Last weekend, crypto-media company Yuga Labs organized what is sure to be the largest launch of a non-fungible token (NFT) in the history of the Ethereum blockchain: a sale of virtual land in a future metaverse called Otherside.
The company sold tokens tied to 55,000 different properties at a price of $6,500 each, generating about $300 million in revenue. (The NFTs were priced exclusively in ApeCoin, Yuga Labs' official cryptocurrency, whose volatility makes it difficult to commit to an exact number.)
The sale also acted as a sort of unofficial funding round for a company that received $450 million in prime venture funding earlier this year.
Yuga Labs is the company behind the Bored Ape Yacht Club, which remains the most valuable NFT collection in the crypto ecosystem. The company didn't even have to say what it was going to do with the money when it announced the sale of the Otherside property; the fact that it's near the Bored Apes was more than enough reason for investors to get involved.
And they did, despite a series of systemic failures.
Ethereum is a notoriously shaky network with a fee system designed to increase rewards for miners when there is more activity on the blockchain. (Each block on the chain can only host a certain number of validated transactions - traders can choose to spend more fees for the privilege of getting to the front of the queue). Activity during Saturday night's Otherside sale was high, and so were the fees: traders paid over $100 million in fees alone.
And since all pending transactions on Ethereum are listed in a huge list, what clogs up a single NFT project can end up clogging up the entire network. At certain points on Saturday and early Sunday, even simple crypto transfers demanded several thousand dollars in fees.
That meant the $6,500 buy-in was effectively even higher - only investors with liquid cryptocurrencies worth tens of thousands of dollars could benefit from the land rush. And Bored Ape owners were able to skip the entire process and quietly claim free NFTs on the other side while gas prices dropped to reasonable levels. One prominent Ape investor, Jimmy McNelis, boasted that he had to pay only 0.88 ETH in fees to get 144 Otherside lots.
The upshot is that there is indeed a built-in class of land elites on Otherside. Making a claim in Yuga Labs' metaverse was much easier for a Bored Ape owner than for any other kind of NFT whale; for traders who didn't already have hundreds of thousands of dollars invested in the space, it was nearly impossible. (A single Otherside NFT currently costs about $11,000 on the secondary market).
If, as Metaversen proponents like Mark Zuckerberg predict, the creative economy does indeed move into online virtual spaces like this one, we'll all be working on land owned by monkeys - almost a reinterpretation of the medieval economic system of landlordism, with monkeys as rulers.
The decision to hold Saturday's sale in ApeCoin also meant that potential investors had to stock up on the coin before the sale, resulting in a literal pump and dump: The price of a single ApeCoin shot up to $26 before the sale and immediately dropped by nearly 50% as traders exchanged their coins for NFTs.
Yuga Labs responded to the chaos by proposing to shut down Ethereum completely.
"We're sorry to turn the lights out on Ethereum for a while," read a statement on the company's Twitter account. "It seems perfectly clear that ApeCoin needs to migrate to its own chain in order to scale properly. We'd like to encourage DAO to think along these lines."
The first reason is that Yuga Labs would like to "encourage" the ApeCoin DAO to think about working on its own blockchain, rather than building its own blockchain right away.
Yuga Labs has spent months distancing itself from ApeCoin and its primary governing body, the ApeCoin DAO, presumably for regulatory reasons. The thinking is that ApeCoin, if it comes from Yuga Labs, is a type of securities offering and should be regulated as such. However, if ApeCoin comes from this amorphous, headless DAO, it technically shouldn't fall under the SEC's jurisdiction (more on that here).
And even if Yuga Labs can't simply tell the ApeCoin DAO what to do, it can still likely get its way thanks to the enormous voting power it wields over DAO proposals.
On Twitter, conspiracy-minded NFT investors suggested that Yuga Labs may even have intentionally crashed the blockchain to generate approval for a brand-new network.
Axie Infinity, currently the most dazzling example of a "play-to-earn" (P2E) blockchain-powered video game, is already running on its own chain called Ronin. While Ethereum adds new transactions to the blockchain using what is known as a proof-of-work consensus mechanism, Ronin uses an alternative mechanism known as delegated proof-of-stake. It is generally considered a more centralized system; the validators with the most cryptocurrencies will always have the most control over the network.
Porting cryptocurrencies from mainstream blockchains to Ronin requires a special program known as a "bridge," which is particularly vulnerable to exploits and hacks. Last month, Ronin saw about $625 million diverted from Bridge in one of the largest crypto exploits of all time. Widespread distrust of bridges could potentially impact the price of these assets as traders opt to hold their tokens on more reliable networks.
A separate ApeCoin blockchain would confine the entire ape economy to a single network. That includes the Bored Apes themselves, but also spin-off collections (Mutant Apes, Bored Ape Kennel Club) and all other non-Ape owners of Yuga Labs, such as CryptoPunks and Meebits.
And even if the hypothetical ApeCoin blockchain is not technically owned by Yuga Labs, the company will still effectively run the DAO. At that point, why not just run a private cloud server?
It's no wonder the Otherside debacle has traders so upset. The rich are getting richer, supposedly decentralized systems are becoming more centralized, and the venture capital firms behind Yuga Labs are out to expand their monopoly in this space even further.
It's the world of the monkeys - we're just living in it.