Investment Thesis - Azuki
A multi-billion dollar opportunity
I’m financially exposed to the Azuki Ecosystem. I’m not a financial advisor, don’t consider me that way. I’m sharing my own opinion and vision about projects that inspire me while driving my RX-7.
Prelude
Hey Azuki, I filled up the car, let’s go for a ride!
Introduction
Azuki is a metaverse brand inspired by Asian culture and the “rebellious culture of skateboarders,” which means streetwear culture. This brand was launched by Chiru Labs, based in LA.
This brand wants to be the biggest metaverse brand and to do so, it follows two values, “dope shit only” and “trust the process.”
That means creating sustainable, high-quality content instead of going too fast and failing.
Team
Co-founder and Leader
Zagabond : He is leading Azuki. He was born in China and worked for Google. He co-founded several innovating NFTs that were all abandoned and considered by some people as scams, more on that later. Rumors said that he worked for General Mills, for Amazon as a market manager, and finally at 0x Labs as a Chief of Staff.
Co-founder and Designer
Hoshiboy : Participated 2 times in one of the most well-known startup accelerator, Y Combinator.
Co-founder and Engineer
2PM.FLOW : Worked for Google and Y-Combinator
Co-founder and Engineer
Location TBA : Former Facebook engineer software
Artist
Arnold Tsang aka Steamboy : 39-year-old conceptual artist, former character art director of a 60 million player game, Overwatch. Indeed he worked for 12 years at Blizzard Entertainment (Video game developer behind World of Warcraft, Hearthstone, etc…)
Artist
Andrew Hou aka NJOO : He worked for Capcom and Marvel. More specifically, he worked as a colorist for Udon Studios and as a freelance illustrator. He also launched HJ-Story, a webcomic.
Product
Demna : Former Product Manager for Google
Head of Growth
Elisabeth Yang aka whizwang : Former analyst at Goldman Sachs, she worked as a head of venture development for Home To Go before working at Dfinity (blockchain with solid fundamentals) in the development ecosystem.
Community
Daph : Background in e-sport
Rose : No info about this new team member
Developer
Cygaar : No info about his career, but his contribution to the creation of ERC721-A is enough to show his talent.
Advisor
Rehito Hatoyama : Former CEO of Sanrio US/EU (Hello Kitty) and board member of the messaging app LINE. He is now the Chief Strategic Officer of Human Made, a Japanese streetwear brand founded by NIGO®, the founder of the most well-known Japanese streetwear brand A Bathing Ape, and DJ of Teriyaki Boyz.
Fundraising
Azuki Sale - According to Forbes, they raised $31,000,000.
Beanz Sale - It was airdropped, so there are no sales here.
Royalties - They should’ve raised $32,000,000 (May 10th, 2022 price update)
Indeed, each NFT (Azuki, Beans, and more…) has 7.5% fees. 2.5% for Opensea and 5% as royalties for Chiru Labs.
With Azuki, on May 10th, 2022, ChiruLabs should therefore have generated an additional 10,520 ETH, which, at the price of the current ETH, represents $25.6m.
With Beans, on May 10th, 2022, ChiruLabs should therefore have generated an additional 2,660 ETH, which, at the price of the current ETH, represents $6.4m..
As Demna said : “The funds from the sale and royalties are in a corporate account. We are employees of the company that created Azuki. The team is in a regular 5 years vesting period, like any other startup.”
The Azuki Brand
1. The Azuki Collection
Collection of 10,000 NFTs inspired by Japanese animation. Each Azuki will have its own avatars in the Metaverse as well as video games, comic books, etc.
There are four types of Azuki: Human (90.18%), Blue (4.44%), Red (4.41%), and Spirit (0.97%).
They all have different traits, different clothing, and different offhand that make them unique, even very rare.
There are unique combinations such as Red Panda, Blue Cat, Brown Sloth, and Green Frog.
As well as the legendary combinations as call Elements.
The Fire, Lightning, Water, and All four elements.
I highly recommend you to check the thread of @Kaspar for more details about the NFT aspect itself by clicking here.
Chiru Labs launched its collection of 10,000 Azuki PFPs on January 12th, 2022, and it achieved almost an x13 in only four months.
The Azuki collection is still one of the biggest Opensea successes (Opensea Top 10 rank in terms of volume).
