Nike NFT Metadata Rug controversy: Who pays for the disappearing little picture?

On April 24, it was discovered that the image data of CloneX, a project under the once top blue-chip NFT studio RTFKT, could not be displayed on major trading platforms. Instead, a slogan This content has been restricted. Using Cloudflares basic services in this way violates the terms of service was displayed, which caused heated discussions in the community.

One day later, on April 25, its parent company Nike was sued. RTFKT NFT buyers, led by Australian resident Jagdeep Cheema, filed a proposed class action lawsuit in the Brooklyn Federal Court in New York, saying that they suffered significant losses after Nike suddenly shut down these businesses. Why did the strongest NFT trend IP project once acquired by Nike fall to this point?

Nike of the Metaverse——RTFKT

The name RTFKT comes from its similar pronunciation to the English word artifact, which means man-made objects. The name also represents its brand concept. At the beginning, it was just a digital sports brand that aimed to create the Nike of the Metaverse. At that time, as more and more traditional brands chose to cooperate with NFT projects, the linkage between adidas, BAYC and PUNKS Comic also drove RTFKT and Takashi Murakami to jointly release CloneX.

It was this opportunity that made the crypto community more familiar with this brand, and later the real Nike also acquired this Nike of the Metaverse. With more than 40 joint projects, from Takashi Murakami to Jeff Staple, from RIMOWA to Nike, it is almost one of the hottest and most fashionable IPs in the crypto circle.

RTFKT Studio Hardcore Rug

In December 2024, an announcement came as a bolt from the blue. In this statement, the project owner of Clone X announced that it would terminate the operation of RTFKT. This studio acquired by Nike unilaterally announced the termination of operations with almost no warning. The NFT market at that time was all recovering, and this move caused the floor price of CloneX to drop by more than 60%.

RTFKT co-founder Benoit Pagotto once talked about the advantages of RTFKT compared with traditional industry giants in an interview and said: We have resources that they dont have, that is, we have a culture that they dont have – encryption culture. They cant spend a lot of time learning this knowledge every day. The encryption KOL sarcastically said that CloneX was initially released using GoDaddy and Cloudflare storing small pictures and manual Dutch auctions to earn $100 million in sales.

Last Man Standing

Just when we thought that this irony had come true four years later, countless holders stared at their own CloneX on OpenSea and Blur, shouting I Got RUG by Nike. Perhaps this is the crypto culture Benoit mentioned, that even if the project Rugs, as long as the Token is still there, there is the possibility of community autonomy. After even the image itself disappeared, this logic seems to be difficult to be self-consistent.

Almost only one team member stood up to take responsibility in this storm. Samuel Cardillo claimed that the team had planned to decentralize all NFTs since early April, so they did not choose to renew the contract with Cloudflare. Cloudflare made a mistake in the expiration date of the contract of more than $500,000 per year. The contract, which was originally scheduled to expire on April 30, was advanced by several days.

Although RTFKT was highly FUDed when the incident happened, Samuels high-intensity confrontation with netizens and his attitude in solving problems won the respect of the community and he was called the last man standing. In sharp contrast, Zaptio, who had not posted on X for a long time, posted 20 wonderful photos of his retirement life on Instagram.

Justice Execution? Rug NFT Being Sued

A class action lawsuit was filed against Nike the day after RTFKT lost the image. In fact, being rugged is not uncommon in the Crypto world, but few can recover their own assets. This class action lawsuit mainly has two accusations: Nike violated consumer protection laws in New York, California, Florida, and Oregon, and RTFKT NFT is an unregistered security. Nike did not disclose the relevant regulatory risks and violated the US securities law. Although it is still unclear whether NFT can be determined as a security, similar cases of consumers receiving compensation for NFT have indeed occurred before.

Previously, ONeal and his son Myles ONeal co-founded and promoted the Astrals NFT project based on the Solana blockchain, which includes 10,000 3D avatar NFTs designed by artist Damien Guimoneau. The project promises to create a virtual world Astralverse where users can use NFTs for social activities and games, and ONeal promoted the project in communities and social media as DJ Diesel.

Like many NFT projects, Astrals plummeted in value after the collapse of FTX. Until May 2023, investors Daniel Harper and others filed a class action lawsuit, accusing ONeal of violating U.S. securities laws by promoting unregistered securities Astrals NFT. The plaintiff claimed that ONeals star effect induced investment. In August 2024, Florida federal judge Federico Moreno ruled that the plaintiff reasonably accused Astrals NFT of being a security and that ONeal, as a seller, attracted investment through promotional activities. In November, ONeal agreed to pay an $11 million settlement to end the lawsuit, of which $2.9 million was used for attorney fees and the rest was used to compensate investors who purchased Astrals NFTs from May 2022 to January 15, 2024.

But some professionals believe that unlike ONeals personal project, because the legal status of NFT is still unclear, Nikes case may not be a breakthrough due to violation of securities laws, and there may not be $5 million in compensation, but in any case Nike is likely to pay some money to calm public anger.

How should NFT be stored?

