Yuga Labs seems like it’s on top of the NFT world. Universal Music Group just bought one of its Bored Apes with plans to turn the avatar into a music star. The company is also rolling up management rights over other hot digital collections like CryptoPunks and Meebits. And it’s reportedly in talks to raise money from a16z at a $5 billion valuation. So why was its ApeCoin token launch kind of a mess?
ApeCoin is meant to be the coin of the Bored Ape Yacht Club realm. But it’s a little fuzzy what that means. Is it a fan token for NFT owners to get merch? Is it a speculative financial tool? Is it a right to vote on future developments? Is it an incentive for developers? Yes.
It’s also, frankly, a huge publicity stunt, building on the existing popularity of Bored Ape Yacht Club NFTs. Yuga Labs, like many other crypto projects, is trying to build an economy around itself. A billion ApeCoins are getting split between Bored Ape owners; a new ApeCoin DAO; Yuga Labs itself and its four founders; and other companies and people who contributed to the project. The Jane Goodall Legacy Foundation is a charitable beneficiary.
The project used an airdrop, a classic crypto marketing technique. But it didn’t go smoothly. Owners of Bored Apes and related NFTs were eligible to claim as many as 150 million ApeCoin tokens starting Thursday. The coins were then airdropped — a fancy crypto term for sent — to their wallets.
Calling the distribution an “airdrop” played on crypto speculators’ FOMO. “Airdrop” is a marketing term, not a technical one, and it’s a common way to call attention to a new token. Sometimes tokens are sent to specific users, often influential ones, while sometimes they’re mass-distributed to everyone who owns a specific type of cryptocurrency. Getting in on the latest hot airdrop is a thing in crypto.
Still, the ApeCoin airdrop was the talk of crypto town. The token was quickly listed on some of the largest crypto exchanges out there: Coinbase, FTX, Binance, Gemini and Crypto.com. Bored Apes are expensive, while ApeCoin tokens are relatively cheap, initially going for a little over $20. By rewarding Bored Ape owners first with the tokens, Yuga may have hoped to play on that exclusive-club FOMO.
While an airdrop “can be very positive for building hype … sometimes this hype is short-lived,” said Ethan McMahon, an economist at Chainalysis. That turned out to be the case, as the value of the token surged upwards to a peak of $39.40, then sank overnight by over 80% to as low as $6.48 after token claimers quickly turned around and sold them. The price then bounced back from its low to a value of $17.75, before falling back to under $13, in its second day of trading. McMahon said that reflected “the nature of early price volatility when a coin first becomes more publicly traded.” It’s a brand-new asset, so who knows what it’s worth?
In chasing hype, Yuga may have overlooked security. There were other bumps in the token airdrop. The ApeCoin Twitter account warned that scammers were “out in full force” on the day of the launch. The airdrop also suffered a flashloan attack, a complicated maneuver that takes advantage of the lack of checks in some DeFi lending protocols. Blocksec, a blockchain security firm, said that the attack likely happened because the ApeCoin token’s airdrop process “only considers the spot state, which can be manipulated by the attacker.”
Most airdrops use a snapshot mechanism that takes into account how long a user held an NFT before claiming a reward. Yuga Labs did not, allowing anyone who wanted to participate in the airdrop to buy an NFT in real time and claim the reward — hence the vulnerability.
The value of ApeCoin largely depends on how you view Yuga Labs’ future plans. Yuga Labs has said it plans to make ApeCoin a governance tool and the “primary token for the BAYC ecosystem, as well as future Yuga products and services.”
Executives in the gaming industry from FTX and Animoca Brands already sit on the ApeCoin DAO’s special council, and the token is slated to be used as in-game currency for a slew of upcoming Yuga Labs games. It’s worth noting that it doesn’t give away any ownership in Yuga Labs itself. That’s for founders and VCs to keep, of course.