The mint price was $3,400 per Azuki, and 8,700 PFPs (and 1,300 PFPs in Private Sale) were sold in 3min.
This collection quickly became famous as the floor price went from 1.9 $ETH on January 13th, 2022 ($6,400) to a 36 $ETH ATH ($126,000) on April 3rd, 2022.
At the time of writing this article, the floor price is valued at 13 $ETH, still +580% since the minting. I’ll talk about the Zagabond drama later in this post.
Owning an Azuki opens you to the gates of The Garden. Let’s get a closer look there.
Discord
Owning an Azuki NFT let you have access to an exclusive community. Such as a private lounge called Garden, an exclusive OTC marketplace, channels on current NFT opportunities, as well as research on future projects. There are also different relaxation areas, the #lounge, the #watch-party, and the #gaming-lobby.
Merchandising
Streetwear
Just as BAYC/MAYC holders received hoodies, tees, and caps as a way to show their membership. Azuki is a brand inspired by the combination of streetwear and Asian culture that would like to offer to its community unique "dope sh*t only" clothing.
The first item that dropped is this Sukajan Jacket, also called Souvenir Jacket, that was airdropped for free to the owners of Azuki.
Symbol of Japanese culture, it was at the beginning bought by us soldiers in Japan at the end of WWII as a souvenir before they came back to their country.
Thereafter the Sukajan will be the symbol of a generation of Japanese bad boys, the Yankii. They refused to take part in the strict manners of Japanese society, a very important symbol in the 80s-90s.
This item has become very fashionable, and big names in streetwear have created their versions of it, such as Neighborhood, Supreme, BAPE, and Human Made, to name a few.
An Azuki skateboard should be dropped soon. This item will be once again directly connected to the streetwear culture, where brands like Supreme, Palace, Takashi Murakami, BAPE, and Kith have been able to offer this type of highly demanded article.
This is what should look like the Azuki Skateboard, a streetwear item connected to the Asian culture with a samurai helmet on it.
Collectibles
Collectibles are a way to represent a culture you love in the real world. You are a fan of Japanese animation and comic books, then I bet you could have one of those figurines in your home.
Overall, animation figurines are a flourishing business, and I wouldn't be surprised if every Azuki owner could claim their figurine in the future.
This would only be the beginning before the launch of comic books, animation series, and video games around the Azuki brand.
From those, many collectibles could emerge to meet strong demand beyond the Azuki holders.
Of course, Azuki NFTs used in entertainment content could receive royalties.
Events
The first event organized by Chiru Labs was the Azuki Garden Party on March 31th, 2022. An event that immerses us in the Azuki universe, with the rule of order “dope sh*t only” as a dress code. Streetwear culture oblige.
During this party, the American rapper Wiz Khalifa appeared. Wiz Khalifa is an exceptional rapper who impacted a generation with songs like "Say Yeah," "Black and Yellow," or "See you again" from the soundtrack of Fast and Furious 7.
show here that Chiru Labs is meticulous in choosing their guests to represent at its best their brand and their values, “dope sh*t only.”
The event was a way for every owner of Azuki to emerge in the culture they love, for several hours. It was also a way for Chiru Labs to tease the Sukajan Jacket and the Azuki Skateboard.
On June 22th, 2022, will be the next Azuki/Beanz event in NYC. You know what to expect now.
Airdrops
Like other NFT collections, such as those of Yuga Labs or those of RTFKT, airdrops are sent to the community to reward them for being part of the project and to extend their ecosystem.
It’s the same for Chiru Labs. Azuki made its first airdrop to the community, where each Azuki holder received two mysterious airdrops for each Azuki owned. But what could it be? A Zombie Azuki Collection? A Robot Azuki Collection? Let’s find out.
2. The Beanz Collection
A bean… Really?
It would have been easy to generate income by creating a collection derived from the original Azuki collection by adding zombie or robot features to the actual traits.
But instead, Azuki took a considerable risk that could impact their brand. They decided to launch an NFT collection focusing on the cute cartoon characters market.
Let’s deep dive together!
The cute cartoon characters market
The market Chiru Labs is targeting is the cute cartoon characters, a market valued at almost $20B, just in Japan. It is something very little known in the West but extremely popular in Asia, especially in Japan and South Korea, to name a few.
The cute cartoon characters are mascots. A mascot is a character that represents a brand, a prefecture, a nation. Each mascot has an identity, a story that people can relate to.
