NFT Derivatives: Everything you need to know
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NFT Derivatives: Everything you need to know

March 21, 2023

NFT Derivatives: Everything you need to know

NFT derivatives have grown exponentially, but have caused a ton of controversy within the NFT community as well. In this article, we will explore the ins and outs of NFT derivatives, their legality, and some of the most popular examples out there.

What Are NFT Derivatives?

In simple terms, NFT derivatives are copies of existing NFT collections with added features or modifications. Derivatives often mimic the traits, features, and aesthetics of blue-chip NFT collections, such as Bored Ape Yacht Club, CryptoPunks, and Goblintown. They offer NFT enthusiasts a chance to own an NFT that is similar to a blue-chip collection without having to pay the hefty prices.

Why Launch a Derivative Collection?

There are several reasons why someone might want to launch a derivative collection. For some artists, it's a way to ride the hype of another collection and make profit by associating with proven blue chips. From a collector's perspective, derivatives offer those with NFT fans a chance to own an NFT that is at least somewhat similar to the original blue chip.

The legal status of derivative projects that infringe on original collections is nuanced. In instances where a creator makes a replica of an NFT collection and tries to sell it as an original without any consent, this would be considered IP infringement and completely illegal.

However, if 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. There are also certain cases where a project offers commercial use of the NFT images that user owns, and that holder may be able to use the artwork for creating a derivative collection.

The fair use defense means that the derivative of the artwork must be fair in its representation of the original artist's work. It can be tricky to determine what "fair" means, and legal professionals may need to get involved in instances that aren't definitively clear. However, using existing artwork is entirely legal if the artwork is in the public domain.

Examples of Derivative Collections

Bored Ape Solana Club (BASC), Squiggles, and CryptoPhunks are a few examples of derivative projects that generated hype and created serious debates about their place in the NFT space. BASC is a near carbon copy of the original BAYC (Bored Ape Yacht Club), while Squiggles mirrors the aesthetics of the blue-chip counterpart, Doodles. CryptoPhunks proclaimed itself the "punk version of the CryptoPunks," with a collection that looks nearly identical to the original.

The Future of Derivatives

Given the ever-changing landscape of the NFT space, derivatives could go a million different ways in the next year alone. As more money pours into NFTs and regulation tightens its grip on decentralization, it's possible that paying homage to blue-chip collections with derivatives will be cracked down upon in more significant ways. However, as long as derivative projects are created with permission and respect, they will likely continue to be a part of the NFT space.

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