_club_logo.png)
Artist: Yuga Labs 

[The Bored Ape Yacht Club](https://boredapeyachtclub.com/#/) (BAYC) is a collection of 10,000 unique digital ape NFTs created by a group of [four founders](https://nftevening.com/the-bored-ape-yacht-club-founders-are-officially-doxxed-by-buzzfeed/). Each NFT in the collection depicts an Ape with an individualized design, making them one-of-a-kind and highly sought after. The collection launched in April 2020 with each NFT costing $190 at launch. 

Since then, the value of these NFTs has skyrocketed, and BAYC #8817 sold for 852 ETH ($3.4 million USD) in October of  2021. In addition to the original Bored Apes collection, the Bored Ape Yacht Club has also released several other NFT collections, including Mutant Apes and Kennel Club Dogs, each with their own unique traits and features. 

### Fidenzas
Price: 80.5 ETH
![fidenzas logo](//images.ctfassets.net/lhkcghnr8ql4/43RuxbBlgl9rokxuVLHoJs/b6ccc5f410407f7e20950773afd9617d/fidenzas_logo.png)
Artist: Art Blocks

[Fidenza](https://tylerxhobbs.com/fidenza) is a collection of generative art NFTs created by the artist Tyler Hobbs and featured on the Art Blocks platform. The artworks in this collection are characterized by their bold, geometric shapes, intricate patterns, and vibrant colors. The Fidenza collection is divided into multiple series, with each series featuring a distinct set of algorithms and design parameters. 

### Mutant Ape Yacht Club
Price: 13.7 ETH
![mutant ape yacht club](//images.ctfassets.net/lhkcghnr8ql4/1IlZrtjwNrbJZIQmgv9EQW/95c6b2c3a4d95e93198cc48764b34178/mutant_ape_yacht_club.png)
Artist: Yuga Labs

[The Mutant Ape Yacht Club](https://boredapeyachtclub.com/#/) (MAYC) is a collection of up to 20,000 unique Non-Fungible Tokens (NFTs). These NFTs are associated with the original Bored Ape NFTs and can only be created by exposing an existing Bored Ape to a vial of MUTANT SERUM. The MAYC collection is available on platforms such as OpenSea, Kraken, LooksRare, Coinbase NFT, CoinGecko, DappRadar, and Rarible.

### Chromie Squiggles
Price: 11.911 ETH
![chromie squiggles](//images.ctfassets.net/lhkcghnr8ql4/6rrm9sSuxxqp2aH6Js9ApG/37b0be32fb2145ec3bfcf0d3e0a990d5/chromie_squiggles_.png)
Artist: Snowfro

[The Chromie Squiggle NFT](https://chromie-squiggles.com/) collection by Snowfro is a unique piece of generative digital art and is the first NFT project of Art Blocks. Chromie Squiggles are created entirely on the blockchain, with a script built into the smart contract that executes the moment the mint transaction goes through. Chromie Squiggles are unique for pioneering new ways for people to interact with digital art as they are both animated and interactive. Viewers can click to toggle the color cycling, use the spacebar to change the background color, and use up/down arrows to change the color rotation.

Read: [The Ultimate Buying Guide for Chromie Squiggles](https://upshot.xyz/post/buying-guide-chromie-squiggles)

### Doodles 
Price: 3.6499 ETH
![doodles](//images.ctfassets.net/lhkcghnr8ql4/4p4Mo9h7K7YYTg1u3d0Ndc/16714ffbdecef8bc3846f99f2cb1000e/doodles.png)
Artist: Doodles LLC

[Doodles](https://doodles.app/) consists of 10,000 NFTs created by Evan Keast, Scott Martin, and Jordan Castro. These tokens feature colorful artwork by Burnt Toast, a Canadian artist. Each Doodle is uniquely personalized and endlessly customizable with a range of colors, traits, and sizes. The Doodle NFT collection is available on OpenSea, Rarible, and DappRadar. It stands out in the crowded NFT market due to its joyful range of colors and customization options.

### Azuki
Price: 14.5 ETH
![azuki](//images.ctfassets.net/lhkcghnr8ql4/3hZc8EVdcoZvZFJWkFURaV/3698c589aa06165149b5ba88cf047591/azuki.png)
Artist: TeamAzuki

[Azuki](https://www.azuki.com/) is a digital brand created by TeamAzuki, a group of Los Angeles-based artists. The brand is best known for its collection of 10,000 generative NFTs released on January 12, 2022. Azuki also has a second project called [BEANZ NFT](https://www.azuki.com/beanz) which consists of bean pods with tiny baby beans inside them. Despite some recent price drops, the Azuki NFT collection continues to be a popular choice for those looking to join the metaverse.

### Coolcats 
Price: 1.6499 ETH
![coolcats](//images.ctfassets.net/lhkcghnr8ql4/5KyTmLKBsnQyEhMlUxIkwz/5305a90c12f1f924d38e14beec609ff3/coolcats.png)
Artist: CryptoKitties team

[The Cool Cats NFT](https://coolcatsnft.com/) collection is a vibrant and playful selection of crypto-collectibles. This collection features 10,000 cats with a range of different features and personalities. In addition to the traditional cats, some limited edition cats can be found only in this collection. 

The Cool Cats NFTs feature digital art designed by world-renowned artists such as José Parlá, Miss Kaya, and Lluís Fuzzhound.  Additionally, each token also comes with its own unique item called a "Cat Toy" which increases the value of the token even more.