Let's start with the most famous worldwide known Japanese mascot, Hello Kitty. Character created by the Sanrio Corporation, who became one of the best-selling licensed entertainment characters of all time, generating around $8 billion a year for Sanrio, $8B a year :).
Hello Kitty is a media franchise with its own animated series, comics, video games, books, toys, clothes, and cafés.
Bank of America made a partnership with Hello Kitty for a credit card, and BoA paid the license fees from Sanrio.
This is an excellent way to understand the strategic choice of Rehito Hatoyama, former CEO of Sanrio US/EU as an advisor of Chiru Labs.
Another well-known license in Japan, also created by Sanrio, is Gudetama.
Just replace that character with Beanz, and you can imagine the merchandising we could expect from the Beanz collection.
I could stop here on the cute cartoon characters topic. Still, I would forget to mention two companies that mastered the power of mascots to create multi-billion-dollar businesses.
Maybe you don’t know those two characters, but they are both at the head of multi-billion dollar companies, let’s take a deep dive in.
Kakao ($29B valuations) and Line ($5B valuations) are two big companies that owe their successes to their mascots. They started both as messaging apps selling what we call stickers/emoticons.
Emoticons/stickers are like emojis that represent a character with a personality, with more elaborate designs that you can buy like NFTs but without being able to resell them.
Line focuses on the Asian market (Japan, South Korea, Thailand, Malaysia, India, Philippines, and Taiwan). In contrast, Kakao concentrates only on the Korean market.
Emoticon itself is a big market. In 10 years, Kakao made $589B by selling digital stickers.
In 2016 only, Line generated $270m selling digital stickers. In 2022 the numbers would be much higher.
The Kakao mascots known as Kakao Friends and Line mascots known as Line Friends got really popular, so those companies started using licenses as a way to generate billions of dollars.
First of all, Line and Kakao use their licenses to sell their merchandising.
Look at this chart. Here we have some fascinating metrics related to Kakao and Line merchandising.
In 2018, Line made $156m by selling Line Friends merchandising, while Kakao IX made $83m selling Kakao Friends merchandising.
More than merchandising, both brands, Line and Kakao are making money with royalty sales.
In 2017, 20% of Kakao Friend's license revenue was made by sale royalties and 80% from merchandising.
As an example, Line Friends generated money with royalties with several partnerships: Beats by Dre, McDonald's, and Uniqlo, to name a few.
Line and Kakao have their mobile games. Line mobile games have been downloaded 200 million times.
Line Friends itself has its own animated series. I saw from Andrew Kang that Line Friends is so popular that television networks have engaged in bidding wars for the rights.
Remember at the beginning, there were just mascots from messaging app.
Now that the Cute Cartoon Character is understood let’s talk about Beanz.
Beanz, our billion dollar mascots
What are Beanz ?
Chiru Labs launched a collection of 20,000 NFTs called Beanz.
Beanz are Azuki friends. They are a cheaper way to access the Azuki community (discord, events, airdrops, etc.)
There are 16 types of Beanz with different eyebrows, clothes, and hand accessories, which make them unique, even very rare. Their traits can fit with the characteristics of your Azuki for a perfect combo.
Beanz are red beans mascots of the Azuki Brand.
There are 12 unique Beanz characters with their own story and personality that people can relate to. Toshi and Guz are headlining.
This obviously reminds us of the Line or Kakao characters. Each of them also has its own story, personality, and license.
What allowed Hello Kitty, Line Friends, and Kakao Friends to generate huge revenues are their licensing rights.
Beanz merchandising can be a considerable revenue itself (a cute Beanz collectible will be airdropped soon…).
Beanz is a license that could be worth billions of dollars by selling merchandising, by royalties sales with potential famous partners in fast food, clothing brands, banks, technologies, and places in Metaverse like prefectures in Japan.
Beanz isn’t targeting web3 veterans, it’s targeting the Asian Market. But, more than that, Beanz could be a way for many Asian people to onboard web3 as they understand how NFTs are much more than PFPs.
Offering several Beanz characters means that Beanz can quickly adapt this license to different types of brand partnerships.
Are you a hardware brand? Then LINK will be the Beanz for you!
Are you an alcohol brand? Then PENNY will be the Beanz for you!
Are you a luxury brand? Then SUN will be the Beanz for you!
