Tag: Apecoin

When Wells notice? Yuga Labs, the SEC is coming for you

I’ve been saying for months now that ApeCoin is an unregistered penny stock offering, and Yuga Labs should expect the SEC to come knocking.

Well, guess what? They are knocking. The SEC is probing Yuga Labs to see if Bored Ape Yacht Club NFTs — as well as ApeCoin — are unregistered securities offerings. On Oct. 10, Bloomberg wrote: [Bloomberg]

“The SEC is examining whether certain nonfungible tokens from the Miami-based company are more akin to stocks and should follow the same disclosure rules, according to a person familiar with the matter, who asked not to be named because the probe is private. Wall Street’s main regulator is also examining the distribution of ApeCoin, which was given to holders of Bored Ape Yacht Club and related NFTs.”

Yuga Labs is the parent company of Bored Ape Yacht Club, a collection of NFTs with spin-off NFT projects, such as Mutant Ape Yacht Club and Bored Ape Kennel Club. Yuga is also behind the yet-to-launch MMO game Otherside — which it is building in partnership with Animoca Brands — and the issuance of Otherdeeds, NFTs representing land parcels in the game. 

Bored Ape Yacht Club launched ApeCoin, an ERC20 token, on March 17. The very same day, ApeCoin listed on Coinbase — a first for a coin, but then two Andreessen Horowitz (a16z) people sit on the Coinbase board, and a16z is a major Yuga Labs backer. 

Are Bored Apes securities?

A token is deemed a security if it passes the Howey test, which says that an investment contract — a security — exists “when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” [SEC]

Are NFTs securities? Possibly? Maybe? They are non-fungible, so the argument is not so clear. Each NFT is unique, and in the case of Bored Apes Yacht Club, they represent art. Regulators have yet to issue any strong warnings against NFTs. 

However, some NFTs do have characteristics of securities. In April, two state regulators ordered Sand Vegas Casino Club to stop selling NFTs, alleging the Cryprus company was illegally offering unregistered securities. Sand Vegas had promised holders of its Gambling Apes NFTs profits from the proceeds of the casinos, so you can see why they landed into trouble. [Texas order; Alabama order; Coindesk] 

Otherdeed land sale

Likewise, Yuga Labs’ Otherdeed NFTs have characteristics of securities. Otherdeeds represent 200,000 plots of virtual land in the upcoming Otherside metaverse.  

Yuga Labs sold 55,000 Otherdeeds on April 30, 2022, in what it called the “biggest mint in NFT history.” Yuga netted over $300 million worth of ApeCoin in the sale. ApeCoin was the only currency accepted. [Twitter] 

Specific wording in the terms makes it sound like Yuga suspected Otherdeeds might attract the attention of regulators. You had to essentially agree that you were buying these for fun, not for profit: [Otherdeed purchase agreement, archive] 

“Artistic Purposes Only. Purchaser represents and warrants that Purchaser (A) is purchasing the Otherdeed for personal enjoyment purposes, and (B) is not purchasing any Otherdeed with the intent or expectation of profits from any appreciation in value or otherwise from the Otherdeed or any Access Rights that may from time to time be granted by Animoca or third parties.”

Do Otherdeeds pass the Howey test? Let’s see. 

  • Was there an investment of money? Yes. Buyers paid 305 ApeCoin to purchase an Otherdeed on April 30. 
  • Was there a common enterprise? Yes. The Otherside game. Yuga sold virtual plots of land to investors in exchange for the promise of owning land in a functioning metaverse tomorrow.
  • Was there an expectation of profit? Yes. Despite the language in the terms, Otherdeed owners immediately began flipping their Otherdeeds for more money. Case in point: Otherdeed #59906 sold for 625 ETH ($1.5 million) just 10 days later. Some Otherdeeds even came with one or more creatures on them called Kodas, also represented by NFTs. Otherdeeds with Kodas fetch a significantly higher price on third-party marketplaces. [The Block; OpenSea]
  • Was the profit to be derived from the efforts of others? Yes. If the investor has a significant hand in the success of an investment, it’s most likely not an investment. Otherdeeds are meant to involve the participants in the game. According to Otherside’s website, “Rather than a static representation of a piece of land, your Otherdeed is designed to evolve along with what you choose to do in the game.” But the game does not exist yet. So, as of now, everything is based on the efforts of Yuga and Animoca and their ongoing promotion of the game. [Website]

ApeCoin, a clear case

While Otherdeeds could be a securities offering, there is an even stronger case to be made that ApeCoin is a security.  

