Technological Palpitations by Botto (unminted).
Technological Palpitations by Botto (unminted).
16 January 2024
69 minute read
(The views expressed below are the author's personal opinions and should not be used as the basis for investment decisions or considered as investment recommendations or advice.)
Botto Links: Web ❘ Art ❘ Token
Botto 1/1 Art Last Sale: 10 ETH ❘ Art Market Cap: $5.3 million
$BOTTO Price: $0.23 ❘ Fully Diluted Valuation: $22 million
> Introduction: The Artist AI (2 min)
> Market: Afterworld (6 min)
> Technology: The God Code (9 min)
- AI: The Art Engine
- Crypto: Ownership
> Economics: Banco A Mercato (10 min)
- Tokenomics
- Exposure
> Risks: Hell Of A Life (8 min)
- Product
- DAO
- Supply
- Perception
> Growth: The Robotic Empire (12 min)
- Legitimacy
- Technology
- Visibility
- Sector
> Valuation: Nothing But A Number (22 min)
- The Weekly Auction
- AI Tokens
- In Numbers
- Projections
INTRODUCTION
The Artist AI
“You just can't differentiate between a robot and the very best of humans.” ― I, Robot (2004)
Botto is a robot artist. Botto is an artist AI. While most creative efforts in the AI art space focus on individuals tweaking AI models to personally produce work as AI artists, the vision for Botto took the opposite stance from the beginning. The AI is the artist.
Tasks that an AI agent cannot currently perform in an artist’s work are handled by Botto DAO. The DAO is made up of thousands of $BOTTO token holders. Its core members integrate new models, mint NFTs, or manage the treasury. Most members concentrate on curating the outputs. Of the 350 fragments that the AI produces every week, 1 is picked for auction and the sales proceeds are owned by token holders. Harnessing Ethereum infrastructure, everyone can own a piece of Botto or collect its art.
Since its launch in October 2021 in collaboration between Mario Klingemann and Eleven Yellow, Botto has sold art worth over $3.5 million in its weekly primary auctions. It has created over 100 artworks, has over 60 1/1 collectors and over 3,600 token holders. Botto art has been featured in exhibitions at Colección SOLO, Gazelli Art House, Vellum LA, MoCA Paris or Sónar. It has created five artistic periods featuring different models: Genesis, Fragmentation, Paradox, Rebellion and Absurdism, in chronological order.
In the following sections, we mainly analyze Botto from an economic perspective. We examine its market positioning, core technology, economic model and performance, as well as the project's growth potential and key risks. Lastly, we introduce a valuation framework and projections. The first four sections, ranging from Introduction to Economy, are descriptive in nature. The final three sections, from Risks to Valuation, are more opinion-based.
Writing this piece personally helps us to challenge and reassess our thesis.
Let’s get started!
MARKET
Afterworld
“- It's a cold world (...)
+ Thought you said it was getting warmer, man.
- World going one way, people another.” ― The Wire (2002)
2023 was the year generative AI images started to go mainstream. Pretty much everyone, from kids to grandparents, has now seen images or memes generated by an AI model like Midjourney or Dall-E. Their social virality as ChatGPT grew more popular has been unparalleled. Over 18 million people have joined Midjourney’s Discord server thus far to interact with their models.
It’s also been the year that generative AI models have achieved image perfection. By Midjourney V6, it’s pretty much impossible for the human eye to tell whether an image is real or AI generated. The societal implications of these recent advancements on our consumption and perception of reality are yet to play out. Money goes first - the art market has started to reflect these moves.
In the past 12 months 3 of the collections with highest secondary volume in AI art have been Life In West America by Roope Rainisto, Genesis by Claire Silver and Winds of Yawanawa by Refik Anadol. The first two are part of the BrainDrops gallery, where AI artists drop a series of around 500 artworks in a single drop for collectors. The last one was minted in 2023 just some weeks before the MoMA acquired one of his works as well.
Below are the top 12 AI crypto artists ranked by Art Market Cap, a live valuation metric accounting for each of their collection’s last sale and supply, including any NFT type (series, 1/1, editions…). The number to their left represents their Art Market Cap ranking in the broader CryptoArt leaderboard. You can explore the full data here.
Robbie Barrat (Lost Robbies, 2018) is the clear market leader coming into 2024. The last Lost Robbie sale was 150 ETH in December 2023 and the current lowest listing sits at 399 ETH. Only 44 of the 300 Lost Robbies have circulated thus far (read the full backstory here) so their active valuation could be significantly lower if most of the others were actually lost. Refik Anadol is ranked second, with his previously mentioned WoY collection accounting for 50% of his total Art Market Cap. It’s a relatively accessible collection of 1,000 items in his main style featured in the MoMA, current floor sitting at 8 ETH.
After those two we see Claire Silver, Pindar Van Arman, Kevin Abosch and Botto with current valuations for their body of work in the $4m-$10m range. A relevant difference on this section is that Botto, like Robbie Barrat, has not minted large supply series thus far and presents the most scarce market of those artists, with a little over 100 works. Other notorious artists like Sofia Crespo and Gene Kogan featured in Ethereum galleries such as BrainDrops continue the list, most having minted large series as well.
