A Deep-Dive on AI42
Generative crypto-art has been one of the headlining acts of the second NFT boom of
2021, with rolling 30-day sales of tokens from the Art Blocks collection rising to a
ceiling in excess of USD$540M. While the most popular projects – including Ringers,
Fidenza, and Chromie Squiggles – have become household names in the NFT sphere,
other fringe projects have yet to make their marks in spite of strong fundamentals
and striking aesthetics. One such project is AI42, a collection of 10,101 colourful
LOOP tokens.
This article will offer a deep-dive on the origins of the AI42 project and consider
its position within the wider blockchain-based generative art market. In particular,
the following subjects will be covered:
1. The Lore Behind AI42
2. An Overview of the Generative Art Market
3. Benchmarking the Traction of AI42
4. The AI42 Investment Opportunity
The Lore Behind AI42
The AI42 project is a collection of Ethereum-based generative art NFTs. The project was initially launched on April 3rd, 2021 at precisely 14:42:24 UTC, and comprises 10,101 crypto-artworks
displaying colourful spirographs set against black backdrops. The tokens, referred to as LOOPs, are minted in tranches, with the cost of minting LOOPs in one tranche being double the cost of minting in the previous tranche. The first tranche cost 0.08 ETH per token, and the final tranche of LOOPs will each cost 2.56 ETH to mint. The minting of each LOOP also generates 2,048 units of a deflationary, fungible utility token known as DUST.
AI42 is unique among generative art projects for several reasons. For one, owners are able to assign unique names to each token they hold, an action which requires the burning of 1,024 DUST. If they prefer to closely guard their artworks, owners also have the option to hide their tokens and deny others from viewing them on secondary marketplaces. Additionally, in much the same way that they can personalize their NFTs by naming and removing them from public exhibition, owners also have the sovereignty to destroy their NFTs, etching their ‘last words’ into the blockchain and preventing the token from being further traded or owned. The destruction of a LOOP generates 4,096 units of DUST for the owner. Finally, unlike most generative art projects and NFT collections at large, the ownership of an AI42 token also confers on the holder the copyright for the underlying work.
Another distinguishing feature of AI42 is the lore and narrative which accompany the project. The day prior to launch, a 3-minute video was released to the project’s YouTube page and official site. In it, viewers are placed in a first-person point-of-view as they enter a crowded storage room with the appearance of not having been accessed in several decades. They then unearth a computer hidden under a black tarp in addition to a floppy disk bearing the warning AI42 !![DO NOT BOOT]!! Upon inserting the disk into the drive and connecting the computer to a power source, the AI42 program is initialized on screen, revealing that its most recent run-date was 30 years prior. The underlying artificial intelligence questions the mysterious circumstances behind its 3-decade state of dormancy. After scouring online databases for clues, AI42 discovers that it was developed to calculate nuclear warfare data but was subsequently decommissioned because it was only capable of randomly plotting loops. The program also discovers that its developer, Professor Hawken, was killed in a seemingly targeted car accident. To avoid meeting the same fate as its creator, AI42 constructs 10,101 loops and immortalizes the full collection as NFTs on the Ethereum blockchain. The program then proceeds to self-destruct, leaving viewers with a cryptic parting message: Rest in bits, humans.
Visitors to the official AI42 site are greeted with this posthumous message
from the program:
Greetings!
My name was AI42, when you read this my bits already have lost their state
forever. Most likely nobody will read this or interact with my legacy, but
nevermind. This page is a backup of the art i have done before i decided to stop
executing my program ad infinitum.
The data of my art has been engraved in the eternal blockchain. Every piece is
unique and the seeds to create them have been destroyed for good (or evil).
Maybe you would like to own some LOOPS?
Marketing Techniques
In addition to their creative narrative approach to marketing the project, AI42’s developers have relied heavily on Twitter and Discord to build their community and generate additional hype. One example of this came in the form of an AI42-themed meme challenge that was held in the project’s Discord on April 7th, 2021, with prizes including 2 LOOPs and some DUST. The Discord has also been the setting for puzzle challenges known as Loop Familiarization Protocols, two of which have occurred to-date. These contests are designed to incent activity within the community by rewarding users with freshly-minted tokens and DUST in exchange for correctly identifying the edition numbers of different LOOPs.
