[IMPACT]

<u>Plagiarism, Scams and Fraud: The Ugly Side of NFT Markets</u>

With respect to trust and security, Ethereum’s NFT ecosystem is increasingly becoming a mess. But unless the Cardano NFT (CNFT) ecosystem introduces some key innovations to its NFT infrastructure, there will be no shortage of bad actors and bad press about the CNFT ecosystem as more NFT trading migrates to Cardano.

Last month, a phishing exploit took advantage of a poorly planned smart contract upgrade by Opensea.io, Ethereum’s leading NFT marketplace where the vast majority of Ethereum NFTs are traded. The hackers stole around $4 million worth of NFTs from collectors’ wallets. (1)

And back in January, Opensea had to admit that over 80% of the NFTs being minted using their free minting service “were plagiarised works, fake collections, and spam.” (2)

What’s worse, it doesn’t seem like Opensea is going to remedy these problems in any meaningful way. And the security vulnerabilities of Opensea are common among Ethereum NFT marketplaces. When asked how likely it is that Opensea’s vulnerabilities will be fixed soon, an expert told Cointelegraph, “the main problem — which lies at the heart of this whole issue — is the basic architecture of most [Ethereum] NFT marketplaces, enabling users to simply sign a carte blanche approval for a third-party contract to use their private wallet without setting a spending limit.”

And after initially trying to address the problem of “plagiarised works, fake collections, and spam” on Ethereum marketplaces by limiting the use of their free – and widely abused – minting tool, Opensea reversed course: Under pressure from users who depend on this tool to sell NFTs on Opensea (by allowing them to avoid paying Ethereum’s sky-high gas fees prior to minting), the marketplace decided against new restrictions that would reduce the minting service’s use (and abuse). This decision to back off in their supposed battle against plagiarism and fraud has left Opensea (and the entire Ethereum NFT ecosystem) open to more of the same – eroding users trust, and eroding the patience of artists whose work is being plagiarised.

Thankfully, both the design of Cardano native assets, and the design architecture implemented by the leading CNFT marketplaces, creates a much safer, more secure trading environment on Cardano than Ethereum offers. This is something leaders in the CNFT space should be more vocal about – marketing this clear advantage over other NFT ecosystems.

However, currently the Cardano ecosystem affords no reliable, scalable protections from the production and sale of plagiarised NFTs and fake collections. And even though Cardano currently facilitates a tiny fraction of the NFT trading volume Ethereum does, there are already bad actors producing and selling fake CNFTs: Based on our team’s investigations, we believe this is resulting in well over $100k in fake NFTs currently slipping through the cracks in CNFT marketplace verification protocols – allowing these fakes to be listed on CNFT marketplaces, often as part of verified collections. This is bad for artists, collectors and marketplaces. And while a few hundred thousand dollars in losses may not seem like a huge issue, with wider adoption of both Cardano and NFTs on the horizon, this problem will get much worse unless something is done to stop it – especially because the manual verifications CNFT marketplaces currently use to protect users from fakes are not scalable.

<u>VeraNFT: Scalable Trust for Cardano NFT Markets</u>

Given these current circumstances – in both the Ethereum and Cardano NFT ecosystems – our team has been working hard on an industry-first solution that will differentiate the Cardano NFT ecosystem as the clear leader – across all permissionless blockchains – in NFT trust and safe trading.

For the past several months, our team has been hard at work building VeraNFT, an Artificial Intelligence (AI) and Machine Learning (ML) driven platform for verifying the authenticity of NFTs based on blockchain analytics, image recognition and NFT metadata. Thus far, our progress has been very promising: By mid-December, we were able to develop a proof-of-concept that was already able to accurately verify the authenticity of the limited number of fake and authentic CNFTs we tested it against. And since then, we’ve made huge progress in building out a system that can 1) verify all image-based CNFTs currently in existence, and 2) ingest all newly minted CNFTs into the system quickly, so that all new CNFTs can be verified by VeraNFT within minutes of being minted.

