ApeCoin (APE3-USD) is a new cryptocurrency that has taken the community by storm.
ApeCoin launched just a couple of weeks ago. But it has already become one of the top 50 cryptos in the world by market capitalization, according to CoinMarketCap data. As of this writing, it has a fully diluted market cap north of $12 billion. That is some serious money for a token with such a silly name.
But what is ApeCoin all about? It is a project to help monetize and provide liquidity to the broader non fungible token (NFT) project, Bored Ape Yacht Club. Bored Apes is led by a company named Yuga Labs.
Can ApeCoin Fix Minimal Liquidity?
A big problem with the NFT ecosystem is that liquidity is minimal, especially for high-value NFTs. After all, there is only one copy of each unique NFT. Thus, there aren’t many people looking to buy any particular NFT out of a series at any given time. This is especially true for high-value NFTs, such as Bored Apes. Prices run well into the hundreds of thousands of dollars per NFT in that collection. Just as with fine art or other rare goods, there is virtually no liquidity or easily traded market for such highly-priced rare goods.
So, if a Bored Apes NFT holder needs some cash but doesn’t want to sell outright, what can they do? It appears that Yuga Labs has discovered a solution.
Holders of the original Bored Apes NFTs received a large portion of the newly minted ApeCoins. This achieves what might have first seemed impossible. Now, holders of these highly valuable, but very difficult to sell NFTs, have received fungible and easy to sell ApeCoins that can quickly be sold on various major exchanges.
As long as the general public is willing to buy ApeCoin, the holders of the original NFTs can generate a lot of cash without having to give up their highly prized Bored Ape NFTs. The only issue is that the folks buying the ApeCoin token don’t actually get the benefits of owning the original NFTs.
So, what is the appeal of holding a low-priced APE token instead of a Bored Apes Yacht Club NFT?
ApeCoin DAO
ApeCoin markets itself as a utility token. This means that it is a cryptocurrency that provides benefits to holders. The first such utility is in the game Benji Bananas. Benji Bananas used to be a free-to-play game, but it has now been repositioned as a play-to-earn game using ApeCoin as its currency.
In addition to that one use, ApeCoin may take on other purposes in the future. For one, it is also a governance token. Holders have voting authority over a decentralized autonomous organization (DAO) that is set to govern the ApeCoin community.
However, it remains to be seen how much actual power minority holders in the DAO will have. That is because key centralized holders, such as Yuga Labs and Andreessen Horowitz, seem likely to have an outsized holding of ApeCoins and thus, voting rights.
One other potential issue that new coins have is running afoul of the U.S. Securities and Exchange Commission’s (SEC) regulations around unlicensed securities. Yuga Labs presumably didn’t want to have any issues with the SEC. Thus, it decided to have the ApeCoin’s DAO launch the token officially instead of running it through Yuga itself.
However, it remains a test of securities law whether the SEC will find the DAO to be a sufficiently independent entity. If not, it may still fall under usual securities law and the agency could take regulatory action.
ApeCoin Verdict
ApeCoin appears to be an experiment in trying to extract value from non-fungible tokens without having to sell the underlying NFTs. The branding of the Bored Apes Yacht Club can be used to transfer some of that prestige into a broader market. However, retail investors owning the tokens don’t necessarily get the same benefits — either in terms of coolness or future perks — of the NFTs. For now, there is the Benji Bananas game and the uncertain utility of the DAO.
In the old days, venture capital investors generally had to get a company to a reasonable degree of success to earn money. To reach the initial public offering and cash out, a company had to have a working product and demonstrate real revenue growth.
Now, the rules have changed. ApeCoin is allowing venture capitalists and Bored Ape holders to dump their ApeCoin and cash out before delivering much of anything in terms of practical uses for ApeCoin or the Bored Apes ecosystem. Retail investors are being asked to pay up for ApeCoin now and hope something useful materializes with it later. Buyer beware.
On the date of publication, Ian Bezek did not have (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.
