Myth of Money: Are NFTs the New Celebrities?
Welcome to this week’s edition of Myth of Money, a weekly newsletter on all things money, economics and technology read by 10,000+ investors, curated by Tatiana Koffman.
Disclaimer: The following is not intended as investment advice. Do your own research.
Dear Investors,
While cryptocurrency markets continue to exhibit downward-trending volatility, NFTs have continued to show classic signs of a bubble. OpenSea’s trading volume reached an all-time monthly high, while Gwyneth Paltrow and Justin Bieber splurged on Bored Apes at $228,000 and $1.3 million respectively, joining the ranks of celebrities like Eminem, Snoop Dogg, Jimmy Fallon, Steph Curry and Paris Hilton who also proudly own their own digital images of monkeys.
Meanwhile, Yuga Labs, the company behind Bored Ape Yacht Club (BAYC), is reportedly exploring a sale that would value the creator at $4 to $5 billion, with Andreessen-Horowitz among its suitors. We are now far enough into this still-early revolution that I am inclined to make a couple bold predictions.
NFTs will become celebrities in their own right.
The value of NFTs will increasingly accrue to the wealthy and the lucky, creating a big rift in the crypto community and beyond.
The success of BAYC has paved the way for a valuable model for NFTs.
When NFTs burst onto the scene in late 2020 with the NBA Top Shot craze and reached their first peak in March 2021 with Beeple’s $69 million sale of his “Everydays” digital art project via Christie’s, the trend was not yet clearly established. Then as now, NFT evangelists were trying to drum up excitement and FOMO, while skeptics questioned whether NFTs held any inherent value or utility, and criticized collectors and platforms for fueling a culture of speculation, exploitation, and egomania.
Shortly after that first wave, in April 2021, Bored Ape Yacht Club launched with two key differentiators from its precursors.
The most important differentiator of BAYC was that its NFTs granted full ownership of the creative asset and its derivatives.
The more salient differentiator at first, however, was the Apes’ highly detailed and colorful artistry, distinct in particular from the popular low-res, blocky CryptoPunks, which launched in 2017. The first batch of 10,000 Apes, algorithmically designed to sport a unique combination of traits with varying degrees of rarity, sold for 0.8 ETH each. Prices then skyrocketed on the secondary market. As of today, that initial BAYC batch has done over $1.3 billion in secondary sales according to CryptoSlam, making it the third-highest NFT collection by volume, trailing only CryptoPunks (which had a 4-year head start) and Axie Infinity (which is a closed-ecosystem game and therefore not a great comparison).
Then the derivatives came. In June, BAYC gave each of the 10,000 Ape token holders an NFT of an accompanying dog, comprising the Bored Ape Kennel Club, which now ranks 17th all-time in trade volume. Then in August BAYC created the Mutant Ape Yacht Club (MAYC), selling 10,000 “mutated” apes, again with randomized traits, via Dutch auction for $96 million. At the same time, BAYC airdropped to Ape token-holders 10,000 “serum” NFTs, with three tiers of rarity, comprising the Bored Ape Chemistry Club (BACC). When linked with the original Ape, each serum NFT was destroyed, and a new, mutant version of the Ape was spawned. MAYC now has the 6th-highest trade volume of all time, while the serums themselves, only some of which have been used and destroyed, have the 26th-highest trade volume.
More interesting, though, is the derivatives that the token-holders themselves have made, leveraging their full commercial rights of the underlying IP.
Notably, once you own an Ape or its derivative, you own the underlying unique creative asset. This is different than if you bought a Barbie; someone else can own the exact same Barbie, and you cannot create any commercially branded assets derivative of your Barbie.
But unlike Barbie dolls or CryptoPunks or NBA Top Shot clips, BAYC owners have the right to fully commercialize their Apes. This enables a new form of NFT utility, well beyond status-signaling, profiteering, and accessing exclusive perks. Apes are appearing on merchandise. They’re forming bands under major record labels. One has even launched its own NFT writing community and signed with CAA, one of Hollywood’s premier talent agencies.
Universal Music announced a BAYC music group KINGSHIP in November 2021.
These developments have added clarity to where NFTs are going. Which takes me back to my predictions.
NFTs will become celebrities in their own right. When I see Jenkins the Valet, the Ape whose owner has formed a derivative NFT community that collaborates to write stories, and who CAA signed late last year, I’m reminded of the virtual influencer Lil Miquela. Miquela has over 3 million Instagram followers. Trevor McFedries, the Web3 enthusiast and founder of the company behind her, has likened her to a modern-era Mickey Mouse: she interacts with her fans around the world in multiple languages, has several virtual influencer pals, and has released NFTs to her devoted followers. But where I see this going next is that virtual influencers like Miquela are the NFT.
