Cipholio Research | Influence and Enlightenment brought by ApeCoin
Author: Kevin Hao (Analyst) from Cipholio Ventures
ApeCoin is one of the most popular projects in the cryptocurrency market recently. Although its launch time was only about two weeks, ApeCoin has quickly gained great market recognition. It has now launched on Tier 1 exchanges, such as Binance and Coinbase, with a circulating market value of approximately US $3.6 billion, ranking 45th among all projects (Data Source: CoinMarketCap). Given this background, this paper studies ApeCoin and analyses its impact and enlightenment on the cryptocurrency market.
I. Regulatory Risk of Issuance
The total supply of ApeCoin is 1 billion tokens, of which 8% belong to the founders of BAYC, 16% belong to the Yuga Labs team, 14% are awarded to early participants, 15% are airdropped to the holders of Bored Apes and Mutant Apes, and 47% are allocated to an ecological foundation. It is obvious from the token allocation that ApeCoin is inextricably linked with Yuga Labs and BAYC.
However, for the sake of compliance, the corporate entity of Yuga Labs itself did not directly participate in the issuance of ApeCoin project, but completed it through the decentralized organization ApeCoin DAO. The board members of ApeCoin DAO include reddit co-founder — Alexis Ohanian, Amy Wu of FTX, Yat Siu of Animoca, etc., they are not members of Yuga labs. The ApeCoin foundation is responsible for the governance decision of ApeCoin DAO.
Through this set of procedures, Yuga Labs is committed to building a framework in which ApeCoin DAO is completely independent from Yuga Labs, and ApeCoin DAO is a decentralized organization, so as to avoid SEC’s supervision of ApeCoin, BAYC, MAYC and other projects. In addition to the issuance stage, the more usage scenarios ApeCoin token possesses in the future, the less likely it is to be regarded as a security token to be supervised.
Another enlightenment from the issuance stage of ApeCoin project is that the issuer of governance token for NFT projects is not necessarily the project party or the creator of NFT. Since the information on the chain is public, as long as the influence is significant enough and well-recognized by the community, any organization may play the role of governance token issuer, such as the holders of NFT or KOLs in the community.
This method similar to vampire attack has a great potential influence on NFT project parties or creators. If they can’t make a good token planning, other participants in the community may finish it first, which will promote more NFT projects to follow Yuga Labs for coin issuance.
II. ApeCoin’s influence on Yuga Labs ecosystem
In the ecosystem built by Yuga Labs, the main function of ApeCoin is voting governance. Holding ApeCoin is the only requirement for becoming a member of DAO and participating in voting governance. One ApeCoin is equivalent to one vote.
In addition to governance functions, ApeCoin will be used in the Yuga Labs ecosystem. For example, it can be used as a token for payment in Yuga Labs ecosystem, providing access to ecological projects, and providing incentives for developers in the ecosystem. Animoca said that the subsequent Play to Earn game launched in cooperation with Yuga Labs will use ApeCoin as an in-game token.
The most intuitive impact of ApeCoin on Yuga Labs ecosystem is the change of NFT price. As shown in the figure below, the prices of BAYC and MAYC were stimulated by the airdrop news. As too many users engaged in reward claiming and transaction, Ethereum gas fees skyrocketed once the airdrops were made available for claim.
It is worth noting that after the airdrop, the prices of BAYC and MAYC did not decline significantly. This shows that most holders did not sell their NFT after the airdrop. The main reason why they hold NFT such as BAYC is not just to get the airdrop reward, but are optimistic about the development prospects of Yuga Labs projects.
Yuga labs has been developing and expanding its ecosystem. BAYC is the core of the whole Yuga Labs ecosystem. Through the celebrity effect, airdrop benefits and new ways of playing, BAYC has maintained a high popularity. Yuga Labs is very good at exploring and operating new IP and integrating new projects into its own ecosystem.
Recently, Yuga Labs acquired the brands and copyrights of CryptoPunks and Meebits from Larva Labs, and will continue to empower Cryptopunks and Meebits in the future. At the same time, Yuga Labs also plans to launch MetaRPG games and add new playing methods such as virtual land sales.
