On April 24, someone discovered that the image data of CloneX, a project under the once top-tier blue-chip NFT studio RTFKT, could not be displayed on major trading platforms. Instead, it was replaced by a slogan stating, "This content has been restricted, using Cloudflare's basic services in this manner violates the terms of service," which sparked heated discussions within the community.
Just a day later, on April 25, its parent company Nike was sued. A proposed class action filed in the U.S. District Court for the Eastern District of New York by RTFKT NFT purchasers, led by Australian resident Jagdeep Cheema, stated that they suffered significant losses after Nike abruptly shut down these operations. How did the strongest NFT trend IP project, once acquired by Nike, fall to this?
"Nike of the Metaverse"—RTFKT
The name RTFKT comes from its phonetic similarity to the English word "artifact," and it also represents its brand philosophy. Initially, it was just a digital sports brand aiming to create the "Nike of the Metaverse." As more traditional brands chose to collaborate with NFT projects, the collaboration between Adidas and BAYC, PUNKSComic drove RTFKT and Takashi Murakami to jointly launch CloneX.
It was this opportunity that made the crypto circle more familiar with this brand, and later the real Nike acquired this "Nike of the Metaverse." With more than 40 collaborative projects dominating the charts, from Takashi Murakami to Jeff Staple, from RIMOWA to Nike, it became one of the hottest top trend IPs in the crypto circle.
RTFKT Studio Hardcore Rug
Then in December 2024, an announcement struck like a bolt from the blue. In this statement, the Clone X project team announced the termination of RTFKT's operations. This studio, acquired by "Nike," unilaterally announced the termination of operations with almost no warning. At that time, the NFT market was recovering, and this move caused CloneX's floor price to drop by over 60%.
RTFKT co-founder Benoit Pagotto once mentioned in an interview the advantages RTFKT has compared to traditional industry giants: "We have resources they do not have, which is the culture they do not have—crypto culture. They cannot spend a lot of time, every day, learning this knowledge." In contrast, crypto KOLs sarcastically pointed out that CloneX's initial issuance relied on GoDaddy and Cloudflare "to store small images" and manually earned $100 million in sales.
The last one standing
Just when it seemed that this irony was realized after four years, countless holders stared at their CloneX on OpenSea and Blur, shouting "I Got RUG by Nike." Perhaps this is the crypto culture Benoit mentioned: even if the project party "rugged," as long as the "Token" remains, there is a possibility of community autonomy. Yet, once the image itself disappears, this logic seems increasingly difficult to sustain.
In this storm, almost only one team member stepped up to take responsibility. Samuel Cardillo claimed that since early April, the team had planned to decentralize all NFTs and thus did not choose to renew the contract with Cloudflare. However, Cloudflare mistakenly got the expiration date of this contract, worth over $500,000 per year, wrong, and the contract originally due on April 30 was terminated several days early.
At the time of the incident, although RTFKT was under intense "FUD," Samuel's strong engagement with netizens and problem-solving attitude earned him respect in the community, being called "the last one standing," in stark contrast to Zaptio, who hadn't posted on X for a long time, and instead shared 20 stunning "retirement life" updates on Instagram.
Justice served? The Rug NFT that was sued
On the day after RTFKT's "lost image," Nike was hit with a class action lawsuit. In fact, being "rugged" in the crypto world has become commonplace, but few can recover their assets. This class action lawsuit has two main allegations: one is that Nike violated consumer protection laws in New York, California, Florida, and Oregon, and that RTFKT NFTs are unregistered securities, with Nike failing to disclose related regulatory risks, thus violating U.S. securities law. Although it is still unclear whether NFTs can be classified as securities, similar cases of compensation for NFT consumers have occurred before.
Previously, O'Neal co-founded and promoted the Astrals NFT project based on the Solana blockchain with his son Myles O'Neal, which included 10,000 3D avatar NFTs designed by artist Damien Guimoneau. The project promised to create a virtual world called "Astralverse" where users can socialize, play games, and engage in other activities through NFTs, while O'Neal promoted the project on social media as "DJ Diesel."
Like many NFT projects, Astrals plummeted in value after the FTX crash. Until May 2023, investors, including Daniel Harper, filed a class action lawsuit, accusing O'Neal of promoting the unregistered security "Astrals NFT" in violation of U.S. securities laws, claiming that O'Neal's star power induced investment. In August 2024, Florida Federal Judge Federico Moreno ruled that the plaintiffs reasonably alleged Astrals NFT to be securities, and that O'Neal, as a seller, attracted investment through promotional activities. In November, O'Neal agreed to pay $11 million to settle, with $2.9 million for attorney fees and the rest compensating investors who purchased Astrals NFT from May 2022 to January 15, 2024.
However, some professionals believe that, unlike O'Neal's "personal" projects, the legal status of NFTs remains unclear. This Nike case may not necessarily break through on the grounds of violating securities law and may not lead to a $5 million compensation. Nevertheless, it is very likely that Nike will "pay a little money" to quell public anger.
How should NFTs be stored?