The value of NFTs will increasingly accrue to the wealthy and the lucky, creating a big rift in the crypto community and beyond. Acquiring an NFT that already has value on the secondary market is unaffordable for most people. On a primary sale, it requires incredible luck to get in early and see the asset’s value rise to the moon, like those who got their Apes for 0.8 ETH. Wealth and luck grant access, but how much room is there for merit to capitalize on the value of NFTs, even when they come with full IP rights? The answer may be very little, as taking advantage of those IP rights requires a high level of creative and/or business acumen.
If this model continues to proliferate, bringing with it limited numbers of tokens with high value and utility, at a certain point it will become clear that NFTs are not the democratization engines advertised by their proponents, but rather privilege-enhancers for the very few. NFTs may prove to be not a tool for increasing opportunity, access and inclusion, but for exacerbating inequality. It is easy to foresee this creating a widening rift within the crypto community and a broader societal backlash that could severely set back crypto’s potential.
Additional Reading on NFTs 📚
(1) NFTs 101 — Why NFTs are a generational innovation by Ben Yu. (LINK)
(2) NFTs and A Thousand True Fans by Chris Dixon. (LINK)
(3) Soulbound by Vitalik Buterin. (LINK)
This Week By the Numbers 📈
Assets across the board had a solid week, despite some notable exceptions (looking at you, Meta).
Top Stories 🗞
DeFi Project Known as Wormhole Hit With a Potential $320 Million Hack
Wormhole, which links DeFi platform Solana to other blockchain networks, announced Tuesday that hackers had stolen $320 million worth of funds by exploiting a bug in its code. The project later announced that it had fixed the error and restored the pilfered funds, but the incident raised doubts about DeFi’s readiness for primetime. “This demonstrates once again that the security of DeFi services has not reached a level that is appropriate for the huge sums being stored within them,” an expert told Bloomberg. “The transparency of the blockchain is allowing attackers to identify and exploit major bugs.”
Central Bank of Jordan Reveals CBDC Plans
The Middle Eastern country home to some 10 million residents held discussions around issuing a central bank digital currency and launching a cryptocurrency trading platform. Jordanian financial institutions are currently banned from using crypto, which government officials reportedly have said is meant to protect consumers. According to the Atlantic Council, 87 countries representing over 90% of global GDP are exploring issuing a CBDC. Nigeria was the most recent country to do so, becoming the ninth country with a CBDC in October.
Coinbase Users Can Now Receive Tax Refunds in Crypto Through TurboTax
Coinbase announced Thursday that it is partnering with TurboTax to allow customers to have their federal and state tax refunds converted into cryptocurrency. The move is meant to help Coinbase customers more easily integrate their finances into the cryptocurrency exchange.
FTX Buys Crypto Exchange Liquid Group for Expansion in Japan
The deal helps FTX, the crypto exchange reportedly valued at $32 billion, expand its international footprint to Japan. Terms of the deal were not disclosed, but in 2019 Liquid’s valuation was reported to be over $1 billion. Earlier this week FTX announced it had closed a $400 million Series C.
Alexis Ohanian’s VC Firm to Focus on Crypto With $500M Capital Raise
“The Reddit co-founder’s 776 Management has raised two new funds and plans to make the majority of its investments in crypto startups.” In 2021 investors put over $28 billion into crypto and blockchain startups, more than four times the total in 2020, according to the New York Times.
GameStop Taps Immutable X for NFT Marketplace, Launches $100M Gaming Fund
The poster child of last year’s meme stock craze continues its unlikely rise with its launch of an NFT marketplace. “GameStop plans for its marketplace to include ‘billions of low-cost, in-game assets that can easily be bought and sold,’ specifically mentioning digital real estate and in-game skins to be included.” The company also partnered with Trace and Cool Effect to pursue environmental sustainability with its NFT efforts.
Product of the Week 🧑🏻🔧
ntent.art is an NFT artist collective that recently sold out its genesis collection, n3o v|ta, the first generatively animated photography NFT collection of its kind.
ntent.art donates 15% of earnings on the platform to sustainability.
Upcoming NFT Collection - d!ss|pat!on
A live generative art project generated at mint that is responsive and interactive
Upcoming projects, releasing in February, include an otherworldly AR experience called OBJEKTS and a collaboration with data oracle Chainlink that leverages on/off-chain weather data to manipulate a live generative art piece in real time
Showcases at NFT galleries are scheduled in both Berlin and Dubai
Website: https://ntent.art
Minting d!ss|pat!on: https://app.ntent.art/n/project/2
Discord: https://ntent.art/discord
Thank you for reading this week’s edition of Myth of Money.🚀
Until next week,
By Tatiana Koffman
Hi there and thanks for reading. If you stumble upon my newsletter, you will notice that I write about money, economics and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital and Cryptocurrencies. I believe in empowerment through closing the financial education gap and creating equality of opportunity for the next generation. Check out my articles in Forbes here.
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