Two Tokens' Worth: The Science of a Brand

April 8th, 2022

The title of this series is Two Tokens’ Worth, and the title of this entry is “The Science of a Brand”. This is the first entry of this series, written between Monday April 4th and Friday April 8th.

The Science of a Brand

This series is meant to be a public diary, showing my thought process for how I value specific NFT projects at that moment. I’ll try to have regular entries in this series, and hope to look back at it and learn as the NFT market evolves. I hope this provides some help to anyone who feels they don’t have a good grasp of the ecosystem, although I’ll admit my own grasp seems amorphous at times. I’ll try to cover as many mainstream projects as I can, and give some type of actionable information. For my first entry, I’ll mainly be going over the big projects and how I feel about them/why they are succeeding or not succeeding. These projects are important to study, as they all are at least somewhat proven and thus useful to form theses from. Feel free to tag along on this journey with me.

BAYC

What’s to be said. It’s the top dog, mainly due to its committed community and stellar execution. It did have a good margin of error, since it was predominantly the first “modern” NFT pfp project/company (as we understand it today), but its obsessed community gave it the extra attention it needed. Looking at BAYC, one could form the guiding thesis that for pfp projects, the two things necessary are attention and execution. You need eyes on your project and you need those eyes to see why you deserve to have value. You show them that you deserve it through executing (which is easier said than done). BAYC had the benefit of being early when it comes to having attention. The market continues to become more and more crowded, making it increasingly difficult to garner/hold attention for extended periods. Attention has become more transient. It’s nonetheless needed, and we’ll be looking at all the following projects with this idea in mind.

Azuki

(full disclosure: I own one)

I love Azuki. From its inception, with their unique ERC-721A project design that allowed for relatively minimal gas costs during their mint, they have shown they have an understanding of the space and the capability to garner good will from their community. The art is exceptional, targeting the anime community which is known for their devoted fans. The art is so good that it’s attractive to people who don’t even watch anime, helped by the fact that anime has become fashionable as of late (modern celebrities, especially internet celebrities, freely express their love of anime and t-shirt designs featuring anime are extremely popular and can be found at large-scale retailers such as Uniqlo and Urban Outfitters). The volume after their reveal was unprecedented, giving solid proof just how interested people were (especially ones with money to invest). In my opinion, volume is the most important metric of a pfp project. I believe Azuki are aware of that as well, as they have a relatively understandable royalty fee of 5% and have been effectively using their discrete, slow-drip release of information to drum up higher volume. Their ability to replicate their initial high volume levels shows that they have staying power and are capable of generating unicorn-level interest almost at will.

Their stellar website design (with the best gallery viewing feature I’ve ever seen for a project) and inclusive mind map (there’s a section where anyone can feel free to submit their own ideas to the team) go a long way in establishing a feeling of quality and collaboration. Their Bobu fractionalization further cemented both their status as a technologically adept team and their evident desire to get as many people involved in the project as they can. They constantly highlight fan art from the community on their social media accounts, and have already had a free party for Azuki holders in LA that included an open bar and performances from Wiz Khalifa, TOKiMONSTA, and Pedro Cavaliere. They’ve additionally airdropped each holder two items in the same collection (a step beyond what any other major project has done) which total for over 10 eth of value as of writing this. All of this leads to having holders that feel a strong connection to the brand, as it has changed their lives both financially and possibly socially (through the fan art). It’s what’s necessary to become a strong brand. Vagabond, a co-founder of Azuki, has brought on comparisons to brands such as Supreme, and I think that’s a good example to look at in terms of the power of a devoted community in creating a billion dollar brand. Supreme was initially known for their devoted skateboarding/hip hop-focused following, and they were able to wield that to further grow and grow, as they intermittently dropped limited items that their fans loved to the point it was viewed as a collectible.

That’s why this Beanz collection is paramount. If Azuki can execute on it, it will only heighten their trajectory. Comparing this to BAYC, this would put them at a point similar to where BAYC was at in their progression. They dropped both BAKC and MAYC, and though initially they didn’t reach values similar to Beanz, this is likely due at least in part to the more limited nature of the market at the time. All of this to say, how much people like Beanz will be a big deal. Azuki are a step closer to BAYC-level than any other project right now, and if they keep cultivating the devotion of their community I don’t see why they wouldn’t be able to reach that level.

