Larva Labs’ CryptoPunks are considered by many to be the gold standard of EthereumEthereum NFT profile pictures, with the collection generating billions of dollars in sales as Crypto Twitter’s preferred status symbol. However, its star may be fading somewhat due to recent events, and now Larva Labs is facing fresh scrutiny for its own actions.

When the CryptoPunks were first minted in 2017, a glitch in the original smart contractsmart contract—the code that programs NFT collections and decentralized applications—prompted Larva Labs to scrap the first edition and reissue the NFTs. The second edition eventually became crypto-famous, with some $2 billion in trading volume to date, per CryptoSlam.

However, some of those “V1 CryptoPunks” NFTs have been “wrapped” via a community-made smart contract and reissued as ERC-721 Ethereum tokenstokens, each with a different background color than the standard Punks. That makes it possible to sell the NFTs as historical relics—with interest and prices rising of late.

“This recovery of the original Punks smart contract is a community-led and rapidly-growing phenomenon consisting of original Punk claimants, NFT historians, digital archeologists, and extremely talented developers,” reads the unofficial V1 Punks website.

Larva Labs recently went on the offensive, suggesting that they weren’t “real” CryptoPunks NFTs. However, the creators were sending mixed messages, selling off dozens of their own V1 Punks while claiming that they shouldn’t be considered legitimate CryptoPunks.

“PSA: ‘V1 Punks’ are not official CryptoPunks,” Larva Labs tweeted on January 25. “We don't like them, and we've got 1,000 of them... so draw your own conclusions. Any proceeds will be used to purchase real CryptoPunks!”

On Wednesday, in a statement posted to the official Larva Labs discord, co-founder Matt Hall apologized for selling its own V1 Punks, calling the move “stupid” and a “bad decision.”

“We made a mistake by interacting with this contract,” Hall said of wrapping and selling the V1 CryptoPunks. “We thought that by announcing our intentions and selling some of the tokens, we would signal our distaste for it, and maybe others would follow. That was a bad decision. We regret it, and we apologize to the community.”

Hall said that Larva Labs generated 210 ETH (about $622,000 today) from the V1 NFT sales and used some of it to purchase one of the standard (V2) CryptoPunks. The team plans to spend the rest of the funds buying back additional CryptoPunks NFTs, and will also match the amount with a further 210 ETH donation to The Rainforest Foundation.

“We feel like we’ve had a well-principled approach to the CryptoPunks project from the very beginning up until the moment we did this stupid thing,” Hall added. “We’ve learned a hard lesson, but hope something good can come of it via this donation.”

CryptoPunks collapse?

Reactions to Larva Labs’ announcement have been widely negative. That continues a growing trend among some holders of the 10,000 CryptoPunks NFTs, as the community reckons with their place in the evolving NFT space, what utility (if any) they should provide, and what Larva Labs’ role should be in their future ahead.

In recent months, some CryptoPunks holders have complained about the state of the project, particularly the still-unclear extent to which holders can commercialize their owned image(s). Other complaints have come regarding Larva Labs’ increasingly hands-off approach, which stands in stark contrast to some newer, popular profile picture (PFP) projects.

The Bored Ape Yacht Club (BAYC) has rapidly become the other giant in the NFT space, and the differences between them are significant.

Bored Ape holders can use their owned images for any purpose—including merchandise, metaverse bands, and brand promotion—plus Yuga Labs has provided holders with additional free NFTs, exclusive merchandise and events, and more. It’s a private club loaded with perks and a public-facing avatar for social media cachet, no less.

Celebrities have recently flooded into the Bored Ape Yacht Club, as well, raising the NFTs’ mainstream profile—and quite likely their asking price too. In December, the floor price (or cheapest available NFT) for Bored Apes passed that of CryptoPunks for the first time, and the gap has only widened of late.

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As of this writing, the Bored Ape floor sits above 100 ETH ($294,000) compared to CryptoPunks at 69 ETH ($203,000). CryptoPunks trading volume also dropped 28% from December 2020 to January 2021, per data from CryptoSlam, despite a wider NFT market upswing.

Also in December, notable NFT collector and Nouns project co-creator 4156 sold his namesake CryptoPunks NFT for $10.26 million worth of ETH. He decided to exit the project due to Larva Labs’ handling of the IP rights situation, including attempts to remove unofficial derivative projects via DMCA takedown requests—such as the reverse-facing CryptoPhunks.

Larva strikes back

That last detail is key, because in yesterday’s statement, Hall hinted that Larva Labs will pursue some kind of legal action around the Wrapped V1 CryptoPunks.