The worst option for storing NFT data is on centralized servers like Cloudflare or Amazon. If the metadata and media files of an NFT project are stored on a server and the creator stops maintaining that server, the data will disappear forever, ultimately making the NFT a blank slate. Therefore, most NFT projects will choose IPFS and Arweave mentioned above, taking into account both image quality and operating costs.

Decentralized Storage

The most commonly used protocol by most project parties is IPFS (InterPlanetary File System), which is a decentralized storage protocol based on content addressing. IPFS uses the hash value generated by the file itself as a unique identifier. Users can obtain content from any node with just this hash. This method allows data to no longer rely on a single server, and is inherently censorship-resistant and fault-resistant, flowing freely between global nodes like water. But the disadvantages are also obvious. IPFS does not automatically guarantee the persistent storage of files. Whether the content exists depends on whether there are nodes that continue to save it. Therefore, many project parties need to actively Pin files, or use professional services to ensure that data is available for a long time.

The RTFKT team claims to upload image data to Arweave through ArDrive, a decentralized file storage network that guarantees the persistence of file storage compared to IPFS. Users pay a one-time fee to cover the storage costs for 200 years or longer. Miners in the Arweave network are incentivized to use AR tokens to copy and store copies of data that are rarely stored by other miners. This ensures that files are not lost over time and does not require continuous maintenance by the original uploader.

Blockweave storage data structure

Arweave stores data in the BlockWeave structure, and each new block of data is connected to the previous block and a historical block. Miners must prove that they have access to these randomly selected historical blocks to mine new blocks and receive rewards, which ensures that earlier blocks are retained.

Using IPFS or Arweave is much better than relying on centralized storage, but it still needs to point to the off-chain. Storing NFT metadata and media on the same chain as the NFT is the most anti-fragile method, but the cost of storing data on the chain is high, so it is a popular trend for NFT projects to keep metadata on the chain and media data off the chain, but for crypto culture, pure on-chain NFT communities are indispensable, and their communities are often purer and stronger.

On-chain NFTs on Ethereum

NFT projects like Nouns and Loot have long implemented full on-chain storage of SVG images on Ethereum. Taking Nouns as an example, the project uses a custom run-length encoding RLE to losslessly compress each image part and store the compressed data directly on the chain, without relying on external pointers such as IPFS. Subsequently, these compressed data are decoded into an intermediate format and a set of SVG rectangles are generated through on-chain batch string concatenation, which ultimately constitutes a complete SVG image and is then base 64 encoded.

Although it is quite complicated and it is not realistic to upload such SVG images to high-precision NFTs such as Azuki or CloneX, this does not affect the charm of on-chain NFTs. They often exceed the NFT itself, but represent a certain culture or community power. For example, Nouns DAO is committed to building identity, community, governance, and a vault available to the community. Nouns is still active in many Base ecosystem projects.

The founder of Loot, Dom Hofmann, was a co-founder of Vine. One of his side projects was to create a text-based adventure game, also called Loot. During the development process, he wrote a random item generator, a software that could return the names of various weapons, armor, and accessories. This was the birth of Loot.

In the Loot project, images are directly embedded in the smart contract in SVG format, returned through tokenURI, and can change dynamically based on on-chain data, also achieving the characteristics of full on-chain and dynamic generation.

His presentation mode may be very simple, just text and simple graphics, but the meaning behind it is deeper. Dom was once asked, who will make how much contribution for free to build a world? He replied, In the final analysis, these are just items on the list. Its just how people view it and how they give it value. And value is not necessarily an amount measured in US dollars, it can be many things. As he said, the concept of Loot has influenced NFT and Crypto Games. The Treasure DAO behind the still active Smol was born from this concept.

Good news for Ordinals?

When the RTFKT incident occurred, the most common voice in the community was that this incident was good for Ordinals. Ordinals is considered to be different from most Ethereum NFTs and is completely on-chain.

The Ordinals protocol on Bitcoin uses the Taproot script path to write images, text and other data directly into transactions, inscribe the data into Satoshi, and number the Satoshi units to give each Satoshi a unique identity. In this way, the Ordinals data is completely stored on the Bitcoin blockchain, but this also brings about the problem of high storage costs and limited data size.

It is precisely because of the high storage cost and limited storage data that BTCs NFT ecosystem is more unique. Compared with Ethereums functionality or DAO organization model, the survivors in BTCNFT rely on a deeper cultural heritage. Whether it is the Bitcoin community advertisement Magic Internet Money Wizard from 2013 behind the Taproot Wizard, which was issued at an ultra-high price of 0.2 BTC some time ago, or NodeMonkes as the first original 10K Bitcoin NFT.

Further reading: Analysis of Bitcoin memeNFT in one article, what does the bald wizard Taproot Wizard pay tribute to and express?

There are very few projects that are still working on NFTs in this era, and no one knows what form NFTs will take in the next era. Will it be a security? Proof of ownership? Or an independent AI Agent? Unlike Memecoin, as long as the contract is available on the chain for the trading community to develop at will. For non-fungible currencies, whether it is just an image IP or a functional receipt, the ownership of metadata is extremely important. This incident is a wake-up call, both for the project owners and the participants.

This article is sourced from the internet: Nike NFT Metadata Rug controversy: Who pays for the disappearing little picture?

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