ApeCoin is fungible, and it carries voting rights. Critically, its value is dependent on the work of Yuga Labs. 

SEC Chair Gary Gensler has given clear warning about ERC20 tokens. He has already stated, more than once, that most cryptocurrencies are securities. [CNBC; SEC]  

“I think, and my predecessors thought this as well, that most of these tokens are in fact that the public is investing, anticipating and hoping for profit, based on somebody else’s efforts.”

Yuga Labs never sold ApeCoin directly for cash. However, they did sell Bored Ape and Mutant Ape NFTs for money. If you were a holder of one of these NFTs, you got an allotment of ApeCoin worth up to $80,000. Many chose to HODL, hoping the price would go up. It did, for a while. [Decrypt]

When Yuga Labs held its massive Otherdeed land sale, ApeCoin surged to $27.50. It’s now trading for just under $5.

But we’re decentralized!

Yuga Labs went to great lengths to hide the fact that they were behind ApeCoin, saying it was issued by the ApeCoin DAO made up of members who were not Yuga Labs employees. APE Foundation was also formed to administer the decisions of the ApeCoin DAO. 

If you hold ApeCoin, you get voting rights — akin to voting shares in a company. You can vote on proposals put forth by the ApeCoin DAO. In June, ApeCoin holders voted to keep the token on the Ethereum blockchain. [Bloomberg]

Around the time that ApeCoin launched, Yuga Labs received a $450 million round led by a16z. Investors in the round also received a distribution of ApeCoin. 

Here’s how 1 trillion ApeCoin were initially distributed:

  • 1% to charity
  • 8% to Yuga Labs founders 
  • 14% to launch partners, including a16z and Animoca 
  • 15% to Yuga Labs
  • 15% to Bored Ape/Mutant Ape owners
  • 47% to ApeCoin DAO

In mid-September, the ApeCoin DAO released 26 million ApeCoins, so investors could freely dump their bags on retailers via Coinbase. [Decrypt]

David Gerard explains exactly how VCs make millions of dollars via securities fraud: [David Gerard]

“The entire venture capital push for Web3 is so that Andreesen Horowitz (a16z) and friends can dump ill-regulated tokens on retail as fast as possible. This gives the VCs very fast liquidity events — the bit where they make money — and much faster than they get from investing in actual companies.”

ApeCoin will also be the official token of the Otherside game, supposedly to prove that ApeCoin is a decentralized utility token and not an altcoin that investors are hoping to cash out on. 

If you are wondering how all of this decentralized nonsense comes into play — Bill Hinman, when he was working for the SEC as the director of the Division of Corporation Finance, declared that ETH was not a security because it was “sufficiently decentralized.” [SEC] 

Yuga Labs is trying to model itself after Ethereum, so it can effectively say to the SEC, “You can’t sue us, bro!”

They’ve got someone good coaching them. Hinman, who has since retired from the SEC, now works for a16z. [a16z] 

Securities laws exist to prevent fraud. Companies that offer securities are subject to strict disclosure rules for this reason — to protect investors. Yuga Labs main founders Greg Solano and Wylie Aronow thought it would be great to remain CryptoGarga and GordonGoner until they were “doxxed.” [Buzzfeed] 

They were upset when Buzzfeed wrote that story, and they shamelessly brought a lot of ire from the crypto community onto the author of the piece, when their true identities were something they should have openly and responsibly disclosed from day one. 

Solano and Wylie are about to get an education in securities laws, along with the sobering realization they were never witty or clever or even lucky, just pawns in a game that VCs have been playing for years.

With celebs shilling their Bored Ape NFTs on national TV, Bored Apes Yacht Club has gotten a ridiculous amount of press. The SEC will want to make an example of Yuga Labs. I suspect, at some point, Solano and Wylie can look forward to a Wells notice from the SEC, giving them a heads up that an enforcement action is coming down the pipes.

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Posted on by Amy Castor 0

The Art Angle: ‘The Whole Bored Ape Yacht Club Phenomenon, Explained’

I was recently interviewed by Artnet News Editor Julia Halperin on Yuga Lab’s Bored Ape Yacht Club project for an Art Angle podcast. We talked about how Yuga Labs got its start, the launch of BAYC, and how Yuga is currently transforming itself into a gaming company. 

