What Are Derivative NFT Projects?

Following the hyper-success of CryptoPunks, Bored Ape Yacht Club, and so on, many collectives have blatantly replicated of the features and aesthetic of these original collections (examples below).

If you’re a collector and you truly enjoy adding to your Opensea collection, you might as well stop reading now. If you’re buying into collections like these in hopes to flip a few bucks, buyer beware.

Over the past week, a few collections like these have blasted into the stratosphere. Fast Food Punks, initially sold for .01 ETH are now have a price floor of 3.65 ETH. To a lesser extent, Covid Punks, until yesterday sold for .01 ETH now have a price floor of .15 ETH (still a 15x return). Check-out the seven day change from a few derivative collections below:

Some argue that these derivative projects aim to capitalize on newcomers to the NFT space and that these collections simply represent a cash grab for their creators. To be frank, very little creativity or original thought is needed to turn these tokens into sales. NFT novices might enter the scene with a faint concept of validity and contract ID tracing and purchase derivative creations under false pretense.

Recently however, a less cynical view of these projects has emerged. Even a few CryptoPunk and Bored Ape holders have touted these collections on social media, replacing their Bored Ape and CryptoPunk original profile pictures with derivative alternatives. An emerging optimistic view of these projects revolves around paying homage to the originals. After all, these knockoff projects aren’t created for less-successful collections, right?

Since projects launched on OpenSea do not launch unique contract IDs, tracking ownership distribution of these tokens is a near-impossible task. Apart from the owners and assets displayed on the OpenSea rankings page (referenced above), without entering the OpenSea transaction history of every piece in the collection asset ownership distribution percentages remain unknown. For example, even though we know there are 413 unique owners of the 963 Fast Food Punks, we don’t know if there are a few wallets holding the majority of these tokens or if there’s an even distribution between assets and owners (where every owner holds two or three Fast Food Punks).

Tracking the contract ID of OpenSea on Etherscan yields no data about distribution of ownership of these tokens. Without knowing for certain, OpenSea drops are highly susceptible to free market manipulation. A few ‘whales’ purchase the majority of these derivative tokens then set the floor price at several multiples above the original purchase price, and create demand around an otherwise undesirable asset.

While this bubble is bound for collapse in the relatively near future, there will undoubtedly be some ‘bagholders’ caught in the crossfire leaving the larger NFT community open to reputable backlash.


0 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *