Today I’m going to dissect ApeCoin and answer the ultimate question – is APE a cash grab or a legit game changer?
A lot of people are excited about APE because it’s tied to the BAYC, but I don’t think that’s strong enough of a reason to invest. In fact, when I researched this project, I discovered a ton of risks that people are missing. But before we get there, why do some people call this a cash grab anyways? Well, because Yuga Labs, the company behind the BAYC essentially cashed out in three separate ways. They sold their equity to VCs, they sold their NFT collections and now they’re making money from these ApeCoins. Critics say that this is just another scheme to extract money from retail investors and the coin itself is pretty worthless.
I’ll share my thoughts on that criticism but first we got to start with the bullish case for this project. The team behind this entire ecosystem is Yuga Labs, and they are quite impressive. Their employees come from the top tech companies and game studios across the world. One of their minority partners is Guy Oseary, who once managed U2 and Madonna as part of his talent management agency. Yuga Labs CEO Nicole Muniz has over a decade’s worth of experience scaling brands, and working with clients such as Google, HBO and Spotify.
Together this team has built a rocket ship, pulling in over 100 million dollars in revenue back in 2021. This mostly came from their BAYC and MAYC NFT collections, but they’re planning to add a lot more revenue streams in the future. Their early success has caught the attention of top VCs, and just one month ago they raised 450 million dollars at a 4 billion valuation. This round was led by Andreessen Horowitz while Animoca Brands and FTX ventures also participated.
You may be wondering; how did Yuga Labs build this rocket ship with so many copycats and competitors trying to do the same thing. Well, I’d say it’s because of their intentional three-prong strategy. First, they focus on celebrities as a marketing and growth strategy over the past year. We’ve seen huge celebrities joined the BAYC by buying one of their NFTs, I’m talking Justin Bieber, Eminem, Snoop Dogg, Stephen Curry, Tom Brady, the list goes on and on.
Every time a new celeb joins the club it generates a fresh wave of exposure and hype for the project, other celebrities see this and they’re like “Dang I should join too!” and these are super rich multi-millionaires, so a six-figure NFT is nothing for them. That’s why the price continues to grow even though most retail investors are priced out by now.
The second piece of the strategy was to give their NFT holders full commercial rights to the underlying intellectual property. This means that if you hold a BAYC, you can create content around it. You can sell merchandise and do a bunch of other commercial activities with it. You may not think that this is notable, but other big NFT collections actually took the opposite approach. For example, if you hold a CryptoPunks, you do not have the right to its underlying IP. The parent company of CryptoPunks very specifically wrote that in their terms and conditions. As you can imagine the community was livid about that because those terms and conditions goes against everything that we stand for.
Speaking of CryptoPunks, that has everything to do with the third prong of Yuga Labs strategy, which was to create the first NFT monopoly ever. They did this by buying the IP of CryptoPunks and Meebits from Larva Labs, and by doing so they put the top two NFT collections under one umbrella. With these blue chip collections in tow they are now ready to expand their universe. And a key part of that is their token ApeCoin. This is a utility and governance token that was airdropped to all BAYC and MAYC holders, it was a great way for long time holders to get some liquidity without having to sell their NFTs. One thing I noticed was that APE got listed on all the top exchanges from day one, that really speaks to how connected the team is in order to pull that off.
Their plan is to make this coin an integral piece of the ape ecosystem. It will be integrated with every new product or service that they put out. An example of this is the other side metaverse that was announced recently, with huge fanfare. We don’t know too much about that yet, besides that APE will play a big role in it. They’re going to hold land sales for this metaverse soon, and it looks like you’ll have to use ApeCoin to purchase a digital land. Besides that, APE holders can vote on governance proposals, access exclusive parts of their ecosystem, and perhaps even receive future air drops. But I think the best part about APE, is that it’s not limited to what Yuga Labs does with it. They’ve made it an open ecosystem for anyone to accept APE and build on top of it. For example, Animoca Brands has a game called Benji Bananas, where you’ll be able to earn ApeCoin from playing it. nWay is another company that’s creating a game that will be integrated with APE.
Besides gaming there’s a lot of real-world merchants and retailers that are accepting APE for payment, I’m talking E11EVEN Residences in Miami, a pop-up restaurant called “Hored and Hungry” in Los Angeles, and also Time magazine. This is a lot of utility for APE, and as the team and community continues to integrate APE into everything that they do, then that should be amazing for the tokens demand.
Now before you get too bullish and decide to ape in, hold up because we got to talk about the risks of this project. First and foremost is regulation. ApeCoin was created in a very specific way, most likely to avoid scrutiny from regulators. but after digging in I’m not sure they’ll get away with it. It actually wasn’t Yuga Labs that created ApeCoin, it was a DAO called ApeCoin DAO. This is a distinct entity from Yuga Labs, and they specifically never promise any profits to token holders. The idea behind creating the separate DAO stems from the Hinman test, which essentially states that a crypto coin is not a security as long as the project is sufficiently decentralized. Because if that is true then you’re not relying on a specific person or group to carry out essential activities.
This is why no one on the ApeCoin DAO’s board is from Yuga Labs, instead it consists of people from the early backers and investors. And the plan is for the DAO to vote on future board members after initial six-month period, but then the question becomes whether or not the setup is actually decentralized. Because out of one billion total APE tokens, insiders have almost 70% of the initial amount. Yuga Labs, their founders, and early investors get a combined 370 million tokens, out of the initial 530 million. The remaining tokens are allocated to the DAO treasury.
There’s also the Ape foundation, which is the sister entity to the DAO, it helps manage things the DAO wants to do. But that kind of makes us centralized, because we’re relying on a very specific group’s effort here.
Let’s just say that the SEC doesn’t care about this and won’t do anything for now, but there’s still a lot to dislike about their tokenomics. Specifically, there’s a ton of tokens waiting to be unlocked and released into circulation. The tokens assigned to the DAO have a four-year vesting schedule. Yuga Labs has a one year lock up plus a three-year vesting schedule, and that’s the same format for early investors and the Yuga founders. That’s a lot of supply that has yet to hit the markets and will be unlocked over the next three to four years.
This selling pressure will have to be soaked up by market demand or else it may negatively affect the price. But on an even higher level, I just think that this project started with way too high of a valuation. Right now, it’s at a 4.6 billion market cap with a 16 billion fully diluted value, and they only launched a few weeks ago. I don’t like projects that open with such a sky-high evaluation because I think their growth potential is capped. I felt the same way about Immutable X when that first hit the market. I was like dang IMX has so much potential, but I didn’t buy in because it opened with too high of a market cap. Turns out my gut feeling was right because they bled value over the following months, and they’re now at a much more reasonable evaluation. I think something similar could happen to APE if we’re patient.
Of course this depends on how the rest of the crypto markets go if we start on a bull run then of course APE could go much higher, but if we stay in a sideways or bear period then I’m pretty confident that APE will drop significantly from his current levels. So with these good and bad points in mind I have to say that I would not buy ApeCoin for now. I have mixed feelings about this
Project, on one hand I think Yuga Labs are masters at culture and community, two things that matter a ton in the crypto world. But on the other hand, I think that equity in Yugo Labs and their NFT collections are much more valuable than ApeCoin. It’s not completely worthless like the critics say but it’s also a second or third tier asset in their ecosystem in my opinion. Now if they launch their own blockchain like some people predict, then that changes everything. If there’s an APE chain that accepts APE tokens for gas fees, then its current valuation would be much more reasonable.
