The Newman Capital team studied on-chain wallet data for BAYC, MAYC, and BAKC holders. Based on the number of NFTs and ApeCoins held by these holders on May 3, 2022, a demand analysis was conducted to predict the outflow of Tokens. We noticed that 96% of NFT wallets had insufficient APE to participate in the staking program. This article is derived from Newman Capital’s research report “ApeCoin AIP Proposal Controversy”ApeCoin DAO & the New AIP Proposals”, organized and compiled by Wu Shuo, the columnist of the dynamic zone. (Recap:Musk quietly changed BAYC’s head post, mocking NFT “seems to be replaceable”, ApeCoin soared by more than 20% and then plummeted by 14%) (event background:Otherside, ApeCoin plummeted 40%, collectors criticized Yuga Labs: NFT needs other brands)
1. Recent market activities
Over the past weekend, many discussions have been circulating around the highly anticipated Yuga Labs x Animoca Brands Otherside land sale. As the token driving the Otherside Metaverse, ApeCoin experienced high volatility ahead of the Otherdeeds minting date as investors speculated on how much APE was required to mint each Otherside NFT, and how many NFTs could be minted per KYC wallet. The intense market demand brought about by land minting resulted in the destruction of nearly $180 million in ETH gas fees, generating a flood of negative sentiment and criticism on Twitter’s crypto channels and social media platforms.
After the minting was completed, Yuga Labs publicly apologized on Twitter and promised to refund gas fees to mint investors whose transactions failed due to the Gas War. While taking the remedial action, the company raised the need to migrate to its chain in order to scale appropriately, and encouraged ApeDAO to “start thinking in this direction.” Whether the land sale chaos is due to a flaw in the Ethereum blockchain is debatable, however it is clear that ApeCoin has been at the center of the discussion because of its connection to BAYC NFT holders.
During the same weekend, NFT leading marketplace OpenSea announced that it would accept ApeCoin (APE) as a payment method on its platform, along with others such as ETH/WETH, SOL, USDC, and DAI Token. As of January 2022, BAYC transactions exceeded $1 billion. As a token associated with the BAYC ecosystem, APE has gained recognition and become a social currency. As long as its relevance to BAYC continues, we expect ApeCoin’s utility and adoption to only increase in NFTs and the metaverse, potentially making it one of the most influential tokens in Web3.
Further reading:“Otherside Epic War” burned 50,000 ETH, and the land NFT minting Gas exceeded 8,000; Yuga Labs: Sorry for paralyzing Etherscan, consider building your own chain
2. The release of ApeCoin
ApeCoin is a governance and utility token launched by ApeCoin DAO. APE is supported by the APE Foundation and its Board of Directors. The Board of Directors oversees the administrators of the foundation, with initial members including Alexis Ohanian, Amy Wu, Maaria Bajwa, Yat Siu and Dean Steinbeck. Although Yuga Labs, the team behind BAYC, has made it clear that they are not involved in the creation or governance of the DAO, this token is best known for its connection to the BAYC ecosystem.
But as stated on the ApeCoin website, Yuga Labs does act as a “community member of the ApeCoin DAO and will adopt APE as the main token in its new projects.” Yuga Labs is a “contributor to the APE ecosystem and will assist in creating products and experiences for the entire ecosystem”.
Further reading:Yuga Labs talks about the origin of the boring ape and the $4 billion valuation – let’s be an NFT!
3. New AIP Proposal
The ApeCoin community is self-governed through ApeDAO, which makes decisions based on community-driven Ape Improvement Proposals, or AIPs, which are voted on through snapshots. As part of its launch, ApeCoin announced 5 initial proposals, two of which were drafted by Animoca Brands, AIP-4 and AIP-5. While the first three proposals were passed, AIP-4 and AIP-5 received an overwhelming “no” vote from the community and were therefore not implemented. During and after the voting, the ApeCoin community had online and offline discussions on their forums, Twitter and many other places. The basic feedback is that, overall, the framework is adequate, but lacks the critical element of caps.
On April 29, 2022, three new AIPs were proposed. AIP-7 proposes a reorganization of the forum category, and AIP-22, similar to AIP-5, which was voted against earlier, proposes stake pool allocations, timelines, and allocations.
Additionally, AIP-21 presented important details that affect perceived value within the BAYC ecosystem and has been a major discussion point in the community over the past week. In the revised proposal on the staking procedure, AIP-21 proposes to set the staking cap at 1x the drop of ApeCoin.
Except for the staking cap, the staking mechanism in the new proposal remains the same. 175 million ApeCoins (17.5% of the total token distribution) will be distributed to four pools in 3 years, 100 million in the first year, 50 million in the second year, and 25 million in the third year. These pools are: (1) any ApeCoin holders; (2) BAYC holders; (3) MAYC holders; (4) BAKC + BAYC or MAYC.
Further reading:Yat Siu responds to doubts about ApeCoin DAO proposal, APE falls 10%; Snoop Dogg releases BAYC music NFT
Further reading:ApeCoin’s three proposals, AIP-7, 21, and 22, were all voted through, and the DAO Forum restructuring will be implemented within 2 weeks
Fourth, income and demand analysis
Demand analysis is based on the number of NFTs and ApeCoins in their wallets by NFT holders for all snapshots taken on May 3, 2022;
Assume that all snapshot NFT holders participate in staking;
The above data does not include any tokens stored in CEX and cold wallets.
Our team at Newman Capital researched on-chain wallet data for BAYC, MAYC and BAKC holders. Based on the number of NFTs and ApeCoins held by these holders on May 3, 2022, we conducted a demand analysis to predict the outflow of Tokens. We noticed that 96% of NFT wallets had insufficient APE to participate in the staking program.
