In recent years, the field of generative artificial intelligence has undergone rapid development and is already being put to work for a wide range of applications. Both generative artificial intelligence and non-fungible tokens (NFTs) are cutting-edge technologies that are expanding the boundaries of what is considered to be possible, so there is a natural intersection between the two.

The field of art presents one of the most fascinating potential uses for this technology. Generative artificial intelligence is opening up new doors for creative expression because it has the capacity to produce original works that are indistinguishable from those produced by human artists. Just two examples of generative AI imaging models that are currently available are Midjourney and Stable Diffusion.

The authenticity that can be independently verified is a particularly useful application in the art world, which is plagued by widespread instances of fakes. Due to the fact that it is both decentralized and secure, blockchain technology is ideally suited for use in the administration of ownership and transactions. By adding a layer of scarcity on top of it, non-fungible tokens, or NFTs, make it possible for new business models to be developed for generative artificial intelligence in the art world.

What if, in addition to collecting and acquiring artwork created by AI, you could actually own the AI artist themselves?

Step forward, Botto is one of the most intriguing projects currently ongoing in this sector. Botto bridges the gap between generative artificial intelligence, art non-fungible tokens, and DAO governance.

Botto overview

Botto is a community-driven, decentralized, and autonomous generative art platform that is controlled by using the BOTTO token. Mario Klingmann, also known as Quasimondo, is a German artist known for his artwork that involves neural networks. This particular piece is not a human being but rather the creation of Mario Klingmann. The whitepaper that Mario wrote in 2018 served as the inspiration for the design of Botto.

Every week, Botto generates 350 unique pieces of art, referred to as “fragments,” and presents them to the community. The community then votes on fragments they like, representing their individual preferences for aesthetically pleasing art. These votes provide feedback to Botto's generative algorithm, which guides the direction of future rounds of art generation based on the preferences expressed by voters. As a consequence of this, Botto's artistic creation is molded and guided by the input of the community.

The top-voted fragment is minted as a finished piece of artwork once a week and put up for auction on SuperRare. One hundred percent of the proceeds from the auction go back into the community. During the auction, Botto keeps producing new rounds of art fragments in order to guarantee that the cycle will proceed without interruption. This method of producing generative art affords a one-of-a-kind opportunity for community participation and makes the artistic production process more accessible to more people.

On October 22, 2021, SuperRare minted its first art piece as part of its collection. The Genesis period of Botto came to an end on October 14, 2022, with a total of 52 pieces of art being minted. After that, it finished its second period, which was referred to as "Fragmentation," and it began on November 15 and continued for a total of 12 weeks. In February, Botto started its third period, titled “Paradox.”

Botto is managed by a total of four people: two full-time operators and two full-time developers, in addition to a number of part-timers who work on content creation, design, art gallery and artist collaborations, and other related areas.

Botto mechanism

Botto's Art Engine in Action

There are several AI models involved in Botto’s art engine.

In Botto’s first year and Genesis period, it used a combination of machine learning models (VQGAN + CLIP) to generate images from text prompts. Both VQGAN and CLIP are types of neural networks, but VQGAN is a generative adversarial neural network that creates images, and CLIP is a neural network that evaluates how well a text prompt matches an image.

Text prompts are generated by an algorithm that can produce any possible combination of words and phrases. The AI runs through 300+ text prompts daily to generate artwork in various styles. From the pool of generated art, another “taste model” selects 350 pieces of art to be presented to the community for voting each week. GPT-3 is used to generate the titles and descriptions of the artwork independently from one another.

During the Fragmentation period that began in October 2022, a Stable Diffusion generative AI model was added to the art engine in an initial split of 50/50 between VQGAN + CLIP and Stable Diffusion. This was done in an effort to create more complex and lifelike artwork. Each week, the fragments that received the fewest votes and had the lowest average score are removed. The original VQGAN + CLIP model only accounts for 30.5% of all outputs, while the Stable Diffusion model accounts for 69.5%. This gives the Stable Diffusion model a commanding lead in the voting pool. This would imply that more recent iterations of generative models have the potential to generate more aesthetically pleasing results (Stable Diffusion was released in 2022).