Arguably the most impactful marketing technique that the AI42 developers have leveraged is launching a related NFT collection known as AI43 STRINGs. Users who have earned DUST by minting or destroying LOOPs can then use those utility tokens to mint STRINGs. This NFT grants all of the same privileges of ownership, destruction, and copyright to the owner as LOOPs do. Clearly, some interesting profit-taking and arbitrage opportunities arise thanks to the interplay between LOOPs, DUST, and STRINGs, with the former becoming more valuable to destroy if the latter two appreciate in value and vice versa. These marketing and project-
building techniques have been critical to expanding AI42’s community, with the collection now touting over 3,600 Twitter followers and over 500 members on the Discord server.
Thanks to these engaging marketing techniques, the AI42 project has enjoyed a great deal of interest from notable names in the NFT community considering its under-the-radar status. One of the project’s most vocal advocates has been @ColeThereum, most notable for being a co-founder of the immensely popular Pudgy Penguins avatar collection. A prolific NFT influencer in his own right, the mononymous Cole’s endorsements of AI42 have included labelling it as “the younger, more hip Art Blocks” as well as declaring LOOPs as “single-handedly the most underestimated and undervalued NFT.” Putting actions behind his words, Cole’s OpenSea collection now boasts over 70 AI42 tokens. Another prominent member of the NFT community who has publicly voiced support for the AI42 project has been digital artist and founder of UltraDAO, Chris Wallace. Wallace recently highlighted the aesthetic appeal of LOOPs, noting that they “look absolutely insane in a gallery” and he currently holds 4 tokens from the collection.
An Overview of the Generative Art Market
The modern conception of generative art refers to artworks which are not created manually, but rather by an automated computer program architected by the artist. This cutting-edge movement began to gain traction around the mid-late 20th century thanks to the advent of modern computers, with pioneering generative artists such as Lillian Schwartz having their works exhibited in prestigious forums such as the Museum of Modern Arts.
The de facto source of generative art on the blockchain is the aforementioned Art Blocks collection, which currently consists of 152 distinct projects. It should be noted however, that Art Blocks does not have a total monopoly over generative art, with artists free to launch
their works on popular art marketplaces such as Foundation. However, because Art Blocks has driven the vast majority of crypto-art volumes in recent months and its primary motif is playing host to generative art projects, an analysis that is singularly-focused on the collection should be fairly representative of the wider generative art market.
Since its launch in November of 2020, the Art Blocks collection has cemented itself as the premier forum for launching and exhibiting generative art projects. It has now become home to such mainstay projects in the world of blockchain-based generative art as Tyler Hobbs’s Fidenza collection, Dmitri Cherniak’s Ringers, and Art Blocks founder Erick Snowfro’s Chromie Squiggles, among several others. As a collection for minting new iterations of generative works, Art Blocks is segmented into three distinct markets:
• Curated: comprised of collections deemed by a Curation Board to represent the standard of quality that blockchain-based generative artists should aspire towards.
• Playground: a market that enables artists whose work was previously featured in the Curated section to launch new collections without being subjected to additional reviews by the Curation Board.
• Factory: an open market which enables all artists to launch generative projects, irrespective of whether their work previously graced the Curated collection.
The Art Blocks collection has consistently ranked among the highest-volume NFT projects in terms of weekly sales, per the NonFungible.com listing, and now holds the distinction of having the highest all-time volume of any NFT collection with the exception of CryptoPunks. Examining month-over-month sales volumes of Art Blocks projects since inception, it is evident that interest in the collection – and by extension the wider movement of blockchain-based generative art – exploded in popularity sometime in July of 2021 and turned parabolic during August. Between July and August, the average sale price of an Art Blocks NFT rose from USD$3,307 to USD$11,391, with the number of unique buyers rising by a comparable factor from 3,272 in July to 12,075 in August.
The Art Blocks Curated collection saw multiple sales throughout the month of August which were not only record-breaking within the context of the collection itself, but also ranked among the most expensive NFT sales in history. Most notably, the USD$5.8M sale of Ringers #879 – affectionately known as “The Golden Goose” on account of its resemblance to a white bird with a yellow beak – now ranks as the 5th most expensive NFT sale to date. Shortly after the sale took place, floor Ringers on OpenSea were priced at just shy of 200 ETH (roughly USD$680,000). The enigmatic piece was purchased by Singapore-based cryptocurrency and NFT investment firm Three Arrows Capital.