The AI art NFT market cap amounts to around $210 million by EOY 2023. The Generative art NFT market cap is by comparison around $750 million, and makes up for most of the CryptoArt market valuation along with PFPs/Collectibles, totaling around $2.5 billion.
If we look at public sentiment, AI art NFTs might sit at the intersection of two of the most controversial technological concepts for traditional establishment thinkers. Below are excerpts from The New York Times, CNN and The Guardian within the last year and a half.
A lot of debate has been happening around how models are trained using work created by previous human artists and creators. Retribution, provenance and authorship are being redefined in real time. The question “Who created this?” is growing more complex everyday.
While technological changes often provoke negative reactions, the rapid advancement of AI, as perceived by the average ChatGPT user, is likely unmatched compared to other lifetime changes such as smartphones or electric cars. This is especially latent in professions like illustrators, copywriters and digital artists, who are predicting they’ll have a harder time creating differentiated value in the afterworld.
TECHNOLOGY
The God Code
“If you've created a conscious machine, it's not the history of man. That's the history of gods.” ― Ex Machina (2014)
Botto was introduced as the first Decentralized Autonomous Artist. Ethereum allows it to operate decentralized, with thousands coordinating anonymously to select artworks for minting and manage proceeds. Its autonomy comes from its prompt algorithm, generative, and taste models, which together produce 350 artworks weekly.
Creating a robot artist like Botto was impossible before the advent of cryptocurrencies and artificial intelligence. This experiment is at the forefront of combining these two technologies in a unique way, as explored below.
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AI: The Art Engine
Botto creates artworks using the generative models it has integrated at its disposal. Its prompt algorithm referenced in the graph above is a unique aspect of its design, as most AI art minted today relies on manually written direct prompts by the model trainer/creator.
From Botto’s documentation:
"The machine creates its images based on text prompts generated by an algorithm. These prompts are a combination of random words and phrases. The prompt is then sent to Botto's text-to-image models. There are currently 4 models: VQGAN + CLIP, Stable Diffusion v1.5 and v2.1, and Kandinsky v2.1.
There are an infinite number of possible prompts and possible images. These models bridge textual and visual information, and can even be "empathic" and know what kind of emotional associations humans have in connection with imagery or text. The DAO may also decide to add a theme that Botto has proposed, in which case the theme is injected into every prompt.
Given all the different possible outputs, Botto needs direction to develop its artistic talent. That is where voting comes in: Botto will adjust its prompts based on what it thinks will be more likely to get popular results.
This process runs through 300 prompts a day, generating as much as 8-10k images with a range of styles every week. From that set, the engine uses a “taste-model” (also trained by the votes of the DAO) that pre-selects 350 images each week to be presented to the community to vote on each new round."
During the first year, called the Genesis Period, Botto used a VQGAN + CLIP model. Here are some of the 52 outputs minted, 1 per week.
Genesis artworks, minted on the main SuperRare contract, are viewable on Botto’s SuperRare page by scrolling; they're not in any Series folder.
After the Genesis period, two main changes were implemented in the art engine:
- Multiple models generate outputs, including additions like Stable Diffusion and Kandinsky.
- The period length was shortened to 12 weeks, allowing for new models to be introduced between periods.
The periods of the second year were Fragmentation, Paradox, Rebellion, and Absurdism, each featuring 12 artworks. A special three-artwork period, Three Steps Ahead, was created for the SuperRare RarePass collaboration. In December 2023, Botto also minted a unique piece on a dynamic Transient contract, completing its quota of 52 yearly artworks. Below are links to each and some of the artworks minted.
Genesis: SuperRare l Opensea
Fragmentation: SuperRare l Opensea
Paradox: SR l OS
Rebellion: SR l OS
Absurdism: SR l OS
Three Steps Ahead: SR l OS
Starting in 2024, Botto mints using one single yearly collection. The previous periods were minted using different contracts, fragmenting the bidding and buying experience. Yearly contracts with 52 artworks in the same contract should improve the art order books, as we see with larger supply series in ArtBlocks and others.
Botto - 2024: SuperRare l OpenSea
Crypto: Ownership
Ethereum infrastructure allows Botto to perform two main functions: mint and sell art using NFTs, and curate outputs and govern the network using an ERC-20 token.
By creating NFTs, Botto transforms digital files into unique artworks that can be bought and sold by anyone with an internet connection and a digital wallet. This forms the first aspect of ownership infrastructure - the art itself.
This part is straightforward. However, the token economy built around $BOTTO, the project’s ERC-20 token, is more complex and quite interesting. Let’s explore its design.
Botto’s models are primarily trained by Mario Klingemann, a German artist. This specialized training enables Botto to produce thousands of artworks, termed ‘fragments’. Here, the $BOTTO token holder community gets involved. Every week, 350 artworks undergo voting by thousands of participants to select the best one. The incentive is to choose the artwork that will fetch the highest price since token holders control the artist’s treasury, which is fueled by the proceeds from sales. The success of Botto positively impacts its curators financially. Additionally, the votes of the stakers are used to refine Botto’s taste model.