The worst choice for storing NFT data is on centralized servers like Cloudflare or Amazon. If an NFT project's metadata and media files are stored on a server and the creator stops maintaining that server, the data will disappear forever, ultimately rendering the NFT a blank slate. Therefore, most NFT projects balance image quality and operational costs by choosing IPFS and Arweave mentioned above.
Decentralized storage
Most project parties commonly use IPFS (InterPlanetary File System), which is a decentralized storage protocol based on content addressing. IPFS generates a hash value from the file itself as a unique identifier, allowing users to retrieve content from any node using this hash. This method makes data no longer reliant on a single server and inherently possesses censorship-resistant and fault-tolerant characteristics, flowing freely among global nodes like water. However, the downside is that IPFS does not automatically guarantee the persistent storage of files; whether content exists depends on whether nodes continuously preserve it. Thus, many project parties need to actively "pin" files or rely on professional services to ensure long-term data availability.
The RTFKT team claimed to upload image data to Arweave via ArDrive, which is a decentralized file storage network that can guarantee the persistence of file storage compared to IPFS. Users pay a one-time fee to cover storage costs for 200 years or more. Miners in the Arweave network are incentivized to use AR tokens to replicate and store copies of data that other miners rarely store. This ensures that files do not get lost over time without the need for continuous maintenance by the original uploader.
Blockweave's data storage structure
Arweave stores data in the structure of BlockWeave, with each new data block linked to the previous one and a historical block. Miners must prove they had the opportunity to access these randomly chosen historical blocks to mine new blocks and receive rewards, ensuring that earlier blocks are preserved.
Using IPFS or Arweave is much better than relying on centralized storage, but it still needs to point to 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-chain is quite high. Therefore, it is a popular trend for NFT projects to keep metadata on-chain while media data is off-chain. However, for crypto culture, purely on-chain NFT communities are essential, and their communities tend to be more pure and powerful.
On-chain NFTs on Ethereum
NFT projects like Nouns and Loot realized complete on-chain storage of SVG images on Ethereum quite early. For example, the Nouns project uses a custom run-length encoding (RLE) to losslessly compress each part of the image and stores the compressed data directly on-chain. This way, it does not rely on external pointers (such as IPFS). Subsequently, this compressed data is decoded into an intermediate format and generates a collection of SVG rectangles through on-chain batch string concatenation, ultimately forming a complete SVG image, which is then base64 encoded.
Although quite complex, uploading such SVG images to high-precision NFTs like Azuki or CloneX is relatively unrealistic. However, this does not detract from the allure of "on-chain" NFTs, which often transcend the NFTs themselves and represent some kind of culture or community power. For instance, Nouns DAO is dedicated to building identity, community, governance, and a treasury for community use. Nouns remains active in many Base ecosystem projects to this day.
The founder of Loot, Dom Hofmann, was a co-founder of Vine, and one of his side projects was creating a text-based adventure game called Loot. During the development process, he wrote a random item generator, a software that could return various weapon, armor, and accessory names, leading to the birth of Loot.
In the Loot project, images are directly embedded in smart contracts in SVG format, returned through tokenURI, and can dynamically change based on on-chain data, achieving complete on-chain and dynamically generated characteristics.
His presentation style may be very simple, just text and simple graphics, but the meaning behind it is much deeper. Dom was once asked, who would contribute how much for building a world without compensation? He replied, "Ultimately, these are just items on a checklist. It's just how people see it, how they assign value to it. And value does not necessarily have to be an amount measured in dollars; it can be many things." As he mentioned, the concept of Loot influenced NFTs and Crypto Games, and the Treasure DAO behind the currently active Smol was born from this concept.
Good news for Ordinals?
During the RTFKT incident, the most common sentiment in the community was that this incident is beneficial for Ordinals. Ordinals are considered different from most Ethereum NFTs as they are completely on-chain.
The Ordinals protocol on Bitcoin inscribes images, text, and other data directly into transactions through Taproot script paths, "engraving" data into "Satoshi" and giving each Satoshi a unique identity by numbering them. This approach allows Ordinals' data to be completely stored on the Bitcoin blockchain, but it also brings high storage costs and limitations on data size.
Also, due to the high storage costs and limitations on stored data, the NFT ecosystem on BTC is quite unique. Compared to the functional or DAO organizational models of Ethereum, the "survivors" in BTCNFT rely on a deeper inheritance of "culture." Whether it is the Taproot Wizard, which was issued at an extremely high sale price of 0.2 BTC and has roots in Bitcoin community ads from 2013 (Magic Internet Money Wizard), or NodeMonkes as the first original 10K Bitcoin NFT.
Further reading: (An article analyzing Bitcoin memeNFT, what does the bald wizard Taproot Wizard pay tribute to and express?)
In this era, there are hardly any projects still insisting on doing NFTs, 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 Memecoins, which only need contracts on-chain for trading communities to "develop freely." For non-fungible currencies, whether it is just an image IP or a functional "receipt," the ownership of metadata is immensely important. This incident serves as a warning, both for project parties and participants.