Yuga Labs: The Beginning of a Web 2.5 Enterprise
By Evan Castelli - NFT Consultant at Signum Growth Capital. He has been involved in crypto and NFTs since 2017, and has a BFA in Industrial Design from MassArt.
Bored Ape #5979, owned by 0x4223ff1d1101f79bc26d66c6f363231276b19742
For most of its lifetime, crypto existed as a niche community in the frays of finance and libertarianism, but has since turned into a globally recognized market. One needs no reminder of the shocking size of the NFT market or the billions of dollars in volume that is traded on OpenSea, nearly 10% of which is attributable to Bored Ape Yacht Club (BAYC). Yuga Labs, BAYC’s creator, has made a recent move to consolidate, which has provided insight into how NFTs might evolve – or devolve – in popular culture.
In one of the largest acquisitions in the NFT space alongside Nike’s acquisition of RTFKT (both for undisclosed amounts), Yuga Labs has acquired the IP of Larva Labs’ CryptoPunks and Meebits, becoming the self-appointed shepherd of some of the most iconic digital identities. Not only did they acquire the IP, they dissolved their ownership, giving holders exclusive rights to do whatever they want with their digital assets. If Yuga Labs spent X million dollars on Larva Labs’ most valuable collections, and then gave all the rights away to the NFT holders, what did they buy, and how have they become the biggest brand in NFTs?
While many of Yuga Labs’ future plans are still undisclosed, we believe their partnerships, capital, and vision reveal a new type of brand enterprise that sits between Web2 and Web3.
Before the acquisition, Larva Labs granted holders the right to earn up to $100,000 for any commercial rights deals; however, the IP of every Punk and Meebit was still owned by Larva Labs. According to Larva Labs’ Matt Hall and John Watkinson, the acquisition came about organically, as the CryptoPunk brand and the digital identities that formed around them were beyond what they felt comfortable managing. Larva and Yuga were in talks for collaboration for some time, and it became clear to both parties that Yuga Labs was more passionate about progressing Punks and Meebits in the digital identity space. Post acquisition, Larva Labs remains an independent company, and its founders, Hall and Watkinson, will maintain ownership of Autoglyphs, a generative art collection, along with future NFT releases.
Yuga Labs has not publicly finalized plans yet, but they have stated that Punks and Meebits will be separate from the Ape Club universe, allowing the distinct communities to flourish while still being stewarded by the Yuga Labs team. A pitch deck outlining Yuga Labs’ future metaverse plans has been circulated by news outlets like the Block and others across social media. The plans include a 200,000 plot virtual land sale valued at $178 million, a P2E game, an ApeCoin, an interoperable Metaverse created with the help of Animoca Brands, and a mysterious collaboration between Yuga and Animoca requiring KYC.
Two of the concepts in the leaked deck have come to fruition: ApeCoin, which was airdropped to holders of BAYC/MAYC/BAKC NFTs (not Punks or Meebits), quickly started trading on every major exchange with a market cap of ~$13B. Also, the Animoca team launched a simple P2E game (think Flappy Bird) called Benji Bananas. The game is accessed using ApeCoin. Yuga Labs also released a 3D animated video that shows an Ape flying around a video game-like world, the Otherside, with a group of other blue chip NFTs.
Thoughts on this Pivotal Event in the Industry
Since their humble beginnings just a year ago in April ‘21, Yuga Labs has become a global phenomenon valued at $5B according to the Financial Times, and raking in $127 million in 2021 through NFT sales and royalties. In terms of social media notoriety, Punks and Apes have been competing aggressively for the top slot, and each community highlights a different culture in Web3 - Punks are OG Web3 enthusiasts, and Apes are nouveau-riche traders. Meanwhile, Meebits have not acquired much notoriety.
In the beginning of the NFT craze, Punks were often seen as the market leader. Recently, however, Apes have overtaken CryptoPunks on one metric that is often used in the NFT space - “floor price,” which refers to the lowest priced asset in a set. As of 3/20/22, the Apes’ floor price was ~26 ETH higher than Punks, possibly due to a combination of expert social media navigation on the part of Yuga Labs and MoonPay, who facilitated celebrity sales.
Separately, we have been witnessing growing conflict within the Punk community. Many Punk holders have complained to Larva Labs for not allowing holders to fully own and have free rein to monetize their Punks. Also, some thought Larva Labs was more focused on money than community – the primary sale of Meebits was viewed as a cash grab, and the founders dumping their V1 Punks raised some eyebrows.
