South America

What started with a comedy club would later become a notorious case of legal loopholes and frustration for the nonfungible token community.

In Venezuela, humor plays an important role, either as a form of protest or a way to make sense of reality. 

In November 2021, humor and nonfungible tokens (NFTs) were combined with the launch of the Comedy Monsters Club (CMC) project. The project was led by Roberto Cardoso, better known by his former stage name “Bobby Comedia,” and co-founded with brothers José David Roa and David Roa.

The project was advertised as the only comedy club to use NFT collectibles as membership. However, the hype would quickly turn to confusion for the project’s investors.

An enticing narrative

Comedy Monsters reached the NFT-curious Latin American audience through the well-known Venezuelan comedians.

Cardoso and his co-founders appeared in publications like Forbes Mexico and on popular shows and comedy podcasts such as Nos Reiremos de Esto and Escuela de Nada.

Listenting to an episode of Escuela de Nada titled “How To Make Money With NFTs,” pseudonymous NFT collector Nairobi first came to learn about the presumptive comedy club. Later, they would decide to join the CMC community and purchase an NFT themselves.

“It’s in that conversation where you can really identify the project’s selling narrative,” Nairobi explained.

During the episode, the hosts interview Comedy Monsters co-founder José David, a self-appointed “NFT expert.” In the conversation, José David uses his own example of being an early investor in Bored Ape Yacht Club, reportedly earning over $300,000 from selling one of his NFTs.

His get-rich-quick story is followed by the mantra “do your own research,” often used to imply that any previous statements made by so-called experts shouldn’t be taken as financial advice.

“For someone who is new to the NFT ecosystem, this can lead to false expectations,” Nairobi said.

CMC officially launched in November 2021 with an offering of 10,100 NFTs. The starting price for each was 0.1 Ether (ETH), worth between $400 and $500 at the time of the sale. The monsters wouldn’t be revealed to their owners until all the NFTs were sold.

Cardoso told Cointelegraph that the comedy club’s purpose was “to deliver as many experiential, material and economic benefits” to its members as possible.

However, beyond the novelty of the project’s proposal, it was never clear how CMC would maintain or increase the value of its NFTs. In a small section on its website consisting of only three sentences, the creators explain the tokenomics behind the project.

“The rarer it [the NFT] is, the better benefits it will possibly have and the greater value it will surely have,” it reads.

Community “failure”

The period after the initial launch of an NFT collection can be critical to determining the project’s success. The value of the tokens will depend on the public’s continued interest in investing, putting projects under pressure to implement successful marketing strategies.

The CMC founders were so concerned about the sale of their Monster NFTs that former members reported that the project’s creators pressured the community to help come up with sales strategies to sell them.

“We were practically demanded to come up with marketing strategies. There was also the alleged raffle of a Mutant Ape NFT within the community, under the condition that Comedy Monsters Club sold out in just 15 days,” Nairobi recalled.

The pressure on the community was stacked on top of another key point: An inadequate execution of the club’s roadmap.

The CMC roadmap had five stages: the production of a podcast, a comedy festival exclusive to holders, games and raffle prizes in ETH, a foundation and a United States branch.

Despite posts on social media showcasing 2022 as a successful year for CMC, its community shared a very different experience. The project launched a podcast, but stopped after less than 20 episodes. CMC founders organized events, but they weren’t exclusive, and there were limited tickets for NFT holders. Even the raffles ended up switching from ETH prizes to giving out CMC NFTs instead.

The project never reached its goal of a total sell-out. According to its smart contract, there are 2,320 holders, owning 7,660 monsters in total.

Cardoso said that a significant but unspecified number of NFTs were used in publicity stunts and giveaways, and he blamed the 2022 crypto market crash for the project’s failure to sell out.

A rough approximation of the comedy club’s earnings shows that it could have made as much as $2 million to $3 million, based on estimates of the value of the sold tokens at the time of CMC’s launch.

Today, the CMC smart contract shows a balance of 0 ETH, and there’s only a little over $300 in ETH left in the project’s main wallet.

