this little Piggy market went south

The minters (devel­op­ers and cre­ators) took in about 30,000 sol or $US6 mil­lion on the day. They will also earn a 5 per cent roy­al­ty, via a smart con­tract built into the NFT, with every resale. All of this is pret­ty stan­dard, apparently.

Now, the minters are expect­ed to do some­thing use­ful with those pro­ceeds to sup­port the future val­ue of these NFTs, such as cre­ate a mobile phone game, tokens, or promise to return roy­al­ties in the future.

The whole hog

It’s vague, but the premise is to main­tain inter­est and val­ue in assets that real­ly are noth­ing but stylised pictures.

The Pig­gy Sol Gang, how­ev­er, had a com­pelling pitch.

They would build a dig­i­tal mar­ket­place for NFTs called Alpha Art. The hold­ers of the orig­i­nal Pig­gy Sol Gang-issued pig­gies would then receive 30 per cent of all the fees from this mar­ket­place in which these NFTs would trade.

“You sir might as well retire of pas­sive income already,” said the Pig­gy Sol Twit­ter account, as if pas­sive income is an affliction.

The sil­li­er things get, the rich­er the hold­ers of the pig­gies would get, as mar­ket­place activ­i­ty booms. This was great news: the price of the pig­gies trad­ed up to 25 sol valu­ing the ven­ture around $US165 mil­lion ($220 mil­lion). The signs were that this would only get sillier.

The ques­tion hold­ers are ask­ing is whether they’ve been cheat­ed in the new or old world sense?

Except they didn’t. Sad­ly, they got serious.

The team at Pig­gy Sol – being Pig­gy Bank, Pig­gy Capone and Pigas­so – regret­ful­ly informed hold­ers they would not get a share of mar­ket­place roy­al­ties from Alpha Art.

They blamed the suits. UK bank­ing and ter­ror­ism laws would not allow them to pay indi­vid­u­als with­out KYC (know your cus­tomer) checks.

As an alter­na­tive, they pro­posed a DAO (decen­tralised autonomous organ­i­sa­tion), or club, that would allow the 10,000 hold­ers to vote on what to do. This was a set­back but not a total col­lapse, as hold­ers would no doubt vote to restore the roy­al­ty arrange­ment. The floor price set­tled at 14 sol (the floor price is the cheap­est set­tled price of an NFT set, giv­en they are all unique).

The devel­op­ers then said the DAO wouldn’t work because the NFTs were unreg­is­tered secu­ri­ties, and roy­al­ty pay­ments would vio­late secu­ri­ties law. That trig­gered a col­lapse to 2 sol, a near $150 mil­lion evap­o­ra­tion of val­ue if we’re ref­er­enc­ing fiat nonsense.

The PR pig

The squeal­ing pigs fired off ques­tions to Bernard, the pub­lic rela­tions lead, a green pig with a yel­low hat and a red ear­ing who was there to help.

“No [one] has clicked the buy but­ton for you,” he replied in the cha­t­room. “Go buy in a stock and the com­pa­ny makes a bad or hard deci­sion And ask them for a refund.”

The ques­tion hold­ers are ask­ing is whether they’ve been cheat­ed in the new or old world sense? Some have formed the view that Pig­gy Sol “man­age­ment” may have crossed the line and engaged in secu­ri­ties fraud.

They apply the Howey Test of the US Supreme Court to deter­mine whether a trans­ac­tion qual­i­fies as an invest­ment con­tract, and there­fore is sub­ject to rules that gov­ern mar­ket­ed securities.

Under the Howey Test, an invest­ment con­tract exists if there is an “invest­ment of mon­ey in a com­mon enter­prise with a rea­son­able expec­ta­tion of prof­its to be derived from the efforts of others”.

Hold­ers argue the expec­ta­tion of prof­its aris­ing through mul­ti­ple pub­lic announce­ments of the rev­enue share may indeed have giv­en the NFTs sta­tus as securities.

Induc­ing invest­ment into pig­gy NFTs, which the devel­op­ers prof­it­ed from via their own resale roy­al­ties on a large increase in sec­ondary mar­ket vol­umes, may there­fore arguably meet a text­book def­i­n­i­tion of secu­ri­ties fraud.

But attempt­ing to describe a mul­ti­mil­lion-dol­lar stoush involv­ing the sale of dig­i­tal pig­gy images as “text­book” once again has me chan­nelling Mr Blunden.