One thing I keep stressing is the importance of fungible tokens like Apecoin in these NFT projects. They allow investors and insiders to sell to the general public, while BAYC itself becomes just a publicity stunt. 

It’s very difficult to find buyers outside of the crypto universe for a $250,000 NFT. You are much better off creating an ERC20 token and getting it listed on Coinbase — which is exactly what Yuga Labs did in conjunction with its backer a16z.

In any case, it was a delight speaking with Julia. She asked a lot of good questions.

You can listen to the podcast on iTunes and on Spotify. The podcast was based on a related story I wrote on BAYC for Artnet News last month.

Posted on by Amy Castor 0

The gorilla in the room: Yuga Labs investors pretend to care about the planet. They don’t.

Yuga Labs, the startup behind the popular Bored Apes Yacht Club project, finally got its long-rumored investment from venture capitalist firm Andreessen Horowitz. It now has plenty of funds to transition into a game company — and create the illusion that its newly launched Apecoin is something other than an unregistered securities offering. 

Apecoin, an ERC20 token that lives on Ethereum, is a path to liquidity from Bored Ape Yacht Club NFTs, of which many more are soon to come in the form of virtual land. “Blue-chip” NFTs are too expensive for the average Joe, and you can’t buy a fraction of an NFT, the way you can a fungible token.

As with the Bored Ape NFTs, Apecoin has zero intrinsic value. The money you get when you cash out comes from new investors buying in. Unlike virtual land or ERC20 tokens, the supply of suckers in the world is finite. Eventually, the tokens will crash in value and retailers will get stuck holding the bag.

After acquiring the IP for CryptoPunks and Meebits, Yuga Labs now controls three of the most popular NFT collections. All three live on Ethereum, a proof of work blockchain that consumes a country’s worth of energy. Each transaction on Ethereum is equivalent to the power consumption of an average U.S. household over nine days, according to Digiconomist. 

Destroying the planet, one NFT at a time

Other participants in Yuga Labs’ $450 million round, which valued the company at $4 billion, include Animoca Brands, The Sandbox, LionTree, Sound Ventures, FTX, and MoonPay.  

Animoca Brands is the Hong Kong-based outfit behind the play-to-earn game Benji Bananas, which plans to incorporate Apecoin — an attempt to give the token utility and avoid regulatory scrutiny. P2E games have received criticism for being digital sweatshops. Players, often in poor areas of the world, are required to purchase an NFT, worth several months’ salary, to start “earning” tokens they then have to sell to recoup their initial investment in the game.  

The Sandbox, a subsidiary of Animoca, is the creator of a play-to-earn game that sells virtual land as NFTs. The company bills itself as “one of the pillars of the open crypto metaverse.” As of September, The Sandbox — ‘The’ is part of its name — owned 31 different BAYC NFTs. 

According to a leaked pitched deck, Yuga Labs plans to create a gaming metaverse and raise another $455 million selling virtual land NFTs. In a recent tweet, Yuga Labs hinted at a new project called “Otherside,” which will accept APE and launch in April. Yuga Labs can create as much virtual land as they want, so maybe they’ll create virtual forests for their virtual primates? 

In the real world, the one we all live in, great apes are running out of natural habitat. Gorillas, chimpanzees, and bonobos are already endangered or critically endangered. A combination of the climate crisis and the destruction of their natural habitats is threatening their very existence as a species. 

By promoting Web3 and Ethereum-based tokens, Yuga Labs is speeding the demise of these creatures. To compensate for this evil, Yuga is throwing chimps a banana by donating 1% of the Apecoin supply of 1 billion to the Jane Goodall Legacy Foundation. (I wrote to Jane Goodall to see how she feels about this. If I get a response, I’ll post the comments here.)

Investment bank LionTree is headed by Aryeh Bourkoff, who told investors in his 2021 year-end letter that climate change is something we should all care about: “Widening our gaze, as the market chases growth, the climate crisis is reminding us that infinite growth on a finite planet is irrational and that we must commit to a long-term outlook guided by purpose rather than short-term gains.” 

Bourkoff appears blind to the hypocrisy of backing an NFT project — or maybe he cares more about the money. Investing in tokens that resemble securities is a lucrative business. Just ask Marc Andreessen, who recently bought a $44.5 million house in Malibu down the street from the $177 million home he bought in October. Forbes estimates his net worth at $1.7 billion.

Sound Ventures is a fund controlled by Guy Oseary and actor-turned investor Ashton Kutcher, who also pretends to care about the planet.

