This past weekend, the crypto media company Yuga Labs orchestrated what was almost certainly the biggest non-fungible token (NFT) launch in the history of the Ethereum blockchain: a sale of virtual land in a forthcoming metaverse space called Otherside.
The firm sold tokens tied to 55,000 distinct parcels of land at around $6,500 each, and generated something like $300 million in revenue. (The NFTs were priced exclusively in ApeCoin, Yuga Labs’ official cryptocurrency, the volatility of which makes it tough to settle on an exact number.)
The sale also functioned as a kind of unofficial funding round for a company that raised $450 million in blue-chip venture financing earlier this year.
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Yuga Labs, for the uninitiated, is the company behind the Bored Ape Yacht Club, which remains the crypto ecosystem’s single most valuable NFT collection. The firm didn’t even have to say what it planned to do with the money, in teasing the Otherside land sale; the fact of its proximity to the Bored Apes was more than enough reason for investors to buy in.
And buy in they did, in spite of a series of system-breaking failures.
Ethereum is a notoriously rickety network, with a fee system designed to increase rewards for miners when there’s more activity on the blockchain. (Each block on the chain can only fit a certain number of validated transactions – traders can opt to spend more on fees for the privilege of cutting to the front of the line.) Activity was high during Saturday night’s Otherside sale, and fees were too: traders shelled out over $100 million in fees alone.
And because all pending transactions on Ethereum are queued up in one giant list, what clogs a single NFT project can end up clogging the entire network. At certain moments on Saturday and early Sunday, even simple crypto transfers demanded several thousand dollars in fees.
That meant that the $6,500 buy-in was effectively even higher – only investors with tens of thousands of dollars’ worth of liquid crypto could capitalize on the land rush. And Bored Ape owners got to skip the whole process, claiming free Otherside NFTs at their leisure, as gas prices descended to reasonable levels. One prominent Ape investor, Jimmy McNelis, boasted about paying just .88 ETH in fees to claim 144 Otherside land parcels.
The result is that Otherside effectively comes with a baked-in class of landed elites. Staking a claim in Yuga Labs’ metaverse was far easier for a Bored Ape owner than for any other variety of NFT whale; for traders without hundreds of thousands of dollars already invested in this space, it was nearly impossible. (A single Otherside NFT currently costs about $11,000 on the secondary market.)
If, as metaverse boosters like Mark Zuckerberg predict, the creator economy really does move into virtual online spaces like these, we’ll all be working on Ape-owned land – almost a riff on manorialism, the Medieval economic system, with Apes as lords.
The decision to conduct Saturday’s sale in ApeCoin also meant that prospective investors had to load up on the coin in advance of the sale, resulting in a literal pump and dump: the price of a single ApeCoin shot up to $26 ahead of the sale, and immediately dipped nearly 50% once traders swapped their coins for NFTs.
Yuga Labs’ response to the chaos was to propose abandoning Ethereum entirely.
“We’re sorry for turning off the lights on Ethereum for a while,” reads a statement from the company’s Twitter account. “It seems abundantly clear that ApeCoin will need to migrate to its own chain in order to properly scale. We'd like to encourage the DAO to start thinking in this direction.”
It’s ironic for a few reasons, the first of which has to do with the idea that Yuga Labs would “like to encourage” the ApeCoin DAO to start thinking about working on its own blockchain, as opposed to building its own blockchain outright.
Yuga Labs has spent months trying to distance itself from ApeCoin and its primary governing body, the ApeCoin DAO, presumably for regulatory reasons. The thinking is that if ApeCoin comes from Yuga Labs, it’s a kind of securities offering, and should be regulated as such. If it comes from this amorphous, headless DAO, though, it should technically be outside the scope of the SEC (more on that here).
And even though Yuga Labs can’t just tell the ApeCoin DAO to do something, it can probably still get its way, thanks to the enormous amount of voting power it exerts over DAO proposals.
On Twitter, conspiracy-minded NFT investors suggested Yuga Labs may have even brought down the blockchain intentionally, as a way of manufacturing consent for a brand new network.
Axie Infinity, now the splashiest example of a “play-to-earn” (P2E) blockchain-backed video game, already operates on a dedicated chain called Ronin. Where Ethereum adds new transactions to the blockchain with something called a proof-of-work consensus mechanism, Ronin uses an alternate mechanism known as delegated proof-of-stake. It’s generally considered a more centralized system; validators with the most staked crypto will always exert the greatest control over the network.
Porting crypto from mainstream blockchains over to Ronin requires a special program called a “bridge,” which is particularly vulnerable to exploits and hacks. Last month, Ronin saw around $625 million siphoned from its bridge in one of the largest crypto exploits ever. Widespread distrust around bridges could potentially impact the price of these assets, too, as traders opt to keep their tokens on more reliable networks.
A dedicated ApeCoin blockchain would restrict the entire Ape economy to a single network. That includes the Bored Apes themselves, but also spin-off collections (Mutant Apes, Bored Ape Kennel Club) and any other non-Ape properties owned by Yuga Labs, like CryptoPunks and Meebits.
And even if the hypothetical ApeCoin blockchain isn’t technically “owned” by Yuga Labs, the company will still effectively lead the DAO. At that point, why not just run a private cloud server?
Read more: The First NFT Monopoly
It’s no wonder the Otherside debacle has traders so peeved. The rich get richer, supposedly decentralized systems continue to centralize, and the venture capital firms behind Yuga Labs are poised to expand their monopoly over the space even further.
It’s the Apes’ world – we’re just living in it.