ApeCoin owners consider locking up coins to keep NFT mania going

ApeCoin has whipsawed investors since its launch.

Holders of ApeCoin approved two measures that may help to sustain the momentum around the cryptocurrency launched to support the Bored Apes NFTs.

The “ape improvement proposals” ratified in a vote that closed late Wednesday by the so-called decentralized community, giving owners the option to lock up their tokens for a period of time in exchange for more ApeCoin in the future. While the logic of such an agreement may seem circular, handing out incentives to remain invested has become a fairly common strategy in crypto.

ApeCoin was launched in March through a type of release known as an “airdrop,” in which certain groups of holders such as early venture capital backers automatically receive tokens as a reward. In this case, owners of Bored Ape NFTs received a portion of the 1 billion ApeCoins dropped. The tokens of launch partners like venture capitalists were locked up, however, with coins becoming available at intervals starting at six months and ending as far as 36 months out, depending on each individual arrangement.

From the venture capitalists’ standpoint, the risk that comes with such lockups is that many new coins dramatically drop in value within several months of being launched. About 65% of freshly minted cryptocurrencies are underwater and their average returns are close to zero relative to Bitcoin within a month, according to a recent report from Jump Crypto. The AIP proposals may help forestall such a decline.

“It doesn’t seem very sustainable,” said Sasha Fleyshman, a portfolio manager at Arca, which invests in cryptocurrencies. “Because at some point you reach that split in the path, you have the venture capital unlock. At some point, the band-aid gets ripped off.”

ApeCoin has whipsawed investors since its launch, with prices spiking at the debut, only to be followed by a steady decline. It then traded at more than $26 at the end of April, before falling to around $13 on Friday, according to data from CoinMarketCap. The token has a market value of about $3.8 billion.

The physical artwork of “Bored Ape #2967” created by Bored Ape Yacht Club, left, and “Mutant Ape #1933” created by Mutant Ape Yacht Club, both available for sale as an NFT, displayed at a CoinUnited cryptocurrency exchange in Hong Kong.

The physical artwork of “Bored Ape #2967” created by Bored Ape Yacht Club, left, and “Mutant Ape #1933” created by Mutant Ape Yacht Club, both available for sale as an NFT, displayed at a CoinUnited cryptocurrency exchange in Hong Kong.

Th ApeCoin incentive program approved is being referred to as app staking, though it differs from a similarly named type of reward system where coins are used to order blockchain transactions in exchange for rewards.

“The nice byproduct of staking is it’s a very high-conviction gesture from the community,” Reddit co-founder Alexis Ohanian said during a recent conversation over Twitter Spaces that was attended by more than 1,000 people. Ohanian is on the board of the ApeCoin DAO that governs the community.

ApeCoin DAO’s vision is for the token to be used at events, games and in a variety of applications. Last weekend, ApeCoin holders had a chance to buy Otherdeeds, NFTs to an upcoming game, which are currently trading below what many buyers spent on them.

“As you know, it’s up to the DAO collectively to decide what makes the most sense, staking should theoretically benefit all ApeCoin holders, not just a limited few,” Yat Siu, co-founder of Yuga Labs investor Animoca Brands, said in an email. Siu, who is also on the board of the ApeCoin DAO, noted one of the staking proposals caps the ability of major holders to benefit excessively from staking their coins.

“It isn’t appropriate for me individually to speculate on what launch contributors will do with their ApeCoin holdings once the first unlock takes place — but it’s worth remembering that many of those launch contributors believe we’re much closer to the beginning of this ecosystem than we are to the end,” said Siu, whose Animoca is making games and other products using ApeCoin. “Launch contributors, such as ourselves, therefore have economic incentives that are far more closer and long-term aligned with the broader community goals and that of ApeCoin than some may assume.”

© 2022 Bloomberg L.P.

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