CloneX

CloneX is next in the tier in my opinion, and also offers a different path to success compared to BAYC and Azuki. CloneX has the distinct feature of being purchased by Nike. They of course had much hype and a strong debut prior to the purchase (aided by their association with Takashi Murakami who worked on a set of traits for the project), but Nike buying RTFKT (the company behind CloneX and other fashion-based NFTs) set it on a different path. It became a bit less about the art, and more about the power of being associated with an already billion-dollar brand. There seemed less risk now (which made people feel safer to buy), but this also hurt it a bit in that it decreased the level of obsession that is necessary to buy and bolster some of these other projects that don’t have that built-in “guarantee” that cloneX already has. This is all overcome, though, mainly due to the fact that since it’s already part of a billion-dollar brand, it has access to the funds that come with a billion-dollar brand. If Nike puts their full weight behind NFTs, a possibility that increases as the NFT market grows, Nike could establish a real sense of legitimacy that might draw a lot of buyers who were hesitant to get into NFTs before. With CloneX possibly being at the heart of those plans, it’s easy to see the potential of high value accrual. The project has 20k items, which helps in that it allows for a larger community but hurts in that more demand is required to maintain and raise its floor price. This problem is at least partially mitigated by the Nike purchase, as it gives it a built-in demand it otherwise wouldn’t have had.

Volume for the project has been great, and its floor price has been moving up at a somewhat steady pace (the decrease in volatility may be explained partially by its Nike backing). CloneX certainly seems like the “safest bet” to reach higher echelons, though its ceiling may theoretically be lower than those of projects like BAYC, Azuki, and Doodles. It’s hard to become the next Nike when you’re owned by Nike. The upside of an NFT project not yet owned by a premier brand is that it has the potential to become that premier brand.

Doodles

Doodles are smooth. I think that’s the best way to describe the art, and to describe the vibe they are going for. The art has always been a leading factor for this project, with their simple-yet-unique designs that appeal to a wide variety of audiences. Their mint was somewhat controversial (each WL was allowed five mints and the whitelist process was very exclusive), but the quality of the art and the animation of the team’s advertising gave it a legitimacy that allowed it to overcome that (although it did hover around a 1-2 eth floor for an extended period). Full disclosure, I bought in when the floor was 1.2 (I bought a moderately rare one for 2 eth), and sold for 19.1 eth a couple weeks ago to cover some expenses. I will say the doodle bank model they use (where a portion of the royalty is sent to a fund controlled by the doodle holders) gave me mixed feelings. I’m not yet a believer in the DAO model as it currently is, and feel like a lot of teams use DAO models to take off some of their own responsibility. If I think a team behind a project is good, I’d rather they use the funds themselves as opposed to 5000+ holders trying to vote on proposals submitted by the main team anyway. A positive of this though was that the Doodle team obviously was interested in the “Web3” features that could be implemented with NFTs.

Their non-dilutive airdrop (Space Doodles) was yet another example of their desire to embrace the nature of crypto. It was an interesting experiment but one that I was not entirely a fan of. Dilution can certainly be bad, but if timed at the right moment and valuation of a project they can be extremely helpful to both holders and the brand (as seen with Azuki). It also didn’t help that they didn’t really explain much about how it was going to work in the lead-up to its release (leading to a few people selling their Space Doodle not realizing that their Doodle was being sold with it). The release was ultimately a letdown, and it barely affected the floor price at all. They have teased the future utility of these Space Doodles, so it is still a possible long-game play by them and something to keep an eye on.

All the consternation about the Space Doodle drop seems to have been remedied by the Doodles event at SXSW. This event perfectly summarized the main reason to be bullish on Doodles, which is that their art is “fun”. The event was colorful and cartoony, and the photogenic environment of everything was extremely conducive to the positivity of the event spreading socially. After a short while, everyone on NFT twitter was aware of how cool the event was. This is huge for brand-building, and if the team can continue to execute (a huge weapon they have is the fact they have not done a “dilutive” airdrop yet), they can easily solidify themselves as a premier brand.