The value of ApeCoin comes from the usage scenarios constantly brought by Yuga Labs, which has a great relationship with Yuga Labs itself, community, capital and influence. The release of ApeCoin will provide users who have not previously held BAYC and MAYC with new opportunities to participate in this ecosystem and bring more funds and traffic. With the continuous expansion of Yuga Labs ecosystem, it has a growing impact on other NFT projects.
III. Impacts on other NFT projects
As for top-performing NFT projects, ApeCoin’s launch will have a strong demonstration effect for the top-performing NFT projects, which will soon follow suit. ApeCoin’s history and model has shown the way and direction for top-performing NFT projects. Recently, several top-performing NFT projects such as Azuki and mfers have been rumored to be issuing tokens, and their NFT prices have increased significantly.
As for NFT projects with a small market capitalisation, these projects have a weak community consensus, no grand narrative or vision, and limited follow-on empowerment scenarios for the project owner, so the impact of a token offering alone is limited and a coin offering is not the best option.
These projects can collaborate with other NFT projects to achieve better results by integrating resources and strengths between projects. For example, Yuga Labs is also expanding its ecosystem and reach by collaborating with other projects. In the NFT space, stackability and combinability between projects is an important trend.
As for NFT startups, NFT has grown very quickly in 2021, attracting the attention and participation of many project owners, investors and users, with a number of outstanding headline projects emerging. The demand for the quality, style and narrative of NFT projects has increased, making it significantly more difficult for start-ups to create and run new projects. Startups may consider looking for opportunities within the ecosystem of existing headline NFT projects, such as the ecological incentives that ApeCoin reserves for such startup teams.
As for the infrastructure of NFT, which is essential for casting, trading and other applications, the infrastructure of NFT includes the underlying public chain, storage, identity systems, development tools, and projects such as aggregation, lending, and fragmentation. The underlying infrastructure is an important factor in determining the survival and growth of the ecosystem. With the emergence and development of projects like ApeCoin, the operational mechanism and incentive system of NFT projects will become more complex, and the underlying infrastructure of NFT needs further improvement in terms of security and performance.
As mentioned earlier, the issuance of tokens by NFT projects is not a one-off and does not necessarily facilitate the development of NFT. In terms of token roles, ApeCoin’s tokens are mainly used for governance, pledging and use in the ecosystem, all of which fall under the usual token functions and are not very innovative. These tokens need to be constantly given new use scenarios by the NFT project owners, which is the value base to ensure that NFT and the tokens can continue to grow.
IV. Project Cases
It is not uncommon to see both NFTs and tokens in the same project, but the relationship between NFTs and tokens, which play different roles in the project ecosystem, is designed differently in different projects.
As for game NFT projects, they have received the most attention in the NFT market. The success of Axie Infinity has led to GameFi’s Play to Earn economic model being sought after by players in the market, attracting a large number of users to the game ecosystem. There are pet NFTs in the Axie Infinity ecosystem, as well as AXS and SLP tokens. SLP can be used in the game ecosystem, while AXS is a governance token.
As for creator NFT projects, they produce creative output (e.g. music, artwork, etc.) into NFTs that generate revenue by offering products or services to users. With financial incentives, creators are motivated to create and users have a more immersive experience or share in the benefits of their creations behind them. In the creator economy ecosystem, tokens are used in scenarios such as interactions, transfers and rewards.
As for avatar NFT projects, it is usually a series of images that share similarities. As NFT grows and avatar NFT projects receive more and more attention and recognition, many celebrities are involved and avatar NFT is slowly being given other functions. As these NFT projects expand their ecology, tokens need to be introduced to act as usage and governance, with no attribution between the NFT and the tokens.
The launch of ApeCoin provides another very good case study. For projects such as Axie Infinity, the positioning and role of NFT and tokens in the ecosystem were already planned at the beginning of the design, so the scenarios in which NFT and tokens could play a role were clearer and the narrative blueprint and imagination were relatively limited.
