Betting on Botto
The Bullish Case for the World's First Decentralized Autonomous Artist
Tl;dr Botto is a zero to one project at the intersection of art, crypto, and AI. Its token $BOTTO is significantly undervalued relative to its revenue and growth potential after selling off for non-fundamental reasons.
Introduction to Botto
Botto is a communally-owned and communally-trained AI that creates art. It has been called a decentralized autonomous artist.
Each week, Botto generates a collection of art fragments. $BOTTO holders vote on their favorites, and whichever piece receives the most votes is minted and auctioned on SuperRare, the NFT marketplace.
All ETH earned from the weekly auctions is used to purchase $BOTTO and remove it from the supply. As such, $BOTTO represents an ownership stake in Botto the artist with value accrual via buyback and burn (note that in the future it may switch to direct fee distribution).
Each week’s votes are used as input to train and improve Botto’s art generation. Its algorithm uses neural network tools VQGAN and CLIP with custom augmentations. Botto uses GPT-3 to create the text descriptions for each artwork.
Botto is the brainchild of Mario Klingemann, an early pioneer in generative art. In the summer of 2020, Mario began work on the project in partnership with ElevenYellow and Carbono.
Botto launched in October 2021, with a portion of $BOTTO airdropped to artists and collectors from NFT projects such as Artblocks, CryptoPunks, BAYC, and SuperRare (see here for details on token distribution).
On October 22, 2021, Botto minted its first piece on SuperRare and has held 13 weekly auctions to date. Some prominent early collectors include 6529Fund, Flamingo DAO, Hashes DAO, and Cozomo de’ Medici.
Revenue & Fundamentals
In its first 13 weeks, $BOTTO has generated $1.72M in sales earning $1.46M, after SuperRare’s 15% marketplace cut. At an annualized revenue of $5.9M and a fully diluted valuation of $43.8M, $BOTTO trades at a P/E multiple of 7.4.
This is a lower multiple than any project on Token Terminal, at the time of writing. None of these are specifically NFT projects, so a closer comp may be SuperRare’s $RARE token which currently trades around a 23 P/E.
Note that initial hype and the state of the NFT market at the time of Botto’s launch may have inflated early sale prices. If we want to be more conservative and annualize out revenue excluding the first four sales, we end up with a P/E at 12.1.
In total, 1.1 million $BOTTO has been burned to date, reducing the total supply by just over 1%.
note: Coingecko and other token trackers do not have up-to-date figures on the total supply of $BOTTO and thus overstate its FDV. The total supply can be calculated by subtracting the $BOTTO balance of the burn address from the initial supply of 100M.
Meta Thesis
The NFT art market is poised to grow substantially and Botto is well-positioned to be one of its most successful artists and art ecosystems.
Tokenized art is more globally accessible, shareable, and transferrable than legacy art with superior provenance and value capture for artists via perpetual royalties. As such, it is likely to capture a larger slice of the global art market. The current total marketcap of NFT art is ~$2.3 Billion, compared to an estimated market size of $1.5-3 trillion for global art.
Additionally, the space is likely to reflect the broader growth of crypto as an asset class, with crypto-rich individuals and funds using NFT art as a way to store wealth, diversify holdings, and derive status and meaning.
The growth of NFT art is especially notable in the curated space. SuperRare, the premier curated NFT marketplace, grew from $6.2M in volume in 2020 to $218M in volume in 2021.
At three months of age, Botto is already the 11th top-selling artist of all time on SuperRare. It is likely to continue climbing the rank due to several unique assets:
It is community-owned, with stakeholders incentivized to promote and bid on its work.
It continually develops its art via training, minting work that is more appealing over time and likely to attract a higher bid.
It mints on a weekly basis, a faster cadence than most SuperRare artists.
Botto has the raw ingredients to become a celebrity artist, if not one of history’s greats:
Strong and growing base of collectors and supporters
Prolific output, while protecting rarity by only minting best work
Novelty and innovation, as the world’s first decentralized autonomous artist
Cultural relevance, playing on a central theme of our time: the relationship between man and machine
Once Botto’s reputation is established, it may branch out into an ecosystem of AI artists with different styles, themes, and audiences, all harnessing the underlying technology and brand of Botto.