Kutcher was a founding member of World War Zero, an American coalition launched by John Kerry in 2019 to fight the climate crisis. He and his wife bought a Hummer EV, and they live in a Los Angeles home powered entirely by solar energy.

“Ashton and Mila are concerned about the quality of the soil, the purity of the food they eat, and the water they drink. The ideals of sustainability and regenerative farming aren’t just abstract concepts to them,” the house designer told Architectural Digest.

Crypto exchange FTX is one of Tether’s biggest customers. (If you are not familiar with Tether, its web of lies, and the role it plays in the crypto economy, read my Tether timeline.) The company’s answer to the climate problem is to purchase carbon credits.

Finally, MoonPay is the company behind all the strange celebrity purchases of Bored Ape NFTs, where nobody is quite sure if the celebrities are buying the NFTs themselves, or if they are playing a part in promoting the project, without fully disclosing their motives.

MoonPay’s response to Ethereum’s waste is a similar greenwashing. It claims the media exaggerates the impact of crypto mining on the world and points out that Ethereum has plans to transition to a more energy-efficient proof of stake. Ethereum has talked about shifting to a proof of stake system since 2014. It has yet to make the big move.

These are the backers of Yuga Labs, full of contradictions. On one side of their mouths, they talk about saving the planet or they preach exploitive play-to-earn games as a way for players to “own their digital assets.” (They don’t, the assets are stored in central servers.) And on the other side, they promote Web3 and the metaverse, fuzzy marketing terms that point to ways to justify the creation of new tokens.

It all gets a little tough to stomach when you read reports that climate change is already worse than expected and see actual images of an ice shelf the size of Los Angeles collapsing in Antarctica. 

Another celeb joins the circus

On Thursday night, Madonna announced on social media that she now owns a bored Bored Ape NFT. It’s not clear if she bought the token — or if the token was gifted to her by a certain someone who is using her celebrity status to promote Bored Ape Yacht Club.

The material girl’s manager, Oseary, has known her since he was 17 years old. He’s probably been talking her ear off about Bored Apes since October when he signed a deal to represent Yuga Labs. Now he owns a chunk of the company via Sound Ventures as well. 

Oseary has a history of tapping into his celebrity connections to shill cryptocurrency. He also has a history of investing in alleged unregistered security offerings. 

He and Kutcher previously invested in Ripple. In 2018, they donated $4 million in XRP, the token widely associated with Ripple, to “save the gorillas” on the Ellen Degeneres show. Degeneres has a wildlife fund.  

Two years later, the Securities and Exchange Commission charged Ripple and two of its execs for conducting a $1.3 billion unregistered securities offering. The firm is still battling the lawsuit in court.

History repeated?

Yuga Labs likely never contacted the SEC before launching APE — and there is good reason for that. If they had, the regulator probably would have told them, “No, don’t do this.” So they went ahead and did it anyway, figuring they could get away with it, or worst-case scenario, pay a multi-million-dollar fine years later.

The APE DAO or decentralized autonomous organization, which supposedly launched Apecoin, is not a legal entity. It is also neither decentralized nor autonomous. The Ape Foundation — the committee that enforces decisions made by the DAO — is registered in the Cayman Islands. 

The Ape Foundations’ five members get paid $125,000 in Apecoin for their six-month terms. The Apecoin community votes on whether they get reinstated. Votes are weighted by how many Apecoin you own. Since Yuga Labs and its investors hold the majority of Apecoin, ultimately, they decide who gets reinstated and what proposals get passed.

Reddit founder Alexis Ohanian serves on the Apecoin Foundation. (The other four members are Amy Wu, who leads a venture fund at FTX; Maaria Bajwa, a venture investor at Sound Ventures; Yat Siu, the cofounder of Animoca Brands, and Dean Steinbeck, cofounder of Horizen Labs, one of the companies that partnered with Yuga Labs in developing Apecoin.) 

Like all the others, Ohanian also talks a big story when it comes to combatting climate change. He recently launched the 776 Foundation, a fellowship that will give $20 million to young people over the next decade to work on climate solutions.

People who care about the planet, don’t back massive NFT projects. They just don’t. Every NFT transaction on Ethereum comes at a destructive cost to the environment.

Bored Ape Yacht Club is about creating perceived value where there is none to pump tokens. Not only do retail investors risk losing money, but the project itself is contributing to our last remaining chances at escaping climate disaster — all in the hopes of making a few grifters rich.   