The documentation for the project contains all of the information that is necessary to understand Botto's art engine. A couple of salient points:

Botto’s art engine is not static. Its evolution and art direction are shaped and trained by the community. The voting feedback from its community is used to train both the taste model that chooses the artworks to put up for voting each week and the algorithm that determines which text prompts to display.
The field of AI is moving lightning fast, with new generative models released to the world on a regular basis. There is a governance process in place at Botto that allows for the addition of new models to its art engine, as well as the removal of models that are not performing well based on the input of voters.
Rule of no human interference: the process of making art involves no direct interaction with human beings in any way. Botto operates completely independently when it comes to the production of its artworks; the community votes on which pieces should be minted.

Botto different styles

Source: SuperRare

The term "period" refers to a time interval in Botto's artistic production that is distinguished by artistic tendencies, aesthetic styles, themes, and manners. Botto is divided into a number of distinct periods. Genesis and the Fragmentation periods are the only ones that have been finished so far. Votes are cast by the community as a whole to decide the specifics and defining characteristics of each period.

It is unmistakable that the artistic styles of various eras are very distinct from one another. The art of the Fragmentation period appears to have a greater variety of styles than the art of the Genesis period. These styles include monochromatic versus colored, simple versus complex, and abstract versus form. Additionally, their aspect ratios differ from one another.

Botto is able to continually reinvent itself thanks to periods, which helps the company avoid becoming repetitive and relieves collector fatigue.

The Voting Procedure

Botto's website is where you can vote.

Staking BOTTO tokens earns community members voting points (VPs) — 1 VP per week for every BOTTO staked, accruing every second.

Every time you vote, the voting page displays two art fragments. The voter selects their preferred fragment and can then allocate their available VPs to it.

A leaderboard of the top 15 fragments by VPs has been revealed in the last 24 hours. This sparks further discussion in Discord. Members can use their VPs to vote directly on the leaderboard for their favorite fragments.

At the end of the voting period, the fragment with the most VPs will be minted as an NFT for auction.

The sale process

Every Wednesday, the most popular art fragment is minted and auctioned off on SuperRare for 48 hours. The auctions had a starting price of 10 ETH during the Genesis period. Unfortunately, this resulted in a number of works not being sold, particularly during the severe bear market in the second half of 2022.

Sales have been increasing in recent weeks. This is due to a combination of factors:

The Fragmentation (and now Paradox) period saw the introduction of new art styles.
Since late 2022, there has been a surge in interest in generative AI and AI art.
The auction starting price of 10 ETH has been removed.

Four Genesis artworks that were not sold at auction were purchased OTC in January 2023 for 10 ETH each. This is a good sign that collector interest is growing.

Botto generates real yield

Botto is appealing because it generates real revenue in ETH rather than token yield. The weekly auction sale proceeds contribute significantly to this. SuperRare charges a 15% sales commission, with Botto receiving 85% of weekly sales proceeds.

Sales proceeds are distributed as follows among the 85%:

25% of the contract's active rewards (immediate distribution to voters after each weekly sale).
25% to the pool of retroactive rewards (distributed to voters after the completion of each period based on various criteria).
Botto is purchased at a 20% discount and burned (this is increased to 50% in the third period).
The remainder is allocated to the DAO treasury.

Botto generates revenue from sources other than weekly sales, such as:

Revenue from secondary sales.
Other NFT transactions (Access Passes, Pipes).
Collaborations.

Botto's revenue increased dramatically from January to early February as a result of the sale of Pipes, a one-time mint. Revenue fell in February as a result of a temporary halt in weekly art auctions in preparation for the third period, which began on February 22nd. We anticipate that weekly revenue will continue to rise in the coming weeks, with the first auction for the third period taking place on March 2nd.

Pipes were the first Botto derivatives commissioned by BottoDAO for the 3,141 early Botto stewards. Lucas Salinas, a 3D artist based in Spain, created the Pipes and conceptual videos. The video attached to the NFT shows the process of hydro-dip painting, which is used to transform intricate designs onto physical objects. The sea of particles represents the Botto community, which is animated by the characteristics of each fragment's strokes and colors.

