NFT Survival Reflection: Where is Azuki headed after the breach of trust?

Author: Solaire, YBB Capital

Introduction

The recent slump in the NFT market is having a profound impact on long-term investors. A wave of sell-offs seems to be sweeping across the entire market, and the prolonged downturn in the NFT market has negatively affected the sentiment of long-term holders, leading many to sell their quality collections. In recent weeks, approximately 4.63% of all Azuki collectibles held by diamond hands have been sold, accounting for nearly 1.88% of the total Azuki NFTs in the market. The demand for Bored Ape Yacht Club (BAYC) has also declined, with nearly 2% of assets sold by diamond hands. The NFT market has been experiencing a tough phase since its peak in March this year, with significant drops in daily sales and the number of unique buyers (data from Cointime). Voices suggesting that the PFP narrative has reached its end are emerging, and this article will revisit the history of Azuki to reflect on the factors behind its past success and the issues that PFPs need to address at this stage.

NFT, a New Way of Connection

The concept of NFTs (Non-Fungible Tokens) can be traced back to 2012, when an asset called Colored Coins appeared on the Bitcoin blockchain. These colored coins could represent anything non-monetary, such as stocks, bonds, or collectibles.
However, the true NFT technology developed on the Ethereum blockchain. In 2015, the Ethereum blockchain was launched, and its smart contract functionality allowed developers to create their own tokens, including non-fungible tokens. In 2017, the CryptoPunks project was released, which consisted of Ethereum-based images that could be bought and sold, with each image being unique. This can be seen as an early form of NFTs and the first Profile Picture (PFP) type project.
PFP typically refers to avatar-type NFT projects, and its main characteristics can be summarized in six points.

1. Uniqueness: Each token in a PFP project is unique. This is because they are all NFTs, meaning each token has its own metadata and ownership record, making them non-interchangeable with other tokens;

2. Artistic Value: Most PFP projects are artworks. Each token represents a unique, digitized avatar or character, with a consistent artistic style but differing features;

3. Community-Driven: PFP projects often operate around an active community. Holders of these PFPs are not just investors; they are also community members participating in various activities, such as online discussions and offline meetups;

4. Representation of Identity: In many PFP projects, NFT holders use them as representative images online, showcasing their digital identity and community affiliation;

5. Economic Value: Since each PFP is unique and limited in quantity, they can potentially be traded at high prices in the market. This gives holders a potential economic benefit.

6. Interactivity and Expandability: Some PFP projects may include gaming elements, allowing tokens to be used across other applications or platforms. This increases the interactivity and expandability of PFPs.

From a cultural and social perspective, the characteristics of PFPs establish a new way of connection. Chen Long, Executive Dean of the School of Media at Soochow University, and his research assistant Jing Yulun, in their paper "NFT Digital Collectibles as Subcultural Capital and Their Interactional Significance," propose that NFTs, as a form of subcultural capital, are governing the online subcultural production and interaction actions of youth groups. Based on interest as a currency, NFTs construct a fluid and inclusive network subculture, with distinctions occurring among different circles, generations, and other community members within society. The interaction practices surrounding NFT digital collectibles also carry new significance.

Its Significance Can Be Divided into Three Points: Identity, Integration, and Connection.

• Breaking Down Barriers of Identity: NFTs break the isolation of various social circles. Individuals can represent different identities by changing the NFTs they wear, allowing these identities to span different communities and social media. Individuals can freely flow between different circles, showcasing their digital identity;
• Integrating Value and Culture: People care about both the artistic value of NFTs (e.g., as an investment or collection) and their cultural significance (e.g., as a form of artistic expression or spiritual conveyance). This blurs the boundaries between value and culture, as in NFTs based on digital media and the Internet of Things, the boundaries between value and culture dissolve, generating an interwoven model where both coexist;
• Weak-Tie Connections in Communities: People establish connections based on shared interests or benefits, even if they may not intersect in real life. These relatively weak ties form a vast network that allows for the exchange of information and resources. In other words, people may connect with others around the world through buying, trading, or discussing NFTs; these connections may be weak individually, but together they form a powerful social network. The weak ties are unprecedentedly stimulated, and groups with different identities complete the gathering and upgrading of relationships through the cultural resonance brought by NFTs, ultimately forming a network society (community) centered around weak ties.

This article will also revisit the success and collapse of Azuki through the lens of identity, connection, and integration, which are the core significances surrounding NFT culture and social perspectives.