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News: Yuga Labs goes APE, Meebits insider trading, ConsenSys raises another $450M to focus on Web3 buzzword

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BAYC: Money for nothing

Yuga Labs finally launched its Apecoin — oops, sorry, not Yuga, but the Apecoin DAO launched APE. On March 17, the same day the coin launched, it was listed on all the major crypto exchanges in the U.S., including Coinbase, Kraken, and Gemini. (My blog post)

Apecoin has a fixed supply of 1 billion. So far, about 130 million Apecoins have entered circulation, according to CoinGecko. Today, Apecoin is up to $11, and 40% of the volume is on Binance trading against two stablecoins with dubious backing — USDT (35%) and BUSD (5%).

Soon after Apecoin launched, Bored Ape Yacht Club NFT holders took to Twitter, proclaiming how rich they had become overnight. Each bored ape holder got ~10,094 APE tokens, valued anywhere between $80,000 to $200,000.

It’s the same Ponzi promotion story we have heard since bitcoin launched in 2009 — buy this token and you will get rich for free. Everyone who holds Apecoin now wants you to buy APE, so the value goes up, and they can cash out. That value right now is being artificially pumped by tethers.

Hundreds of millions of dollars worth of Apecoin also went to Yuga Labs founders, Yuga Labs itself, contributors to the project, and to the newly formed Ape DAO. Just like that, everyone is rich.

What about Andreessen Horowitz (a16z)? How many Apecoins were they allotted? We may never be privy to the details.

“A spokesperson for Yuga said Andreessen received coins in exchange for assisting with ‘overall DAO governance design’……Yuga and Andreessen both declined to comment on the potential financing.” (FT)

Apecoin serves as a governance token, giving holders voting rights in the newly formed Ape DAO. Big holders, like Yuga Labs and a16z, have a greater say in the future of BAYC. This is the problem with the Ape DAO — it’s centralized decision-making. (Bloomberg)

Someone figured out a clever way to make $1.1 million by “borrowing” another person’s bored apes just long enough to claim Apecoin. (The block; Web3 is going just great)

Benji Bananas, the play-to-earn game that Yuga Labs is using via Animoca Brands to give Apecoin some utility so the SEC doesn’t sue its issuers, was bad and exploitative from the get-go. (Twitter)

The Block got a hold of Yuga Labs’ pitch deck. According to the deck, Yuga Labs hopes to make $455 million in 2022 through virtual land sales. It’s aiming to build a gaming metaverse called MetaRPG, compatible with a host of NFTs, powered by Apecoin. (The Block; Pitch Deck)

Yes, that’s right. Yuga’s next project is selling make-believe land. You can buy the land with APE.

Bored Ape Yacht Club NFTs along with Apecoin are inherently worthless. The BAYC project doesn’t offer a service; it doesn’t manufacture a product. Its business model is based on filling a balloon with hot air and getting high-profile celebs to shill its product on prime-time TV.

Sure, holding a bored ape NFT will gain you entrance into a warehouse party — but they don’t even work properly for that. NFTs literally, don’t work for anything they are intended to do.  

Insiders acquire Meebits

​​On March 11, Yuga Labs announced it acquired the IP for CryptoPunks and Meebits collections from Larva Labs. It’s giving the NFT holders the IP, so they can create derivative products, like hoodies, T-shirts, and other merch. (Press release; Techcrunch) 

Yuga also got 423 Punks and 1,711 Meebits in the deal. The terms were undisclosed, so we don’t know how much they paid Larva Labs.

The floor price of Meebits doubled after the announcement, climbing to 6.134 ETH ($15,800).

Insiders took the opportunity to buy Meebits in advance and make some easy money.

Lesley Silverman, the head of digital assets at United Talent Agency, formally representing Larva Labs, is one of those people. She bought two Meebits in the days prior to the announcement. (Twitter)

All told, 14 Ethereum addresses, with no previous history of mainstream NFT collection purchases, quietly acquired 159 Meebits between March 5 and March 11. The top address purchased 24 Meebits at once on March 5. (Bloomberg)

Insider trading in the securities business is illegal and comes with harsh consequences, but NFTs are not regulated, so people get away with this stuff, literally, all of the time.