“We originally didn’t go after the V1 project for copyright infringement of both the art and the CryptoPunks name, because we didn’t want to give it any additional attention,” he wrote, “but now many CryptoPunks owners have called for us to take action, and we agree with them.”

“Let there be no confusion about the legitimacy of this ‘V1’ project,” Hall continued. “It has no right to use the art or the name. We will be taking appropriate steps in the coming days.”

What that move might look like is currently unclear. Larva Labs could potentially issue DMCA takedown notices against marketplaces OpenSea and LooksRare for letting users trade the NFTs, for example, or target the V1 Punks marketplace website or that of the smart contract used to wrap V1 Punks. Decrypt reached out to Larva Labs for comment, but we did not hear back.

Hall’s announcement regarding the V1 project—particularly with the suggestion of legal action after Larva itself sold wrapped NFTs from it—has been met with vocal criticism from holders. Some see the move as being anti-community, anti-blockchain, and anti-decentralization, continuing some of the other recent debates around CryptoPunks.

“I have never seen any team bungle a project with such desirable IP as Larva Labs has done with CryptoPunks,” collector DCinvestor tweeted. “At this point, I do think the move is to convey individual IP rights to ‘official’ Punk NFT holders à la BAYC. That’d nullify most of the mess they’ve created.”

Another prominent NFT collector, Anonymoux, tweeted a thread about their own personal saga with CryptoPunks—and the decision to sell and move on following Larva Labs’ disclosure. Anonymoux wrote that they had felt “anxiety” around the project recently, but that it “melted away” after choosing to depart the CryptoPunks collective.

“It is time to sell Punk #2311,” they wrote. “I wouldn't own stock in a company where the executives constantly tripped over their own feet. Not going to do it here either. Thank you Punks for playing a large part in my NFT journey.”

Will V1 thrive?

What about the Wrapped V1 CryptoPunks then? Larva Labs’ next moves are currently unclear, but the V1 NFTs remain available for purchase from marketplaces—and some collectors have made bets on their sustained or potentially expanding value ahead.

On Wednesday, prior to Larva Labs’ announcement, NFT investment fund Meta4 Capital announced that it purchased a pair of V1 CryptoPunks: one for 1,000 ETH (almost $2.8 million) and another for 200 ETH (about $556,000). Meta4 tweeted that the prices reflected an offer worth one-quarter of the estimated value for the “real” or V2 version of each Punk.

Meta4 Capital Managing Partner Brandon Buchanan told Decrypt via email on Thursday that he respects Larva Labs and its co-founders, Hall and John Watkinson, and their need to protect the IP and oversee the CryptoPunks ecosystem. He called them “thoughtful and innovative in a nascent asset class wherein rules and standards are mostly being made on the fly.”

Still, Buchanan doesn’t think the creators “should be concerned with being the arbiter of taste; let the market dictate taste or distaste as it may be.” Instead, he suggested that Larva Labs should focus on driving value to NFT holders and listening to the community. “Once Larva Labs and its holders are fully aligned, I think more value will be unlocked,” he added.

In its original Twitter thread, Meta4 Capital pointed to the history of defective versions of products commanding a premium on secondary markets. The V1 Punks are based on code that Larva Labs deployed to an immutable blockchain platform—it’s not a knockoff, even if Larva takes exception with the way that they’ve been brought back to life.

“This isn't really a copyright issue,” Buchanan suggested, “as they're trying to police secondary markets for an asset that had already been distributed and claimed.”

“There's a long history of collectibles (like comic books) having errors or being recalled, and they being sold on secondary markets,” he continued. “I view V1 Punks in that same sort of mode. I actually think this is an exciting development for Larva Labs, and the history/lineage should be embraced rather than repelled.”

Matt Sanders (a.k.a. M. Shadows), the singer of metal band Avenged Sevenfold and creator of the Deathbats Club NFT collection, likewise told Decrypt that he believes that both V1 and V2 CryptoPunks are “authentic and valuable in their own ways.” Like Meta4, he owns both V1 and V2 CryptoPunks.

Sanders likened the V1 Punks to a band’s demo recordings, which can help provide a historical record of art and develop the narrative around it. Some fans or collectors might even find the V1 or “demo” versions more meaningful, he said—but as a creator himself, he suggested that Larva Labs’ perspective on what constitutes “real” CryptoPunks should be honored.

“Most collectors will prefer the ‘official’ seal of authenticity of V2, which is what the original creators intended to be the final, published product,” said Sanders. “That distinction matters: it was the creators’ intention, which rightfully confers a certain status.”