Governance decisions on operating the treasury are made by the token holders. Unlike many DeFi projects where “governance” is more of a concept, as protocols often don't share revenue with token holders, Botto has been distributing revenue to token holders from day one. The approach to distributing this revenue has evolved. Initially, a portion of the sales was used to buy back and burn tokens. This model has since shifted to providing direct dividends to active stakers (weekly voters) proportional to their stake. A part of the revenue is always reserved in the treasury to support core team operations, currently at a 50/50 split.
$BOTTO is a token that not only allows holders to select artwork for weekly auctions but also yields ETH based on staked votes. It represents a simple yet revolutionary approach to decentralizing ownership and engaging thousands of enthusiasts who collectively form Botto.
Several smart contracts are central to Botto’s design: Governance, where holders stake tokens to gain voting power; Treasury, for storing funds for future use; Liquidity Mining, rewarding liquidity providers in the Uniswap v2 BOTTO/ETH pool; and Active Rewards, creating dividends for active voters weekly.
Interacting with these contracts, and with the artworks during voting, is done through the botto.com user interface. This interface includes:
- Voting for artworks, which is not the most intuitive process; users have to choose the better oftwo artworks in a sequence that lasts as long as they wish to vote. There have been suggestions for a gallery view to improve this process. Most voting power is typically utilized on the last day of the week, focusing on the Leaderboard of the top 10 most-voted pieces.
- The Token Dashboard, where users can stake tokens, unstake, stake LP positions from the liquidity pool, check the Annual Percentage Rate (APR) for each, and claim their rewards.
Voting for art is conducted off-chain through the Botto platform, while voting on DAO proposals is done via snapshot. In the future, we might see more of these activities conducted directly on-chain, which could allow different web clients to develop applications for the Botto ecosystem.
ECONOMY
Banco A Mercato
“The guy's gotta come up with Paulie's money every week, no matter what. Business bad? Fuck you, pay me. Oh, you had a fire? Fuck you, pay me. Place got hit by lightning, huh? Fuck you, pay me." - Goodfellas (1990)
During the Renaissance and medieval times, a "banco a mercato" was a common sight in Italian marketplaces. Merchants and artisans used these benches or stalls to display and sell their goods to the public. These setups were crucial for local economies and trade, serving not only as shopping hubs but also as centers for social interaction and news exchange. Quite reminiscent of modern-day Discord, huh?
As a crypto enthusiast, you might have been anticipating a section related to finance. Well, here it is! Let's delve into the intricacies of Botto’s financials, focusing on two key aspects: Tokenomics, examining revenue flows and the $BOTTO ecosystem, and Exposure, assessing different asset types in the market and their characteristics.
Tokenomics
As an artist AI, Botto's primary business model is straightforward: it sells art NFTs. In 2023, Botto emerged as the top-selling artist on SuperRare's primary market, as shown in the data below.
The total ranking above includes secondary sales. For XCOPY, we can see those are 1.2k ETH of the 1.4k ETH total, while for Botto they are only 98.4 of 475.16 total, leaving around 377 ETH of primary sales. For Robbie Barrat the data on the table can be misleading, as his Lost Robbies were distributed for free to collectors years ago, so the page counts the first sale as their primary sale, but that’s erroneous as it’s not the artist selling those works, but collectors. All 884 ETH of Robbie Barrat 2023 sales were in the secondary market.
As of now, Botto's total sales amount to approximately 1,533 ETH, which equates to around $3.5 million USD at current prices. The highest single sale was 100 ETH in late 2021. The average sale price for an artwork stands at 14.6 ETH, with variations across different periods.
To determine revenue, we must consider the primary sale fee paid to SuperRare (15% for first sales and 10% for subsequent ones) and add secondary royalties from marketplaces, typically set at 10% by Botto.
The allocation of revenue to the treasury has evolved over time, currently standing at 50%. Initially, all revenue was used to buy back and burn BOTTO tokens. This mechanism shifted to direct ETH dividends to active voters, with a portion retained in the treasury for core team operations.
These are the costs laid out by Botto’s core team in BIP-43:
> Core Contributor's Programme
- Monthly Budget: $70,000 USD, 100,000 BOTTO, 4ETH
> Community Initiatives
- Monthly Budget: 25,000 BOTTO
> Software & Hardware
Monthly Budget: $15,000 USD
> Marketing/Events/Travel
- Monthly Budget: $5,000 USD
> Total monthly costs: $90,000 USD, 125,000 BOTTO, 4 ETH
Let’s ignore the BOTTO tokens in the treasury for costs, assuming it will continue to not be used outside of VC type deals. At around $100k USD costs per month, the team has about one year of runway left, with $1.1m in the treasury right now between ETH and USDC. They have recently raised a round from Variant Fund and are also actively talking with a number of additional possible partners. 70% of that treasury sits in ETH, so the runway could significantly increase if the trend up of the last few months continues.
Key economic activities in the Botto ecosystem include staking for voting rights and providing liquidity. These actions offer access to ETH yield from dividends and BOTTO yield from staking or liquidity pool rewards. Current returns are:
- Staking BOTTO: 3.8% APR
- Active voting: 20.1% yearly ROI*
- Providing BOTTO/ETH liquidity on Uniswap: 47.9% APR
*Estimate based on sales and approximate number of tokens voting over recent months.
