The difficult relationship between the meme economy and NFTs

While current market conditions for non-fungible tokens (NFTs) are far from where they were at the height of the bull market, NFT traders continue to fervently pump money into the ecosystem. Established projects, such as Bored Ape Yacht Club (BAYC) and Azuki, have maintained trading momentum by releasing new products, while other lesser-known creators have leveraged mechanics including open releases and dynamic NFTs to spark intrigue.

Still, big brand deals and high-ticket NFT sales have waned, and new projects that have major traction are few and far between in 2023. In recent months, we’ve seen an increase in projects referencing meme culture and current events, including Jack Butcher’s popular Checks VV and Mason Rothschild’s This Artwork is Subject to Change, although other meme projects that once captured traders, such as Art Gobblers and Goblintown, have seen a steady decline in trade.

With this context in mind, the success of Nakamigos, a 20,000-issue NFT project with pixelated avatars, has baffled some analysts and traders. Launched last month, the project takes the name of Bitcoin’s pseudonymous creator, Satoshi Nakamoto, and added the Spanish word for friend “amigo” to create Nakamigos, utilizing art for the collection that nods to the pixelated profile picture (PFP) collection. CryptoPunks. Nakamigos quickly became popular and reportedly surpassed Bored Ape Yacht Club in the number of lifetime trades within days of execution. At the time of writing, the project has done 21,035 Ether (ETH) in trade, or about $39 million, and has a base price of 0.5 ETH, or about $930.

Soon after Nakamigos’ successful launch, several spin-off projects referencing Nakamigos began to appear, including Nakamigas, a series of female-presenting pixelated avatars, and Magamigos, a collection of 5,000 pixelated avatars depicting former President Donald Trump in the wake of his impeachment.

These projects give spectators a lesson in understanding NFT trends in real time. And while the NFT market welcomes a boost in trading volume caused by new hyped projects, the impact usually remains short-term and follows a well-known playbook of copycat projects slipping into a trend.

Nakamigos was created in March 2023 by an anonymous collective called HiFo Labs. Little is known about the project’s founders, although according to a blog post it was created by an “‘OG’ crypto artist with years of experience in digital art.” Rumors spread that the project was connected to CryptoPunks creator Larva Labs due to its aesthetic, though the founders quickly shelved the idea.

The collection gives the holders full commercial rights to their characters. Early on, the project collaborated with NFT influencer Sartoshicreator of the popular mfers NFT collection, on marketing so that holders of the end of the Sartoshi (eos) NFT collection can claim free Nakamigos at mint.

The project’s enormous growth in such a short time is probably linked to smart marketing and the connection to Sartoshi. In a public stunt, the Nakamigos team gave 24 NFTs to major crypto influencers including Art Blocks creator Erick Calderon, NFT trader DJ Seedphrase and artist XCOPY created in their likeness, going so far as to amplify the act via a paid exposure campaign.

In particular, NFT artist Beeple, who has a history of parodying projects and pop culture in his own work, promised to create “chapter 2” for Nakamigos if the floor price hit 1 ETH. At the time of writing, it has not.

It is unclear whether Nakamigos will offer greater utility or long-term value for holders who swept up these NFTs in a frenzy. In any case, it gives an insight into how new NFT projects can seduce traders and cement their projects into memedome.

“The rise of Nakamigos is a good example of how marketing can have a significant impact on the value of these digital assets,” writes DappRadar. “Nakamigos’ successful marketing strategy leveraging Twitter influencers has driven demand and sales despite the project having no concrete plans at this time.”

The proliferation of meme projects can be good for the NFT ecosystem – we’ve seen occasional spikes in trading volume and sales in recent months, according to Nansen. But as our penchant for hype takes hold, opportunistic sellers will often clutter the space with low-lying derivative projects that are often devoid of long-term value, or worse, end up being a blanket throw.

