June 28, 2023

A $40,000,000 NFT Scam?

GM DOers! 😎

Azuki launched a new collection yesterday called Elementals and we’re here to give you the lowdown on what happened. 🔥

But first, let’s talk about Azuki.

Azuki is a PFP collection made of 10k generative avatar NFTs, with anime-inspired artwork.

The project was launched by Chiru Labs, a group of LA-based creators, on January 12th, 2022, via a Dutch Auction starting at the price of 1 ETH.

Due to high demand, the collection sold out its full supply in about three minutes at the 1 ETH mint price, raising around $29 million during the public sale. 🤯

The team behind Azuki was good at capturing attention from the start and their popularity can be attributed to a combination of hype, influencer support and a highly engaged community.

Azuki expanded its collection with the introduction of BEANZ, an NFT collection received free of charge by the holders of original Azuki NFTs, aiming to lower the barrier to entry for new users into the Azuki ecosystem. 👀

Last October, Azuki launched the Golden Skateboards. These were 8, 45-pound golden skateboards, which were Physical Backed Tokens (PBTs). 🪙

TL;DR: There’s a chip inside the physical skateboard, which is linked to an NFT. This move gave birth to the concept of 'phygital'.

When Azuki launched this, 145 bids rolled in and the winning bids ranged between a hefty 200 to 300 ETH, raising $2.5M. 🚀

Fast forward to 2023, we saw the birth of Azuki's very own metaverse – Hilumia – a virtual wonderland for Azuki and BEANZ holders.

Since their inception, the Azuki team has been shipping hard. And their latest endeavor: Elementals.

Let’s dive into what this new collection is, how the launch did, and most importantly if this was a good idea by the Azuki team.

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What Is Azuki’s ‘Elementals’ Collection? 🤔

Last Friday, at Azuki's community event 'Follow The Rabbit' in Vegas, the Elementals collection made its debut. A part of this new collection was directly airdropped to the attendees who were Azuki holders. 🎈

Elementals, a 20k-piece collection, were supposed to carry a narrative wrapped around the four core elements of the Azuki universe: earth, fire, lightning, and water.

However, to everyone’s surprise upon reveal, the art was almost identical to the original Azuki collection. 😅

A lot of big NFT players assume that this is a fakeout and they will reveal something bigger soon. However, the Azuki team came out today, admitted their mistakes, and apologized for it. So I guess the art will stay the same. 🤷‍♂️

To read the rest of the article, please prove you’re not a robot.

Kidding… You’re good.

The public sale 📈 launched yesterday at 9AM PT, with 10-minute exclusive windows for Azuki and BEANZ holders to mint an Elemental NFT each. ⏰

By 9.20AM PT, when the sale was due to go public with a Dutch Auction starting at 2 ETH, the Elementals were all sold out! 😲 

All NFTs were quickly snatched up by (mostly) Azuki holders, while BEANZ owners had to fight for a very little supply that was left. (We’ll look onchain in a second).

Here’s the main takeaway for BEANZ holders 😓

When we initially saw the news, we thought that the Azuki team tried to rush this mint to create FOMO. We felt like the 10-minute gap for a mint wasn’t really enough, especially considering the high demand.

That sentiment was shared by the Azuki community too.

The main gripe? Skyrocketing gas fees that kick in when everyone FOMOs in to get a piece of the action, in addition to website errors.

And that’s something we predicted on Twitter just before the mint:

While we were right (see the spike on the right of this chart), it wasn’t as bad as we anticipated. Still, these mints should all happen on Layer 2s by now to avoid these gas fees. I still don’t get why this isn’t a thing yet…

Anyway… Apart from gas, the Azuki holders seemed to have struggled to get an Elemental during the mint, due to website errors. Who would have thought…

Nevertheless, the mint was sold out in about 15 minutes and only Azuki & BEANZ holders got their hands on an Elemental.

This means that whatever Azuki raised, was from their own community, failing to attract other people inside. 

Was this a scam? Not really. It was more of a VERY, VERY, poorly executed mint!

Let’s 👀🔛⛓️ to get a better understanding of this launch. 

The Results of Elementals Launch ⛓️

As mentioned, the mint was sold out in ~15 minutes. The amount raised: 20,000 ETH, aka over $37,000,000. Absolute BANK! 💰

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Out of the entire 20k collection, there were 8,743 NFTs airdropped to Azuki holders. These ended up in 4,480 wallets, as the Azuki holders received 1 Elemental per Azuki held.

The rest of Elementals went on sale yesterday, and most Azuki holders (51.8%) minted 1 Elemental. However, 10.1% minted 5 or more. 

Remember: Each Azuki holder had the right to mint 1 Elemental per Azuki owned.