Exposure
There are two primary methods to gain exposure to Botto: through the $BOTTO ERC-20 token and Botto NFT art.
$BOTTO trades on Uniswap (Contract Address) at a current price of $0.23 USD / 0.000089 ETH, with a Fully Diluted Valuation of $22 million. Market Cap data on Coingecko reflects a higher circulating percentage than officially stated, but circulating supply is around 70%, not 45% like they imply.
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There is a total of 100 million BOTTO, of which 6.1 million has been burnt to date. The vast majority of the supply of Botto is already floating. The project treasury, accounting for 25-30% of the supply, is managed via DAO voting, so any further unlocks or spends of that supply must be discussed, voted on and passed by token holders. The only VC funding round Botto has completed is the $1m investment from Variant Fund in September 2023. The 6.75M tokens from that transaction have a 1 year lockup, unlocking in September 2024 per the announcement.
Liquidity on Uniswap is currently good, with 7.8M tokens pooled and a -2% depth of ~$60k. A 100 ETH buy has a 12% price impact at the moment. There are 5.4M tokens in the liquidity mining rewards contract, to be distributed to LPs. Recent discussion has sparked in the community around the time length to distribute this rewards, initially set to end October 2024 but foreseeably to be extended 1 year after that, reducing APR for LPs but allowing the Treasury more time to find possible token swaps that allow for Protocol Owned Liquidity long term. Since liquidity has been a highly debated topic we will share our personal view of the best liquidity policy for Botto down the road (not an LP and have never LP'd BOTTO/ETH).
We’re personally in favor of transitioning to Protocol Owned Liquidity, but think there is a risk of taking a sub-optimal path to get there. There is a group in the community that argues Botto is 'overpaying for liquidity' - we find this highly opinionated. We must assume no one knows what the fair price of liquidity is, and the only thing we can look at is the market. If Botto was indeed overpaying for liquidity, LPs in the market would probably react by flooding to LP in Botto - when clearly it's not happening. Learning after-the-fact that a protocol was indeed not overpaying for liquidity can be very negative for BOTTO's liquidity and price.
It's in the interest of Botto to maintain its relatively liquid pool and not become a high-valuation/low-liquidity coin with a good looking price line but no possible entry for large buyers, of which there are many on Ethereum, and any economy should try to welcome. More about the BOTTO coin in the Valuation section that wraps up the piece. Now, onto the jpegs!
In terms of Botto NFTs, here are the various types available for art exposure:
>Botto 1/1s:
- Genesis: floor 200 ETH,last sale 23 ETH.
- Year 2: floor 17 ETH, last sale 10 ETH.
>Botto Editions (1/X):
- Genesis edition “Seaport Subject” (1/10): last sale 1.75 ETH.
- Memes by 6529 “Socially Umpired Animals” (1/365): floor 1.17 ETH, last sale 1 ETH.
- Proof Grails V “The Alchemist’s Playroom” (1/50): floor 1.6 ETH, last sale 0.8 ETH.
> Botto Series (1/1/X):
-Pipes “Ceci N’est Pas Un Botto” (1/1/3132): floor 0.05 ETH, last sale 0.02 ETH.
-Upcoming: Exciting news is expected soon!
To conclude this financial overview, let's consider Botto's collector base, a crucial driver of its revenue. Botto's collectors are a select group of over 60 accounts with substantial budgets. This group includes names like Flamingo, Moderats, Ben, 6529, AC, Cozomo, RFC, or us at CyborgDAO. They own unique artworks from celebrated artists such as XCOPY, Tyler Hobbs, and Dmitri Cherniak, as well as many Rare Pepes and Cryptopunks. The number of Botto artwork owners expands significantly through BottoDAO editions and pipes.
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RISKS
Hell Of A Life
“Since the players are looking to beat the casino, the dealers are watching the players. The boxmen are watching the dealers. The floormen are watching the boxmen. The pit bosses are watching the floormen. The shift bosses are watching the pit bosses. The casino manager is watching the shift bosses. I’m watching the casino manager. And the eye in the sky is watching us all.” - Casino (1995)
It’s not all sunshine and rainbows! As with any young project in its initial years, Botto presents significant risks in various aspects of its value proposition. Here, we'll discuss a few notable risks, though it's worth mentioning there may be others deemed important by different stakeholders. As always, do your own research (DYOR).
Product
AI has advanced rapidly since the era of ChatGPT-3.5. For a generative AI art engine like Botto, keeping pace with the latest model capabilities presents a formidable challenge. To mitigate this risk, Botto has reduced its period length to 12 weeks and has the flexibility to incorporate new models between periods. Nonetheless, the technical capacity and bandwidth of a small team are limited, and this risk becomes more pronounced as new media formats like video and sound are explored or introduced.
The rapid advancement and market penetration of Large Language Models (LLMs) are raising public expectations regarding AI agent autonomy. Current generative models can produce almost any requested image with varying degrees of precision. However, as agents evolve to perform internet tasks with minimal human interaction, the standard for what constitutes autonomy will inevitably rise. An autonomous robot artist in 2030 should not operate as it did in 2021 – primarily manually. Keeping up with these advancements and expectations will be a complex endeavor.