Pipes are worth 0.05 ETH each and award 1,500 voting points every week. They will be released in January 2023.

Botto has sold 800+ ETH ($1.2M) in weekly artwork so far. Botto's price/annualized sales ratio (P/S) is approximately 16x, putting it in the same ballpark as SuperRare, Decentral Games, and Ethereum Name Service. Its P/S ratio was closer to 3-5x just a few weeks ago. This can be explained by the one-time revenue from Pipe sales in January. Botto's revenue is currently relatively small (and volatile), implying that there is room for significant growth.

Botto has the potential to diversify its revenue sources in the future, in our opinion. Some examples are:

Similar to the Pipes and Access Passes, they are launching new and complementary NFT collections.
Collaborations and commissions are available. Consider an art studio or organization commissioning Botto to create a series of artworks on a specific theme, with the results voted on by its community. This will gain traction as more people become aware of Botto's work. SuperRare, for example, hired Botto to create three 1/1 artworks for RarePass holders (estimated 15-16 ETH of the proceeds go to Botto).

botto tokenomics

Source: Botto

BOTTO has a maximum supply of 100 million. However, 4.4 million BOTTO have been consumed thus far from weekly sales, bringing the maximum total supply to 95.6 million.

At a token price of $0.34, this translates to a $7.9M circulating market cap and a fully diluted valuation of $32.5M.

Airdrop: 30M BOTTO is the airdrop allocation. In 2021, this was given away for free to NFT communities such as Art Blocks, BAYC, and CryptoPunks. Approximately 13.6 million BOTTO from the airdrop went unclaimed and was returned to the treasury.
Treasury: 30 million BOTTO budgeted. This is kept in a multi-signature and used to improve the project. The treasury continues to hold the vast majority of its allocation.
Rewards: Over a three-year period, the BOTTO-ETH pool on Uniswap will receive 20 million BOTTO rewards.
Team Allocation: 20 million BOTTO vested over two years, to be completed in October 2023.

Today, BOTTO has three main utilities:

Each week, art fragments are voted on to determine the final artwork to be auctioned.
Claimable active and retroactive rewards entitle you to a percentage of sales revenue.
Governance entails developing and voting on improvement proposals.

Each week, approximately 142k BOTTO is released based on liquidity mining (6.66M BOTTO/year) and staking rewards (0.75M BOTTO/year). On the other hand, between 2,000 and 5,000 BOTTO are burned each week from the proceeds of art sales. This means that BOTTO will continue to be inflationary for the next 1.5 years.

botto deflation

Source: Botto

We anticipate that the amount of BOTTO burned each week will rise in the coming weeks. The amount of weekly revenue dedicated to buy-back-and-burn has increased from 20% to 50% in the third period. If the average weekly auction sale price doubles to 15 ETH, the weekly burn could increase to 30k tokens (at current token prices).

Future roadmap

botto upcoming events

Source: Botto

Period 3, titled "Paradox"

"A collision of opposites, a beautiful chaos, and a fearless exploration of the unknown," according to the description of dox. During this time, Botto will be creating works that attempt to capture the world's duality, the surreal and the real, the beauty of chaos. The paradox is a journey to the depths of our imagination and the pinnacles of our courage.

The third period introduces a new pool of 1,050 fragments generated by the Stable Diffusion and VQGAN + CLIP models. The art engine will be modified to include this new community-selected theme, which will be added to each of the prompts. It will be interesting to see Botto's minted output and collectors' reactions to it. So far, it appears to be very different from the previous two periods.

Economically, rewards from four Genesis period art pieces sold OTC in January will be distributed. The percentage of weekly revenue that will be burned from the treasury will be increased from 20% to 50%.

veBOTTO 2 (Q2 2023)

Botto intends to implement Curve's vote-escrow token mechanics. Essentially, community members who keep their tokens locked up for longer periods will receive additional benefits, such as increased voting power and revenue distribution. This can reduce selling pressure and align the community's interests. The mechanism's precise details have yet to be revealed.