A “soft rug-pull”

The community never knew for sure how the funds were spent on the project’s roadmap or how much was taken by Cardozo and the Roa brothers, making the case for a possible soft rug-pull.

Suspicion about the project’s trustworthiness arose in early March 2022 when holders began to complain about the founders’ neglect of the community.

According to the testimony of several former CMC holders, concerns began when David, the project’s appointed CEO, left the Discord group, followed shortly by his brother, José David. The community also reported that CMC holders who raised questions on Telegram chats were being blocked.

Cardoso told Cointelegraph that he actually signed a separation agreement with his former co-founders on Nov. 9, 2022, leaving him at the head of the project as founder and CEO. Specific details of this agreement remained private.

In November, CMC holders and community members also noted a lack of transparency surrounding the usage of funds.

One pseudonymous CMC holder, RAMXx, proceeded to track the project’s funds on the blockchain. The public record revealed that 411.9 ETH — valued at over $1.18 million using ETH’s average price between November 2021 and June 2022 — had been extracted from the project and swapped using different cryptocurrency exchanges.

Venezuelan Twitter user Victor Noguera also shared more information by showing his process tracking everything on the blockchain.

His research also found that the money had been divided between three wallets. The contract shows that two wallets received a share of 25% each while a third received 50%, which the community presumed were controlled by the Roa brothers and Cardoso, respectively.

Cardoso confirmed the wallet amounts to Cointelegraph: “All the income from the minting was divided into three wallets. Logically, my previous co-founders and I had access to these wallets to operate the club.”

With these findings, the community confirmed that the project lacked a community wallet, an instrument often used in Web3 communities to allow holders to keep track of invested funds and serving as a treasury for a project’s roadmap.

The lack of a community wallet came as a shock for some CMC NFT holders, whose investments’ floor price is now just 0.015 ETH, or less than $30.

Cardoso confirmed the community findings to Cointelegraph, stating that the Monster NFTs were solely “a membership for a club which includes a roadmap with benefits.”

“The resources or funds belong to those who sell the token, not to the community. There isn’t a social contract that says that the funds belong to the community or a ‘community’ wallet,” he explained.

The conversation about the irregularities of CMC reached social media by December 2022. A community moderator, Alfonzo González, recalled on a Twitter Space that the founders improvised a lot, which combined with a notable lack of transparency and unsustainable strategies to keep up with the roadmap.

The gray zone of NFTs

In today’s NFT industry, legal protections for users still remain unclear. As the Web3 space relies heavily on communities to create their own rules, users often get involved in projects with a lot of promise but little obligation to their participants.

This can be seen in the phrasing of goals and the clarification of deadlines — or lack thereof — in project roadmaps. If founders don’t provide accountability measures in case they fail to meet the project’s goals and the participants or holders do not demand them, it could result in losses for the community if the project fails.

The only visible promise the Comedy Monsters creators made to their community was a rough roadmap. The project lacked deadlines and specific consequences if it failed to meet its goals. The whole project was based on the utility of the NFTs — providing real-world benefits, including international comedy events and other experiences, like workshops.

According to Maria Londoño, a lawyer and co-founder of the NFT project Disrupt3rs, this ambiguity is what led to serious miscommunication between the founders and the community.

“They made very vague promises, and there were attempts to solidify them. However, there are neither specified, committed parties nor deadlines for the promises. There isn’t any contractual obligation that could be demanded,” she told Cointelegraph.

“Saying things like ‘This will probably go up in value’ could sound like a promise or return on investment through speculation, but it could also be plain ignorance,” Londoño added.

After the social media storm, Comedy Monsters Club continues to be active, offering events and workshops to their holders.

Cardoso said the project would continue despite the damage to the club’s image. “A part of it is to learn and improve,” he said.

Londoño also believes that, in the end, the creators of Comedy Monsters Club underestimated the importance of making explicit rules and expectations for themselves and their holders:

“I believe that both parties (creators and community) were wrong by not setting and demanding clear rules. The community lost money and the creators their reputation. It’s a lose-lose situation due to lack of understanding that the rules of the traditional world still apply in Web3.”