Smile for the camera

Yuga Labs and its partner Animoca Brands want bored ape holders to submit a government-issued ID and have their photos taken to confirm their real identities, so they can register for a mystery project. Bored ape holders are pissed off, some thinking they were going to be turned over to the IRS. (Cointelegraph)

The irony is that this all happened only a month after Yuga Lab’s founders made a big to-do about Buzzfeed revealing their true identities. They responded by directing an onslaught of anger and harassment from the crypto community toward Buzzfeed reporter Katie Notopoulos.

Coinbase class-action

Apecoin resembles a security, like a stock or bond, but that didn’t stop Coinbase from listing it asap.

​​SEC Chair Gary Gensler has already stated that Coinbase lists dozens of tokens that may be securities. According to securities laws, exchanges that list securities must register with the SEC as a securities exchange or a broker-dealer. Coinbase has not registered as either.

A recent class-action against Coinbase alleges that 79 tokens the exchange lists meet the definition of securities, but plaintiffs were not warned of the risks. The claim, filed by three Coinbase users, asks for monetary relief and an injunction enjoining Coinbase from offering the tokens without having to register with the SEC. (Complaint; Cointelegraph)

I think you should leave

Time magazine wrote a lengthy profile on Ethereum founder Vitalik Buterin, calling him the “prince of crypto.” Buterin is concerned about what Ethereum has morphed into.

“Buterin worries about the dangers to overeager investors, the soaring transaction fees, and the shameless displays of wealth that have come to dominate public perception of crypto.” (Time)

It’s funny Buterin should have these feelings.

Ethereum was literally designed for all of these things. It fueled the ICO bubble of 2017. Most ICO tokens live on the Ethereum blockchain, just as most NFT tokens today are bought and sold on Ethereum. And Ethereum’s proof-of-work consumes the energy of a small country.

Buterin is the guy in the hotdog suit in a sketch from the comedy series “I think you should leave.”

In the sketch, a hot-dog-shaped car has crashed through the window of a menswear shop. Everyone is looking around to see who is responsible. Suddenly a man in a hot-dog costume appears out of nowhere and says, “Yeah, whoever did this, just confess. We promise we won’t be mad!”

Never forget, Vitalik created Ethereum because World of Warcraft nerfed his favorite warlock. 

VCs shovel more millions into ConsenSys

Joe Lubin’s ConsenSys got another $450 million round of funding with a $7 billion valuation. This comes just four months after its Series C that raised $200 million and valued it at $3 billion.

The company has more than doubled in value, thanks to the venture capitalists.

Lubin is one of the cofounders of Ethereum who struck it rich in Ethereum’s early crowdfunding sale.

ConsenSys invested in ICO projects throughout 2017 — mostly hilariously bad ideas like Civil. When none of these projects had any hope of making it, and some like Airfox and Paragon, had to pay hefty fees to the SEC for securities violations, ConsenSys went through a “strategic transformation.” It cut staff and converted its failing portfolio business into a separate company called ConsenSys Mesh, effectively pushing the ugly mess off into the corner.

Nowadays, Lubin is busy hyping software like Infrura and Metamask to build Web3.

Stephen Dhiel explains why Web3 is “bullshit.”

The latest round will “accelerate the global adoption” of Infura and ConsenSys’s efforts to “drive NFT adoption for artists, content creators, brands, intellectual property owners, game publishers, and sports leagues.” (ConsenSys blog; Decrypt)

Anyone who thinks NFTs are going to crash soon has little understanding of how much money VCs are shoveling into this space. This money will keep the space propped up long enough for investors and insiders to cash out, just like they did with ICO tokens.

Elsewhere in cryptoland

Vice did a story on nocoiners — bitcoin skeptics, as we call ourselves. It has some good content, but also a misleading flaw: it makes it seem that nocoiners are insignificant because the “nocoiner industry” moves a tiny amount of money compared to the crypto industry. (Vice)

NYT reporter Kevin Roose wrote a lengthy story explaining crypto to the masses. Don’t be fooled. This is a piece of crypto boosterism, where Roose continually tries to convince the reader that he is a “crypto moderate.” The story is especially pernicious because of its “reasonable” tone. (New York Times)

Vice reporter Edward Ongweso went to the first SXSW post-covid, only to find out it was overtaken by crypto-mania and NFT nonsense, like 3D anthropomorphic rabbits plastered everywhere, “which I gathered were somehow related to crypto though it wasn’t clear how.” (Vice)

Mark Zuckerberg says that in the coming months you’ll be able to mint NFTs within Instagram. “I would hope that, you know, the clothing that your avatar is wearing in the metaverse, you know, can be basically minted as an NFT and you can take it between your different places,” he said. (Engadget)

There is no actual metaverse. Zuckerberg is lying. Metaverse is a meaningless marketing term used by companies in an effort to separate people from their money.