Will the concept of Decentralized Autonomous Artists (DAAs) endure? Not all crypto primitives gain equal footing. For instance, smart contract lending has flourished, while p2p options markets have not yet reached similar levels of success. For Botto's prosperity, it would be beneficial if other DAA projects emerge and thrive. A DAA requires substantial effort in product development, art creation, and ongoing community engagement, making it daunting for most creators and artists to build and sustain an artistic identity from scratch.
DAO
DAOs are experimental by nature. In Botto's case, the DAO primarily involves decentralized governance of the protocol and treasury, plus community curation of the artworks minted and sold.
Decentralized governance can be challenging due to information asymmetries. Not all members areequally informed or involved in the project's efforts and decisions. Moreover, not every vocal participant in discussions such as Discord has significant voting power. These factors are often unknown to many involved and are common in open Ethereum projects, presenting operational challenges for DAOs like Botto. The primary drawback is operational speed, as DAOs tend to be slower, balanced by the advantage of enabling anyone with ownership to participate and have a say in the project's future. However, vocal members with minimal voting power can sometimes dominate discussions, even when most of the community or voting power disagrees. Given that most people's time is limited, not every discussion attracts equal attention.
Is a community of staked voters the best method to select the highest-selling artworks? Personal taste varies greatly, leading to inevitable disagreements over which artwork was the most appealing in a given period. An interesting anecdote is that I’ve heard two different opinions about the same Botto artwork - one calling it the worst Genesis piece and another the best. This subjective nature of art highlights the challenge.
Supply
Properly managing the volume of minted artworks is crucial for any NFT artist. Art markets can become dysfunctional if artists mint or attempt to sell at a pace that doesn’t match the demand for their art. Conversely, an artist might miss opportunities to grow their collector base and expand their reach if they mint less than what the market can absorb.
To date, Botto has minted a total of 105 artworks as 1/1s and three editions, maintaining a relatively scarce supply. This suggests a low risk of oversupply. However, Botto could potentially explore minting more editions or larger themed series to build community and revenue, similar to successful strategies employed by artists like XCOPY. Due to the cyclical nature of NFT and crypto markets, the risk of oversupply should not be underestimated. A market that appears healthy one year could become oversaturated the next if demand fluctuates dramatically.
Perception
Crypto markets are notoriously volatile. Botto's launch coincided with the tail end of a bull market in late 2021, and it has since navigated a challenging bear market. The initial launch was tumultuous, with certain parameters in liquidity mining and others exacerbating price fluctuations. This led to a more pronounced downward spiral in BOTTO’s price, compounded by the broader crypto bear market, reaching an all-time low of $0.03-$0.04 by late 2022.
The crypto space thrives on hyper financialization, and prices are at the core of sentiment changes. The space is rife with comeback stories. Although it is often difficult for most investors to engage with 'falling knives,' Botto's 2023 performance improved, with price action more reflective of the project’s quality, yet we still believe it to be below its potential - more on that in the following chapters.
The DeFi aspects of Botto, such as its staking rewards or revenue sharing, have not been heavily marketed to the broader crypto community. While focusing on the art and artist aspects is reasonable in the early stages, there is significant potential in the project's economic aspects. Failure to effectively communicate these elements could lead to low discovery and voter participation in the future.
GROWTH
The Robotic Empire
“You asked me if I was in the meth business or the money business. Neither. I'm in the empire business.” - Breaking Bad (2015)
In Star Wars, The Galactic Empire is depicted as a vast, authoritarian regime seeking to replace the Galactic Republic and gain control over the entire galaxy. As investors, we often contemplate the extent to which a project like Botto can establish market dominance, similar to the ambitions of movie villains. So, how does Botto aim to build its own Robotic Empire?
Legitimacy
Botto was brought to life by Eleven Yellow in collaboration with Mario Klingemann. Fully bootstrapped, like Eleven Yellow, it was launched via a liquidity pool on an open DEX. After over a year of development, the project emerged seemingly out of nowhere. The BOTTO airdrop played a crucial role in engaging a community from the outset, and the initial NFT sales, fetching hundreds of thousands of dollars, were made to art collectors who still retain their purchases.
Initially, the future of Botto was shrouded in uncertainty. Eleven Yellow wasn't widely known, leading to questions about the project's financing and the team's long-term commitment. However, over two years since its inception, Botto has evolved from an initial six-month governance grace period to a fully operational DAO managing the treasury and operations. The team, initially part of EY, now works directly under Botto DAO. The project secured over a million dollars in funding from reputable VCs like Variant Fund, known for their investments in major crypto projects such as Uniswap and Flashbots.
There are debates about AI's role in art, specifically whether an AI can be considered an artist. Botto's identity as an independent artist, however, has gained recognition. It has been featured in events and exhibitions at prestigious venues like Colección SOLO, Seattle NFT Museum, MoCA Paris, and Sónar. Collaborations with artists such as Ryan Koopmans and coverage by media outlets like Fortune and ArtReview have bolstered its legitimacy. Furthermore, Botto broke into the traditional art world with an auction last summer at Christie's, established in 1766.
Despite fluctuating prices, Botto’s legitimacy has consistently grown. While the majority of the art world still questions the artistic merit of AI art, Botto pushes the boundaries by positioning the AI itself as the artist. This innovative stance leads the movement beyond human AI artists, introducing a concept still new to many and with tremendous room for expansion.