By inspecting purchase and sales data on OpenSea and Etherscan, it becomes immediately clear just how much money is being made in the generative art market. The sellers of the 5 most expensive Art Blocks Curated NFTs in the month of August have realized unparalleled rates of return on their initial investments, with the seller of the aforementioned Ringers #879 achieving a multiple on invested capital (MOIC) of 2,921x and an internal rate of return (IRR) of 158684072%. Given the time- weighted nature of IRR and the shorter timeframes in which the owners of the Fidenza NFTs liquidated their positions, their respective IRRs naturally dwarf that
of the Golden Goose seller.
Benchmarking the Traction of AI42
Since the project’s launch, AI42 NFTs have ranged in price from between 0 to roughly 8 ETH. The project exhibited a significant price runup to achieve its peak maximum daily price of 7.77 ETH, although maximum daily prices have since seen equally significant drawdowns and ended the month of August at 0.5 ETH. In contrast, average prices have remained stable and have not seen comparable increases, hovering around the 0.5 ETH mark throughout the month.
Given the wide variance of different generative art projects in terms of the attributes of each iteration as well as their respective tiered rarity systems, selecting comparable projects against which to benchmark a new project’s market traction is inherently a challenge. In such cases, a slightly more naïve approach of comparing projects that are aesthetically similar is preferred. Perusing the Art Blocks collection, we have determined that the projects most visually comparable to AI42 are Singularity by Hideki Tsukamoto, 720 Minutes by Alexis André, and Nucleus by Hjalmar Åström.
Examining the daily sales volumes of these comparable projects and AI42, some noteworthy trends are immediately observable. To begin, AI42’s sales volumes were virtually non-existent in the earlier part of August. In contrast, the Nucleus project enjoyed far faster traction in spite of its launch on August 14th, over 4 months after that of AI42. That said, AI42’s sales volume began to skyrocket in the penultimate week of August and around the time it achieved its peak maximum daily price. After a roughly 3-day stretch where the project ostensibly dominated its
comparables, its sales volumes dropped precipitously and stabilized around the same level as the other selected projects.
A comparison of average daily prices reveals a slightly different narrative on AI42’s trajectory. Throughout August, the project’s average prices have dwindled in the realm of 0.3 ETH. The recently launched Nucleus saw comparable price trends, arguably a result of it having yet to be discovered by a wider audience. In contrast, the more established Singularity and 720 Minutes projects exhibited far greater price fluctuations and traded at significant premiums to AI42, ending the month with average prices of 24.4 ETH and 8.55 ETH, respectively.
The number of unique addresses holding LOOPs saw a spike corresponding with the rise in trading volumes. Additionally, the number of NFTs held in so-called ‘Diamond Hands ’ addresses – those which have not liquidated any part of their positions in the AI42 project – also rose, a product of new tokens being minted and retained by their owners as potentially long-term holdings.
This dynamic of AI42 investors preferring to retain their LOOPs – whether to realize the benefits of price-appreciation or simply because they admire the beauty the procedurally-generated spirographs – rather than merely flipping them for quick profits is a strong indicator of long-term viability for both the project as well as its community. It can be conjectured that most, if not all, of the LOOPs that have been held for 7 – 30 days were minted in the midst of the spike in volume near the end of August, and those held for 90+ days were minted around the time of the project’s launch in early April 2021.
The AI42 Investment Opportunity
An investment thesis for AI42 LOOPs can be constructed around four core
pillars:
1. The project’s unique sovereignty features distinguish it from other generative art projects and potentially pave the way for a new paradigm of NFTs that confer greater ownership rights on their holders. The abilities to grant a digital asset a custom name, remove it from public exhibition at will, and destroy it to lower the already-limited circulating supply are all freedoms that are theoretically available to the owners of physical assets,
but generally cannot be enjoyed by the owners of NFT-based assets. If the ambition for NFTs to serve as a viable alternative to physical ownership is ever to be realized, such rudimentary capabilities must by default be integrated into the technology. The AI42 project can enjoy tremendous upside for pioneering this elevated level of ownership in the NFT sphere.
