KuCoin AMA With Fracton Protocol (FT) for hiENS4 — Bringing More Market Liquidity to the 4-Digit ENS Category
Dear KuCoin Users,
Time: August 17, 2022, 10:00 AM - 11:18 AM (UTC)
Fracton Protocol is an NFT liquidity infrastructure with 2 steps of fractionalization (ERC721-ERC1155-ERC20), which provides permissionless liquidity and oracle for all kinds of NFTs. Based on a deeply reformed ERC1155 middle layer standard, Fracton is building a non-status smart contract system to increase the protocol’s efficiency, lower gas fees, and maximize asset security.
hiENS4 is an ERC-20 token representing 1/1,000,000 ownership of one 4-digit ENS in the ENS4 Meta-Swap pool of Fracton Protocol.
Official Website: https://www.fracton.cool/
Guest: Bill — Product Manager of Fracton Protocol
Q&A from KuCoin
Q: After HIBAYC and HIPUNKS, you guys are launching HIENS4. Can you briefly introduce HIENS4?
Bill: Let’s start with a quick intro to ENS. ENS stands for Ethereum Name Service. It represents a decentralized identity. Compared with the traditional Internet domain name service, it is more user-friendly and convenient for individual users.
We can say the ENS domain name is a native product of WEB3. Each address can be mapped to the user’s address with the ENS domain name as a personalized label.
What is HIENS4? It is an NFT ETF issued for 4-digit ENS, and each HIENS4 represents 1/1,000,000 4-digit ENS. Users can subscribe for NFT ETF (hiENS4) on KuCoin and Meta-Swap for any 4-digit ENS on Fracton. Cool with enough hiENS4.
We already have 127 4-digit ENS in our asset pool and are currently the second largest holder of 4-digit ENS. The pricing of the NFT ETF provided by such a large inventory asset pool is more convincing. At the same time, sufficient transaction depth can also support users to discover values and redeem NFT more conveniently.
Here are the links to the hiENS4 contract address and the Meta-Swap pool, where you can see the 127 4-digit ENS we hold:
Q: You have recently launched the NFT ETFs for BAYC and CryptoPunks. What are your considerations for the third NFT ETF launch for ENS?
Bill: At present, many top NFT collections on the market are in the form of PFP, and we have already fractionalized two top collections - BACY/CryptoPunks. We will also do other PFP-type NFTs in the future, but right now, our more pressing idea is to challenge ourselves and do some interesting things.
The characteristic of PFP-type NFTs is that NFTs at their floor prices can be regarded as assets of almost equivalent value. However, the non-homogeneous nature is more obvious in domain name NFTs. If we can make fractionalized ENS successful, we will be confident to fractionalize most of the NFT categories in the market.
Just like PFP-type NFTs, the 4-digit ENS is also scarce. The total number of 4-digit ENS is 9,000, which is similar to the total number of BAYC and PUNKS. Also, the 4-digit ENS has a strong market consensus.
The Holders of BAYC once created the 10K club as they wanted to collect enough 4-digit ENS and allocated them according to the BAYC number. I believe this is a good example to demonstrate the value of 4-digit ENS and is also one of the considerations for us choosing 4-digit ENS from the whole collection.
Q: There are other products that provide fractionalized ENS. What is the difference between the NFT ETF on KuCoin for ENS and others?
Bill: ENS has been included in NFT fractionalization projects such as Fractional. There are more than 600 fractionalized ENS vaults on Fractional, but the completion rate of most vaults is less than 5%.
Such a low degree of fractionalization makes valuation impossible. In addition, the types of ENS in the vaults are also disordered and random, including emojis, English, Japanese, digital, Chinese, etc., which increases the selection cost for users.
Fracton chose 4-digit, a segmented ENS category with a high market value, to establish a Meta-Swap liquidity pool for users.
On top of on-chain fractionalization, Fracton also cooperated with the top exchange, KuCoin, to launch the NFT ETF to lower the threshold for users to participate in NFT investing. In this way, HIENS4 will be able to circulate in the market, bringing more market liquidity to the 4-digit ENS category.
Q: Compared with your previous NFT ETFs for BAYC and CryptoPunks, what technical innovations have HIENS4 made during the fractionalization process?
Bill: Although ENS is difficult to achieve relative homogeneity like floor price blue-chip NFTs, we have found through our research that the 4-digit ENS has a certain similarity and homogeneity in their market value and can be used as an asset pool. Therefore, they can be packaged into an ETF to release potential liquidity in the market.
In order to separate the 4-digit ENS from other ENS and prepare for future development of a permissionless ENS Meta-Swap pool, Fracton has made algorithm identification for ENS numbered from 1,000 to 9,999.
Specifically, we wrap each 4-digit ENS according to the digit number of the ENS. After we wrap ENS, we will give it the same number according to the original ENS digital ID.
This can ensure the synchronization of the Metadata of Wrapped ENS and Raw ENS. At the same time, it can also avoid the other Raw ENS being put into the Meta-Swap pool, so we can better maintain the stability of the asset pool.