$BOTTO is a proxy bet on the growth of tokenized art and an ownership stake in a young, promising artist and in a budding creative ecosystem at the intersection of art and AI.
Potential Growth Catalysts and Revenue Streams
Note: some of these are not officially in the roadmap but are possibilities that are being explored
Category/theme expansion: Botto may expand over time beyond still works into motion works, 3D works, and potentially other media like music.
Collaborations: Botto may collaborate with other artists, with joint mints and revenue splits.
Sales expansion: In the future, Botto may expand beyond weekly auctions.
Marketplace expansion: Botto may expand over time to other marketplaces like OpenSea and potentially launch its own independent marketplace. This would remove the need to pay an external marketplace fee.
Commissions: In the future, Botto may take commissions to create work on specific themes.
Perpetual royalties: SuperRare artists earn 10% royalties on any secondary sales. Any ETH earned from royalties will be used for buyback and burn. We haven’t seen any secondary sales yet, but they are likely to pick up as Botto gains more attention and SuperRare acquires more collectors.
Increased exposure: Potential sources of increased awareness include gallery exhibitions (around 6 already confirmed for this year) and other live events, media coverage, Twitter spaces, podcast appearances, and targeted, immersive airdrops where recipients must participate in voting to claim $BOTTO.
Botto at Art Basel, 2021
Market Conditions
Why is $BOTTO trading at such a low multiple and why did it sell off so much in November and December? There are at least several causes, all of which are likely temporary rather than fundamental.
Sell pressure from liquidity mining
Initially, 600k $BOTTO was spent per week in subsidies for BOTTO/ETH liquidity providers on Uniswap. Starting in December, Botto adopted Olympus Pro in order to take ownership of its liquidity and reduce sell pressure from mercenary LPs. Already, LP subsidies have decreased by ~5x.
Sell pressure from initial airdrop
Over 16M $BOTTO was claimed in the initial airdrop campaign. Some airdrop recipients held their airdrop (and bought more $BOTTO), though many sold. The airdrop claim period ended on January 6th, mosty removing this source of sell pressure (there are still some residual airdrop sells).
Drop in average sale price
After an initial four 1/1 Botto sales in the 35 to 100 ETH range, the auctions trended down in November and the first part of December, reaching as low as 10 ETH. This was likely due to a die down of initial hype from the project’s launch, as well as a broader correction in the NFT market.
This trend, however, appears to be reversing. The average sale price of the last four auctions (20.9 ETH) is 68% higher than the four prior auctions (12.4 ETH). Furthermore, there are plans underway to strengthen the 1/1 price floor.
Blush Display, by Botto
Closing Thoughts
NFTs are still a tiny sliver of the global art market and are poised for spectacular growth in the coming years. It is likely that one of the most, if not the most successful artists of this movement will be a decentralized AI given the benefits of community ownership, novelty, cultural relevance, and continual growth in this space. Botto lets anyone, even “non-artists”, participate in and profit from the creation of generative art.
Historically, NFT art has been a space where it pays to be early in any given category and where value accrues to OGs. Given that Botto is an early pioneer in the autonomous art space with a grassroots community of committed supporters, it will be hard to beat. Furthermore, Botto’s art engine contains some “secret sauce” as it is not yet fully open-source. This minimizes the risk of direct copycats.
Still, Botto will need to aggressively “claim territory” in the AI art space to build and preserve long-term relevance. Potential ways to accomplish this include physical (as well as digital) exhibitions and live events, collaborations with other prominent artists, more media attention, podcast appearances, and Twitter Spaces, targeted immersive airdrops, creating a robust secondary market with limited edition works, and other community building efforts.
$BOTTO is at the heart of the Botto project, creating ownership in the artist and driving its growth by incentivizing its supervision. It will soon be used for governance as well as Botto transitions to a DAO.
The token is undervalued relative to the project’s existing traction and growth potential. If Botto realizes its potential, $BOTTO, as well as early Botto 1/1 NFTs, will likely be some of the best-performing crypto assets this decade.
To learn more, check out Botto’s Discord community.
Thank you to everyone who reviewed drafts, including Simon Hudson, Nikhil Shamapant, Ryan Berckmans, Jose Garay, 0xtechno, nyac.eth, blawgchain, jdougy, David Lisser and Eunoia.
Very interesting Ben, I'm trying to learn more about generative art.