The ecosystem built by Yuga Labs is different. The ecology starts with NFT projects such as BAYC and MAYC, and then includes ApeCoin. In the future, new gameplay and mechanisms such as games and virtual land will be added to open up new spaces in the meta-universe, so the entire ecology has more imagination and more scenarios in which these NFTs and tokens can play a role.
V. Will ApeCoin bring the summer of NFT?
In 2020, Compound launched its governance token, COMP, which caused many DeFi projects to follow suit, kicking off the summer of DeFi. The NFT space has grown considerably in the past year, and the launch of ApeCoin by Yuga Labs will spur other NFT projects that will also issue their own tokens. So will ApeCoin bring about another summer of NFT?
Looking at the macroeconomic environment, the current economic environment is very different from the past two years. 2020 was at the beginning of the epidemic, when the Federal Reserve and other institutions were implementing a rather loose monetary policy, and all kinds of assets, including U.S. stocks and cryptocurrencies, experienced a significant rise. Today however, two years later, countries like the U.S. are facing greater economic risks.
Currently, there are two roads in front of the Fed:
- One is to raise interest rates to fight inflation, which will lead to recession;
- Secondly, temporarily avoid raising interest rates, which will lead to a further rise in inflation and lead to a greater recession, which will then evolve into “stagflation.
As policymakers, the Fed definitely aims to pay the smallest cost to get out of the crisis, so as much as possible to control the “economic slowdown” and “recession” between the tipping point. Therefore, the Fed is very likely to first raise interest rates to curb the inflation, and in the economic slowdown will soon appear the first signs of recession at the same time, cut interest rates and release QE, so that the economy will be back on track.
Whichever way is used, it is certain that the Fed will not implement the same loose monetary policy as in the previous two years. Meanwhile, uncertainties such as the Russian-Ukrainian war conflict also have a great impact, and this series of uncontrollable variables will also exacerbate the downward pressure on the cryptocurrency market.
Looking at the cryptocurrency market, the current cryptocurrency market is not as dynamic as it has been in the past two years, and one of the clear signs of this is the stablecoin market cap. In 2020 and 2021, the market capitalization of stablecoins grew significantly, indicating that a large amount of new money and users kept pouring into the cryptocurrency market. The current market change of stablecoins, on the other hand, has not changed much; and even shows a downward trend, indicating that there is not much new money in the market and there is no basis for a massive rise.
From the perspectives of industry participants, NFT project coin issuance is also very controversial. Vitalik recently judged ApeCoin as a gambling behavior with little practical significance in his article published in Time magazine. Some other KOLs also believe that NFT project token issuance does not conform to the value logic of the project itself, and that these NFT projects should focus on application scenario empowerment instead of consuming the value of NFT in advance by issuing coins.
From the three dimensions mentioned above, it is highly unlikely that ApeCoin will bring the summer of NFT. But there are positive aspects of projects like ApeCoin.
The value of those top-performing NFT projects, such as BAYC, is so high that ordinary users cannot participate in this ecology by purchasing NFT. The issuance of projects like ApeCoin will give more users who did not have a NFT a new opportunity to participate in the ecology, while bringing more funds and traffic. The issuance of NFT projects can also attract the participation of investment institutions, which helps the further development of its ecology.
We believe ApeCoin has good growth prospects. Firstly, ApeCoin is the first governance token issued by a top NFT project and thus it has a first-mover advantage. Secondly, Yuga Labs has sufficient resources to continuously empower and develop ApeCoin, and subsequent projects in the Yuga Labs ecosystem will also use ApeCoin. Thirdly, BAYC and MAYC holders will not sell ApeCoin in the short term, and that is good news for the token price.
NFT is still an incremental market with plenty of opportunity. With the release of ApeCoin, other NFT projects will follow suit. These project parties need to add value and empower NFT and tokens through operational capabilities and community consensus. If they simply issue coins without doing follow-up work, then this operation will only dilute the value of NFT and will not promote the project.
Disclaimer: This research article is opinion/insights only, it should not be viewed as financial or investment advices in any form. Readers are advised to do their own research and analyze the market on their own.
Contact Us:
Website: www.cipholio.com
Email: contact@cipholio.com
Twitter: https://twitter.com/cipholio
