NFT Derivatives: Bullish or Bust?

Why would someone want to launch a derivate collection? Well, it depends.

Some artists will use derivates as a way to ride the hype of another collection. They aspire to stack Ethereum by associating with proven blue chips, which isn’t crazy considering some derivate collections can move considerable volume.

From the collector side of things, not everyone can save enough crypto to buy one of the more splashy collections. Derivatives offer those with NFT ambitions a chance to own an NFT that is at least somewhat similar to the original blue chip.

In either case, the public perception of derivative projects is far from settled. Heated discussions on derivatives and their place in the NFT ecosystem continue. Some see them as cringey oversteps on creativity, but others see a much deeper issue with allowing derivative projects to saturate marketplaces.

Are derivatives legal?

In short, it’s complicated.

The longer answer is that derivative projects legally infringing on original collections are nuanced.

For instance, let’s say a “creator” makes a replica of Robotos and tries to sell it as an original without any consent. Of course, this would be considered IP infringement and completely illegal. Any falsifying of authenticity is not only frowned upon but also a severe infraction within the NFT space.

Barring a case like this where there’s no discussion with the original artist – which basically amounts to theft – let’s consider a scenario where a derivative project has asked permission from the original artist to use similar elements, styles, or aesthetics. Paying homage like this would be a legitimate way to create a derivative project.

However, those two previous examples are just the most basic of cases regarding the legality of derivatives. Aside from the route of asking original artists for permission or giving them credit for the art in the derivative project, there are a few murkier exceptions.

Fair Use Defense

Fair Use Defense means that the derivative of the artwork must be fair in its representation of the original artist’s work.

Not surprisingly, determining what “fair” is can be tricky. Much of it comes down to the opinion of lawyers and judges if it does end up going that far. According to Renno & Co, these are some of the more detailed aspects to consider for fairness:

• The work needs to be distinct enough to be considered “transformative,” meaning that there should be enough of a noticeable distinction that sets it aside from the original.
• The original art is not the centerpiece of the derivative art. In other words, there is the central aspect of the derivative project that’s distinct from the original.
• The derivative is a parody or critique of the original piece.
• Trademarks and copyrights are fair if they are not intended to confuse the audience of the original creator, and the intent of the piece is a parody or critique of the original.

Legal professionals can be necessary to determine the outcome in instances that aren’t definitively clear, but there is another case where derivatives or using existing artwork is entirely legal.

Public domain

Every country has copyright laws, and each has a varying number of years of protection. Once copyright expires, the art falls into the “Public domain” and is no longer protected.

Copyright also ends after a certain period passes following an artist’s death. After death, the country determines the copyright protection time, which means artists looking to make a derivative should always double-check the deceased artist’s country of origin.

Some artists purposefully put their art or collections into the public domain, making it accessible for all creators and their derivative aspirations. However, even with artists who leave their work open to the public, it’s always in a person’s best interest to ask permission if they consider a derivative project.

Some examples of derivative collections

There are plenty of derivative projects out there, but finding the ones that generated hype can seem like a challenge. However, they exist, and a few are creating serious debates about their place in the NFT space.

Bored Ape Solana Club

There’s no debate regarding the subtleness of Bored Ape Solana Club. Billed as “a whole new existence of bored apes on the Solana Blockchain,” BASC is a near carbon copy of the original BAYC.

As you might have guessed, some NFT enthusiasts see BASC as a collection that crosses the line of what’s right and what’s, well, um... straight-up illegal. One blog post on Magic Eden – the leading marketplace on Solana – addressed this criticism head-on:

“We’ve seen public perception shift since Bored Ape Solana Club came out. The outcry ranges from “this collection is IP infringement” to “this collection makes Solana look cringe.”

Solana is widely known for having a marketplace saturated with derivative collections. While some see it as an easy way to own a token close to their dream collection, others see a legal matter.

Yet despite the objections from a significant portion of the NFT community, derivatives still thrive on certain platforms, and the crypto continues to funnel in.

Squiggles

Of the blue-chip NFT projects out there, Doodles is one of the most popular. It’s also a collection at the center of many derivative projects, but perhaps none as successful as Squiggles.

Apart from a very similar name, Squiggles also mirrors the aesthetics of the blue-chip counterpart, which landed them in hot water with OpenSea, eventually prompting the marketplace to remove the collection.

Even though they were booted from one of the biggest marketplaces in the NFT space, they still collected over 200k followers on their Twitter while amassing 150K+ Discord members.

A large community for a project like Squiggles shows that people are willing to ape into a collection regardless of the implications of legality and the lack of originality when it comes to art.

CryptoPhunks

In July of 2021, CryptoPhunks burst onto the NFT scene and proclaimed itself the “punk version of the CryptoPunks.” Once again, the collection looks more like a carbon copy of the original, and NFT platforms didn’t hesitate to remove the derivative from their marketplaces.

Removal from marketplaces, negative public perception, and other measures to shut down CryptoPhunks haven’t been enough to stop the team of this derivative collection from opening their marketplace and selling over $50M in total volume.

Whether you see them as crypto Robin Hoods or undeniable NFT scam artists, the fact remains that they continue to make their presence known and are undeterred by any attempts to shut them down.

Looking into the crystal ball for derivatives

Given the ever-changing landscape of the NFT space, derivatives could go a million different ways in the next year alone. However, as more money pours into NFTs and as regulation tightens its grip on decentralization, a personal safe guess is that paying homage to blue-chip collections with derivatives will be cracked down upon in more significant ways.

What’re your thoughts on derivative projects? Do you hold derivative tokens? Hit us up on our Discord to let us know!