Discover more from Vault
An Overview of ApeCoin
Examining ApeCoin, Yuga Labs, BAYC, and more to get a sense of where the ecosystem is heading
Important disclosure: I have an ApeCoin position. The initial buys came through a liquidity pool on Uniswap ~10 minutes after the token launched at 8:30am on March 17th, 2022—before it was listed on CEXs. The position basis after multiple buys was ~$10/token. I’ve since added leveraged futures contracts via APEPERP. The basis on futures is currently $15.26/contract.
As of writing—ApeCoin is trading at a spot price of $18.31. APEPERPs are trading at $18.27.
The following is not financial advice.
Yuga Labs is valued at $4 billion, making it one of the largest NFT/metaverse companies.
Yuga controls 76.08% of the NFT space by market cap.
The catalyst for a short-term price spike is Yuga’s announcement of its metaverse offering, Otherside, launching before the end of April.
Similar price runups were seen in other metaverse tokens $MANA (Decentraland) and $SAND (The Sandbox).
Yuga Labs is caught in a polarizing moment. VCs and holders of its NFT projects believe that Yuga will be the future of web3 decentralized entertainment. The ‘Disney of web3’ essentially. The skeptical contingent finds Yuga and its products to be somehow too mainstream and too fringe at the same time. They also believe that the value is all a house of cards, which will come crashing down at any moment. This polarization makes Yuga and its products such a compelling investment. If we can see through the common opinion to a broader vision of what Yuga is trying to accomplish and how we can get exposure—we can profit. See Nassim Taleb’s Green Lumber Fallacy for background.
Skeptics are underestimating the total addressable market (TAM) for the products that Yuga is positioning itself to offer. One common criticism—that BAYC prices have outstripped purchasing power of the average consumer—is correct but shortsighted. Only a very small percentage of the population will have the means to invest hundreds of thousands of dollars in a digital collectible.
But ‘collectible’ is the wrong framing. An individual BAYC is more akin to a McDonald’s franchise than a Beanie Baby.
Famously, McDonald’s is more a real estate company than a fast-food chain. They are mostly in the business of land leases, location development, and R&D on their menu and other offerings. Franchise owners manage their location and keep the profits from doing so. McDonald’s is happy as long as they receive their franchise fees. (This is oversimplified, I’m sure there are performance metrics that franchisees must meet—but the point stands).
Yuga has relinquished all copyright for all of their collections. Purchasing a BAYC conveys all copyrights to the buyer. They are free to monetize their BAYC in any way they wish. In return, Yuga receives a portion of any sale on the secondary market (this happens automatically thanks to the underlying smart contract).
This leaves Yuga to the business of developing their brand equity and incentivizes NFT owners to build their businesses on top of Yuga’s intellectual property (IP). An owner of an NFT from Yuga’s collections could simply hold it and potentially profit from the IP development that Yuga is doing. Or they could monetize more directly, build equity in their specific NFT, and then sell their NFT (read: franchise) to a buyer—who would now own all of the equity built under that individual NFT’s brand.
Yuga isn’t selling monkey pictures. They’re selling franchises in cyberspace.
There are valid critiques of how sturdy the copyright conveyance is under various complex situations. This will get standardized over time. It’s more vision than reality at the moment—but it is a compelling vision.
If this theory is correct, then Yuga is the first potentially massive corporation whose product will exist in a new unsettled digital land.
For the people who object to the metaverse, à la: “why can’t we all just go outside?”
Metaverse offerings will trade-off with TV and other screen time. Kids 8-18 now spend 7.5 hours per day in front of a screen. Of that, 4.5 hours are spent watching TV. The metaverse concept is inherently more engaging and social than passive TV consumption. In my opinion, I’d take jumping into the metaverse over sitting on the couch watching TV any day.
The metaverse is a foundational concept that, if realized, will reshape the way we spend our digital lives. The companies that will populate it have the potential to reach audiences of unprecedented scale.
So how should we think about getting exposure to Yuga? We can analyze the company through each of its investable components.
Yuga Labs. Yuga Labs is the company behind the Bored Ape Yacht Club. It is currently valued at $4 billion, based on its recent $450 million funding round led by Andreesen Horowitz (a16z). Chris Lyons, GP at a16z crypto, said, “Mainstream adoption in web3 is accelerating at lightning speed, and Yuga is at the forefront of merging culture and innovation for everyone to enter the metaverse,” Lyons said. “We’re thrilled to invest in this brilliant team and their vision and help forge the next frontier of community-owned entertainment.”