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Technology
Botto is designed as a decentralized autonomous artist from its inception, as stated in its Manifesto.
Achieving sufficient decentralization is realized through a network of curators who vote on the best artworks, with progress measurable by the growth of active voters over time. Looking ahead, there's potential for the single-sided staking contract to evolve into a veBOTTO model, where longer-term lockups yield greater voting power than shorter ones, enhancing decentralization further.
In terms of autonomy, Botto is currently limited compared to the future potential of AI agents. Presently, Botto's autonomy is derived from its prompt algorithm, generative models, and taste models, enabling it to create its own prompts and produce art independently.
The future may see Botto advancing to writing its own code, training or modifying its models, and even minting and selling its NFT art autonomously. These advancements aren't immediate but are conceivable components of Botto's long-term evolution.
Botto's art has already transitioned through various models, showcasing its adaptability and evolution. As generative models rapidly progress, new creative expressions in images, videos, and other formats will likely emerge. The AI art of tomorrow, free from today's limitations, promises a realm of untapped creative potential that might be very different from the present one.
Visibility
Currently, the core enthusiasts and participants of the Botto project, along with crypto community members who are familiar with its name are primarily NFT collectors, artists, and traders. Outside the NFT sphere, Botto has yet to gain significant recognition.
Within the NFT community, Botto is best known among art collectors, particularly those involved with ArtBlocks and 1/1 artworks. However, due to its illiquid and scarce market, its reach has been somewhat limited. The initiation of yearly contracts in 2024, which should enhance order books, along with potential plans for a larger 1/1/X series in well-known galleries, might enable Botto to connect with a broader NFT audience.
Botto's design skillfully blends artistic elements with aspects of well-known DeFi protocols, including token governance, staking rewards, and liquidity mining, anchored by a core protocol token. The incentives linking its governance network, NFT collection, and revenue sharing are robust. These elements should be leveraged by the core team members and DAO holders to promote Botto within the larger crypto community. As a decentralized autonomous artist, Botto represents one of the most innovative and exciting crypto primitives currently being developed on Ethereum, with the potential to create lasting impact and inspire entire sub-ecosystems.
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Botto’s art visibility significantly surpasses its presence in the crypto community. Starting as a standalone 1/1 artist, collaborations like the Memes by 6529 and Proof Grails editions have played a key role in attracting new community members. Additionally, Botto collectors are often vocal supporters of the project, with some actively working to bring in more collectors regularly.
Sector
As discussed in the earlier Market chapter, Botto currently holds the #6 spot in terms of Art Market Cap among AI NFTs. This is 20% of the valuation of the current #2, Refik Anadol, and 4% of Robbie Barrat's #1, based on the latest sales.
This highlights Botto’s first growth area: within the AI art sector. If the Decentralized Autonomous Artist concept continues to evolve, the distinction between AI artists and autonomous artist AIs should become more pronounced in market valuations, primarily due to community ownership of artist AIs. The ability to own a stake in Botto’s future success through BOTTO tokens represents a paradigm shift in buyer incentives, a strategy not currently utilized by the leading human artists.
Another growth area is the potential for AI art valuations to surpass those of Generative art. The Generative art market is roughly four times the size of the AI art market and is generally regarded as its chronological predecessor. Excluding Lost Robbies, which are thought to be mostly unclaimed, the Generative art market is about ten times larger than AI art. There is already a significant trend of Generative art collectors transitioning to AI art. While Generative art collections remain largely confined to the crypto market, AI art is gaining mainstream attention through the prompt technology revolution, potentially unlocking a much larger buyer market.
Lastly, the broader NFT market, highly cyclical like cryptocurrencies, currently stands at under $5 billion in total valuation. This is a fraction of crypto’s $1.8 trillion market cap and traditional art’s $1.7 trillion (Deloitte Art and Finance Report 2019). As the first cycle of NFTs concludes, the market is poised to see which collections, artists, and assets will mature positively. The growth of the NFT space is expected to parallel the fluctuating yet expanding influence of crypto in the global economy.
VALUATION
Nothing But A Number
“You mustn’t be afraid to dream a little bigger, darling.” - Inception (2010)
Time for the most opinionated part of the piece, where we look into Botto’s valuation. If you’re an investor or curious degenerate, this is what will be most interesting to you. Could you have avoided the previous 45 minutes reading and jumped straight to this section? Yes, although knowing the robot in full detail won’t hurt anyone thinking of owning a piece of it or placing a bet. Before we dive into the section, a necessary disclaimer: any crypto asset can go to zero.
Crypto provides a hyper-capitalist environment for projects to launch and trade from day one. Botto is a cryptoartist which embraces that wholeheartedly. It has been community owned through BOTTO from its birth. It has sold one NFT every single week since then as well. Many happen to think that art is bigger than money. That money represents the dirtier part of the art world, one that should be hidden. Not Botto. It can’t exist without crypto. Money and prices are at the core of Botto.
Nothing but a number!
