The global market for crypto-collectibles in the form of non-fungible tokens (NFTs) continues to gain momentum, defying those who may be skeptical about the underlying fundamentals of the market and at least some of its assets.
Diverse examples of NFTs abound and continue to grow. Famously, the NBA partnered with Canadian-based Dapper Labs, makers of the CryptoKitties game, to make its version of a collectible digital asset around iconic sporting moments. NBA ‘Top Shot’ is a crypto-collectible consumers can purchase as an NFT. LeBron James and Zion Williamson highlights have sold for in the order of US$200,000.
With NFTs, each collectible is built on a blockchain providing a digital ledger similar to those used for digital currencies like Bitcoin. NFTs are created (or ‘minted’) through smart contracts on the Ethereum blockchain, which assigns ownership and manages the transferability of the NFT. This effectively gives the NFT a unique and non-hackable certificate of authenticity.
More recently, two avatars that are part of the Bored Ape Yacht Club (BAYC) community fetched a whacking total of US$26,200,000 at Sotheby’s. The BAYC is a collection of 10,000 Bored Ape NFTs – unique digital collectibles living on the Ethereum blockchain. Those who own a Bored Ape NFT receive membership to the Yacht Club, promising to unlock an array of member-only benefits. The BAYC project “has become a major force in pop culture,” said Sotheby’s co-head of digital art Michael Bouhanna.
This trend toward NFTs as members’ clubs or online communities is fascinating. It sees the convergence of different ‘lean-ins’ around cryptocurrency and the disintermediation of traditional banks, the rise and rise of social media, the human desire for community further catalysed by current social distancing measures, the substitution of digital worlds and products for the physical realm, the human instinct to ‘magpie’ and trade items of perceived value commercial materialism, and the seemingly ever-present FOMO.
NFTs give rise to a range of challenging and at times novel legal issues, including what rights a purchaser has to the NFT, what copyright issues arise, and how this new technology will fit into existing legal and regulatory frameworks. You can read more about these issues and challenges in our article here.
Offerings like the BAYC are increasingly common. The rulebook that has informally developed is to create cool art around animals and fantastical creatures, with a series of traits that are developed and then run through a software randomiser to create 10,000 unique crypto-collectibles that can then be minted on the blockchain. (Why 10,000 and not 1,000 or 100,000 is not completely clear, and over time this will no doubt evolve.)
On Ethereum, where the bored apes hang out, there is a cost to mint an NFT. “Gas fees” are the fee required to successfully conduct a transaction on Ethereum, paid in Ethereum’s native currency; ether (ETH). Gas prices are denoted in gwei, which is itself a denomination of ETH – each gwei is equal to 0.000000001 ETH (10^-9 ETH). The short story is that it will run you circa US$100 to mint an NFT like bored ape.
Gas fees are charged by Ethereum on top of the cost of acquisition of the NFT. Bored ape avatars were initially offered at a price of 0.08 ETH, or around US$200 (at then current ETH prices). Apart from the Sotheby’s sale, in the last 7 days the average price for a BAYC avatar has soared to US$133,000. This amounts to an eye-watering return of 443 x the original acquisition cost. Little wonder people are “aping in”.
The most recent successful example of a vibrant new NFT avatar community may be Giraffes at the Bar. Created by two unknown young mates out of Melbourne, through a collaboration with artists in Italy and Brazil, and developers in the US, Giraffes at the Bar is a collection of 10,000 giraffes getting tipsy on the blockchain. Each giraffe is generated from a pool of 160 hand-crafted artist’s traits, all of varying rarities. From a charitable point of view, a portion of the proceeds from sales will directly go to support the struggling pangolin community in Africa and Asia.
The Giraffes at the Bar presale sold out in a day, and their main drop officially went on sale on 18 September 2021. At the end of the sale period, any remaining giraffes will be “burnt”. Is Giraffes at the Bar the next Bored Ape Yacht Club? Only time will tell…
For disclosure, Edwards and Co Legal has provided some support to the Giraffes at the Bar project, and the creators are known to them.