### Moonbirds
Price: 3.96 ETH
![moonbirds](//images.ctfassets.net/lhkcghnr8ql4/68aIevHUsjxVotgKUTyHdy/636dd4ce9e6ca85dee0ef335ee36f0d0/moonbirds.png)
Artist: PROOF

[The Moonbirds NFT](https://www.proof.xyz/moonbirds) collection is a 10,000-piece collection of digital avatars created by artist and PROOF co-founder Justin Mezzell. These avatars are distributed under a unique set of traits and are built on the Ethereum blockchain. Each Moonbird comes with its own unique characteristics, such as pixelated owl [PFPs](https://www.coindesk.com/learn/what-are-pfp-nfts/), which grant their holders access to the digital and IRL Moonbirds community. 

Community members can nest their birds to signal various activities within the community. The Moonbirds NFT project has become one of the top-traded collections of all time, firmly cementing itself as part of camp Blue-Chip.

## Most expensive NFT minting event

We’d be remiss to end this article without a mention of the most expensive NFT minting event ever: a sale of the digital art collection The Merge to multiple collectors at once.  

### The Merge 
Price: $91.8 million USD
![the merge](//images.ctfassets.net/lhkcghnr8ql4/6xJTlRIzOMsMv5AmMFw8sm/033347d0f0309639b1b409afa45da8b7/the_merge.png)
Artist: Pak

[The Merge NFT](https://www.barrons.com/articles/paks-nft-artwork-the-merge-sells-for-91-8-million-01638918205) sale was a digital art collection created by the anonymous artist Pak that raised over $90 million in sales. The sale was hosted on the Nifty Gateway platform and featured the sale of 312,686 NFTs. Almost 29,000 collectors were able to purchase these tokens for $575 each, with the price increasing by $25 every six hours until the end of the event. The Merge NFT sale set a world record for an NFT sale and made Pak one of the wealthiest living artists. 

## What impacts NFT pricing and value? 

### Reputation 

Reputation is one of the most important factors in determining the value of an NFT. Without hype around an NFT, it won’t matter how rare or functional the NFT is: you need demand for it to sell at a high price. 

If an artist has a good reputation for creating high-quality artwork, their NFTs will be more valuable than those from lesser-known artists. Additionally, if an artist has created a series of successful NFTs, this can also increase the value of their future works.

### Rarity 

[Rarity](https://upshot.xyz/post/nft-rarity-tools) is another factor that affects the price and value of an NFT. The rarer an item is, the more valuable it will be to collectors. This means that limited edition pieces or those with unique features will often command higher prices than regular editions.

### Functionality 

The functionality of an NFT refers to its ability to be used in real-world applications–whether in the digital space or physical world. An NFT  is considered functional when it offers ownership perks like access to premium content, real-world events, and conferences,  physical items, or special gaming access.

### Historical pricing

By reviewing an NFT’s price history, a seller can determine how much a person was willing to (and did) pay for that NFT. This can help them determine the true (albeit past) value of an NFT and how to properly price that NFT for its next sale–while taking other factors like hype and current demand into consideration.

## Get accurate NFT appraisals with Upshot 

While all of those factors can impact NFT pricing, the most accurate way to understand the value of NFTs is through NFT appraisals. Upshot is a leader in the NFT appraisal space, offering: 

- Deal finding: Upshot's appraisals are integrated into the core of our NFT aggregator to make it as easy as possible for collectors to find the best deals in the NFT market.
- Real-time portfolio tracking: Track the value of your NFT portfolio powered by near real-time appraisals.
- Build smarter trading strategies: Use Upshot's API to build smarter trading strategies informed by appraisals, liquidity analyses, and other advanced stats.
- Identify and track smart collectors: gmi is a novel grading index for NFT wallets that you can use to track the smartest collectors in the space to help inform your investing decisions.

With over 74 million assets from over 67,000 collections appraised, Upshot helps collectors better understand how their NFT investments are performing so that they can make informed decisions about their portfolios. 

[Learn about Upshot.](https://upshot.xyz/) 


Looking to invest in non-fungible tokens? Discover the most expensive NFTs and NFT projects that have been traded and created in this DeFi space. 

Most Expensive NFTs & NFT Projects [2023]

## Intro

Upshot is entering the NFT lending space. By leveraging our appraisal models and new infrastructure built specifically for lending, Upshot will be launching managed NFT lending strategies. Our lending strategies use different methodologies that can appeal to a range of liquidity providers with different risk profiles. In this post, we’ll outline how our appraisals enable us to construct efficient portfolios of NFT loans, details into the new lending-specific models that we’ve built over the past couple of months, and how we’ll be bringing these lending models to market in the coming weeks.

## What Goes Into a Successful Lending Strategy

When constructing terms for NFT loans, it’s vital to understand the value of the NFTs you are lending against. The amount you loan against an NFT relative to its value is known as the “loan-to-value” (LTV). As a lender, if your LTV is too high, you are exposing yourself and your backers to undue principal risk. On the other hand, if your LTV is too low, you are leaving money on the table and will likely lose borrower interest to competing lenders.

This is where appraisals fit in. NFT appraisals give us a reliable in-the-moment estimate of the value of an NFT, allowing us to set loan terms that are competitive while mitigating our risk.

### Appraisals

Upshot's appraisals are among the most accurate and robust models for NFTs on the market. Every hour, over 74 Million NFTs from more than 67,000 collections are appraised by our ML models with industry leading accuracy (MAPE of 3-10% for our best-performing collections). It is these appraisals that are powering our lending strategies.

While appraisals are at the core of our lending strategies, we have built several other components that are essential to being a successful lender in the NFT space. These other pieces include forward-looking estimates of asset value changes (recovery rates), default probability estimates, and our risk management framework. A quick description of each follows:

#### Recovery Rates

Our recovery rate model calculates forward-looking estimates of NFTs’ value, which takes into account the current market situation and helps the lending strategy to predict the future collateralization of an NFT-backed loan. Without recovery rate estimates vs the current fair value (our appraisal) a strategist cannot estimate how much money they stand to lose when a borrower defaults.

