A lot of crypto trader attention this week has been directed toward the Bored Ape Yacht Club. This non-fungible token (NFT) collection represents the cream of the crop when it comes to collectible art tokens; Ape NFTs regularly sell for over $1 million and the project enjoys a celebrity following. Now, the developer of the collection, Yuga Labs, have taken things further with the ApeCoin (APE-USD) collaboration. But there has been a major speed bump with the ApeCoin (APE) crypto rollout this week.
What’s the issue? Specifically, it seems like one investor has been able to game the system to unfairly profit on the ApeCoin airdrop. Of course, the APE project is still quite fresh and many investors haven’t even heard of the crypto prior to news of this exploit.
Here’s what investors need to know about APE moving forward.
ApeCoin (APE) Crypto Launch Builds on Growing Bored Ape Yacht Club Community
- ApeCoin (APE) crypto is the product of a decentralized autonomous organization (DAO) called the ApeCoin DAO. The DAO is led by a board of executives from various reputable crypto projects and even Reddit co-founder Alexis Ohanian.
- ApeCoin DAO and APE seek to aid the Bored Ape community by decentralizing the brand’s power away from its founders. While the Bored Ape Yacht Club founders didn’t have anything to do with the crypto’s development, Yuga Labs has shown full support for APE and plans to underlie future products with it.
- Because of its origin within the Bored Ape community, developers saw it best to distribute the tokens through an airdrop to anybody who owns an Ape NFT. This airdrop began just yesterday.
- Immediately upon launch, the APE token saw wild success; the project is already the 35th largest crypto in the world, boasting a $3.8 billion market capitalization. Trading volume immediately surged by hundreds of millions. In the last 24 hours, around $9 billion in APE is swapping hands.
- While mostly successful, the airdrop has allowed for some exploitation. A report from crypto security firm CertiK’s (CTK-USD) incident response team (CIRT) says a user was able to use the airdrop to exploit more than $800,000 from the project on day one.
ApeCoin Airdrop Rollout Blemished by $820,000 Exploit
- According to the CIRT report provided by email to InvestorPlace, this user was able to exploit the airdrop through flash loans. A flash loan is a crypto loan which uses smart contracts, wherein a borrower can take out an uncollateralized loan from a lender. After doing so, the user can make a trade with those funds. A profitable trade requires the borrower to pay a fee to the lender.
- Another important component to the scheme, according to CIRT, is a platform called NFTX Vault. NFTX’s vaults allow anybody to mint liquid crypto using their NFTs. Users can take these tokens to redeem more NFTs.
- CIRT’s report on the exploit alleges the user bought a Bored Ape NFT on NFT marketplace OpenSea. They then used the token to pay a flash loan fee in exchange for 5.2 BAYC tokens, minted using NFTX.
- Next, the user took the tokens to redeem five additional Bored Ape NFTs. The airdrop contract which distributes the APE crypto rewards then rewarded the user over 60,000 APE.
- After receiving the reward, the user was able to immediately cash out, selling a majority of their APE for Ethereum (ETH-USD). They could then mint BAYC using the five NFTs, paying back lenders and netting a profit of $820,000.
- CIRT’s postmortem report on the event implies that, were the airdrop contract able to consider how long a user has held their Ape NFTs, it would have recognized the tokens as part of a flash loan exploit.
- The exploit, along with a trend of users immediately selling their APE rewards, has made for a bout of volatility in ApeCoin (APE) crypto since its launch. However, that’s not dissuading investors. APE’s price is rebounding quickly from early volatility. Currently, the token is up more than 80%.
On Low-Capitalization and Low-Volume Cryptocurrencies: InvestorPlace does not regularly publish commentary about cryptocurrencies that have a market capitalization less than $100 million or trade with volume less than $100,000 each day. That’s because these “penny cryptos” are frequently the playground for scam artists and market manipulators. When we do publish commentary on a low-volume crypto that may be affected by our commentary, we ask that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
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On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.