According to our forecast, the staking program will immediately generate buying pressure of about 85 million Tokens. Although BAYC/MAYC/BAKC holders will receive a reward distribution of 70 million tokens in the first year, they cannot receive tokens immediately. These stakers will likely buy from existing market supply as well as newly acquired tokens from ApeCoin’s main stakers. In particular, one of the startup contributors will regularly unlock 85 million tokens over the next 1.5 years.
By setting the cap at 1x, the APR in the first year would be around 50%. While 50% APR may not be the highest return compared to some staking projects on the market today, it is a fair return given the considerable reputation and demand that ApeCoin had earned prior to its launch. By setting the cap at 0.5x, the APR will be higher, but the demand balance will be 35 million tokens, but the supply balance in the first year will be 70 million tokens.
We also noticed that most BAYC holders have more than 1 staking cap in their hands. Each BAYC on-chain wallet holds an average of 4 NFTs, with at least 72% of wallets holding more than 1 NFT. The largest whale in the pool owns 320 NFTs, 112 of which are BAYC.
From the perspective of demand distribution, BAYC holders will be the largest contributors to token demand. BAYC holders, plus their additional MAYC and BAKC NFTs, will generate buying pressure of 71 million tokens. At the same time, MAYC holders without any BAYC will also have a demand of 14 million Tokens. As such, it reflects the BAYC NFT community’s ability to access ApeCoin staking. BAYC holders with or without MAYC and BAKC NFTs can get 84% of the total token demand from the staking program.
5. Impact on ordinary NFT holders
Utility, floor price, and demand are the ongoing narratives driving all NFT communities, including the BAYC ecosystem. So far, the introduction of ApeCoin has given holders of BAYC-related NFTs more utility in the form of airdrops and free land, however, there is still uncertainty as to how much these holders can and should benefit from ApeCoin in the future. There is a lot of controversy. According to the proposed staking mechanism, BAYC-related NFTs only serve as the “key” of the staking pool, and only ApeCoin can be staked. If holders decide to sell their NFTs, they must consider unstaking their ApeCoins before selling. If APE is still pledged at the time of sale, the token will be automatically transferred at the time of purchase.
For this reason, some NFT holders are frustrated that NFTs only serve as an “alternative route” and a staking “ticket”. When NFT is not a mandatory standard for participation in staking, and NFT itself cannot be staked, people may be less willing to purchase expensive NFTs for staking to obtain additional APE Tokens. Instead, the fastest and easiest way to stake will simply be to buy ApeCoin directly to stake.
Also, selling NFTs with ApeCoin is not as simple as it used to be. When holders decide to sell their BAYC, they not only sell NFTs, but also the associated holding tokens in their wallets. This association may reduce the liquidity of NFT transactions. This is because NFT sellers must first deal with it by selling or releasing the associated tokens.
In addition to these effects, the reward mechanism may be unfair to all NFT holders. There are voices from the MAYC community complaining that the proposal has been hurting the price of MAYC because it locks in a 5:1 =MAYC:BAYC staking reward. As a result, the market has reacted to this information and the floor price of MAYC:BAYC has been “auto-adjusted” from a 3:1 to a 5:1 ratio.
6. Impact on ApeCoin holders
From the perspective of many ApeCoin holders, they feel that as a Token holder, they can enter the BAYC ecosystem, however the worlds of ApeCoin and BAYC are still separate. Although Yuga Labs has publicly adopted the token for future projects, APE holders do not benefit from the same utility rewarded to BAYC, MAYC, and BAKC holders.
This fact has also sparked debate, as many APE holders have expressed concerns about proposals that are too favorable to BAYC ecosystem NFT holders.
Some APE holders believe that the DAO should be led by the Token’s own community, and that no particular party benefits more than others, including BAYC, MAYC, and BAKC holders, and as a result, many are concerned about the number of airdropped APEs and the amount of airdropped APEs to Yuga Criticism of the exclusive staking rewards provided by Labs-related NFT holders.
The previous AIP-4 and AIP-5 proposals failed to pass, mainly due to the lack of clarification of the staking cap. For the new AIP-21 proposal, the staking cap has been explicitly set at 1x. According to the analysis of Newman Capital, the 1x cap will immediately create a demand for 85 million tokens.
As of May 4, 2022, the cumulative token supply of ApeCoin is approximately 300 million tokens. With the 85 million token demand coming out of the staking program soon, will there be enough liquidity in the market to sell? The answer is yes.
According to ApeCoin’s vesting schedule, one of the three start-up contributors (8.5% stake) could unlock an apparent 60 million tokens in the first year and an additional 25 million tokens in 1.5 years. On the other hand, Yuga Labs (15% stake), Charity (1% stake), the remaining contributors (5.5% stake) and the founder of BAYC (8% stake) have a 12-month lock-up period.
This may lead us to further exploration – what is the best way to transition a centralized organization to a DAO structure? What is the role of investors and contributors in the DAO? How does the vesting schedule affect the buying/selling pressure of tokens? How does this affect DAOs? What needs to be considered when allocating voting power distribution before the DAO is formed? Can truly decentralized voting happen if the distribution is disproportionate?
ApeCoin’s voting process prompted the community to think more deeply about how to create a full-fledged DAO. While DAOs are technically known for decentralization without a central leadership, in reality, does the current way of execution allow projects to have true decentralization? If whales can influence voting decisions and market prices, can the current one token equal to one voting system accurately represent the entire community?
The size, structure, voting mechanism, and overall influence of the ApeCoin DAO in the NFT market, if not one of the most acclaimed and scrutinized running DAOs, its structure and governance has our team thinking about the current state of decentralization and DAOs in Web3 and future. While building a robust infrastructure and setting up proper governance is no mean feat, all DAOs should strive to find a fair and balanced perspective between benefiting different stakeholders and making DAO development a top priority.
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