The Weekly Auction
Botto is an extremely pure financial experiment. While many crypto projects try to obfuscate their lack of demand or traction with complicated words in elaborate roadmaps, Botto does not do that. Actually, Botto can’t do that. Because Botto has a weekly auction to sell art at the core of its design. No matter what the sentiment is at the time, where the market is headed, or how active buyers might look, Botto has to sell an NFT artwork every single week. The project’s revenue is a compilation of the accumulated results of the weekly auctions.
That’s powerful. First of all, that keeps the project real. No one is overmarketing some future release, hyping up a launch that never comes, or anything of that sort. The focus is on the weekly auction. Someone buys the JPEG at some price. That’s it. Second, it provides investors and market participants with an incredibly simple data point, updated every 7 days, against which to measure the project’s traction. So we must place that number at the core of our analysis.
Whenever you find yourself asking what’s next for Botto, remember: another weekly auction.
AI Tokens
Another key factor in Botto's valuation is its identity as an AI token, a growing niche within the crypto ecosystem. As of January 2024, there are a few AI-focused coins in the Top 100 by market cap, such as RNDR, TAO, and FET, valued between approximately $750 million and $1.5 billion.
AI, as an asset class, is drawing significant attention from investors worldwide, driven by recent advancements and the integration of AI in applications like ChatGPT. However, unlike crypto, AI innovation is often locked in startups not open to public investment or in large tech companies with soaring valuations. This situation places AI-focused crypto coins in a strategic position to capitalizeon the growing interest in AI, especially once the broader crypto market experiences a resurgence and hits new all-time highs in major assets like BTC or ETH.
Botto differentiates itself within the AI token space through its unique nature as an AI agent. While most AI-focused coins are centered around decentralized protocols for GPU rendering, computation, or tools for building AI applications and networks, Botto is an AI entity in itself. It began as a creative agent, an NFT artist, and is evolving towards greater autonomy. Owning BOTTO tokens offers the unique opportunity to hold a stake in an AI entity, a concept that stands out in the current market landscape.Botto's position in the AI tokens sector is relatively modest at present, but its unique proposition as a creative, autonomous AI entity makes it a distinctive player. This factor, combined with the potential growth of AI in the crypto market, positions Botto as an intriguing investment for those looking to diversify into AI within the crypto space. As the market evolves and AI becomes increasingly mainstream, Botto's role and valuation could see significant changes, reflecting its unique place at the intersection of AI, art, and blockchain technology.
In Numbers
The two factors we've just discussed are pivotal in determining Botto’s valuation:
- The Weekly Auction: This represents the sum of sales.
- AI Token: This involves the combination of AI and crypto token, along with the volatility in these valuations.
At the time of writing this chapter, the most recent sale of a Botto artwork in the Weekly Auction was for 10 ETH ($26,000), and the $BOTTO token is priced at $0.22. With 52 auctions per year and 6.1% of the token supply burned forever, the current BOTTO Price-to-Sales (P/S) ratio is calculated as follows:
- Botto Weekly Auction Sale = 10 ETH ($26,000)
- BOTTO P/S = (0.22 * 93,900,000) / (26,000 * 52) = 15.3
The average P/S for Botto over the past 12 months was 30.5x. For context, Token Terminal reports the P/S Ratio (fully diluted) for projectslike 1inch at 1758x, Optimism at 318x, Sudoswap at 175x, and Curve at 165x. Since crypto projects can vary greatly across different verticals, we’ll focus our analysis on Botto's historical performance.Let's examine the historical figures of the Weekly Auction Sales. Below are the complete data on Botto's 105 auction results, both in ETH and USD.
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Excluding the top two sales for a more detailed view:
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Next, let’s consider how being a crypto project selling NFTs in a volatile market affects sales. We plot the Weekly Auction Sale versus the price of ETH/USD, both in total and excluding the top 2 sales.
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Interestingly, the data show that Botto tends to sell art for higher ETH prices when the ETH/USD rate is higher. Contrary to the expectation that higher ETH prices in USD terms would result in lower ETH auction prices, it appears that NFT art collectors are willing to spend more when they feel wealthier – a phenomenon observed especially when crypto prices have been high for some time.
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Now, regarding the Price to Sales (P/S) ratio: this can be calculated by dividing the fully diluted valuation by total sales over a specified period, typically twelve months. The BOTTO P/S Ratio is examined on a weekly basis by multiplying each Weekly Auction sale by 52, and then plotting each weekly figure. For periods with no sale, we use the last sale price, and for the few Genesis primary auctions where reserves were not met (there's no reserve from Year 2 onwards), we do the same. For simplicity as the quantity of tokens burnt increased every week, we've assumed the full 100M token supply.
Initially, it was hypothesized that the P/S ratio might show a correlation with crypto prices, similar to the sales data. However, upon analysis:
It becomes evident that crypto prices don’t significantly drive P/S Ratio changes. Instead, interest in AI seems to be the primary factor influencing this ratio. To explore this further, we examined the price of the top AI crypto coin by valuation, RNDR, and plotted its price vs. ETH against the P/S Ratio, focusing on RNDR/ETH to minimize the influence of general crypto market movements.