Q: If you have collected enough NFT ETFs, how do you redeem ENS from Fracton? Can you talk about the redemption process?
Bill: First, users can subscribe for hiENS4 in KuCoin's initial issuance of NFT ETF or buy enough hiENS4 in the secondary market. After that, your can launch an app on www.fracton.cool to redeem 4-digit ENS.
When you exchange 4-digit ENS, you will get a random 4-digit ENS in the Meta-Swap Pool. Our Randomized Algorithms will incorporate the Chainlink VRF function to ensure security and fairness.
We use the Randomized Algorithms to keep the asset value in the Meta-Swap pool of ENS relatively stable. After you exchange hiENS4 for ENS, the corresponding amount of HIENS4 will be burned, and the total supply number displayed on Etherscan will also change.
But don’t worry, such fluctuation in supply will not change the value of the hiENS4 in circulation. Each token is still pegged to 1/1,000,000, the value of the 4-digit ENS.
Q: Protocols like NFTX and Fractional.art are actually doing similar things, such as NFT fractionalization. What is the biggest difference between Fracton’s NFT ETF and its products?
Bill: In fact, from a technical point of view, NFT fractionalization does not require particularly difficult code development. It is not rocket science, and there have been many products for NFT liquidity in the past year. However, I think these products are more targeted at NFT holders. They’re thinking about fractionalization from the perspective of NFT sellers, ignoring that the transaction is a bilateral issue.
If there is not enough capital to enter the NFT market, the fractionalized tokens will not be able to unleash the liquidity they should have, and the fractionalization of NFTs is meaningless. With that being said, Fracton is from the user's point of view. While completing the development of NFT fractionalization contracts, we also strive to expand user resources.
We chose to team up with KuCoin because KuCoin can provide the industry's top trading infrastructure and resources for our NFT fractionalization. At the same time, it can accelerate the development of NFT fractionalization projects.
We feel that if we want to achieve a true NFT fractionalization, we need to have multi-dimensional comprehensive capabilities:
1) Sufficient capital to initiate NFT fractionalization. When the project starts, we do not need to rely on NFT whales to provide us with NFT resources. In this way, we can provide more fair fractional NFT pricing.
2) It is necessary to have a certain understanding of trading and market making to maintain the fair pricing of NFT ETFs.
3) A deep understanding of Defi and NFT is also required. It is necessary to have a deep understanding of the value attributes of different series of NFTs, and one can choose suitable collections from a professional perspective.
4) Collaborating with top exchanges is also important. It is necessary to integrate the advantageous resources of both parties and jointly bring some new blood to the entire NFT ecosystem. Only then can an incremental NFT market be created.
Free-Ask from KuCoin Community
Q: How did you select the underlying NFT collections for NFT ETF？
Bill: All the collections are selected according to liquidity, market cap, and community consensus. We wish not only to create better liquidity for more top collections but also to facilitate some tricky collections during the fractionalization process, such as 4-digit ENS and 3x3 Sandbox.
Q: The idea of a 4-digit ENS ETF is very interesting. Will Fracton develop other types of fractionalized ENS ETFs in the future?
Bill: Besides 4-digit ENS, there are some other highly-accepted types of ENS. But some of them lack liquidity and offerings. We still need more time to develop the wrapping algorithm and to acquire enough portfolio assets. Once prepared, we will inform the community, just stay tuned!
Q: Any achievable plan to build the future ecosystem? Any upcoming stages to share?
Bill: At this moment, we are dedicated to covering most top collection NFT, providing fractional NFT as infrastructure for more NFTfi scenarios.
Meanwhile, Fracton is collaborating with other devs to create an NFTfi ecosystem supported by price feeds of fractional NFT. For instance, perpetual contracts and NFT collateral lending can be realized.
Q: How did you acquire the specific assets when you built the portfolio of NFT ETF?
Bill: After researching the liquidity situation, we will determine the initial supply of NFT ETF. Then, we acquire the target NFTs around floor price from the secondary market. This is a strategy to prevent conspiracy and price manipulation.
Q: How on earth is the subscription price of NFT ETF being set? Any premium or discount according to ETF assets?
Bill: Fracton Protocol will price HINFT based on the total value of the underlying assets actually purchased by the corresponding NFT ETF. After NFT ETFs get listed on KuCoin for trading, the price is then determined by the market.
Q: What exactly is the supply of NFT ETF? I found that sometimes the number of NFT ETFs (including HIBAYC and HIPUNKS) on the Etherscan will fluctuate.
Bill: This is a common question we receive from users. The initial supply of NFT ETF is determined by the number of corresponding NFTs in the Meta-Swap pool, and all the transfer and fractionalization processes can be checked on Etherscan. The fluctuation of total supply is caused by redemption and newly fractionalized transactions, but the value of each NFT ETF will be stable no matter the circulating supply.
KuCoin and Fracton Protocol have prepared a total of 2,000 USDT to give away to AMA participants.
1. Free-ask section: 75 USDT
2. AMA activity: 1,925 USDT
Quiz: 1,500 USDT
Price Guess: 300 USDT
Participation Rewards: 125 USDT
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