#### Default Probability Model

Like TradFi credit providers, our models factor in the probability of a borrower defaulting on their loan. This model helps us to estimate the possible frequency and likelihood that the borrower misses an interest payment and assess the chances that we will have to liquidate the assets that we are left in possession of.

#### Risk Management Framework

Our risk management framework is where our concentration analyses occur and where we manage the number of collections we are writing loans against. This framework also takes into account the loan concentration per collection on other major lending platforms, ownership concentration per collection, our own loan concentration per collection, and collection concentration per wallet. By not only acting at an individual NFT level, but also at a holistic collection and market level, we can protect both liquidity providers and ourselves from any potential downsides.

The number of collections we lend for is also not fixed. When market conditions improve we are able to provide terms for more collections, but when there is volatility in the market our framework automatically scales down the number of collections we lend for.

## Striving for Breadth

Because of Upshot’s appraisal coverage, we are capable of offering relatively safe and competitive terms for dozens of collections. This is achieved by adjusting the collections we publish terms for based on our fair value estimates at the horizons we lend for. To decide which collections are suitable, we analyze the volume, liquidity, wash trading as a percentage of total trading, ownership and transaction wallet concentration.

The criteria that go into selecting collections are volume, liquidity, wash trading as a percentage of total trading, ownership and transaction wallet concentration, over multiple months, so that we lend for more stable but also diverse collections that do not suffer from and are less prone to manipulation.

## What’s Ahead

With this lending infrastructure and strategies in place, we will start to bring them online in the coming weeks. We will be underwriting loans directly on leading NFT lending platforms, but we will also be one of the initial strategists on Astaria when they launch. As an Astaria strategist, it will be trivial for anyone to get exposure to our strategies’ performance through the Astaria protocol. We will be releasing some more information about how our strategies work, the types of loan we’ll be underwriting, and more in the next few weeks.

Upshot has entered the NFT Lending space. Our lending strategies, which leverage our appraisal models and new infrastructure built specifically for lending, appeals to a range of liquidity providers with different risk profiles.

Introducing: Upshot Lending Strategies


At Upshot, we believe a robust interpretation layer for NFT data is key to the success and growth of the NFT industry. Keeping this in mind, we built collection recommendations: A feature that enables users to better discover NFT collections based on their current interests and holdings.

This article will cover why collection recommendations are important for the NFT space as a whole, how we used AI to put personalized curation front and center for our users, and of course, how you can get started using them today.  

[Try it: Collection Recommendations is live on our aggregator](https://app.upshot.xyz "Upshot App")
![Upshot Web App with Collection Recommendations feature](//images.ctfassets.net/lhkcghnr8ql4/0ZW23Boca6kirS9hdq9W4/030b3ebbf9f4fee19b55506cbfbe6aa7/Screen_Shot_2023-02-28_at_6.53.57_AM.png)

## Why Recommend

The NFT space is exploding. Amongst many things, this has led to an ever-increasing number of collections in various categories such as PFPs, gaming, music, generative art, etc.

With more than 160K collections (at the time of writing) available through various marketplaces, it has become increasingly more challenging for individuals to decide which collection to focus on. 

Analogous to the evolution of the e-commerce industry, the NFT space will soon realize the importance of content curation and personalization for individual wallets. To create this will need to develop data-driven techniques that reduce the search space for wallets and help individuals navigate the sheer volume of content produced in the NFT space.

### For the User
A recommendation system uses algorithms that take a large set of items as input to determine what to display to a user next based on those inputs. Recommendations are part of our everyday life - think of Facebook News Feed, YouTube's homepage, and Netflix's "Recommended for you" navigation page.  At Upshot, our recommendation algorithm can infer “what the user may like to own” based on the collections they currently hold in their wallet. 

### For Developers
Using our collection recommendations algorithm (which is bundled into the [Upshot API](https://docs.upshot.xyz/docs)) developers can create a better, more personalized experience for their end users. 

This personalization can lead to new products, enhanced user stickiness and transaction volume, and an overall better experience in the NFT space - one that cuts through the noise and presents the relevant information on a specific per-user basis.

## Our Methodology

We based our initial approach on inferring the wallet's preferences for collections based on what the wallet already owns. 

For baseline recommendations, collaborative filtering is the first step. This step doesn't require too much information about collections except for which collections specific wallets have traded, owned, viewed, etc. 

Collaborative filtering analyzes the relationships between wallets and interdependencies among collections to identify new wallet-collection associations. The technique recommends collections to wallets based on the preferences of other wallets by identifying similar wallets or collections. 

In our case, we use NFT ownership as a wallet's preference. A critical step in the recommendation process for a given wallet is the identification of similar wallets (known as user-based) or similar collections (known as item-based).

At Upshot, our recommendation technique is item-based where similarities between collections are leveraged to determine the associations between wallets and collections. This item-based technique is explained using Figure 1 which shows wallets ownerships of collections.

![collaborative filtering figure](//images.ctfassets.net/lhkcghnr8ql4/7zDQO0delNgh4CI49G11Qi/c79f69078e745358f228d44b0b5b2bdb/collaborative-filtering.png)
Figure 1: Item-based Collaborative Filtering

To recommend more collections to wallet 1, we first find the collections owned by wallet 1 which are collection 1 and collection 2. Now, the next step is to find similar collections to collection 1 and collection 2. As collection 2 is also owned by wallet 3 who also owns collection 3 and it is not owned by wallet 1, the process will present collection 3 to wallet 1 as one of the recommendations.

From a technical perspective, the similarity between collections is determined using Cosine Similarity, which calculates the similarity between two vectors by calculating the cosine angle between them. The advantage of using this method is that it is invariant to vector size as in our dataset, the number of collections each wallet interacts with varies a lot. This difference in magnitude does not affect the similarity measure since it only considers the angle between vectors instead of their sizes. 

