The Bored Ape Yacht Club is one of the most prominent collections of nonfungible tokens (NFTs) in the world. The series of 10,000 blockchain-based cartoon primates, worth roughly $3 billion at today’s prices, has become ubiquitous in internet culture. One particularly sad-looking ape with a party hat and a stud earring recently received a $276,000 bid at auction on the online marketplace OpenSea (though that likely won’t be enough to win).
On March 16, people associated with the Bored Ape Yacht Club launched a cryptocurrency called ApeCoin. The pitch to investors was vague: support projects related to the Bored Apes and “community-led initiatives that drive culture forward into the metaverse.” ApeCoin debuted on major exchanges like Binance and Coinbase and, after spiking as high as $40 during its first day, the price of the coin has since settled between $7 and $17 (ApeCoin is worth about $12 per coin as of March 23).
Insiders behind the Bored Apes could be getting very, very wealthy on the deal. Before retail investors could buy ApeCoins on exchanges, the organizations in charge of the coin doled out about $380 million in ApeCoins to founders, executives, and earliest investors in Yuga Labs. This includes Bored Ape co-founders Greg Solano and Wylie Aronow; executives at Yuga Labs, the parent company of Bored Ape Yacht Club; and investors at the venture capital firm Andreessen Horowitz, Yuga Labs’ lead investor.
The saga reveals that tech financing in the so-called Web3 economy, an internet built on ostensibly fully decentralized blockchains, is very similar to how tech financing has always worked before crypto was popularized: venture capital and public offerings. The launch of ApeCoin is a way to raise money, give voting interest to supporters, and provide investors and executives with substantial benefits.
Planet of the ApeCoin
The organizational structure behind the Bored Apes empire is complex. It’s akin to a company with a foundation and a fan club. But the fan club is issuing billions of dollars in cryptocurrency, and the foundation is administering the decisions of the fan club.
Yuga Labs, a multibillion-dollar tech company, says it is not in charge of the coin, but rather it was started by its customers and community of supporters. There is ApeCoin DAO, a decentralized autonomous organization (DAO) that serves as a voting body to decide how coins are allocated and governed, as well as any new projects or partnerships involving the coin. The APE Foundation, a separate entity, executes the decisions of the DAO. Reddit co-founder Alexis Ohanian is one of the foundation’s board members.
“Yuga Labs was obviously part of the group that decided ApeCoin should exist,” company spokesperson Kelly Sims Acocella said in an email to Quartz. “It’s been something the community has been asking for a long time.” Acocella explained that Yuga Labs “gifted” certain intellectual property rights to the DAO, which it used to start the coin.
When ApeCoin launched, the DAO put 1 billion coins in circulation, “airdropping”—or sending them to pre-selected wallets—a large portion to people associated with Bored Ape Yacht Club. According to ApeCoin DAO’s website, 15% of the coins went to Yuga Labs, 14% went to “launch contributors (including investors Andreessen Horowitz), 8% were allocated to co-founders Solano and Aronow, and 1% went to the Jane Goodall Legacy Foundation, a charity started by the famed primatologist. The 150 million tokens given to Yuga Labs are worth around $1.8 billion at the time of writing, though those coins are “locked”—or can’t be traded—for at least a year. About $120 million in unlocked coins were given to investors like Andreessen up-front.
Since ownership of ApeCoin confers voting benefits in its governance, this group of key insiders—Yuga Labs, the co-founders, and investors—are not only cashing in because of the design of the coin, but they also wield sizable influence over the coin.
The tokenomics of Web3
The key question for the US Securities Exchange Commission (SEC) is whether ApeCoin represents one of the largest distributions of unauthorized securities in recent memory.
The SEC has already shut down many initial coin offerings (or ICOs) because they were classified as unregistered securities. Unregistered securities are illegal stocks that aren’t registered with the SEC. ApeCoin raises serious questions about whether crypto companies can issue (or authorize) tokens under the umbrella of a “decentralized” structure, or whether they are, as many analysts argue, likely unregistered securities
SEC chair Gary Gensler has suggested in recent months that many cryptocurrencies are likely securities. But the SEC has also been reticent about declaring precisely when a crypto asset qualifies as a security. “We do not have a measuring box like at airports, where if a bag fits inside it can be carried on, and otherwise must be checked,” SEC Commissioner Caroline A. Crenshaw said in 2021. Additionally, a recent Biden administration executive order did little to rein in the mostly-unregulated crypto industry.
The concept of Web3, as posited by crypto advocates, rejects the centralized organization of today’s tech giants including Facebook, Google, and TikTok, among the most profitable companies in the world. Web3 proponents favor decentralized control of power and digital currency.
Despite the talk of decentralization, centralized companies like Yuga Labs, which owns the Bored Apes, have done well. Shortly after it bought the intellectual property rights of CryptoPunks and Meebits, two other blue-chip NFT collections, Yuga Labs announced a seed funding round led by the venture capital firm Andreessen Horowitz on March 22. The company raised $450 million and is now valued at $3.6 billion.
Ultimately, the ownership and funding structure behind the Bored Apes project isn’t all that different. NFTs are owned by a conventional centralized company, funded by the largest traditional venture capital firms, and key stakeholders are making lots of money—in US dollars—in the process.