The lines are getting blurred between NFTs and DeFi.
Bored Ape Yacht Club (BAYC), the Ethereum-based NFT collection that exploded over the summer, has announced that it will issue a “legally compliant” token in the first quarter of 2022.
The move is intended to “thoughtfully craft dope utility and governance, benefit our club members, and bring the BAYC ecosystem to a much wider audience.”
As popular NFTs like Bored Apes surge in value – the cheapest Ape is currently listed for sale at 38 ETH, or $131K – the teams leading these projects are constantly looking for new ways to incentivize holding and community participation.
The Axie Way
The runaway success of Axie Infinity’s play-to-earn model has inspired a wave of “own-to-earn” NFT projects.
Axie NFT owners must use a combination of AXS and SLP tokens in order to breed their Axies to yield the next generation of Axies, which can then be sold or rented out to other players. The model is clearly working as Axie is on track to hit annualized revenue of $2.4B.
Hashmasks, one of the earliest generative NFT projects that launched in February 2021, included a token component. Its NCT token enabled owners to set a custom name for their Hashmasks for a fee. Unfortunately, the novelty wore off quickly, and with no further utility for the token, its price and that of the collection has been in a protracted downtrend.
Hashmasks are enjoying a renaissance in recent days after announcing a new collection of NFT avatars that will introduce deflationary mechanics to the original collection. The floor price of the collection is up 80% in the past week.
Rise of the Kongz
If you thought the Bored Apes were having a great run, CyberKongz Genesis will astonish you.
Launched six months ago at 0.01 ETH ($40), the collection of 1,000 NFTs now boasts a floor price of 155 ETH ($535K), up an eye-popping 13,000x.
Prices of Genesis CyberKongz surged after the launch of the project’s BANANA token, as each NFT earns 10 BANANAs per day. At current prices, that’s a daily yield of $750, or $270K annually.
The primary use for BANANA tokens is breeding. By spending 600 BANANA tokens, two Genesis Kongz can be bred to yield a BabyKong and a VX Kong. These are larger NFT collections with current floor prices of 11 ETH and 1.6 ETH respectively.
Legal Grey Area
Given the ongoing success of this model, it should come as no surprise that other NFT projects are rushing to adopt it.
The intersection of NFTs and DeFi, while opening up endless possibilities, runs the risk of drawing regulatory scrutiny.
In particular, the sharing of secondary sale royalties with NFT holders seems to be an area of concern as these NFTs could be construed as securities under the Howey Test.
On October 7, NFT marketplace OpenSea disabled trading of DAO Turtles, an NFT project that allows holders to stake their NFTs to earn royalties.
The DAO Turtles community is currently voting on how to handle the situation.
As NFT projects continue to evolve beyond simple images, it will be interesting to see how they find a balance between providing holders with utility for their tokens while dodging the legal landmines that are sure to surface.