Mathematically, cosine similarity is calculated as the dot-product of collection pairs divided by the product of normalized vectors. i.e.

$$
cos(\theta) = \frac{\sum_iA_iB_i}{\sqrt{\sum_iA_i^2} \sqrt{\sum_iB_i^2}}
$$

Once a collection-collection similarity matrix is available, the next step is to calculate a score between the wallet and every collection not currently owned by the wallet. The association between a wallet and a collection is the weighted average of a set of collections that are similar to collections owned by the wallet. Notice we use weighted average where weights are the similarity score between collections. The weighted average reduces the bias in situations where similar collections are not equally similar to the owned collection.

The final step in the recommendation process is ranking the wallet-collection associations in the descending order and determining the top 5 recommendations per wallet. Here, we apply a recency factor based on seven day volume in order to generate recommendations that are not just personalized to the wallet but also are relevant in the current period.
Our complete process of generating recommendations can be visually represented as a sequential pipeline of multiple stages as:
![Recommendation build flow](//images.ctfassets.net/lhkcghnr8ql4/5EGiB0BcHIcPmROPmiEysA/cf0f039bab9c87dc46e4a878190ffce6/image2.png)

## Conclusion
In conclusion, a reliable recommendation engine is important for the growth of the NFT industry and the marketplaces that operate within it. As more content producers enter the NFT space, it is becoming increasingly challenging for users to identify relevant collections that match their interests. This makes it hard for marketplaces to retain the attention and transactions of their users. 

Finally, at Upshot, we’re constantly iterating. This recommendation system will continue to improve with time. For example, we plan to add auxiliary information about wallets and collections, such as collection category, number of assets in the collection, asset traits, trait rarity, etc., to greatly enhance the recommendations. Furthermore, from the wallet’s perspective, we’re looking into ways to handle the  “cold-start problem” where we can still make accurate recommendations to a wallet that has not owned anything yet. 

As the NFT space continues to evolve, it is essential to have a tool that can keep up with the industry's changing landscape. Upshot's collection recommendations are an excellent step towards achieving this goal.


A reliable recommendation engine is important for the growth of the NFT industry and the marketplaces that operate within it. So, we built one. 

Introducing Collection Recommendations

Upshot alerts are a new feature giving you real-time notifications for trades and market activity around your favorite crypto collections, NFTs, traits, and wallets.

At Upshot, we’re building the financial infastructure for NFTs. This is our third major public rollout of 2023, following [NFT wallet labels](https://upshot.xyz/post/NFT-Wallet-Labels) and a [“gmi” grading index](https://app.upshot.xyz/gmi) of NFT Collectors’ wallets.

## Background

Upshot uses machine learning to offer deep insights into the NFT market, currently appraising more than 57m+ NFTs across more than 32,000 collections. 

As we’ve seen, the crypto market - and the NFT market specifically - can move very quickly, creating winners and losers in a matter of minutes. This volatility in the market benefits early movers.

## What Are Upshot Alerts?

NFT Collectors can now set Upshot Alerts to trigger real-time notifications that report the activity for any wallet address, collection, NFT, or trait of interest.

To set an alert simply go to your settings > create an alert > Add the name and parameters:
![Upshot Alerts Gif](//images.ctfassets.net/lhkcghnr8ql4/7raeGVjCjYb15uIIsUPhfW/0639af47585f14d61b15eae5dbddec57/Alert_setting.gif)

__Alerts for Collections__ help you track changes in floor pricing and general trends across a collection. 

__Alerts for NFTs__ allow you to keep an eye on that one specific piece you’ve been waiting to own. 

__Alerts for Traits__ are a great way to spot trends or cultural narratives within the NFT space and act on them before others.

__Alerts for Collectors__ reveal the moves influential NFT Collectors are making and copy their trades.

With Upshot Alerts, you can know exactly what happens, as it happens, giving you peace of mind for your investments and keeping you one step ahead of the market.

## How Will You Use Upshot Alerts?

Upshot Alerts provide NFT investors with personalized, real-time updates to inform their investment strategies. Over time, you can use Alerts to customize your trading experience and maximize your return in the market.

How do you intend to use it? Be sure to let us know so we can continue to build the smartest NFT tools on the market. 

Head over to our [NFT Aggregator](https://app.upshot.xyz/) to start exploring the NFT market and setting up Alerts to follow key wallets, collections, NFTs and traits.

### Stay in the loop!

Join us on [Discord](https://discord.com/invite/upshot)
Follow us on [Twitter](https://twitter.com/upshothq)
Read through our [API Docs](https://docs.upshot.xyz/docs)


Set Upshot Alerts to trigger real-time notifications that report the activity of any wallet address, collection, NFT of interest, or specific trait. 

Introducing: Upshot Alerts

Decentralized Autonomous Organizations, or DAOs, have been making waves in the world of finance and investment in recent years. These digital entities are designed to operate on a decentralized blockchain network and are run by smart contracts that automatically execute predefined rules and decisions. 

With the rise of blockchain technology and the [NFT market](https://upshot.xyz/post/nft-markets-are-maturing), and an increasing interest in [decentralized finance (DeFi)](https://www.techtarget.com/whatis/definition/decentralized-finance-DeFi), investment DAOs have emerged as a promising new way to invest in digital assets such as NFT tokens and cryptocurrencies.

This article will take a closer look at investment DAOs and how they work, including the benefits and risks associated with investing in them. We'll also explore some of the most popular investment DAOs currently in operation and provide tips on how to evaluate investment opportunities. 

