While the death of NFTs has been called by some, many projects still maintain significant value and substantial floor prices. One of the earliest collections in particular, CryptoPunks, has maintained an impressive floor price of approximately USD$1.5M at present. With that in mind, a crafty operator has used a combination of smart contract logic and an interface having gone offline to heist ownership of a co-owned CryptoPunk (specifically Punk 2386) for around USD$20,000.
How is this possible? Well we need to go back to 2020 to the booming NFT market, and a start-up called Niftex. Niftex put forward a smart-contract protocol and web-interface to permit users to fractionalise NFTs by locking up the NFT and creating fractional parts, called "shards", which were then placed on sale for 2 weeks or until they sold out. Punk 2386 was an NFT which was fractionalised under Niftex.
The Niftex smart contracts dealt not only with the initial fractionalisation of an NFT, but also how to bring those shards together and release an NFT to a single owner. One way was to buy all the shards, but to address a situation where a shard owner was unresponsible or refused to sell at any price, a "Buyout Clause", known as a "shotgun" clause in company law.
Put under a shotgun clause:
one party makes an offer to buy out everyone else (usually other shareholders); and
the other parties who receive the offer must either, within a designated time, do nothing, and then they are deemed to have sold at the offered price, or make a higher bid back to buy out the first party, which the first party is usually forced to sell at.
The design of such a clause is to encourage proper bids for a fair value, being the price they would be willing to sell for, but assumes that the party receiving an offer is keeping an eye out for it.
On the Niftex platform all shard holders had 14 days from the buyout/shotgun clause being triggered to make a higher offer and buyout the first party, or be bought out automatically for the offered price.
Niftex, however, shut down as the NFT market dropped, and with it whatever notification system was running on their web-interface. The smart contracts, however, are immutable and so the shotgun clause for all NFTs fractionalised on Nitfex can still be triggered by any shard holder. It is worth noting that Niftex's defunct Twitter/X account does point users to an address to monitor buyout/shotgun clause events, but it's not known if this site displayed this buyout offer.
One shard holder of Punk 2386 called the smart contract and triggered the shotgun clause, offering 10ETH or 0.001 ETH per shard (there were 10,000 shards). At least one other shard owner, known as Gmoney on X.com, became aware of the offer and attempted (with the help of some tech savvy folk) to interface directly with the smart contract to make an offer back, but said that his attempt was rejected. He has turned the situation into a thought experiment:
As a result, the unknown person obtained ownership of Punk 2386 and could accept the current bid of 600 ETH (USD$1.6M) for a fairly massive profit, they did immediately move it to another wallet. This situation raises some interesting legal questions including:
When users entered into the sharding arrangements, did they have sufficient notice of the terms and conditions, including the shotgun clause?
Does Gmoney have any claim in respect of his attempt to trigger a buyout of the original offeror, given the transaction failed (but the blockchain record shows there was an attempt to make an offer); and
How can other holders be sure to be on notice of other buyout attempts?
These issues go to the heart of the arguments around whether "code is law". For now, Gmoney has said on X.com "GG" to the Punk buyer, and has turned the matter into a "thought experiment" on X. So for practical purposes it seems code is law, in this case at least.
By Michael Bacina
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