Non-fungible tokens (NFTs) have transformed the digital world, enabling unique ownership and trading of digital art, music, and virtual assets. As the NFT market evolves, a new class of financial instruments known as NFT derivatives has emerged, presenting both opportunities and challenges for investors.
This article delves into the concept of NFT derivatives, their legal status, and their role in the ever-evolving digital economy. Now, let’s get started.
1. What is NFT?
NFTs, or Non-Fungible Tokens, are unique digital assets stored on a blockchain, representing ownership or proof of authenticity for a specific item or piece of content. Unlike cryptocurrencies like Bitcoin or Ethereum, which are fungible and can be exchanged one-for-one, NFTs are unique and not interchangeable, making them highly valuable for representing one-of-a-kind items.
NFTs have many key characteristics such as being indivisible, unique, provide proof of ownership, authenticity, and scarcity. They are created using smart contracts on blockchain platforms like Ethereum, BNB Chain, or Solana.
Nowadays NFTs have gained popularity in various fields, including NFT artwork, music NFTs, virtual real estate, gaming, and collectibles. This versatility has attracted artists and major brands like Adidas, Lamborghini, Coca-Cola, McDonald’s,… to enter the NFT space.
Artists and developers use NFTs to monetize their work, while collectors and enthusiasts seek rare and valuable items. As NFTs continue to grow in popularity, their market is projected to expand significantly.
2. What are NFT derivatives?
NFT derivatives are collections of NFTs that are modeled after popular NFT projects, mimicking their characteristics, visual styles, and classifications. Many of these derivatives are “inspired” by Bored Ape Yacht Club (BAYC) and CryptoPunks, two of the most famous NFT collections.
Some NFT derivative projects even blend elements from two different original NFT collections. The Society of Derivative Apes (SODA), for example, combines characteristics from both the Bored Ape Yacht Club (BAYC) and Doodles.
Most NFT derivatives are created without authorization from the original projects they imitate. Unless the original NFT project has issued a formal statement of partnership, these derivatives are generally considered unofficial.
However, some derivatives are officially released by the original creators as a spin-off or expansion of their existing collections. These are known as legitimate derivative projects. For instance, both Bored Ape Kennel Club and Mutant Ape Yacht Club were officially launched by the creators of BAYC, providing its owner exclusive utilities and membership benefits.
3. Why are NFT derivatives popular?
The growing popularity of NFTs worldwide has naturally led to the rise of NFT derivatives. Some creators mimic well-known NFT collections to capture attention and drive sales, while many collectors turn to derivatives as a more affordable alternative to high-profile NFTs.
However, opinions in the market are divided. Some view derivatives as a threat to original creators, while others see them as a natural response to supply and demand.
Despite these differing views, NFT derivatives have gained traction and continue to trend upward. Whether this presents an opportunity or a risk remains to be seen.
4. Are NFT Derivatives legal?
The emergence of NFT derivatives has sparked questions about their legality among users. However, not all derivative projects can be classified as NFT scams. In some cases, they are mutually beneficial for both sides when derivatives help promote the visibility of the original works, and the original collections bring credibility to their derivatives.
That said, selling a derivatives NFT as an original without the creator’s permission constitutes a violation of intellectual property rights. On the other hand, if a derivative project has obtained proper authorization from the original NFT creator to use similar elements, styles, or aesthetics, it is considered a legitimate homage to the original work.
As always, due diligence is essential when exploring NFT derivative collections or any type of asset. Before making a purchase, it’s better to verify whether the derivative has received authorization from the original NFT creator to ensure it is legitimate and respects intellectual property rights.
5. Are NFT Derivatives Good or Bad?
As NFTs gain popularity and see a surge in market value, some creators have started launching derivative NFTs to capitalize on the resemblance to a well-known project. However, these derivative projects can have both positive and negative impacts on the NFT market. Let’s explore the potential risks and benefits of NFT derivatives.