## What is an Investment DAO?

Investment DAOs are comprised of groups of people who pool their resources together to invest in various digital projects and assets they may not have been able to invest in individually. The decisions on what to invest in are made democratically by members of the DAO, using a voting system that is executed by the smart contract. The rules and guidelines that govern the DAO's investments are also set by the members themselves. 

Unlike traditional investment funds or companies, investment DAOs are completely decentralized—there is no central leadership, and it is governed by the community. It is typically open to anyone who wants to join and become a member. 

### DAOs in the DeFi Space

DAOs and DeFi also share a mutually beneficial working relationship. DeFi, or decentralized finance, is a form of peer-to-peer finance enabled by various Layer-1 blockchain protocols, such as Ethereum, Avalanche, Solana, and Cardano. 

DeFi eliminates the need for intermediaries, such as banks and brokers, and allows users to self-custody their assets in their wallets using their private keys. This increases the speed and lowers the cost of financial transactions, and enhances the transparency of transactions.

Many DeFi applications are built on top of DAO structures. For example, a DeFi protocol that allows users to lend and borrow cryptocurrency can be built on top of a DAO that controls the governance of the protocol, including decision-making around how the protocol will be updated or improved. DAOs can also be used to manage funds for DeFi projects, such as investment funds or liquidity pools.

## How Do Investment DAOs Work?

DAOs function by providing a community-driven approach to investment, with rewards for members and a focus on long-term growth and success.  

All the resources in a DAO are managed by a predefined logic which can be modified by members using a democratic system. The purchase of assets and allocation of resources are designed to be transparent and user-centric. 

Here’s an overview of how they work: 
- __Creation__: An investment DAO is created by a group of individuals who come together to form a decentralized organization. The DAO is created on a blockchain, such as Ethereum, using smart contracts that govern how the DAO operates.
- __Funding__: Members of the DAO pool their resources by contributing cryptocurrency to the DAO's treasury. This provides the DAO with capital that can be used to make investments.
- __Governance__: Members of the DAO have voting rights and can participate in decision-making processes that determine how the DAO's funds are invested. This can include voting on which assets to acquire, when to sell assets, and how to manage the DAO's portfolio.
- __Transparency__: All transactions and decisions made by the DAO are recorded on the blockchain, providing transparency and accountability to members of the DAO and other stakeholders.
- __Rewards__: Depending on the DAO's structure, members may receive rewards for their participation and contributions to the DAO. This can include a share of the profits generated by the DAO's investments, or other incentives such as tokens or other assets.

## What Are Investment DAOs Used For?

Investment DAOs are often designed to invest in digital assets, but they can also be used to  invest in traditional assets such as stocks or real estate.

### NFTs

Collector DAOs are when individuals pool funds to acquire and issue NFTs. For example, [APE DAO](https://t.co/vsgMPHWuEZ) allows for the fractionalization of NFTs so multiple users can own a fraction of the same asset. 

DAOs can also help raise funds and create engaged communities for different NFT projects by allowing people to determine the most profitable projects. Members get to determine the investment direction through token-based voting. DAOs also create incentives and rewards that encourage members to participate. This can support community governance and also help smaller projects or creators develop a dedicated community. 

### Other Crypto Projects

DAOs are not limited to any specific category, and their utility can extend across various use cases, including protocols, philanthropy, publishing, and even social media.

Some notable DAO projects include [AssangeDAO](https://assangedao.org/), which helps in supporting WikiLeaks and its founder by accepting cryptocurrency donations. 

[VitaDAO](https://www.vitadao.com/) supports biotech scientists by investing in longevity research through an IP-NFT, and The LAO is an investment fund that supports the blockchain ecosystem.

### Real Estate

Real estate DAOs create a platform for users to manage the administrative environment of a property,  by tokenizing the asset. Through tokenization, the barrier to entry for real estate investments is lowered and allows investors to purchase fractional ownership of a property. Members can buy stakes in properties for as low as $50. These tokens provide holders with voting rights in decision-making processes, such as repairs and maintenance. 

This process also brings transparency to the siloed market, as all transactions are recorded on a blockchain ledger. Users can also benefit from increased liquidity and lower transaction costs associated with traditional real estate investments. Examples of real estate DAOs include Lofty AI, Arrived Homes, and Vesta Equity.

### Startups

Startups and institutional investors are leveraging DAOs to build a new model for community action on the internet.  Through built-in governance and treasury management features, they allow members to contribute funds in exchange for equity or voting rights without having to go through traditional channels.

Venture capital firms are further exploring new methods to attract more funding and participants into the space. One of these is the use of [hybrid DAO financing models](https://academy.moralis.io/blog/business/why-businesses-should-adopt-a-hybrid-dao-model) that imitate initial coin offerings (ICOs).

## Benefits of Investment DAOs

Investment DAOs offer several advantages over traditional investment funds or companies, including:

### Democratization & Inclusivity 

DAOs provide a platform for individuals from all over the world to come together and pool their resources to make investment decisions. Since DAOs operate on the blockchain, they are accessible to anyone with an internet connection regardless of geographical location or social status. 

### Transparency

DAOs operate transparently on the blockchain, allowing members to track all investment decisions and financial transactions. This transparency ensures that all members have visibility into the DAO's operations, reducing the risk of fraud and mismanagement.

### Lower Fees 

Investment DAOs can offer lower fees than traditional investment vehicles, such as mutual funds or hedge funds. Since DAOs operate on the blockchain, they can eliminate many of the costs associated with traditional investment vehicles, such as administrative fees, fund manager salaries, and middleman fees.

### Risk Diversification 

Investment DAOs allow members to pool their resources and invest in a diversified portfolio of assets, reducing the risk of losses due to the failure of any individual investment. This diversification can help to protect investors from market volatility and ensure a more stable return on investment.

