Yuga Labs, the creator of the popular Bored Apes Yacht Club collection of NFTs, launched a sale Saturday of virtual land related to its highly anticipated metaverse project, raising about $320 million in the largest offering of its kind. Demand was so strong that activity related to the event caused ripple effects across the entire Ethereum blockchain, disrupting activity and sending transaction fees soaring.
As non-fungible tokens (NFTs) - crypto assets that represent digital files such as images, video, or items in an online game - exploded in popularity, Bored Ape prices surged to fetch hundreds of thousands of dollars each.
What happened now?
Now, Yuga Labs - which raised $450 million in March in a funding round led by Andreessen Horowitz - has set its sights on the so-called "metaverse". In an online sale on April 30, Yuga Labs sold NFTs called "Otherdeeds", which it said could be exchanged as plots of virtual land in a future Bored Ape-themed online environment called "Otherside." The "Otherdeeds" could only be bought using the project's associated cryptocurrency, called ApeCoin, which launched in March.
Holders of the ApeCoin cryptocurrency who verified their identities jockeyed to buy deeds for 55,000 parcels of virtual land in Otherside, the project's planned metaverse game and the latest extension of the Bored Ape franchise. Anticipation that interest would be strong for the plots - Ethereum-based NFTs called Otherdeeds - had pushed up the price of ApeCoin last week ahead of the sale.
Each plot cost a buyer around $5,800 based on ApeCoin's price of $19 as of Saturday, plus transaction costs, or "gas fees," in Ether, which skyrocketed after the sale went live as the land grab attracted heavy demand. Transaction costs just to mint Otherdeed NFTs after the launch reached $123 million, with each Otherdeed requiring about $6,000, or 2 Ether, in transaction fees to mint, according to data from Etherscan - or more than the price of the deed itself.
Transaction fees soar
"Yuga Labs' virtual land sale has triggered one of the highest spikes in transaction fees on Ethereum," said Jason Wu, founder of decentralized lending protocol DeFiner. "I have seen other NFT launches causing high gas fees, but this is definitely one of the highest."
Minting a token or making a transaction on Ethereum requires token creators or traders to pay a fee to those that order transactions on the network. Transaction fees go higher when the network becomes congested given more fees are needed to prioritize a transaction. That can impact the Ethereum-based business of apps like Uniswap, effectively slowing the transactions on these other platforms.
Yuga Labs initially planned for the sale to be held in a Dutch Auction format in which the price of the Otherdeed NFT would go down over time to prevent Ethereum from being congested with high transaction fees. However, it later scratched the format and went with another plan to cap the number of Otherdeeds that could be purchased per wallet in each wave of the sale. The new plan failed to ease the anticipated congestion. Yuga Labs apologized on Twitter for "turning off the light on Ethereum," and suggested the possibility of establishing an ApeCoin blockchain.
Who gets the money?
The ApeCoins raised in the sale will be locked up - meaning that they can't be sold, thus reducing coins in circulation - for one year, according to Otherside's Twitter account. A Yuga Labs spokesperson declined on Friday to say whom the raised money would go to, or whether large holders of ApeCoin, including Andreessen Horowitz, Animoca Brands and others planned to participate in the land sale.
"Yes, we will be purchasing as well," Animoca's Yat Siu said in an email ahead of the sale, adding that there are restrictions on how many NFTs a single digital wallet can buy in different phases of the land deed sale.
Besides the 55,000 Otherdeeds sold Saturday, another 45,000 were allocated to holders of Bored Ape Yacht Club and Mutant Ape NFTs, as well as Yuga Labs and other project developers, with another 100,000 of the tokens expected to be awarded later to certain Otherdeed holders, according to the Otherside website. While the 55,000 Otherdeed NFTs were sold out around midnight New York Time, the process for BAYC and MAYC holders to claim their free Otherdeeds was initially delayed to avoid sending gas fee even higher. That one-time claim eventually reopened for those NFT holders as gas fees settled.
ApeCoin popularity rises
ApeCoin is striving to become widely used in a variety of so-called web3 apps, using digital coins and blockchains. The idea is for owners to be able to access a variety of events, services, merchandise and games. It's also the governance token of ApeCoin DAO, whose board includes Reddit Co-founder Alexis Ohanian, FTX's Amy Wu and Animoca's Siu. Ahead of the Otherdeed sale Saturday evening, OpenSea said it would accept ApeCoin.
Venture capital investors that helped with ApeCoin's March launch, including Andreessen Horowitz and Animoca, were some of the biggest recipients of ApeCoin, which was created as an "airdrop," in which certain groups of crypto holders automatically received 1 billion tokens as a reward. They and other launch partners received 14 per cent, or 140 million tokens. ApeCoin's price has nearly tripled since the coin's release, according to data from CoinMarketCap.
The frenzy around the land is in sharp contrast to much of the crypto market, which has been trading sideways in recent months, with bellwether Bitcoin down about 18 per cent since the beginning of the year. Monthly sales volume on OpenSea, the world's biggest NFT marketplace, were higher in April than in March, but still down from an all-time-high in January, according to data tracker Dune. While many apps have sold virtual land for cryptocurrency before, most have seen only a small number of users and transactions. On Decentraland, for example, the number of transactions is down 35 per cent in the last 30 days, according to data tracker DappRadar.