On March 11th, 2022, the company announced that it had acquired two of the largest NFT collections: CryptoPunks and Meebits. The market cap of CryptoPunks is currently $1.79 billion. Meebits have a market cap of $346 million. Including its proprietary collections (BAYC, MAYC, BAKC), Yuga Labs has a combined NFT market cap of $7.9 billion. The total NFT market cap is estimated to be $10.39 billion. Yuga’s collections represent 76.08% of the total NFT market cap.
Bored Ape Yacht Club (BAYC). Yuga's flagship collection launched on April 23, 2021, and was available to mint for 0.08 ETH ($176.93 at ETH prices on 4/23/21). The floor price for the collection is currently 129.99 ETH ($385,030.38 at current ETH prices). This makes BAYC the highest performing NFT investment and the largest NFT collection by market cap.
Mutant Ape Yacht Club (MAYC). Yuga’s derivative on the BAYC collection has a market cap of $1.85 billion. The collection floor price is 33.98 ETH ($100,648).
Bored Ape Kennel Club (BAKC). This collection was released as a free airdrop to BAYC holders. The current market cap is 92,288 ETH ($273 million). The floor price is 10.9 ETH ($32,285).
CryptoPunks. Punks are one of the first prominent NFT collections. They were created by developer Larva Labs and were made available to mint, for free, in June 2017. The collection is among the most well-recognized NFT collections. It has a market cap of 589,941 ETH ($1.74 billion). There is no floor price, as none are listed for public sale.
Meebits. Another Larva Labs offering with a market cap of 116,980 ETH ($346 million) and a floor price of 5.85 ETH ($17,327).
ApeCoin ($APE). Released as a token for Yuga’s ecosystem and a governance token for ApeCoin DAO (an entity to oversee the development of ApeCoin), ApeCoin has a market cap of $5.16 billion. It is currently trading at $18.31.
Investing in Yuga Labs itself is reserved for institutions and HNW folks in the space. So we can disregard company equity as an investment vector.
Next, we can look at the major NFT collections. BAYC and CryptoPunks are the blue chips, but the entry price to this class of Yuga’s NFTs is likely an offer on a specific Punk, which is unlikely to be less than 60-70 ETH ($177,720 to $207,340). Let’s set these aside, as it’s unclear how much growth is left in the blue chips.
Next, we have the sub-blue chips (MAYC, BAKC, and Meebits). These will likely be the entry point for many into the NFT side of Yuga’s ecosystem. But in my opinion, the NFTs offer a better value proposition as a store of value, exposure to the upside of Yuga’s brand-building activities, or the ability to co-opt Yuga’s IP to build revenue streams on top of their brand equity.
We want exposure to Yuga for this investment, and we want the potential to do a multiple on the return. It’s not clear that any of Yuga’s NFTs will do a multiple within the next year or two.
So if we want a liquid asset with real upside potential—that only leaves one thing.
ApeCoin is currently trading at $18.31, which gives the token a market cap of $5.08 billion and a fully diluted market cap of $17.73 billion.
The upcoming catalyst for a move in price is the announcement of Yuga Lab’s Otherside project, which will be a metaverse offering that integrates its NFT collections into the virtual world. ApeCoin is widely rumored to be used as the in-game currency. If this is true, the demand for the token will increase sharply as supply remains even.
The supply of the coin is capped at 1,000,000,000 tokens, and the initial allocation and vesting schedules are below:
Yuga Labs + Charity
We can see that coins are unlocked steadily over time, so our short-term catalyst will be mostly unaffected by dilution or additional sell pressure.
Next, we can look to comparable price action for metaverse integrations of other coins. Decentraland and The Sandbox offer a solid comparable.
Decentraland’s in-world currency, MANA, spiked in price in November ‘21 on the announcement that Facebook had changed its name to Meta, which many took as an endorsement of the metaverse concept.
We can see a similar pattern for $SAND below.
We should assume that the recent price movement in ApeCoin reflects that anticipation for a move similar to the charts above once Yuga formally announces the release of Otherside.
Given everything above, I’m looking for a short-term runup in price as the anticipation for Otherside builds. I would look to sell the news of the announcement as a short-term trade. Then average back into a longer-term position over the next six months as Otherside takes shape and finds its market.
I would avoid speculating too much on the price of ApeCoin post-Otherside launch. Otherside may take some time (a few months to 1 year+) to find its market. The longer-term investment in ApeCoin is predicated on Yuga’s ability to build brand equity over time and the assumption that Yuga’s brand equity translates into increased demand for ApeCoin as the Otherside ecosystem matures.
Thanks for reading Vault! Subscribe for free to receive new posts.