5.1. The Risks: Rug-Pull Scams
Many NFT derivative projects exhibit signs of being a rug-pull scam. Creators often learn how to create NFT derivatives with the main goal of selling as many NFTs as they can by mimicking popular collections.
They might generate hype on social media, promising exciting roadmaps and attractive benefits, with no real intention of delivering beyond the mint date. Unfortunately, many buyers realize too late that they have fallen for a scam.
To avoid falling victim to these scams, it is important to do your own research (DYOR). Investigate the team behind the project and evaluate their long-term goals. Look into the project’s community engagement, team transparency, and roadmap credibility.
5.2. The Benefits
Not all NFT derivative projects are designed to make a quick profit without adding value. Some derivatives are creative expressions within the community and provide new opportunities for engagement and growth.
For example, projects like Noodles and Jenkins the Valet have built long-term value and even garnered support from the original collection’s founders. These projects show that derivatives can create meaningful and lasting contributions to the NFT ecosystem.
Additionally, NFT derivative projects with a strong roadmap and sustainable plan can bring diversity to the space and lower the entry barriers for new collectors. Well-created derivative projects can add depth to the NFT market, allowing for more opportunities for growth. This not only benefits the creators and collectors but also enriches the entire NFT landscape.
By understanding the pros and cons of NFT derivatives, you can make more informed decisions and navigate the market more effectively.
6. Most Popular NFT Derivatives in the Market
As the NFT space continues to grow, numerous derivative projects have gained popularity by building upon the success of published NFT collections. Below, we will explore some of the most popular NFT derivatives in the market that have captured the attention of the crypto community.
6.1. Bored Apes Solana Club
Bored Apes Solana Club (BASC) is a derivative collection inspired by the Bored Ape Yacht Club (BAYC), but it operates on the Solana blockchain. BASC mirrors BAYC’s original artwork with a twist: the apes are set against a Solana-themed backdrop and feature some new characteristics.
This derivative project has sparked debate among NFT enthusiasts. Some view BASC as a creative spin-off that borders on legality due to its close resemblance to the original BAYC artwork. It’s important to note that parodies can sometimes be protected under free speech legislation, adding a layer of complexity to BASC’s legal standing.
Despite the mixed opinions within the NFT community, BASC has continued to thrive in the market.
6.2. CryptoPhunks
CryptoPhunks is a derivative collection that features imagery similar to the famous CryptoPunks but with a notable twist: the characters are flipped and face the opposite direction.
Despite facing criticism for its minimal differences from the originals and lacking authorization from Larva Labs (the creators of CryptoPunks), CryptoPhunks has still gained significant traction with sales reaching up to $50 million.
This illustrates that even when faced with controversy, derivative projects can find a dedicated fanbase and establish their place in the NFT market.
6.3. Not Okay Bears
Not Okay Bears is another notable example of an NFT derivative, with a website that closely resembles that of the original Okay Bears project.
These NFTs are essentially flipped versions of the original artwork. However, unlike Okay Bears which is on the Solana network, Not Okay Bears are minted on Ethereum (ETH). The creators of this derivative collection claim to use their project as a platform to promote mental health awareness.
Despite its close similarity to the original artwork, Not Okay Bears quickly gained traction and became one of the most popular collections on OpenSea and LooksRare just hours after its launch.
6.4. Noodles
Noodles is an NFT collection considered an official derivative project. It originated as a late-night joke by two NFT collectors who created a noodle-themed artwork inspired by the popular NFT collection Doodles.
Unlike many other derivative projects, Noodles has received full support from the founders of the original Doodles collection, offering a playful and more affordable option for those who may not be able to purchase the high-priced Doodles NFTs.
Conclusion
NFT derivatives have become an undetachable part of the crypto realm, bringing both opportunities and challenges. While they offer an accessible entry point for many collectors and creators, they also raise concerns about originality and legality.
By staying informed with crypto insights from FMCPAY, you can make more strategic decisions and better protect yourself from potential scams, ensuring a safer and more rewarding trading experience.