API for Art Engine (Q2 2023)

An upgrade to the Botto API to consolidate all of the art engine's features will be a significant step forward. Any whitelisted party will be able to plug their models into Botto's art engine and compete for a share of the voting pool. Botto will be able to be more agile and evolve more quickly as newer AI models emerge.

Collaboration (Q2 2023)

Botto's work has been shown in a number of exhibitions and locations over the last year, including:

Gazelli Art House Museum of Crypto Art in Paris Art Basel Miami
Vellum LA Venice Biennale: Decentral Art Pavillion SuperRare gallery in NYC NFT Art Museum in Seattle solo show
Madrid MMMAD Festival
Barcelona's Sonar Festival Art Exhibition
Zaragoza's ETOPIA, a contemporary art center

It has also worked with the following organizations:

The Feral File.
The Centerfold Project is a physical scrapbook project by some of London's most prominent artists. TATE is one of the public and private collections that house the scrapbook. Botto contributed six works for this.
RarePass and DAO from SuperRare.

Botto has a great relationship with SuperRare and will continue to benefit from it. The core team will continue to work on projects with other artists and communities. According to the team, several are already in the works but cannot be revealed due to non-disclosure agreements. The Access Passes will be made available to complementary NFT art communities, allowing them to participate in the voting process. This will raise awareness and shared expectations of Botto's success among artist and collector communities.

On February 16th, 2023, Variant, a well-known early-stage VC fund, announced an investment in Botto. It paid an undisclosed sum for BOTTO on the secondary market and announced its investment in an unusual way: by assembling an OnCyber gallery of Botto's unminted outputs.

Challenges and Conclusion

Botto is still in its early stages, having only recently completed its first year of operation. We'd like to draw attention to a few points:

Regulatory Concerns: The regulatory environment for cryptocurrency and digital assets is changing. In the United States, the Securities and Exchange Commission (SEC) is taking a tougher stance on tokens as securities. In most other parts of the world, the classification of tokens as securities is still debatable. BOTTO has implemented a revenue-sharing mechanism with its holders, which may cause problems in the future.

Reliance on the core team: While the community is still small, the core team is heavily relied on for business development activities and collaborations. Botto's success will be determined by how well they execute. In the future, we can expect more of this to be driven by the community (e.g., members connecting Botto directly to various art exhibitors and artists that they know well).

Botto's success is dependent on developing a distinct art style that appeals to an increasing number of collectors. To get there, it will have to reinvent itself several times. Botto's art direction is heavily influenced by the community.

To obtain a share of the revenue, token holders must stake their tokens and actively participate in voting. It is not enough to simply purchase and hold the tokens.

Botto's The Future Ahead is a narrative play. It has an intriguing backstory as the world's first autonomous AI artist who creates museum-quality artwork and is governed by the community via blockchain.

AI generative art is a newly emerging field of art that has recently gained popularity. Many traditionalists argue that AI generative art is not real art because it is created by an algorithm rather than a human. However, a newer generation of AI generative artists, such as Claire Silvers and Pindar Van Arman, is gaining attention. Observing the differences in output over the last few years reveals that the field is rapidly improving.

Botto will be riding the waves of AI art if it takes off and attracts a lot of collectors and mainstream attention. The BOTTO token could be interpreted as a proxy for interest and attention in this sub-sector. Botto's work, as a pioneer, has the potential to become culturally significant in the years to come.

Botto's core team has been able to direct attention to its artwork on its own, exhibiting at a number of prominent locations around the world. And it shows no signs of slowing down, gradually but steadily increasing collector and museum/gallery interest over time.

Botto personifies the Web3 ethos of fan co-creation and ownership. The use of the BOTTO token for governance, profit distribution, and community voting capitalizes on the technology's strengths in community building and coordination. It also makes Botto more approachable. You don't have to spend thousands of dollars on Botto's artwork to be a part of the movement. To join and vote weekly, all you need is a few BOTTO tokens.

Botto is a one-of-a-kind interactive experiment that combines technology and art. As long as Botto creates great art, it is reasonable to imagine millions of people participating in and shaping the direction of this community-owned artist in the future. Botto is paving the way for generative AI-based business models. It is, in our opinion, important to pay attention to.

Disclaimer:
This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.

Botto: The combination of AI and Art