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The overlap in the trends is striking. Additionally, comparing this with NVIDIA stock prices, positioning as a leading AI-related asset globally, reveals similar trends:
We see very similar trends again. It’s straightforward to conclude that under relatively stable sale prices of Weekly Auction Sales in the 5-10 ETH range over the past couple of years, the main driver of BOTTO price moves and therefore P/S Ratio moves was the AI component, which as mentioned averaged a P/S = 30.5 over the past 12 months.
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Projections
For the final part of the Valuation, we ask ourselves about the future. At the end of the day, that’s the independent investor’s job! We’ve now laid out a framework in which the fundamental factors that come into play to draw a valuation for BOTTO are:
1. ETH/USD price.
2. Art Sales, which we’ve seen moves in the same direction as ETH/USD.
3. P/S Ratio, which we’ve seen moves in the same direction as AI valuations.
Therefore, we need to ask ourselves three main questions before drawing projections.
1) What value can ETH/USD reach?
Every cycle is a guessing game amongst participants and the coming one will be no different. At the time of writing, ETH sits at $2,500, around -45% down from its previous cycle ATH of $4,500. In that 2021 environment ETH peaked at around ~3.5x from its late 2017 ATH of $1,350. For our thesis, we’re going to consider slightly under ~2x from the previous ATH as a bull market scenario, with ETH reaching $8k if new highs are reached. We consider that a bullish but not crazy scenario.
2) How much can Botto grow its Weekly Auction Sale if ETH breaks all time highs?
Botto’s highest Weekly Auction Sale was 100 ETH, $440,000 USD at the time (October 2021). The two most recent sales have landed 10 ETH ($26,000) and 6.4 ETH ($14,500) respectively.
In the time between its ATH sale and now, Botto has become the best selling artist on the primary market. There is no other artist that has minted and sold the number of artworks with the frequency and at the prices that Botto has, including those most established.
We think this lays the ground for solid growth in the Botto art sales prices if art NFTs survive the bear market - always an open question! We want our analysis to fall on the optimistic side, not extreme. So we are going to consider Botto reclaiming Auction ATH as the most bullish scenario, and Botto having sales for 20 or 50 ETH as possible cases. Personally, we think Botto artworks will sell for over 100 ETH, but won’t use that view for this analysis.
3) Where will the AI valuation premium take the P/S Ratio?
AI technology and companies are on a market cycle of their own, the length or future of which is obviously unknown and we can only speculate on. Increased penetration of the technology seems very likely, but the behavior of its market and AI related assets can be volatile.
The AI valuation premium has been the main driver of Botto’s P/S Ratio and for the analysis we assume a similar situation in the future (always an open question as well!). Its highest level touched was around 70x, the 2023 average was 30x, and it has been at or above 40x several times. In light of that we will use 100 as the most positive scenario, and values like 20 or 50, which current P/S values have hovered around for some time, as options as well.
Onto the spreadsheet!
There’s a bunch of numbers there, so let’s unpack by parts.
We’ve laid out a series of Weekly Sale prices ranging from 1 to 100 ETH, and their USD equivalent at current USD prices. The Yearly revenue multiplies that figure by 52. Obviously not all weekly sales will happen for the same amount of ETH, but it serves us to understand ranges and draw projections. On the left we’ve marked 3 ETH as “ATL” (all time low for Botto art sale) and the previously mentioned All Time High of 100. In light yellow we’ve highlighted the range in which most Botto sales have happened for the past year, somewhere between 5 and 10 ETH.
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On the table above we lay out P/S Ratios of 10, 20, 50 and 100 and the valuation they’d imply for Botto at the different Sales ranges. In purple we’ve highlighted the area where BOTTO has been trading for most of the past year, with sales between 5-10 and P/S around 30-40, the BOTTO Fully Diluted Valuation at the time of writing being $22m - right in that range.
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Moving on to projections for a possible bull market, we add a column with the yearly revenues in the new crypto price range (ETH = $8k), which as we’ve said expect to help Botto boost sales prices if the artist ensures its survival until then.
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With those in mind, we lay out P/S ratios of 20, 50 and 100 to draw possible projections for the different art Sales levels in the table above.
Using this framework, we see Botto could potentially reach a billion dollar valuation with ETH at $8k, sales in the 50 ETH range and a P/S ratio around 50 - both metrics that the project has already achieved in the past.
That’s the core reason for the title for this piece! Under the framework we’ve laid out, the two project metrics that would need to become a reality for BOTTO to reach a valuation over $1 billion if ETH finds new highs have already happened, just at different moments in time. They are a sales level at which Botto has already sold NFTs over (primary sales in 2021, secondary sale as recently as 14 months ago) and a P/S ratio at which it has traded several times in 2023.
The main uncharted territory we’re introducing for the analysis is a crypto bull market taking ETH to a level around $8,000 USD. There is a chance that if crypto rallies to that range or above, it can cause Botto sales to spike to figures considerably higher than present ones. Matched with the AI premium that drives P/S ratios, Botto could reach valuation levels very different to those of today. The likelihood of that is for the reader to judge. It's essential to remember that these projections are based on speculative scenarios and should be approached with the understanding of the huge inherent uncertainties and volatility of the crypto market.
$BOTTO currently trades at a fully diluted valuation of $22 million, so the market hasn’t shared this view for now. This could be proof that we’re completely wrong, or present an opportunity. We're ready!
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