Still, the AI and ML currently running on VeraNFT is just a relatively “coarse” filter that weeds out a large percentage of fake NFTs, but fails to weed out certain types of fakes and results in a number of “false positive” findings – occasionally labelling authentic NFTs “fake.” From the beginning, our team has known more sophisticated Artificial Intelligence will be needed for VeraNFT to become a high assurance product: We are currently building two more, successively “finer-grain” AI filters to work in combination with the first filter already in place. And once this “triple filter” is subjected to extensive training from the custom, machine learning model we’re building, we’re highly confident VeraNFT will be exceptional at spotting fake NFTs (and correctly identifying authentic NFTs as authentic). The approaches we’re taking have been proven to work with image and data recognition products in other sectors, and our team has the experience and skills needed to replicate those successes with image-based NFTs.

Furthermore, VeraNFT will be able to scale far beyond current, manual verification methods employed by CNFT marketplaces, supporting the levels of market growth seen on Ethereum over the past couple years while minimising the scams and exploitation of artists that has become entrenched in Ethereum’s NFT ecosystem.

VeraNFT for Artists: Deploying VeraNFT to help Drive the Great Migration

Once VeraNFT’s AI and ML models are fully developed, we’ll leverage VeraNFT to drive the migration of Ethereum NFT artists, collection owners and collectors to Cardano.

There are a number of valuable, business-to-business and business-to-consumer use cases for VeraNFT. Marketplaces can certainly benefit from access to its verification findings. And collectors will doubtless want to know if CNFTs are authentic or fake. However, we feel the best way to quickly migrate NFT activity from Ethereum to Cardano is to leverage Cardano’s superior security, it’s cheaper, more energy-efficient minting process, and VeraNFT’s protection against plagiarism to onboard prominent digital artists onto Cardano – starting with artists whose work has been plagiarised by opportunists on Ethereum marketplaces.

VeraNFT was born out of our team-lead’s friendship with a CNFT artist, and the problems she was facing with current market infrastructure. That said, the VeraNFT use case we’re most excited about from a social impact perspective is a service for NFT artists and project owners called Profolio Protection. This service will protect artists from plagiarised copies of their artwork being minted as NFTs – both from copies that have already been made, and from any copies that might be made in the future.

Profolio Protection, which will be available to artists and NFT collection owners via our B2C website, niftytools.io, will enable artists to register their artwork on VeraNFT. And once their art is registered, artists will be notified (via preferred social network(s) and/or email) if any work of theirs is ever minted as an NFT. And in case the minting was unauthorized, the notification will contain information on how they can take action to protect their intellectual property.

That being said, the third key component of our proposal is to connect with as many artists as possible in the following categories:

1) Ethereum-based NFT artists who have had their work exploited and copyrights infringed upon on Ethereum marketplaces;

2) Digital (non-NFT) artists who have had their work exploited and copyrights infringed upon on Ethereum marketplaces;

3) Ethereum-based NFT artists frustrated by the general level of fraud and plagiarism taking place on Ethereum NFT marketplaces like Opensea.

Our team will assist these artists with onboarding onto the CNFT ecosystem, providing them with our CNFT contacts, including founders of leading CNFT marketplaces and minting platforms. And we’ll provide these artists our lifetime Profolio Protection service for free – on the condition that their move to mint on Cardano and use VeraNFT’s Profolio Protection is marketed publicly on social media.

This service will not only protect these artists from unauthorized copies of their work being listed and sold as NFTs on the Cardano blockchain. While the full build-out of VeraNFT will likely take upwards of 18 - 24 months (and we can't promise its completion within the scope of this initial proposal), once VeraNFT is fully built out to support cross-chain verifications, it will protect them from unauthorized copies being listed and sold on all VeraNFT supported blockchains. That said, the provision of this free service should provide a powerful incentive for artists to mint their works on Cardano. And publicly marketing these artist’s decisions to mint on Cardano (along with their reasons for doing so) will constitute a powerful marketing initiative for the CNFT ecosystem and Cardano in general.

Citations:

1. https://cointelegraph.com/news/opensea-phishing-scandal-reveals-a-security-need-across-the-nft-landscape?utm_source=Telegram&utm_medium=social
2. https://www.vice.com/en/article/wxdzb5/more-than-80-of-nfts-created-for-free-on-opensea-are-fraud-or-spam-company-says

<u>Challenge KPI # 1: Number of projects that migrate</u>

Motivating respected NFT artists to migrate from Ethereum to Cardano is an ideal way to catalyze migration of projects from Ethereum to Cardano, for a few reasons:

1. Prominent NFT artists can bring a comparatively large number of smaller projects Cardano, relative to the investment needed to incentivize their migration.
2. Skilled and prominent artists have followers who love their work. Many of these followers will likely take the cue from artists they like to buy NFTs on Cardano - and stick around for the better security, trust, and vastly lower gas fees.
3. There's a growing level of media coverage on NFTs (and NFT-related woes on Ethereum) that the campaign we're planning can take advantage of.