Azuki, the Magic of Integration

Ready to take the red bean? ------Tweet before the birth of Azuki

On January 2, 2022, Azuki was launched. From its inception, Azuki has been smooth sailing and quickly became one of the three giants alongside CryptoPunks and BAYC, differing from CryptoPunks' historical significance and BAYC's deep understanding of the Western market. Azuki's success lies in the clever integration of artistic value and culture. As an NFT with a strong anime style, its success is not only due to its artistic value (recognition of its benefits and painting quality) but also its successful fusion of Eastern and Western cultures. From the details of the artwork, Azuki adopts an anime style, combined with American bold outlines and various Eastern and Western stylistic elements (such as hip-hop, swords, and clothing from different ethnicities). This mixed art well embodies its slogan of "committed to becoming the largest decentralized brand built and owned by the community in the Metaverse," as well as its values.

Azuki's Values:

• Community First: Everything starts with and remains loyal to the community. The moment we prioritize anything over the community, everything will be lost. We will not allow this to happen, as the community will always be Azuki's first value;
• Becoming an Industry Leader: Azuki is creative, fearless, and resilient. Following trends and making gradual improvements is easy; being original and standing out is much harder. We carve our own path;
• Progressive Process: Good things take time. Decentralized actions cannot break through difficulties and be accomplished in one go like centralized actions; this is a double-edged sword. Decentralization does not mean there cannot be leaders. The core team will provide support and resources for all Beans to grow together, but this cannot be achieved overnight.

Anyone in the world is welcome to join, and everyone is invited to co-create the largest decentralized brand. How could we not be attracted to this vision of decentralization that gathers us Web3 natives?

As of today, the Garden (the Azuki community) has 66 communities created by Azuki enthusiasts, further proving the magical integration power of Azuki.

However, Azuki's later journey has been exceptionally bumpy, with the project's poor track record and conflicting philosophies leading to its collapse, and the community cannot save them time and again.

Azuki's Defense, the Power of Connection

A drop of water may evaporate quickly when it falls on hot sand, but millions of drops can gather to become the sea. ------Marx

Before the Elementals series faltered, Azuki had already experienced a FUD incident. In May 2022, Azuki founder ZAGABOND (hereafter referred to as ZAGA) published an article titled "A Builder's Journey" on Mirror, revealing that his team had previously operated three projects—CryptoPhunks, Tendies, and CryptoZunks—over the past year, all of which ended in failure.

This revelation caused a huge uproar in the community. After ZAGA admitted to being behind three Rug projects, Azuki subsequently plummeted to 10 ETH, but this negative impact did not last long. Supporters believed that entrepreneurial failure is not shameful; rather, ZAGA's bold admission of failure and spirit of innovation are very important. Shortly after the drop, Azuki quickly rebounded to 16 ETH.

However, in my view, the notion that entrepreneurial failure is not scary is not the key to this turnaround; rather, this notion shifts the concept. ZAGA threw a pile of mud at the community and then Rugged, which is not simply a case of entrepreneurial failure. If the attitude after failure were sincere, it would be understandable, but ZAGA simply left a black-and-white announcement after a few weeks of failure and disappeared.

Rug is an extremely sensitive term in the world of crypto, especially considering the backdrop of three consecutive Rug projects. The true key to Azuki's turnaround lies in the strength of the holders' connections. Their love for Azuki's artistic style and their vested interests tightly connect countless weak-tie groups, forming an incredibly strong community. At this moment, as a collective, internal dissatisfaction will be shaken and drowned out by the connections, and the external FUD seems trivial in the face of the floor price established by community holders.

Thus, Azuki's first life-and-death defense was safely passed under the community's protection, while Jeremy Cahen, the founder of Not Larva Labs, who repeatedly accused and mocked ZAGA as a scammer, became the biggest enemy of the Azuki community.

Looking back at why the first FUD was safely navigated, it was not only due to the strength of the connections but also because the points of FUD had not yet impacted the intrinsic value of Azuki.

Elementals, the Fragmentation of Identity Value

Scarcity is the source of value for all goods. ------Adam Smith

Fast forward to June of this year, Azuki's Las Vegas offline conference unveiled the new series Elementals through a cool and flashy Western-style animated short film, which instantly ignited excitement in the community, with holders nearly flooding social media with the news.

However, just a few days later, the opening of the new series brought the entire NFT market to a freezing point. The higher the expectations, the deeper the disappointment. The opening of Elementals and the various new elements showcased in the trailer were almost irrelevant. However, this was not the most critical issue; the most critical issue was that the new series was almost a one-to-one replica of the Azuki OG series, which can be described as an "officially launched counterfeit" series. Moreover, due to technical issues, images with completely repeated and chaotic elements appeared.