“Zuckerberg created this conversation to distract from his problems and made fertile ground for truly evil people to profit,” Ed Zitron wrote in a blog post last month.

Jorge Stolfi, a computer science professor in Brazil, says Web3 is nothing more than a new way to frame cypherpunk’s utopia: “The cypherpunks are a bunch of ‘socially challenged’ nerds who dream of building a society on the internet that is totally beyond the reach of governments. That the cops cannot monitor, regulate, or control.” (Reddit: here and here)

The CFTC is looking into Binance to see if the exchange permitted U.S. residents to buy and sell derivatives traded on its platform. (Bloomberg)

Also, Binance has stopped serving residents of Ontario, this time for real. (Binance Letter of Undertaking and Acknowledgment; OSC press release)

Münecat just came out with a brilliant video (100 minutes) explaining Web 3.0. Picture this: The year is 2063, and the global currency is Moosecoin. (Youtube)

Wikipedia editor and software engineer Molly White did a podcast with “Scam Economy” talking about her “Web3 is going just great” project. (Youtube)

If you haven’t read it yet, this Verge article on Tron CEO Justin Sun is an amazing piece of reporting. Sun has a huge tolerance for risk. The story also explains what happened with Poloniex, the crypto exchange that Circle bought in early 2018 for $400 million and spun out for a $156 million loss. (Verge)

Me in the news

I recently wrote a story on BAYC for Artnet News, and one on Ethereum’s move to POS for MIT Tech Review. I did a podcast for Artist’s Well and made some minor updates to my “Bitcoin Widow” review.

Posted on by Amy Castor 1

Bored Apes Yacht Club launches Apecoin. It looks like an unregistered penny stock offering  

The Bored Ape Yacht Club project now has a fungible token called Apecoin (APE), which officially launched today.

The announcement came from Apecoin itself, in the form of a Tweet thread and a post on the new APEcoin website. 

Yuga Labs, the startup behind Bored Apes Yacht Club, is trying to distance itself from its own coin — much in the same way that Ripple tried to distance itself from XRP.  

Apecoin is like a ventriloquist’s dummy on the lap of Yuga Labs. The dummy is doing all the talking, and we are supposed to pretend that we don’t see Yuga Lab’s lips moving. 

Yuga Labs developed its Ethereum-based ERC20 token with help from blockchain developer Horizen Labs, blockchain game company Animoca Brands, and law firm Fenwick & West.  

The goal here is to create a new magic bean that can be sold for real money, without having to register that magic bean with the Securities and Exchange Commission. Yuga Labs founders think all they have to do is make sure the coin is “decentralized” and has some sort of utility, outside of “number go up.”

Yuga Labs is calling its coin “a token for culture, gaming, and commerce.” Culture is a completely meaningless word here. And I’m not sure what commerce means either. I’m guessing it means you will be able to buy things, potentially even bored ape NFTs, with the token.

There will be 1 billion Apecoins, and 150 million will be airdropped to holders of bored ape or mutant ape NFTs. They can claim their coins on Apecoin.com for up to 90 days. 

Also, starting today, the coin will be listed on several major exchanges: Coinbase, FTX, Kraken, and Gemini, according to a tweet by Guy Oseary, who represents Yuga Labs in the entertainment sector. APE will also be listed on OKX, Binance, and Binance US.

Coins tend to shoot up in price as soon as they get listed on Coinbase, the largest crypto exchange in the U.S. 

It’s decentralized, see?

Speaking through Apecoin, Yuga Labs also announced an Apecoin DAO, or decentralized autonomous organization. If you own APE, you are a member of a DAO, and you get to weigh in on important decision-making, probably things like what bands will play at the next warehouse party.

I won’t go into all the details, but if you are interested, an Apecoin forum addresses how the DAO works. 

In 2018, Bill Hinman, who was then the director of the SEC’s Division of Corporation Finance, stated that ether (ETH), the native crypto of Ethereum, was not a security because it was sufficiently decentralized. Ever since that time, token projects have been trying to copy Ethereum, and come out with something that is decentralized, even as the SEC tried to walk back how significant this statement was when Ripple tried to use it in the XRP case. 

However centralized the actual operations are, “decentralized” only ever meant “you can’t sue me, bro.”