### Liquid Investments 

DAOs can provide investors with access to liquid investments, such as cryptocurrencies or other blockchain-based assets. Since these assets are traded on public exchanges, they can be bought and sold quickly and easily, providing investors with greater flexibility and liquidity.

## Investment DAO Risks

Despite the numerous advantages, investment DAOs also carry some risks. 

- __Smart contracts__: If there are flaws in the smart contract's code, the DAO could be vulnerable to hacking, bugs, or other technical issues.
- __Regulatory risks__: The regulatory environment for DAOs is still uncertain in many jurisdictions. This uncertainty could result in legal or regulatory action that could impact the DAO's operations. 
- __Market risks__: Like any investment vehicle, DAOs are subject to market risks, including volatility, liquidity, and losses. 
- __Reputation risks__: DAOs operate on the blockchain, which means that all transactions and decisions are visible to the public. This can make it more susceptible to attacks from hackers, which can damage reputations and impact a DAO’s ability to attract new members or investments.
- __Fraud__: Some DAOs can be used as an avenue to trick people into fraudulent investments. 

## Investment DAOs to Know in the NFT Space

As NFTs and crypto have become a more mainstream investment opportunity, there are several prominent Investment DAOs to know in the NFT space.

### 1. SquiggleDAO
![squiggle dao logo](//images.ctfassets.net/lhkcghnr8ql4/3HsJ74gZx83cAbhNVsqTc2/124615d73dcedd0b9ddb1abe1a136084/squiggle_dao_logo.png)

[Squiggle DAO](https://www.squiggledao.com/) is a digital art organization focused on collecting, curating, and investing in generative art and NFTs. It seeks to improve users' access to crypto art and NFTs by tokenizing artwork and allowing artists to maintain their ownership of the work while sharing in its rewards. 

Squiggle DAO aims to build a sustainable digital art ecosystem that benefits both artists and collectors. Squiggle NFT serves as the pass to Squiggle DAO, and it currently has a floor price of 12ETH.

Also Read: [The Ultimate Buying Guide for Chromie Squiggles](https://upshot.xyz/post/buying-guide-chromie-squiggles)

### 2. PleasrDAO
![PleasrDAO logo](//images.ctfassets.net/lhkcghnr8ql4/2WjVJYJqv7LOzQYlpli3t5/230c5f20abec6f15ca036ca9b5b35e4f/PleasrDAO_logo.png)

[PleasrDAO](https://pleasr.org/#) is a collective of DeFi leaders, NFT collectors, and digital artists that acquire culturally significant pieces. The DAO's mission is to collect digital art that represents important ideas, movements, and causes. PleasrDAO is experimenting with community and fractional ownership of art, using DeFi to add and disseminate value. The group has also been launching live auctions with notable figures such as Edward Snowden and Daniel Ellsberg.

### 3. Flamingo DAO
![Flaming DAO logo](//images.ctfassets.net/lhkcghnr8ql4/3smEuUOOgmU2XEZLoOzNsX/61c2748d3a477794c404f558ac771623/Flaming_DAO_logo.png)

[Flamingo](https://docs.flamingodao.xyz/) is a DAO exploring investment opportunities for blockchain-based assets. These NFTs include digital art, collectibles, in-game assets, and other tangible assets that help create, monetize, and incentivize online content.  As of 2022, Flamingo’s portfolio included 215 CryptoPunks and 22 Bored Apes, with an estimated value of $1 billion. 

### 4. Bit DAO

[BitDAO](https://www.bitdao.io/) is an open platform for proposals voted on by BIT token holders, supporting the builders of the decentralized economy through pledged contributions, product development, specialized initiatives, R&D labs, and token swaps. It is governed by token holders and focuses on principles of community-driven decision-making and collaboration.

### 5. Davinci DAO

[Davinci DAO](https://davinci.gallery/) is a decentralized autonomous organization that aims to foster creative collaboration and innovation in the arts and cultural sector. It was founded by Misha da Vinci, an experienced web3 leader, and is supported by a community of holders. Davinci DAO provides a platform for community-driven decision-making, funding, and support for artists and creators, with a focus on empowering marginalized groups and promoting diversity and inclusion.

## How to Make Your Own Investment DAO

![portait](//images.ctfassets.net/lhkcghnr8ql4/1AerkBWodRZvqU5WImMUCG/fb37726dd80306c70bf215257fd5a1fb/portait.png)

### 1. Encode & audit a smart contract

Encoding a smart contract:

1. Write the smart contract code using a programming language suitable for smart contracts, such as Solidity.
2. Compile the code into bytecode, which is the low-level code that can be executed on the blockchain.
3. Deploy the bytecode onto the blockchain using a tool like Remix or Truffle.

Auditing a smart contract:

- Review the smart contract code to identify potential security vulnerabilities, such as reentrancy attacks, integer overflows, or unauthorized access.
- Use a tool like MythX or Slither to perform automated security checks on the smart contract code.
- Conduct a manual code review by a team of experienced smart contract developers to identify any potential issues that may have been missed by automated tools.
- Test the smart contract using a testnet or private blockchain to simulate different scenarios and ensure that it functions as expected.
- Have the smart contract audited by an independent third-party auditor who specializes in smart contract security.

### 2. Determine rules of governance

DAOs must identify the key decisions that need to be made and the criteria for making them. This involves determining the roles and responsibilities of token holders, developers, and other community members. Once these roles are defined, the community can create a set of rules and procedures for decision-making, such as a voting system or a proposal process. 

### 3. Use a DAO management platform 

DAO management platforms guide you through the process of creating a DAO in straightforward steps. 

Using these platforms, there's no need to build a smart contract from the ground up. They essentially serve as a bridge between you and the blockchain, allowing you to deploy your DAO without any coding. 