Beanz is a license that can easily scale and allow many brands to shine, especially when web3 culture is trendy.
By owning a Beanz, you are exposed to the development of the license.
As this license becomes established, more of your Beanz will have value.
Chiru Labs decided to reserve its final 50 Beanz for future collaborations to develop and give credibility to its license, which will positively affect all Beanz.
I want to finish on the Beanz collection by saying that if 20 years ago you had been able to buy a Hello Kitty NFT for your child, and in addition, you had access to merch, games, and exclusive events around this brand, your NFT would take in value at the same time as the license. Your child, now an adult, would already have solid financial savings to start life.
Now, you know everything about the Beanz. However, limiting this license to PFPs is simplistic compared to what Chiru Labs wants to accomplish.
3. The Azuki License
Now that we have a clear vision about how Chiru Labs will develop its brand let’s see how the community can participate and be rewarded.
We can own a part of Azuki brand by owning Azuki NFT (Azuki, Beanz, etc.)
An Azuki NFT holder can use his NFT to generate income, such as creating and selling merchandising or creating comic books or video games.
For example, @its_kiki_hehe, a member of the Azuki community, came up with the idea of making a Beanz tee or Beanz hat. She could put Beanz hat for sale with the Azuki NFTs she owns if she wanted to. However, she should remove the Beanz logo as well as the Azuki logo because Chiru Labs own the Azuki Trademarks.
Also, in this situation, Chiru Labs has all the rights to take inspiration from @its_kiki_hehe work to create "official" merchandising. They could reward @its_kiki_hehe for her help. Here the goal is that the community can directly support the Azuki brand to grow faster.
Of course, by holding an Azuki NFT, you have access to exclusive content such as access to different features, free events, free merchandising (the cost of the Azuki Twin Tigers Jacket is $2,000. However, they airdrop it for free), free NFTs (2 Beanz were airdropped per Azuki owned).
I’m optimistic that we could see Chiru Labs giving a share of their revenue to the community with their $BEAN token launch. We could see a model whereby staking Beanz NFT, you could get a part of the revenue of the Beanz license. Likewise, by staking an Azuki, you could get a part of the revenue of the Azuki license.
As the brand becomes more robust, we could see the launch of games, comic books, and anime that uses IP rights from Azuki NFTs held by the community by giving them royalties.
4. Community
To make an established brand, you need to create a strong community with strong influencers.
For now, two well-known artists decided to support Azuki. Wiz Khalifa during the Garden Party and Epik High during Coachella.
I already talked about Wiz Khalifa, so let’s focus on Epik High.
Epik High has a significant influence in Asia, especially in South Korea. They came from the same record label as PSY, BlackPink, BigBang, 2NE1. All are worldwide pop stars and very famous in Asia.
When we know that most of the Azuki community comes from Asia and are influenced by streetwear, it makes sense to have hip-hop artists like Epik High as a supporter.
Jay Chou, a famous artist, and actor, very well known in Taiwan and China, also showed some support to the Azuki brand.
We also have several Athletes like the NBA Triple Champion, Andre Iguodala, that support Azuki.
As Web3 influencers, we have Arthur Cheong at the head of Defiance Capital, who showed his interest by owning 16 Azuki and 30 Beanz.
We also have Andrew Kang co-founder of Mechanism Capital, who showed his interest by owning around 100 Azuki and 240 Beanz. Real chad.
Both are here at every Azuki AMA to show their support for the project.
We saw the launch of several DAOs. The DAO leader is Spirit DAO, which owns hundreds of Azuki and Beanz. Their goal is to help Chiru Labs to make Azuki the most recognizable brand in the metaverse. RedBean DAO and MonkeyKing DAO are also dedicated to the Azuki brand.
5. Innovation
ERC-721 A
2PM, Location, Cygaar, and Vectorized developed a new standard called ERC-721A to optimize gas fees on Ethereum. As a result, we can mint multiple NFTs for almost the same gas cost as minting one.
This standard is open-source, which means every NFT project can implement it. Already more than 50 projects have done so.
This tab clearly shows how much money you could save on Azuki minting.
Let’s be frank, even without this innovation. The project would be fully minted. When you see people agreed to pay $6k to mint a Yuga Labs land, hundreds of dollars seem okay to be paid.
However, they took time and energy to build this to make the experience smoother.
For more details about the ERC721-A, I recommend you to follow @Cygaar and read the Azuki post.
