How I Achieved a 20x Increase: A Detailed Account of the DeFi Innovations of NFT Version MicroStrategy NFTStrategy

Author: @Web3Mario

Abstract: Recently, with PCE inflation data and ADP employment data falling short of expectations, the market has fully digested the panic effects brought by the FED's hawkish rate cut in September. Liquidity has quickly recovered, and investors have become more confident in the expectation of two rate cuts within the year. This optimistic sentiment has also brought me considerable returns, stemming from an interesting project called NFTStrategy, which has seen a 20-fold increase in just one month since its launch. Although the investment amount is not large, I have some insights to share with you. Overall, NFTStrategy leverages the low liquidity characteristics of NFT assets and employs clever DeFi design to create a Degen strategy similar to a micro-strategy on-chain NFT treasury. This project provides an opportunity for readers to revisit the financial innovations reminiscent of the DeFi Summer of 2020.

Background of the NFTStrategy Project: TokenWorks

Before introducing the project mechanism, let me briefly introduce its background. NFTStrategy is backed by Token Works, an anonymous team focused on token design and experimentation, established in 2024. I have been paying attention to this team for quite some time, starting with a MEME token called PVP, which is their second project. In fact, since October 2024, before launching PunkStrategy, this team has launched a total of 10 DeFi projects, all focusing on Ponzi-style token economic model design. Their first project, which was the most well-known before this, is called Circle (O), an ERC20 MEME token on Shape, which capitalized on the fact that there were no available DEX or tradable token assets when Shape, an L2 focused on the NFT market, launched. Therefore, they deployed this MEME token and forked Uniswap V2 to provide a trading venue, while also designing a minimalist trading website where the market cap of the token determined the size of the circle displayed on the official website.

Subsequent projects have involved various interesting designs around the creation, issuance, and trading mechanisms of tokens. For example, in the PVP project, anyone can "raid" the wallets of PVP token holders. The essence of a raid is a timed auction, starting at a price of 0.001 ETH. If no one bids against you within the specified time, you can acquire all the PVP tokens held by the raided wallet, while the raided wallet receives your bid.

From the designs of these projects, we can see that the team is very skilled in innovating MEME token economic models that focus on community fair launches. In fact, this type of innovation was very common during the DeFi Summer phase, where people identified trading opportunities from various interesting Ponzi models and profited from them.

Although most of these projects have failed, the TokenWorks team has continuously accumulated community influence and formed a sizable cold-start seed user base. This is crucial for the success of Fair Launch projects because, in most Ponzi models, if the scale of early participants is too small, it can easily be monopolized by a few clever "whales" after launch, breaking the preset game relationship and making the risk for later entrants extremely high.

Additionally, from archived documents, we can see that the team is also continuously accumulating experience in dealing with on-chain snipers, how to leverage mechanism design to activate KOLs for spreading effects, and expanding token influence. Overall, I see a team that is relatively long-term oriented, adept at summarizing and reviewing, and has strong resilience to setbacks.

The launch of PunkStrategy by the TokenWorks team on September 6 marked a new starting point for the story. The subsequent launch of NFTStrategy is a product that templates and platforms the token mechanism design of PunkStrategy. In less than a month after its launch, the price has seen an increase of over 20 times.

According to data from GMGN, the holding distribution of the PUNKSTR token is relatively balanced, with the address holding the most accounting for 3.05% of the total. The top 20 holding addresses have all realized profits exceeding $1M, indicating a strong wealth effect. However, with so much unrealized profit relative to only $4M in liquidity and a market cap already reaching $200M, it is still quite risky. Nevertheless, from the price trend, investor enthusiasm seems to be increasing. So what mechanism design gives this model such magic? Let's detail it next.