Some of the most frequently used platforms for creating a DAO include:
- [Syndicate](https://syndicate.io/)
- [Colony.io](https://colony.io/)
- [Aragon](https://aragon.org/)

### 4. Incorporate appraisal capabilities 

Appraisal capabilities are crucial for DAOs and other funds investing in NFTs due to the infrequent trading of NFTs, which makes it difficult to determine the net asset value (NAV) of underlying assets and the price of ERC-20 tokens issued to investors. 

To fetch data about the current market price of an asset or the value of a particular index, a DAO can use machine learning models. [Upshot](https://upshot.xyz/post/how-upshots-ml-models-work) provides the easiest alternative to incorporating appraisal capabilities without having to build one from scratch. 

By utilizing Upshot's appraisals, DAOs can establish an accurate estimate of the value of NFT holdings, create a specific fund admin function for NFT investments, and make informed decisions through the purchase of fairly priced assets. This transparency enhances investor confidence and ultimately supports the growth of the NFT market.

### 5. Raise tokens or other funds

There are several ways to raise funds through a DAO, including:

- Initial Coin Offering (ICO)
- Community funding
- Token sales

When a member of the DAO submits a proposal for a new initiative or decision, the proposal is deliberated and voted on. Each token holder is given a certain number of votes that is proportional to the value (ERC-721) or number (ERC-20) of their tokens. 

If the proposal receives a majority of the votes, it’s implemented by the DAO. Proposals may typically include changes to organizational operations, such as hiring employees, developing new projects, or acquiring assets.

## Other Opportunities for Investment DAOs & NFTs

Upshot assists investment DAOs to find the right assets to put their money in. With over 74 million assets from over 67,000 collections appraised and refreshed hourly, Upshot is an Industry-leading NFT appraisals and financial tool for the entire NFTxDeFi space. 

You can leverage Upshot’s cutting-edge technology by: 

- __Deal finding__: Discover the best deals in the NFT market with Upshot's appraisals seamlessly integrated into our NFT aggregator. 
- __Real-time portfolio tracking__: Keep a pulse on the value of your NFT portfolio with our near real-time appraisals, and make adjustments based on the latest market trends.
- __Build smarter trading strategies__: Gain an edge in the market by using Upshot's API. Our appraisals, liquidity analyses, and advanced stats can help you increase your chances of success.
- __Identify and track smart collectors__: Our novel grading index for NFT wallets, known as gmi, helps you identify and track the smartest collectors in the market. Use this information to stay ahead of the competition.

[Get started with Upshot.](https://upshot.xyz/) 

  Learn about the advantages of using NFT Investment DAOs and how they can help you maximize your returns. 


Ultimate Guide to Investment DAOs (For NFTs, Crypto, and More) 

## Introduction
The world of investing has been transformed by the rise of digital assets, and none more so than NFTs. These unique digital assets have captured the imagination of investors around the world, and there is now a growing demand for indexes that can track their performance.

[__Upshot Indexes__](https://app.upshot.xyz/indexes) offer a new approach, providing index methodologies and API endpoints for developers to create index products that track the performance of a basket of NFTs. This allows projects to offer exposure to a broad range of NFTs or specific segments of the market. For example, developers might use Upshot to build an NFT index that tracks the performance of blue-chip NFTs or Yuga Labs NFTs.

## The Basics of NFT Indexes and ETFs
NFT indexes allow investors to track and gain diversified exposure to the world of non-fungible tokens without the need to purchase individual NFTs. These indexes function similarly to traditional indexes by tracking a basket of assets – in this case, NFTs – that meet specific criteria such as rarity, popularity, or historical value. Key benefits of NFT index funds include ease of entry, diversification, reduced time and knowledge requirements, and improved liquidity.

To learn more about the intricacies of NFT index funds and how they compare to traditional index funds, read our in-depth blog post [__here__](https://upshot.xyz/post/introduction-to-nft-index-funds).

### Challenges of Building NFT Indexes
Creating NFT indices presents a unique set of challenges such as limited scope when tracking floor NFTs, pricing complexities, and liquidity and capacity concerns. To learn more about these challenges, please refer to our [__previous blog post__](https://upshot.xyz/post/introduction-to-nft-index-funds) on NFT indexes more generally.

#### Limited Scope When Tracking Floor NFTs
Presently, NFT index funds predominantly focus on tracking the floor prices of NFT collections. However, this approach fails to capture a complete picture of the range of outputs that are in a collection, as some collections contain highly-valuable rare NFTs that are worth significantly more than floor NFTs. Consequently, this limited scope results in an inaccurate representation of the true diversity and value potential of a collection.

#### Pricing Complexities
NFT indices typically weight-adjust their construction based on the floor price the various collections within the index. This does not take into account the collection as a whole, which would require pricing algorithms to better understand the value of the entire collection. Developing sophisticated pricing models for NFTs can be challenging due to the unique characteristics of each asset and the lack of historical data compared to traditional financial assets.

#### Liquidity and Capacity Concerns
NFTs are non-fungible, low-velocity assets. This characteristic poses challenges for NFT indexes in that oftentimes there is not sufficient capacity in the open market to rebalance the portfolio. Moreover, the acquisition and disposal of NFTs can be time-consuming and expensive, potentially hampering the fund's ability to manage its portfolio efficiently and effectively.

## Introducing the Upshot Indexes: Empowering Projects to Create More Expressive NFT Financial Infrastructure
Upshot has constructed a set of NFT index methodologies to enable other projects to build more expressive financial primitives for NFTs with our API. By providing the framework and tools necessary for designing and maintaining NFT indexes, Upshot aims to enhance the accessibility of the NFT space and open up opportunities for more meaningful capital allocations as well as more interesting financial innovations.