DAOs are supposed to be decentralized, but they never are. Similarly, the Apecoin DAO will have its own central gatekeeper: the Ape Foundation.  

The Ape Foundation is based in the Cayman Islands, and it maintains the Apecoin.com website and the Apecoin Twitter account.

Members include Alexis Ohanian, founder of Reddit; Amy Wu, who leads a venture fund at crypto exchange FTX; Maaria Bajwa, a venture investor at Sound Ventures; Yat Siu, cofounder of Animoca Brands, and Dean Steinbeck, cofounder of Horizen Labs. 

All of these members own one or more bored ape NFTs. Advisors and contributors in token projects are generally paid in magic beans, so I suspect they got plenty of APE for their efforts, too.

Anyone who was around the crypto space in 2016 remembers the earliest DAO — called “The DAO.” After the project stupendously crashed and burned, the SEC came out with an investigative report, saying the DAO’s tokens were securities. Still, that hasn’t stopped thousands of DAOs from launching this year. There is even a website now that tracks DAOs.

In 2017, we had initial coin offerings. In 2022, DAO governance tokens are stepping in to take their place — and they resemble offerings of securities in all the same way ICO tokens do. 

Play-to-earn

Yuga Labs knows it is not enough for Apecoin to simply be a governance token. It needs more utility than that, so the coin will be incorporated in a game app — and that’s where Animoca Brands comes in. 

The game developer converted its mobile game Benji Bananas to play-to-earn for the occasion. By playing Benji Bananas you earn tokens that can be swapped for ApeCoin starting in Q2 2022. The game is available on the App Store and Google Play.

Benji Bananas is an action game, where you make Benji the monkey swing from vine to vine through the jungle, collecting bananas. If you want to play, you have to first buy a Benji Pass, which is an NFT. Animoca offers more details in a Medium post. 

Play-to-earn games have been criticized as a growing cancer in the gaming space, where they transform games into a grinding, difficult slog. They are known to target vulnerable populations in countries like the Philippines, where people use the game as a way to earn a living. If players lose money or the in-game token drops in value, they risk sinking ever deeper into debt, having to take out loans from other players to stay in the game.

Somehow, I don’t think a banana game will be the biggest use case for Apecoins. Like most ERC20 tokens, the biggest use case will be speculating on its price: buying APE and hoping it goes up in value.

One for you, three for me

Yuga is creating 1 billion APE. A portion will be unlocked over a period of four years, starting on March 17, 2022. The distribution looks like this: 

  • 470 million to the DAO treasury 
  • 150 million to bored/mutant ape holders 
  • 150 million to Yuga Labs 
  • 140 million to launch contributors
  • 80 million to Yuga Labs founders  
  • 10 million to charity 

Notice how many APE Yuga Labs is setting aside for itself, and for all its contributors. The firm is happy to distance itself from the Apecoin project, but not the piles of APE it is getting.

A few weeks ago, the Financial Times wrote that Andreessen Horowitz (a16z) was in investment talks with Yuga Labs, which was seeking to sell a multi-million dollar stake in a new funding round. 

We don’t know yet if that deal has gone through, but I suspect if and when it does, a16z will get a large allotment of Apecoin. The venture capital firm has two directors sitting on Coinbase’s board, so they likely played a key role in getting the token listed. (Note how a16z’s shitcoin bag gets listed on Coinbase routinely.)

This is a win-win deal for a16z. If the SEC steps in and deems Apecoin an unregistered security, which I can totally see happening, a16z is not assuming any risk. Yuga Labs is taking on all of the risks. A16z simply gets tokens they can dump on the general population — a quick return on their investment. 

The founders of Yuga Labs imagine they can create a token out of thin air, pay themselves 80 million APE — and another 150 million for their company — and regulators are going to sit back and not blink an eye.

I would be curious to know if Yuga Labs even reached out to the SEC before launching APE.

In 2019, the SEC published a framework for analyzing whether a digital asset is an investment contract and, therefore, a security. The “not a security” path for most tokens is a fraught one. 

We’ve already seen several ICO projects pay the price of selling unregistered securities. Telegram had to return $1.2 billion to investors and pay $18.5 million in penalties. Block.one had to pay a $24 million penalty. Similarly, these companies also argued their tokens were decentralized and had utility. 

Yuga Labs is unwilling to learn lessons from the past. They think they know better. And a16z encourages this stuff directly because they know the game is rigged in their favor.

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Posted on by Amy Castor 0