It was interesting to note the divergent reaction among NFT enthusiasts when Meebits and Mutant Ape Yacht Club Serums underwent similar Dutch auctions with similar outcomes. Both sold ~10K NFTs for roughly 3 Ethereum each. While Larva Labs’ Meebits were seen as overpriced, MAYC was viewed as a cheap entry to the Bored Ape Yacht Club. The two community cultures and ideals are simply different, as are the narratives that resulted out of the similar auctions. Punks seem to be more Web3 and open-protocol focused, while Apes are more about mass adoption.
All IP under Yuga Labs is holder-owned and thus can be built upon and merchandised by holders. Still, Yuga Labs now has the complex role of being a massive, centralized influence on the two most iconic NFT communities. They have the attention and capital of retail, celebrities, institutional investors, and large brands, who see them as an access point to the metaverse. As market participants know, things change in a blink, and today’s hot narrative may fizzle in a matter of months – many NFT communities have become drowned out by the sheer number of new projects, offsetting the positive impact of loyal followers. To maintain its strongly positive social capital, the bar has been raised dramatically on Yuga Labs. They must now focus on many traditional media and gaming activities to maintain the outsized brand awareness around their cache of CryptoPunks, Meebits, and the Bored Ape Yacht Club, relative to the overall NFT market.
With the release of ApeCoin and chatter in the press of Yuga Labs planning a virtual land sale and P2E metaverse, it seems they have a lot of plans to keep everyone entertained – but what will happen if the new ventures don’t live up to their hype? As a recent example, Cool Cats suffered a drawdown in both price and community belief after the P2E game based on their new NFT project, Cool Pets, missed deadlines. Maintaining social capital for a Profile Picture (PFP) project is one feat that Yuga Labs has achieved, but we do not yet know if adding new factors such as $APE price and utility, land, and a P2E metaverse are positive or negative influences for the brands surrounding Yuga Labs.
Yuga Corp’s ApeCoin, technically owned by the ApeCoin DAO and not the Delaware-registered entity Yuga Labs, is the first joint collaboration between Yuga, Animoca, FTX, and others. The site states, “ApeCoin is for the Web3 Economy,” but the influence of the investor and founder list and the skewed tokenomics may tell a different story. Token allocation:
47%: Yuga Labs DAO treasury and “resources” - 117,500,000 unlocked at launch, then 7,343,750 unlocked per month for 48 months
16%: Yuga Labs Team; a 40 person team – Initial lock-up 12 months, then 4,166,666.67 unlocked per month for 36 months
6.25% of Yuga’s holdings will be donated to the Jane Goodall Legacy Foundation (“10,000 tokens or equal value” - Initial lock-up 12 months, then 277,777.78 tokens unlocked per month for 36 months)
14%: Launch contributors - unlock schedules range from 10M unlocked upfront, to 12 month cliff w/ rest of tokens vested over ~3 years
8%: 4 founders of Yuga Labs/BAYC - Initial lock-up for 12 months, then 2,222,222.22 unlocked per month for 36 months
Which leaves 15% to decentralize the network by distributing to the community: BAYC/MAYC/BAKC NFT holders - fully unlocked at launch
Founding team - taken from supposed leaked pitch deck
Some of the head employees - also taken from supposed leaked pitch deck
The initial board members tasked with Foundation oversight - Membership status is voted on by the DAO every 6 months
What does this mean for the Apes, Punks, and Meebits communities? Isn’t Web3 all about democratization and the ability for the masses to participate in wealth generation? While an idealist could argue that the IP of Apes, Punks, and Meebits has been given to the holders in true Web3 spirit, a cynic might say that the ApeCoin is instead a huge wealth transfer (more exit liquidity than community voting power?) from the community to the founders, under the guise of “utility.” The true ethos here may be a bit better than Web 2.0 but it is far from Web 3.0 - perhaps Web 2.5.
Though the ~6,400 Bored Ape holders may be reveling in their ~$100,000 airdrop, especially the few who received upwards of $1 million based on the their amount of Apes, many retail participants will be sucked into the hype and lose money. Transparency is a key tenet in the blockchain, and regulators will likely be watching closely for ripple effects.
While Punks have an iconic history predating Yuga, as well as a reservoir of builders who have been waiting for IP freedom, we think it is possible that Yuga Labs and their Ape club memberships could struggle in the long-term. There will always be a shiny new trend, and Apes may eventually be seen as outdated. Yuga Labs is at a multi-year crossroads – they can either become a novel Web3 company that fosters a network of communities forming a multidimensional, household brand, or they can slowly turn into a corporate DINO (Decentralized in Name Only) bogged down by grandiose plans and inorganic growth. Regardless of the outcome, we believe that brands like these are inevitable, and Yuga Labs being “first” is the kind of scarcity value that collectors in any market will likely recognize for many years to come.