The project's remedy for the image repetition was to directly change the already released, immutable NFT images through the URL in the contract. They even issued an announcement directly admitting that the repetition of elements between the Elementals and OG series was indeed by design, and they would also release a green bean based on Beanz (the secondary series of Azuki).
This bizarre operation instantly attracted ridicule from all sides, and the once indestructible community fell apart overnight. Some core members of the community even formed Azuki DAO and 20000E DAO to prepare to sue the founders to recover the 20000 ETH that ZAGABOND gained from the Elementals sale. Ironically, legal aid and evidence provision may still require the help of Azuki's community enemy, Jeremy Cahen.

Although Chiru Labs (the Azuki development team) knows how to be cool, they do not understand the identity value that Azuki brings. As ZAGA mentioned in a subsequent interview, they overestimated themselves and underestimated the community. The damage caused by the Elementals series to Azuki's economic and identity value is fatal. As a blue-chip PFP project, Azuki was once one of the best avatars on social media. In the past, you could often see famous KOLs and seasoned Web3 players flaunting them on Twitter; it symbolized not only being part of the strongest blue-chip community but also wealth. However, when the same project team released a low-priced series with almost identical elements, all these symbols lost their meaning. I believe that even ZAGA cannot distinguish between the avatars of the Elementals series and those of the Azuki series; wearing an Azuki avatar (which could also be an Elementals avatar, XD) has become a joke among other communities today.

ZAGA did almost everything wrong in the Elementals incident, not only trampling on all the meanings of NFTs but also betraying their promise to the community in their values. Azuki's strong connections began to fracture and collapse from the core.

The Balance Brought by Game Theory, the Sword of Damocles Always Hangs Over Us

Before writing this article, I read many reflective articles related to Azuki's collapse, most of which explored how to do IP well and find better narratives and application scenarios. However, discussing how to do a good IP and how to expand the PFP narrative seems meaningless given the size of most NFT project teams and the drastic reduction in royalty income in the current extreme bear market. Moreover, the only entity capable of doing this, Yuga Labs, has already set an example. Although Yuga Labs' pioneering spirit and action are admirable, the metaverse narrative developed under BAYC has not saved NFTs; the continuous issuance of new projects and narratives has only led to the decline of BAYC and its derivative series.

As for finding new application scenarios and new NFT narratives, currently, there seems to be no better answer than PFP. From cultural and social perspectives, the PFP narrative inherently possesses communicability and cohesion, which other types of NFTs cannot achieve.

The current extreme centralization issue of PFP projects is not a secret. We believe that project teams will not do evil; however, from the perspective of game theory, project teams as a community of interests have no reason to alter images or maliciously increase supply. Unfortunately, this game contradicts the development of the project team. All the meanings of NFTs are built on the premise of decentralization; however, project teams have absolute control over the fate of the projects. How can a small team of a few or a dozen people ensure that no mistakes occur in every major decision? Is the image I purchased truly mine, or is it stored on the project team's computer? If the scarcity and unchangeable characteristics of NFTs are always determined by the center, then rather than expecting small teams to continuously create miracles, I would prefer to buy stocks in Walt Disney.

Resolving trust issues and decentralizing power are the current tasks at hand. Although the culture created by the project team connects the community, any project needs the community to build its height. Holders contribute everything to the community, and when core issues arise within the community, they often lack the right to know.

Azuki's Declaration

Here comes a new wave…

A new wave is coming…

And surfing here is different.

Surfing here is different

Breaking down barriers.

We are breaking down barriers

Building open communities.

Building open communities

Creating magic internet money with our friends.

Creating magical internet money with our friends

To those who don't get it, we tell them: gm.

To those who don't understand, we tell them: GM

They'll come around eventually.

They will eventually understand

Here's to the ones with the courage to jump down a peculiar rabbit hole.

Cheers to those who have the courage to jump into a peculiar rabbit hole

One that pulls you away from a world that's created by many and owned by few…

A world created by many, yet owned by few…

To a world that's created by more and owned by all.

To a world created by more and owned by all.

From The Garden come the human beans that sprout into your family.

From "The Garden," the little beans will become your family

We rise together.

We rise together

We build together.

We build together

We grow together.

We grow together

This is the declaration from Azuki's official website to community members. Although it feels somewhat powerless at this moment, they have always been the project that best interprets "We." There is still a long way to go for rebuilding, and I hope this time ZAGA will treat their community well.