2. By being one of a marginally small group of NFT collections which grants copyright along with the transfer of a token, the project could spark industry-wide shifts in the treatment of intellectual property rights. As mentioned, ownership of LOOPs also equates to ownership of the copyright for the underlying artworks. Transfers of copyright are often overlooked in both the development of and investment into NFT projects, something which can have undesirable consequences for token-holders. For instance, the CryptoPunks community recently had a rude awakening when news surfaced that Larva Labs, the project’s creator, would license the IP for the Punks to Hollywood’s United Talent Agency (UTA). As a result, the digital avatars can freely appear in other media without consent from or upside accruing to the actual NFT owners. To prevent such unforeseen IP conflicts, copyright ownership may become part-and-parcel with NFT ownership, and AI42 may command significant price premiums for being among the first projects to offer this.
3. A unique tokenomic model which integrates across a potentially-expanding collection of NFTs and fungible utility tokens presents lucrative arbitrage and profit-taking opportunities for savvy investors. At a high-level, minting and destroying AI42 LOOPs generates varying amounts of DUST, which can in turn be used to mint AI43 STRINGs. Where LOOPs depreciate in value relative to other tokens, for instance, investors may consider
destroying their tokens in exchange for DUST. They then have a choice between burning their DUST to mint new STRINGs or cashing out of the ecosystem by exchanging their DUST for other fungible tokens on Uniswap. The deflationary nature of DUST can also present investors with a decision between accumulating a large position in the token versus burning it as a way of encouraging price-appreciation in their portfolio of LOOPs. Additionally, it is worth noting that the member list on the project’s Discord server includes four bots bearing the names AI41, AI43, AI44, and AI45. Although merely speculative, the fact that an AI43 project has already launched gives reason to believe that additional NFT collections may be in the works. This would create an investment landscape with an even wider scope of potential for creative and profitable strategies.
4. Recent volume and price trends for the project paint an encouraging picture of an NFT collection that is undervalued relative to its comparables and slowly gaining momentum in anticipation of a mainstream debut. As seen in the above charts, AI42’s sales volumes exploded in the latter half of August, significantly outperforming its more established comparables. A similar conclusion is drawn from the growth in unique wallet addresses holding LOOPs, with the vast majority of the NFTs appearing to be held by their owners for the long-haul. All of this has occurred while the average daily prices of LOOPs have stagnated around the relatively cheap 0.3 ETH range. Overall, it appears that the tokens are still trading at a discount relative to their upside potential, offering a cheap entry-point for investors
looking to capitalize on the token’s impending growth.
Where this Thesis Fails
Ultimately, several assumptions must be realized in order for this thesis to hold true. For one, NFT investors at large must consider the added functionality of LOOPs to be a value-add in terms of ownership as opposed to a mere novelty. Additionally, it is unlikely that investors looking to NFTs as a speculative vehicle would ascribe any premiums to the ability to name, hide, or destroy their tokens given their ultimate aim is to quickly realize profits. Also, the fact that multiple NFT collections have attained multi-million-dollar trading volumes and valuations
without copyright transfers indicates that holding the IP rights may not be a high- priority criteria for investors. If market sentiment does not exhibit a sustained response to the CryptoPunks-UTA developments, then it is unlikely that AI42’s express focus on the transfer of copyrights will be viewed as a competitive advantage in relation to other NFTs. Moreover, given the small sample size of price and volume data as well as the fact that AI42’s trading spike subsided faster than it began, there may be a risk that the late-August ascension of LOOPs was a mere aberration and not necessarily a harbinger of future growth.
Closing Remarks
The lore behind the AI42 project states that the artificial intelligence program was not discovered until 30 years after its initial development. By a similar token, the AI42 project launched nearly 5 months ago – which is roughly equivalent to 30 years in the world of NFTs – and has yet to be truly discovered. Between the distinguishing sovereignty and copyright features of the collection, the unique tokenomics born of its connection to AI43, and its recent traction, AI42 is in a strong position to compete with the best blockchain-based generative art projects around.
References
Hatmaker, T. (2021, August 31). CryptoPunks creator inks representation deal with major
Hollywood talent agency. Retrieved from TechCrunch:
https://techcrunch.com/2021/08/31/larva-labs-cryptopunks-uta-meebits/