<u>Challenge KPI # 2: Number of users of these smart contracts once migrated to the Cardano ecosystem</u>

There are several downstream benefits of our proposal's approach to increasing the number of users on Cardano and usage of Cardano smart contracts:

1. Again, respected artists bring with them followers, and these followers will be interacting with Cardano smart contracts in purchasing and listing NFTs on Cardano's major NFT marketplaces.
2. Our team is developing a public API where all Cardano users can utilize VeraNFT to query the origins of CNFTs and help determine their authenticity, and doing so will occassion a transaction on the Cardano blockchain.
3. The marketing campaign we have planned will show the trust and security advantages of Cardano to all NFT artists and project owners exposed to the marketing, not just the Ethereum based artists (and artists whose work has been exploited) in our incentive program. And this perception of a safer NFT trading environment will hopefully help bring additional projects, users and smart contract transactions to Cardano.
4. Our plan is to launch Profolio Protection and out marketing campaign as Cardano's more dramatic scaling solutions are coming online. So our hope is that users who dabble in the Cardano ecosystem because of our campaign, end up staying because of a superior user experience and burgeoning defi and realfi ecosystems.

<u>Risk #1 - Team Cohesion:</u>

This is a complex project involving two managing team members. Thus there's an inherent risk of us coming to differences of opinion on priorities, and questions surrounding the hiring of contractors.

<u>Mitigation #1 - Team Cohesion:</u>

Our two managing team members have been working closely together for several months on this and other projects. Prior to submitting this proposal, we've clearly and in writing come to an agreement on how to manage team decisions - namely, how to handle decisions that apply to each of our domains of expertise, and which of us has ultimate authority about project priorities. Furthermore, between the two of us we have decades of professional experience working successfully in tight-knit teams responsible for delivering products and services on schedule.

<u>Risk #2 - Failing to be first-to-market:</u>

Because we plan to deliver a highly innovative, industry-first solution to a pressing problem within the NFT space, there's a significant risk we'll fail to be first-to-market with such a solution, and the positive effects of our solution will be blunted somewhat by market competition.

<u>Mitigation #2 - Failing to be first-to-market:</u>

Prior to pursuing the development of Veranft, our team did extensive market research into potential competitors with our protocol. While there are two projects claiming to be working on similar solutions on other blockchains, these projects are in their very early stages, have not demonstrated a working proof-of-concept, and in one case especially, the legitimacy of their team is in question. Also, while they do plan to utilize artificial intelligence and machine learning to analyze NFTs, their approaches and priorities are different from ours - and unsurprisingly, we feel our solution takes a better, more circumspect view of the problem.

Aside from this, we're aware of one (relatively small) Ethereum marketplace that has implemented an internal, AI-driven solution to the prevalence of fake NFTs being listed on their platform. And even if a market leader like opensea.io is able to create and effectively implement a similar solution, they would have no incentive to share this technology. So while we are determined to bring an industry-first solution to the whole Cardano ecosystem, we fee this is a worthy pursuit even if we don't end up being first-to-market with our solution.

<u>Risk #3 - Failure-to-perform on the part of contractors:</u>

Whenever you're dealing with freelancers, or individuals providing services to a project for compensation, there's a risk they'll be receive compensation and provide either no services in return, or substandard services.

<u>Mitigation #3 - Failure-to-perform on the part of contractors:</u>

Aside from using industry best practices in the formation of contracts and allocation of funds, we will be partnering first with respected members of the Cardano NFT community, and secondarily through freelancing platforms like UpWork, where funds are help back pending completion of project benchmarks and our satisfaction with the work performed.

