Are NFTs Growing Up?
A look at newly released NFT policies and licenses
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Now onto this week’s post…
One of the most prevalent axioms you hear in web3 is to do your own research—or DYOR for short. Yet when it comes to evaluating new NFT projects it can be difficult to do so.
There are some common questions to consider, such as:
Is the team doxxed and what kind of track record do they have?
How big of an audience have they built and what kind of vibe does the community have?
Have well-known/respected influencers or whales bought in or advised the project?
Has the smart contract been reviewed or audited by a third party?
This is only a small sampling of the myriad questions you could potentially ask. The truth is that you can never be 100% sure about what you’re investing in. The NFT space is riddled with bad actors looking to make some quick ETH or SOL.
But what if there were standardized rules in place to ease some of your worries? There have been some interesting developments on that front lately. Let’s dig into them.
Insider Trading Policy
In August, Tim Ferriss wrote a blog post where he explained why he worked with lawyers to create an NFT insider trading policy.
Tim was fairly early to NFTs and saw a need for rules around insider trading months before the U.S. Department of Justice charged individuals from OpenSea and Coinbase.
“Months before the Department of Justice got involved and began making headlines, I had already reached out to several of my NFT-fluent friends to ask if they had an NFT Insider Trading Policy I could read. I simultaneously reached out to exceptional lawyers for the same. I was looking for a document forbidding insider trading, including front running, that also laid out clear best practices. Much to my surprise, no one seemed to have a document that covered these bases, but several folks were able to suggest technical safeguards and other elements.”
So he assembled a team of lawyers to draft an NFT Insider Trading Policy for people to share, modify, and distribute.
The document reads like legalese to start off but then outlines some clear, easy-to-understand guidelines, such as:
NFTs must be allocated to insiders at random
No buying or selling of NFTs within 5 days of an announcement
A 7-day waiting period before buying or selling NFTs after the initial launch
No use of rarity sniping tools, which are commonly used to find and buy mispriced NFTs based on their rarity
The idea behind the policy is to give NFT project founders a framework and rules for how to approach the thorny subject of insider trading. Some of the rules could be easy to slip up on unknowingly, especially in the scrappy and chaotic early stages of a project when you’re mostly just trying to make things work.
Learning that a team has an insider trading policy in place could give investors a bit more confidence in the validity of the project, as well. It’s not foolproof, of course. But if combined with a doxxed team with a stellar track record, it could help make you feel more comfortable investing in their project.
“Can’t Be Evil” Licenses
Last week, a16z released what they call “Can’t Be Evil” (CBE) licenses. It’s a play off of Google’s “Don’t Be Evil” motto. They’re inspired by Creative Commons licenses and designed specifically for NFTs.
They serve three core purposes:
Protect creators’ intellectual property
Grant NFT holders a baseline of rights that are irrevocable, enforceable, and easy-to-understand
Help creators and their communities unleash the economic potential of their projects
The biggest difference between these licenses and the insider trading policy is that CBE licenses are meant to be coded directly into the smart contract, making them unchangeable after deployment. Hence “Can’t Be Evil”.
The Creative Commons CC0 license has been debated ad nauseam in the NFT space after the announcement that the Moonbirds and Oddities collections were moving to CC0.
This change granted anyone the ability to use the Moonbirds and Oddities art in any way they see fit, regardless of if they own one. The license notably doesn’t extend to the Moonbirds/Oddities trademarks. CC0 is the most open version of a Creative Commons license, which doesn’t make sense for projects that wish to grant specific rights to their NFT holders.
There are six different CBE licenses that cover a variety of scenarios:
CBE licenses aim to be an upgrade to Creative Commons licenses because they’re baked into the project’s smart contract. The idea is that the creators and investors that interact with them won’t be required to trust each other, but rather they can trust what’s in the code itself.
There Will (Still) Be Scams
All the well-intentioned policies or carefully considered code in the world won’t stop scammers from scamming. There’s simply too much money floating around in the NFT space for bad actors to go away. Any project can say they have these things in place. Whether or not they’re being truthful about them is another thing. But codifying better policies and smart contracts can help lower the number of people who fall victim to bad actors.
When considering investing in a project, you should still keep your guard up and DYOR as much as possible—even if the project has these in place.
These policies and licenses are a step in the right direction for a burgeoning industry that still mostly feels like the Wild West. We should aim to put our best collective foot forward as an industry so that the good actors don’t get caught in the crossfire.
Disclaimer: Nothing in this piece should be construed as financial advice.
Other Recommended Reads and Listens
Required reading on DAOs
Dane Lund shares a Twitter thread with a list of required reads on DAOs for a Crypto Assets and Web3 lecture he is giving at Cornell Law SchoolThe Ethereum Merge and Energy Markets
Kyla Scanlon breaks down how The Merge, energy markets, and monetary policy are all intertwinedHow Arthur Hayes is Trading the Ethereum Merge
Top crypto trader Arthur Hayes visits the Bankless podcast to discuss how he’s evaluating the macro market and positioning himself for The Merge
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