Cool Cats

(full disclosure: I own one)

The last “big” project I’ll be covering is Cool Cats. One of the earlier pfp projects to come about when compared to already-discussed projects (it launched in July 2021), the Cool Cats have a devoted core community and an art style that is simple and welcoming to a wide variety of people. Since the beginning, they have steered head-first into the “family friendly” zone. Early on, it was easy to view them as the PG version of BAYC. Their team seemed to be on top of everything, and they were cultivating their community extremely well (holding weekly “Town Halls” on Discord and highlighting fan art as much as they could). They began teasing a collection of eggs that would be given to Cool Cats along with a Milk token in as early as September I believe (it’s been so long I hardly remember). From there, things have been bumpy. Initially teased to be dropped in October, the Milk and Egg ecosystem continued to get delayed. They were very transparent about it, explaining that they couldn’t just drop them without first building out the utility of the token and the methodology for the egg to hatch. A lot was going to go into it for it to make sense and work. It was very ambitious, highlighted by a road map they eventually released that confirmed their Play & Earn gaming plans and how much focus they were putting on its release and continued development.

The new year comes, and shortly into January they release a much-hyped teaser revealing a January 28 release date for their gaming ecosystem, titled Cooltopia. To put things shortly, it did not pan out as expected. Their system couldn’t handle the transaction load on launch (mainly due to a complication on the Polygon Network that the team had to wait to be fixed). Delays have continued as the team works to fix the problems with their code to ensure a smooth release with fast transactions. As of writing this, several beta tests have been performed and the team says Cooltopia is close, but they are understandably hesitant to give a firm date. They hope to have one final beta test today, and are offering an NFT airdrop with undisclosed future utility to all that participate in this beta (a small but important indication of them being aware of the need to reward their holders). Amidst all of this, the price for Cool Cats has been slowly bleeding and the Eggs remain unrevealed and stagnant.

All eyes were on Cool Cats, and they failed to execute. This hasn’t killed the project by any means, but it has certainly hurt its status in the NFT market significantly. The wider community now has doubts about the team’s ability to execute, further evidenced by the highly positive reaction earlier this week to an unfounded rumor of Yuga Labs purchasing them, that for 20 minutes had NFT twitter aflutter before the Cool Cats came out and explicitly denied it (the price of both Cool Cats and Cool Pets pumped quickly as the rumor spread). It’s an uphill battle for Cool Cats, but I do believe that given the qualities it already possesses, it has the most upside of any project in its price range (the floor is 8.2 eth as I write this). The project has a core contingent of supporters that are obsessed (along with a wider recognition of their importance in the NFT community as evidenced in their inclusion in BAYC’s Otherside trailer), and have held relatively strong during this extremely rough stretch (thanks in large part to the team’s ability to bolster the morale of its community). There have definitely been holders feeling sour and regretful about their hold, which will make a run up possibly more difficult as some holders look to exit at the first chance they can, but it’s safe to say most other NFT projects would be in positions far dire if they went through a similar three-month period.

What the Cool Cats need to do is adjust the perception in many minds of their inability to execute. To do this, they need to execute (“duh”). Most importantly, the team knows this. Several team members have already had interviews on spaces, and have indicated they’re aware of the problems that caused this delay (namely their over-ambition to launch). They mentioned they still contain extremely ambitious goals (one team member said they have plans to launch their game on all platforms), and that gives them a great opportunity to make up for their big blunder in January. If they can get through their road map this year with no further hiccups, I believe that’s enough to fix their public perception and put them back on track to top-tier NFT brand status.

Projects I (currently) Believe In

(full disclosure: I own an item in each of the collections mentioned below)