BOBU
Bobu is Azuki #40, which was fractionalized in 50,000 pieces using fractional.art to have decentralized IP governance. You don’t own this NFT. Instead, you own an ERC-1155 token that lets you manage the IP of Bobu by voting. As more Bobu IP is developed, more Bobu tokens could gain in value.
Bobu owners have their own discord channels. They have events like the Worldwide Web3 special event, and they could have more.
Just take a look at the Azuki governance proposal examples :
Also, by doing so, Chiru Labs gave some hints about how they could develop the Azuki NFT IP in the future. 😉
To develop Bobu IP, the community voted to bring aboard a Space X rocket 2,000 Bobu tokens inside a Ledger to make Bobu the first NFT in the space.
The second proposal still in progress is to create a Bobu Plushie or a Bobu Bucket Hat with 7ETH from the Bobu treasury. An excellent way to airdrop merchandising to the Bobu community.
For now, the proposals are made by members of Azuki team, but in the future it will be a community-elected member that will decide.
By innovating Chiru Labs showed their skills and strong interest in their community.
Azuki was only bringing value to their community. What could go wrong?
6. The Zagabond Case
On May 10th 2022, Zagabond published an article called “A Builder’s Journey”.
In this article, he explained that he co-founded several innovative NFTs projects, which were all abandoned and even considered as scams, such as Tendies, CryptoPhunks, and CryptoZunks.
Zagabond tried to justify himself by explaining those projects were experiments, and without these projects, Azuki could never exist.
However, he was clumsy in his way of justifying himself, so Azuki started losing a part of their community. The Azuki and Beanz prices went down as the FUD spread itself.
So Zagabond decided to do what he always did as an Azuki team member, prove by actions. 48 hours after the incident, he shared on the Azuki Discord a clear framework to refund Tendies, CryptoPhunks, and CryptoZunks and build again trust with the Azuki community by being more transparent.
When a project gets hacked, you don’t focus on the hack itself to analyze if the project is still good or not. Instead, you focus on how the team handles the hack.
Here I’m judging how Zagabond resolved this drama, and he resolved it as a team leader, by taking responsibility for his actions.
7. Final thoughts
Most NFTs projects like BAYC focus on creating a unique community, where anyone can be part of, if people can afford the acquisition of Yuga Labs products.
As you saw, Azuki is mainly inspired by Japanese Culture. Therefore, ONLY people interested in Japanese culture and furthermore Asian culture can be part of this brand.
That’s a big difference because it amplified the feeling of being part of a community.
Web3 users themselves are millennials. Millennials grew up with two significant Cultures, Japanese Animation and Streetwear. Indeed in the 90s, those cultures were very popular, and many people acquired those cultures as part of themselves. So it isn’t surprising that these days people want to buy four figures Air Jordan 1 or six figures Pokemon Charizard, because the kid of the 90’s grew up and started to have more purchase power.
Let’s take an example that perfectly represents Japanese Culture, Japanese Animation. This market itself is almost a $27B market. However, only 33% of Japanese people consume it. The consumers of Japanese Animation come from other countries. According to Netflix, they are not only millennials but also Gen Z. In 2020, 100 million households around the world watched at least one anime.
Millennials and Gen Z are influenced by Japanese Culture. Azuki is a worldwide phenomenon with net domination in the Asian community. It isn't a coincidence if you see Korean music on the Azuki website or Chinese Culture in the Beanz NFTs. It’s because Azuki is a representation of its community.
How could Azuki be in the top Metaverse Brand ?
The same way, A Bathing Ape has become one of the biggest streetwear brands in the world.
The same way, Hello Kitty has become one of the most giant mascot in the world.
The same way, Pokemon has become one the biggest license in the world.
By using the power of licensing the good way, by making dope sh*t only , by trusting the process, and by creating a network effect ($BEAN…).
Fin
Did you enjoy the ride? Let me know in the comments!
For more content, you can follow me on Twitter @TangChan0x.
I want to thank all of these people that shared info about Azuki that helped me to create this article. @0xspira1,@SteveG60117, @0xEddy, @iRiriLikeNFTs, @Rewkang, @NFTethics, @Synapsis8835, @ron1ndoteth, @NFTooPerfect, @a1rport_eth, @its_kiki_hehe, Fishcake#0780.
GOATED
Excellent work!