In the hours after former President Donald Trump was arraigned in New York on Tuesday afternoon, his Trump Digital Trading Card collection saw a brief jump in sales after months of stagnant trading. The project, which has traded over 13,432 ETH (about $25 million) since its launch in December, has been able to capitalize on its cultural relevance and association with the 45th US president, despite its shady origins, reliance on stock footage and so on. far unfulfilled promises of prizes like a Zoom call with Trump or dinner at Mar-a-Lago, none of which have happened.

The Trump Digital Trading Card project has since inspired other meme NFT collections that cannibalize its trendiness: There are Trump Criminal Digital Cards depicting the former president in a prison uniform, Donald Trump Yacht Club, which draws inspiration from BAYC, MagaPunk, a collection of CryptoPunk-like characters with Trump-like traits. And the list goes on.

Magamigos, which takes elements of the Nakamigos art style and features of Trump Trading Cards, gained traction in the hours after Trump’s trial and quickly made its way to OpenSea’s trending page with the tagline “Make NFTs Great Again,” a nod to Trump’s MAGA base.

Despite Magamigos not having a website, let alone a white paper or roadmap, and appearing to offer no benefit to holders, the project managed to secure 150 ETH in trading volume, or about $279,000. Its Twitter account, which was launched moments before the coin, even conducted a giveaway for a Nakamigo’s NFT, which received dozens of comments and likes.

There are projects, such as Checks VV, that have encouraged and even promoted spin-off projects as a marketing tool. Humanity Checks, an open NFT collection in the same style as creator Jack Butcher’s original Checks VV, was created to raise funds for MSF following the destructive earthquake in Turkey and Syria in February.

But other projects have used their resemblance to legitimate projects to deceive unsuspecting collectors. In January 2022, following the success of NFT giant Yuga Labs’ Mutant Ape Yacht Club (MAYC) collection, NFT creator Aurelian Michel created the Mutant Ape Planet collection, featuring a familiar name and ape-themed PFPs. But shortly after, Michel was arrested by French authorities for facilitating a $2.9 million carpet scam after he failed to deliver on any of the many promises made about the collection.

The nature of internet memes is that they have a short lifespan of going viral that produces short but meteoric results. In some ways, that ephemeral nature is partly what drives people to keep producing memes, allowing internet culture to flourish.

Not all memes are bad. Pepe the Frog, for example, has been transformed from a racist dog whistle into an emblem of crypto resilience and has been spread across many NFT projects.

Sergio Silva, senior director of business development at crypto custodian firm Fireblocks and creator of meme-powered NFT collection Seize the Meebs, told CoinDesk that to understand the intersection of memes and crypto, it is necessary to revise the definition of a meme.

“A meme is this idea that through its virality it becomes socially accepted that it represents something,” Silva said. “In the world we live in with NFT communities mostly gathering around visual objects or JPEGs, memes in crypto become different illustrations of different things that we constantly repeat to ourselves, that we use whether we do it consciously or unconsciously to propagate culture.”

Silva said the entertaining and easy-to-understand nature of memes creates a “doe-edged sword” in the NFT space.

On the one hand, the highly speculative nature of digital assets tied to memes can create massive onboarding ramps for NFT adoption, as non-natives who identify with the meme in a collection may finally feel a strong enough connection to purchase their first NFT. Trump’s digital trading card, for example, showed strong evidence that the majority of buyers at the mint bought their first NFT. That said, it’s important to note that these collections are often risky, with shaky roadmaps and uncertain deliveries that ultimately pump and dump when internet users are already looking at their next meme.

On the other end of the sword, without memes, the NFT markets would work much differently. Communities wouldn’t rally around the shared love of an internet trend, and instead celebrities could take the lead in pumping projects, which has been detrimental to adoption in the past. In October, the Securities and Exchange Commission fined Kim Kardashian $1.2 million for promoting the cryptocurrency ethereumMax and failing to disclose that she was compensated for doing so.

Finally, as much as the meme economy can drive money into NFT markets, it’s important to scrutinize collections that seem to rip off elements from other projects and fail to offer long-term solutions to building a more robust NFT marketplace. As much as “hype” can help bolster the market, it’s not enough to drive innovation and encourage people to stick around for the long term.