With Azuki’s ascent, a vacuum has formed beneath it. Anime is an immensely popular art-form, and the NFT space has room for more than one. I see two projects with the potential to fill that void: Everai and Akuma. Everai Heroes released their first character project Duo, an anime mecha character with a genuinely cool design. In my opinion, they are the first successful mecha anime pfp project, and their rarer designs look significantly cooler than the already-cool floor price designs. They already have what seems like a strong community with a contingent of obsessed/devoted holders (bolstered by many Azuki holders). The team’s background seems good enough (a thought supported by the quality of this first project) to pull off their plan of character-based NFT projects in one universe (similar to Random Character Collective but more organic and connected in my opinion). The two artists behind Duo are Mehdi (who has worked as an animator on such productions as One Piece, Dragon Ball Super: Broly, and Jujutsu Kaisen) and Quentin (who has worked with studios including Square Enix and Toei Animation). The team behind the project overall is Screenshot Labs, and they already have some big names as partners (Fabric Ventures, Starkware, and Potion Projects). Starting out at a relatively low price and slowly ascending is also a strong sign (since Wednesday the floor has gradually gone up from 0.5 eth to its current floor of ~1 eth), as it allows it to get serious consideration from a larger audience than it would if it priced a majority of people out immediately with a high floor. Looking at the success of BAYC and Azuki, both of those had relatively slow accumulations upward (BAYC of course starting extremely gradually and Azuki hovering around 2 eth for an extended period). Everai is catching people’s eyes as it slowly becomes less and less affordable, increasing desire for it in those people’s minds.

A similar point can be made in Akuma’s favor. It has had a relatively slow rise, culminating in its current floor at 1.15 eth. Their artist Mateo Almonte has produced an extremely high quality pfp design, and though I still am not fully in love with it personally (the characters feel too “soft” and smooth, possibly because of the shadowing), it’s easily recognizable as being high quality when compared to other anime pfps. It reminds me of a more high quality 0n1 art style, although hopefully this project has a different outcome (it’s important to note that the main failure of 0n1 was with their team). The website design is solid, but is obviously inspired by the Azuki website to the point where it’s a borderline copy (a small red flag to be aware of). Nonetheless, the team has done everything right so far beyond that, and seem intent on building out a brand with as much ambition as Azuki. I’m not sure they’ll be able to succeed at the same level, but I do think they have a decent chance to fall into that second- or third-tier anime pfp slot which will almost certainly have ample value.

Lastly, I will simply mention the project Renga by artist DirtyRobot. I feel the need to disclose I do own one of his pieces from his The Art of Seasons project (which gives a whitelist spot for Renga). Very little is known about this project (the twitter profile for it has only two short and ambiguous teases), but it is quickly growing in hype (the floor for TAOS has grown from 0.15 eth two days ago to 0.52 eth today). I won’t talk about this project much due to the very little information we know, but I will say to keep an eye on it.

Blindspots

(projects I need to do more research on)

CyberBrokers, Impostors Genesis Aliens, Shattered Eon Colonists.

Afterthoughts

(rough and unedited thoughts and theories that I reserve the right to disavow at any moment in the future)

When gas pumps to obscene levels, it’s important to look at how it affects the floor prices of other projects. Just recently, the VaynerSports Pass mint sent gas to 3500+ gwei. Note what happened to the floor prices, and I think it can be used to gauge the strength of the buyers and sellers of that community in relation to one another. Stronger sellers mean holders are better able to dictate the price they sell at, and stronger buyers means the buyers are better able to buy at the price they want. Projects that go down during gas spikes (whether slightly or significantly), such as Adidas Into the Metaverse and Invisible Friends did during this recent episode, indicate that the sellers are relatively weak in power compared to the buyers. As gas goes up, the sellers are lowering their price to account for the additional cost buyers will have to spend on gas. The sellers have little power to dictate the terms. When projects hold steady and stay at the same floor price, it can be seen as a neutral-to-moderately good sign. In this situation, those projects would be Murakami Flower Seeds and Doodles. The buyers have enough power to hold firm and not be influenced by the significant rise in gas cost the buyers would have to pay to purchase their item. They are not in a rush for their item to be sold. Lastly, when projects rise in floor price (whether slightly or significantly), which in this case would be Azuki, Beanz and CloneX, it can be taken as a good-to-great mark for that project. It signals that the sellers have significant control of their market, as they feel so strongly about not wanting to give up their item that they raise the price of their item or delist altogether. It can be perceived that the sellers are noting the level of interest in NFTs overall by the sudden increase in gas cost, and realize they can possibly get more for that item than they initially thought. The power dynamic in that project is favored towards the sellers.

It’s important to mention that this is a snapshot view of that project in that moment. Its status can be changed rather quickly and easily by an event such as an announcement or acquisition. Use this only to get a short understanding of that project’s current situation.