Leveraging our quant team’s extensive research and experience in constructing indexes for less liquid financial assets, Upshot's initial set of indexes track core sectors of the NFT space. This initial set of indexes include the Upshot Yuga Index, Upshot Art Blocks Curated Index, and Upshot PFP Index. These methodologies can be used to track the performance of specific segments of the NFT market or the broader market as a whole, with updates available on an hourly cadence.

By equipping index creators with robust and accurate pricing methodologies, Upshot empowers them to overcome common challenges like liquidity constraints, capacity issues, and the accurate valuation of assets within a collection. Through this approach, Upshot facilitates the growth of the NFT index ecosystem, making it more diverse and catering to a wide range of investor preferences and risk appetites.

### Presenting Upshot's Premier NFT Index Methodologies
Upshot is launching three initial index methodologies that cater to various NFT market segments: the Upshot Yuga Index, Upshot Art Blocks Curated Index, and Upshot PFP Index. 

#### Upshot Yuga Index
The methodology behind the Upshot Yuga Index monitors the performance of collections under the Yuga Labs umbrella, weighted by appraisal-based market cap. This methodology captures some of the most liquid NFT collections, enabling developers to offer exposure to verticals such as PFPs, metaverse, generative art, and gaming in a single index. The Upshot Yuga Index includes collections such as Bored Ape Yacht Club, Otherdeed for Otherside, Mutant Ape Yacht Club, CryptoPunks, Meebits and Bored Ape Kennel Club. 

To view more details around the methodology of the Upshot Yuga Index, visit [__here__](https://app.upshot.xyz/indexes/yuga). 

#### Upshot Art Blocks Curated Index 
The methodology behind the Upshot Art Blocks Curated Index tracks the top 20 Art Blocks Curated NFT collections, enabling developers and projects the ability to offer exposure to cutting-edge generative art. This index construction is composed of the following collections: Chromie Squiggle by Snowfro, Fidenza by Tyler Hobbs, Ringers by Dmitri Cherniak, Gazers by Matt Kane, and Archetype by Kjetil Golid among others. 

For more information on the methodology of the Upshot Art Blocks Curated Index, click [__here__](https://app.upshot.xyz/indexes/artblocks-curated).

#### Upshot PFP Index
The methodology behind the Upshot PFP Index tracks the top 20 PFP (profile picture) collections, weighted by appraisal-based market cap. This index represents a significant portion of the NFT space, with many PFP projects driving social identity, community engagement, and network value within the digital realm. The Upshot PFP Index includes collections such as CryptoPunks, Bored Ape Yacht Club, Azuki, Clone X, Pudgy Penguins, and Doodles. 

For more information on the construction of the Upshot PFP Index, click [__here__](https://app.upshot.xyz/indexes/pfp).

## Ways to Use Upshot’s NFT Index Methodologies  
#### Utilizing Upshot's NFT Index API as a Price Oracle for Perpetuals
Upshot's NFT Index API endpoint can be utilized as a powerful price oracle for the creation of NFT perpetuals. Perpetuals are a type of financial derivative that allows traders to take long or short positions on an underlying asset without an expiry date. In the context of NFTs, perpetuals can enable traders to speculate on the future price movements of NFT collections or the overall NFT market without actually owning the underlying NFTs.

The Upshot NFT Index API endpoint provides access to novel index constructions and price feeds that are crucial for calculating the index value and ensuring that the perpetual futures accurately track the performance of the underlying NFT collections. This includes information such as weighting based on appraisal-determined market caps of various NFT collections included in the index. Additionally, the API endpoint allows users to retrieve historical index prices, which can be used to analyze price trends, develop trading strategies, and assess the risk and return characteristics of the NFT market.

By leveraging the Upshot NFT Index API endpoint as a price oracle, creators of NFT perpetual futures can benefit from a robust, reliable, and up-to-date source of pricing information. This not only ensures that the perpetual futures are accurately tracking the performance of the NFT market, but also helps to establish trust and credibility among traders and investors participating in the NFT perpetuals market. 

#### Unlocking Holistic NFT Market Insights for Analysts and Researchers 
Upshot's NFT Index API is a powerful tool that enables analysts, researchers, and media organizations to gain a comprehensive understanding of the NFT market. NFT indexes offer a novel method for analysts to understand the NFT market, as they provide a holistic perspective on the rapidly evolving landscape, moving beyond the limitations of individual collections and enabling a more comprehensive analysis.

By breaking down the NFT market into different segments, such as art, gaming, and PFPs, analysts can identify trends and patterns within each category. Tracking the performance of NFT indexes over time enables the identification of market movements, emerging trends, and potential investment opportunities. Utilizing Upshot’s NFT API, analysts can generate valuable insights by creating in-depth reports, research papers, or news articles, which in turn assist investors, enthusiasts, and the general public in making informed decisions and staying up-to-date on the latest developments in the NFT market.

## Conclusion
The launch of Upshot Indexes marks an exciting new chapter in the rapidly evolving intersection of DeFi and NFTs. As the NFT market continues to mature, we can expect to see more projects leveraging these NFT indexes as a way to offer exposure to this exciting new asset class. By providing developers with robust methodologies and an easy-to-use API endpoint to build with these NFT indexes, Upshot is paving the way for a future where the financialization of NFTs unlocks new investment opportunities and enhances our understanding of this dynamic market. 

To learn more about the technical details of Upshot's offering, we invite you to explore our [__developer API documentation__](https://docs.upshot.xyz/reference). If you're ready to start building your own NFT index products, you can sign up for access to [__our developer portal__](https://developer.upshot.xyz/signin). As NFTs continue to reshape the digital asset landscape, we believe that innovative financial infrastructure, like Upshot Indexes, will play a vital role in driving the development of novel financial primitives. 

Introduction article to Upshot Indexes: A New Era of NFT Exposure.