And that 10.1% (representing holders who minted 5+ Elementals) that you see on the chart above is more significant than you’d think. The Azuki community has a lot of big whales.

According to onchain data from Watchers, the top 10 spenders in this mint accrued the whopping sum of $7,637,400, which represents 20% of the total amount raised.

That’s insane, considering that around 88% of Azuki holders own either 1 or 2 NFTs. The other 12% own a huge amount of Azukis.

But what does all of this onchain data mean?

It means that Azuki extracted liquidity from their community. The money raised came from Azuki & BEANZ holders.

That was not appreciated by the community, and it’s reflected in the Azuki floor price (a 30% drop) and the BEANZ floor price (down 45%):

While Azuki managed to raise a lot of money, I believe that long-term, this was a very bad move.

What do you think? Was this a scam? Reply to this email with YES/NO!

Let’s dive into why that is 👇

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Where Did It Go Wrong? 🤦‍♂️

First of all, if you listen to our podcast & read our newsletters, you know that we’re against dropping additional collections to your community.

Sure, this strategy worked for Yuga Labs, who did airdrops after airdrops… But this isn’t sustainable.

By doing airdrops and mints, you’re doing 2 things:

  1. You extract liquidity out of your community 

  2. You dilute your core NFT collection

Both things resulting in… Price go down 📉

Now… Kudos to Azuki for the attention grabbing and the $40M raised…

But the looming question remains: Where's the utility? 🧐

Let’s step back for a second and think about where Azuki is and where they’re heading.

As of today, they have:

  • Raised money launching Azuki

  • Airdropped BEANZ

  • Raised money launching PBT Skateboards

  • Raised money launching Elementals

  • Raised money off of secondary sales from Azuki, BEANZ & Elementels

So, from a business perspective, what they’re doing with these launches is fundraising. Like Tpan tweeted, they essentially raised a Series B.

But why are they raising all of this money?

The answer: The Hilumia metaverse.

Now, Azuki holders have to hope that they build a successful metaverse that can give value to these “characters”, aka NFTs.

But if Meta (who has billions of dollars) can't build a profitable metaverse, why should we expect Azuki to succeed? 🙃

So, to wrap up, Azuki essentially raised $40M on the hopes that they’ll one day build a metaverse. 

That’s a stretch & a gamble, and because they didn’t even make new art, I consider this a BIG fail, and an initiative that just makes this industry look bad.

So What’s The Blueprint?

👉 Pudgy Penguins 👈

Pudgy’s journey is a blueprint worth replicating, and here's why:

Pudgy Penguins has built a brand, created an Intellectual Property (IP) around it and they capitalized on it by introducing Pudgy Toys on Amazon. 🧸

As a result, they've crafted a revenue-generating product, while also creating awareness amongst the millions who browse Amazon. 

It's a triple win for Pudgy Penguins (the company), Pudgy Penguins (the NFT collection), and the Pudgy Penguin community. 🏆

To read on Pudgy Penguin’s blueprint & strategy, read our newsletter here.

When compared to Azuki's strategy, you notice a big difference. Azuki, though successful, merely introduced a base NFT collection (Azuki), 2 derivative NFT collections (BEANZ and Elementals) and introduced a metaverse (Hilumia).

But what’s the long-term utility of all this? That’s still not clear to me. 

I'm not suggesting that every NFT brand should become toy manufacturers. Far from it!

Rather, my argument emphasizes the importance of a robust strategy that ensures consistent revenue without exploiting the community. 

In this instance, what Azuki did is extract value from their current community members, who each paid 2 ETH to get their new (useless and speculative) NFT.

In my opinion, that’s a win-lose situation.

I've got to say, I'm actually a fan of Azuki. Despite my critiques, I see its potential and I'm rooting for its success long-term.

A major reason for my admiration is Azuki's Golden Skateboard launch from October last year. 

This launch hit the sweet spot:

  • Azuki raised a whopping 2.5M 💰

  • Collectors received their own physical golden skateboards and digital tokens 👏

  • The media buzz boosted the popularity of the core Azuki collection 🚀

That's how you create a win-win in the NFT world. And that’s what we expected Azuki to do more of. Not another boring airdrop/mint.

But hopefully, we can learn from this as an industry and adapt. My only desire right now is to not have another cycle where all we do is launch useless mints and airdrop on false hopes and dreams.

We need to start building valuable products and services that people want to own and use, and do so by using web3 tools, such as NFTs.

We’ll get there one day, friends, I promise. But in the meantime, please stay away from hype cycles, look onchain and don’t get baited by false promises. ✌️

Thanks for reading. And remember, you're strong, you’re powerful, you’re alpha! ❤️

See you soon. ✌️

Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.