{"id":2064,"date":"2022-03-23T15:10:23","date_gmt":"2022-03-23T15:10:23","guid":{"rendered":"https:\/\/scienceandnerds.com\/2022\/03\/23\/theres-something-off-about-apecoin\/"},"modified":"2022-03-23T15:10:24","modified_gmt":"2022-03-23T15:10:24","slug":"theres-something-off-about-apecoin","status":"publish","type":"post","link":"https:\/\/scienceandnerds.com\/2022\/03\/23\/theres-something-off-about-apecoin\/","title":{"rendered":"There\u2019s something off about ApeCoin"},"content":{"rendered":"

Source: https:\/\/www.theverge.com\/22992086\/bored-ape-yacht-club-apecoin-venture-capital-yuga-labs-money<\/a>
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Today, let\u2019s talk about an evolution in the way that startups are being funded, and what it means for the companies working to replace the current internet with blockchain technologies.<\/p>\n

For a long while now, the basic deal in venture capital has been simple. Investors give founders money in exchange for equity in a company; they recoup that investment when the company is sold or goes public. (Or, if the company dies, not at all.)<\/p>\n

A downside of this arrangement is that companies can take a very long time to arrive at these exits. Most VC funds assume it will take 7 to 10 years to know how well their bets are paying off, and in the meantime they face risk and uncertainty.<\/p>\n

The arrival of blockchains over the past decade created a new option for impatient VCs. Companies in the Web 2.0 era produced only goods and services, whose value was always denominated in dollars or other national currencies. But companies in the web3 era offer a third product \u2014 tokens<\/a> \u2014 and the value of those tokens is far less tethered to reality. More often, the value is correlated to the collective belief that the project\u2019s backers have in it, and both those beliefs and the tokens\u2019 value can be manipulated as part of the startup\u2019s growth.<\/p>\n

One way an impatient VC could manipulate a project is by insisting that a startup offer tokens as part of their project, and require that a certain amount of tokens be set aside for the VC. That way, once the tokens become available for trading on public crypto exchanges, VCs can cash out part of their investment years ahead of schedule.<\/p>\n

Or, if the project fails before it can sell or go public, the VC can earn a profit on an investment that would have otherwise been a loss.<\/p>\n

A few months ago, a VC friend told me that they are hearing about startups being pressured to offer tokens, for just this reason.<\/p>\n

VCs still want traditional equity in companies, of course. But increasingly, they want something else, too.<\/p>\n

One of the most famous web3 projects is the Bored Ape Yacht Club (BAYC), a collection of whimsical NFTs created by a company called Yuga Labs. The company has been consolidating some of the most valuable collections in the NFT world; earlier this month, it announced that it had acquired the intellectual property behind CryptoPunks and Meebits<\/a>.<\/p>\n

Yuga takes a cut every time a Bored Ape is re-sold, and reportedly earned an impressive $127 million in profits this way last year<\/a>. (Bored Apes\u2019 lifetime sales exceed $1.5 billion.) This week, Yuga Labs announced that it had raised a fresh $450 million in capital, valuing the company at $4 billion<\/a>.<\/p>\n

The plan is to go beyond pricey NFT sales and begin selling virtual land in a massively multiplayer online roleplaying game called The Otherside<\/em>, according to The Verge<\/em><\/a> and a deck obtained by The Block<\/em><\/a>.<\/p>\n

There is also now a token associated with BAYC, called ApeCoin. Eventually, its creators say, you\u2019ll be able to use it to buy virtual land, play games, and purchase services.<\/p>\n

But ApeCoin DAO is not<\/em> Yuga Labs, its PR firm took pains to explain to me in a press release Thursday. (This information was highlighted for me in a section of the release that was outlined in a box and headlined \u201cImportant facts.\u201d) Rather:<\/p>\n

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Yuga Labs gifted ApeCoin DAO a one-of-one NFT featuring a blue version of the Bored Ape Yacht Club logo. This NFT conveys along with it all rights and privileges of the logo\u2019s intellectual property to the ApeCoin DAO. The ApeCoin DAO will decide how the IP is used.<\/p>\n<\/blockquote>\n

So far, ApeCoin DAO has decided to use the IP to reward all of Yuga Labs\u2019 earliest backers. On Thursday, the DAO gifted 1 billion ApeCoin tokens to Yuga Labs, Yuga Labs\u2019 founders, and the VCs who backed the project. Bored Apes owners got tokens as well. The coins hit a high of $40 per coin on trading markets before settling down to $12.20. At that price, VCs\u2019 tokens are worth around $1.7 billion \u2014 far more than they have invested in the project to date. And that\u2019s in addition to their equity stake.<\/p>\n

But the rewards of ApeCoin are not just financial for investors; their tokens grant them governing privileges over the DAO as well. It\u2019s not totally clear what the DAO will vote on \u2014 the practical utility of DAOs are often overstated, as I learned when I wrote about Ethereum Name Service\u2019s version<\/a> \u2014 but to the extent that it has power, VCs will be one of its most powerful constituents.<\/p>\n

The DAO\u2019s website lists four vague benefits of owning tokens<\/a>, but mostly it appears to be a mechanism for keeping \u201cthe community\u201d as far away from the governance of Yuga Labs itself as possible. \u201cCrucially,\u201d Kyle Chayka writes in Dirt<\/em><\/a>, \u201cthere is nothing in here about any transfer of profits or share in company value.\u201d<\/p>\n

Is all of this kosher? It certainly has folks I know scratching their heads. ApeCoin began life as a Yuga Labs project; it\u2019s part of the pitch deck that leaked this month<\/a>. One crypto investor who spoke to Bloomberg called the fig leaf of a DAO a SPAC without the legal protections a SPAC offers investors<\/a>; writing in Dirt<\/em><\/a>, Chayka called it \u201cas close to a fake stock as you can get without being blatantly illegal.\u201d<\/p>\n

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