[FEASIBILITY]

February

• Extend Cardano NFT Metadata Parser to comply with legacy version (eg cnft.io - Complete)
• Build visually similar dataset 1/n (Complete)
• Design and implement ML / solution (Complete)

March

• Build visually similar dataset 2/n (Complete)
• Design and implement ML / solution 1/2 (Continue - Complete)
• Integrate ML api (Complete)
• ML daily batch job implementation (Complete)

April

• Build visually similar dataset 2/n
• Design and implement ML / solution 2/2 (In Process)
• Integrate ML api
• Landing Page

May

• Marketplace api
• UI/UX Design
• Marketplace signup page
• Marketplace api token page

June

• N/A

July

• NFT Re-mints and duplicates email notification system
• Creators Project Submission

August

• Creators signup page
• Creators Project Submission
• Creators duplicates email notification

September

• Social Media Marketing Campaign
• Outreach to Ethereum-Based Artists
• Bug Fixing
• Community feedback
• Product enhancement

October

• Continued Outreach to Ethereum-Based Artists
• Artist Onboarding on Cardano
• Publication of article #1

November

• Continued Outreach to Ethereum-Based Artists
• Continued Artist Onboarding
• Publication of Article #2
• Continued Social Media Marketing

<u>Budget</u>

Backend Engineer 9 months Full time: $ 72k

Cloud costs $ 500 per month for 9 months: $ 4500

Frontend: $ 10k

UX/UI: $ 3000

Project Management: 3 months, ⅓ time $ 5000

Research and artist outreach: 3 months, ⅓ time $ 5000

CNFT Artist onboarding liaison: $ 2500

Social Media Marketing, 40 hrs: $ 1600

Writing and publication of 2 articles: $ 900

<u>Total: $104,500</u>

Giovanni - CTO

• Senior Software Engineer - DevOps Advocate - Plutus Pioneer and Stake Pool Operator
• <https://www.linkedin.com/in/giovannigargiulo/>

Anthony - CBDO

• Entrepreneur with 7 years business development experience, 15 years sales, marketing and project management experience, primarily in financial services and real estate.

• <https://www.linkedin.com/in/anthonycapitan/>

  [AUDITABILITY]

VeraNFT and Profolio Protection Development Benchmarks:

• Landing page launched by June 1st.
• Beta of Level-2 VeraNFT (image recognition analysis) complete by August 1st
• Public (B2C) website with VeraNFT API by October 1st

Functional goals:

• Reduce % of counterfeit NFT sold on marketplaces by 25% by September 1st
• Reduce % of counterfeit NFT sold on marketplaces by 50% by January 1st 2023

Non-Functional goals:

• B2C NFT history/counterfeit should take no longer than 5 seconds to compute
• VeraNFT should have decent uptime 95%+

Leads for our Profolio Protection incentive program:

• No less than 100 leads for incentive program participants received via our landing page and Twitter account by October 1st. (Our VeraNFT landing page will include a messaging widget where accomplished Ethereum, NFT artists, as well as artist's whose work has been plagiarized can reach out about our incentive program. So we'll monitor this metric based on responses to our Tweets, Twitter DMs, and messages sent via our landing page.)

VeraNFT Website/Landing page visits:

• 1k by august 1st
• 2k september 1st
• 4k october 1st

Social Media Metrics:

• 1k followers on Twitter by june 1st
• 2k follower on Twitter by september 1st
• 4k followers on Twitter by october 1st

Number of NFT Creators Onboarded:

• At least 4 respected Ethereum artists and 2 artists whose work has been plagiarized on Ethereum, onboarded by October 1st.

• At least 8 respected Ethereum artists and 4 artists whose work has been plagiarized on Ethereum, onboarded by November 1st.

• At least 12 respected Ethereum artists and 6 artists whose work has been plagiarized on Ethereum, onboarded by December 1st.

• Significantly decreasing number of counterfeit/fake NFTs sold on Cardano marketplaces

• Significantly increasing number of artists migrating to Cardano from Ethereum and other blockchains

• Significantly increasing volume of NFTs traded on Cardano

• Significantly increasing number of NFT collectors and artists citing superior security and trust as a strength of the Cardano NFT ecosystem

This is a project that's entirely new with respect to seeking Catalyst funding. It's not a continuation of a previously funded proposal.

SDG Rating

SDG # 9: "Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation."

Target 9.1 is: "Develop quality, reliable, sustainable and resilient infrastructure, including regional and trans-border infrastructure, to support economic development and human well-being, with a focus on affordable and fair access for all"

Target 9.5 - "Enhance scientific research, upgrade the technological capabilities of industrial sectors in all countries, in particular developing countries, including, by 2030, encouraging innovation and substantially increasing the number of research and development workers per 1 million people and public and private research and development spending."