The DeFi Innovation Path of NFTStrategy: NFT Version of Micro-Strategy

In fact, the mechanism of NFTStrategy is quite simple. Essentially, NFTStrategy is an NFT treasury that issues corresponding tokens and uses the fees generated from trading these tokens on Uniswap V4 to purchase blue-chip NFTs as treasury reserves, thereby supporting the value of the tokens. The operational logic of the project is roughly as follows:

Users purchase a cryptocurrency called "Strategy Token," such as PUNKSTR (corresponding to the CryptoPunks collection). Each time someone buys or sells this token, the system charges a high fee of 10%. This fee is divided into several parts:

• 80% is automatically deposited into the treasury to purchase floor price assets of the series (such as the lowest-priced Punks);
• 10% is rewarded to the original NFT creators or project parties;
• 10% is used for token buybacks and burns, reducing market supply and thus supporting token prices. It is worth noting that PunkStrategy's strategy differs slightly, with 20% of the tokens allocated to the team.

When the fund pool accumulates to a certain level, the system will automatically buy NFTs from the market and relist them at a slightly higher price (1.2 times the original price). If these NFTs sell, the ETH from the sales will be used to buy back tokens and burn them, forming a "circular flywheel": active token trading → fee collection → NFT purchase → NFT sale → token buyback and burn → increase token value potential → attract more trading.

This model creates a dynamic linkage between NFTs and tokens, allowing holders to indirectly participate in the revenue fluctuations of the NFT market without directly holding NFTs.

In addition to the basic flywheel, NFTStrategy has also designed a Dutch auction issuance mechanism to avoid on-chain snipers. At the beginning of the launch, the trading fee for the token is set at 95%, and then it will decrease by 1% every minute until it reaches a minimum of 10%. This mechanism effectively avoids snipers using scripts to gain a speed advantage at the beginning of the issuance, ensuring equal entry opportunities for early participants.

Next, I will explain the reasons for my purchase at that time, which can be summarized in two points:

First, I believe that NFTStrategy is fundamentally very similar to the micro-strategy BTC treasury strategy. Both target markets with liquidity mismatch issues and have broad attention. Micro-strategy addresses the inefficiency of capital flowing into the cryptocurrency market from traditional financial markets, where there is a broad base of retail investors in the cryptocurrency market, which helps to leverage network effects for rapid dissemination of the mechanism. NFTStrategy, on the other hand, targets the high-priced NFT market. Due to the unique characteristics of non-fungibility and high unit prices, ordinary cryptocurrency investors cannot purchase them. However, blue-chip NFT holders generally have significant influence on social media, allowing for rapid outreach to this demographic and leveraging their influence for quick dissemination.

Second, in terms of launch method, NFTStrategy adopted a Fair Launch approach with good anti-snipe design, leading to a more balanced distribution of early tokens. With a healthier turnover rate, the price trend is likely to be more stable. Additionally, due to the initially low liquidity, as long as trading volume can be ensured, the accumulated buyback funds from the 10% high fee can lead to a relatively small purchase volume that effectively drives price increases, creating a good wealth effect that can quickly attract speculative participation.

As for risks, they mainly stem from the termination of positive feedback brought about by two factors:

Decline in Treasury NFT Prices: This is relatively easy to understand. As a value support, if the price of the reserve NFTs declines, it will lead to a decrease in the intrinsic value of the tokens. However, I believe this risk is currently low. First, blue-chip NFTs tend to have low liquidity, resulting in infrequent trading and less severe price fluctuations. Second, most NFTs are priced in ETH, so as long as ETH's price trend rises, it will also drive up the value of NFTs, which is a clever aspect. Finally, the current primary source of funds for buybacks of Strategy-type tokens comes from accumulated fees (1% of each transaction), rather than low buy-high sell of NFTs. Even if NFT prices decline, as long as overall trading volume can be maintained, the buyback power will effectively support the price.

Decline in Trading Volume: I believe this is the biggest risk. As the influence of the tokens increases, liquidity on external exchanges will rise. For example, CEX may choose to list the token, and other DEXs may also attract liquidity providers. This migration of liquidity will lead to trading volume being dispersed across other trading platforms, while the Strategy tokens rely on Uniswap V4 hooks to distribute the 10% trading fee. This will prevent them from profiting from turnover on other exchanges, and as the accumulated fees decrease, the buyback power will diminish, significantly reducing the token's attractiveness. This marks the beginning of negative feedback. Therefore, monitoring liquidity and trading volume is the most critical factor in assessing its trading value.