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Looking back at Yuga Labs over the past year, is APE still a good bargain hunting target in the bear market?

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Do NFT and APE prices have enough support?

Source: Scarlett Wu, Mint Ventures

It has been a year since the last review of the Yuga ecosystem (see "APE staking approaching, regulatory pressure, re-evaluating the value of Yuga Labs ecosystem at a critical juncture"). Yuga Labs, which was once worshipped a year ago, still delivers products that often meet or occasionally exceed expectations, but the prices of ecosystem tokens and NFTs have already shattered the market's high bubble fantasy of the metaverse/crypto IP. With AK's Twitter pinned post and the fundamental delivery of the Yuga ecosystem having refreshed the conclusions of previous research, as a long-term follower and participant in the game and metaverse market, Mint Ventures will re-evaluate Yuga Labs and its related ecosystem.

https://twitter.com/Rewkang/status/1679643703751876609

This study attempts to answer the following questions:

Yuga Labs and ApeCoin DAO's product delivery over the past year, is it worthy of the community's trust? (Corresponding to whether NFT and $APE prices have sufficient support, will be elaborated in the following text) What are the upsides and downsides of the subsequent ecosystem? Are AK's inferences reasonable?

1. Yuga Labs Annual Ecological Review

Previous article Yuga Labs Ecological Review was published in October of year 22. In these nine months, the fundamental changes of Yuga Labs can be summarized as follows:

1.1 Yuga Labs Mainline: MDvMM Late Arrival

In the seed round pitch deck circulating in Yuga Labs, the storyline of MDvMM (Mechanical Dog vs. Mechanical Monkey) was supposed to be a three-month-long event. It started in August 2022 and ended in October 2022.

Yuga Labs 流传的 Pitch Deck 截图

Screenshot of Yuga Labs' leaked Pitch Deck.

However, it may be due to internal personnel changes that MDvMM only released the first message of this storyline on November 25, 2022: The Trail begins this Christmas.

https://twitter.com/BoredApeYC/status/1595864347355537408?s=20

This also marks the starting point of the NFT price increase for the Yuga series. Taking BAKC as an example, several key points in the price change of BAKC are related to the release of important narratives and game rules in the future.

Parsec, Charted by Mint Ventures

MDvMM Timeline Overview

1.1.1 Common Problems with Incentivized Games - The Criticized Web2.5 Anti-Cheat Mechanism

Since the first stage of Dookey Dash, it has been expected in the market that "Sewer Passes with higher rankings can be upgraded to NFTs with higher value in the later stage", which may allow slaves and boosters to earn hundreds or even thousands of USDT in customer value. (In fact, this speculation is valid - at the time of writing this article, the floor price of HV-MTL HOLO with higher levels is 6.5E, while the floor price of the most common level of HV-MTL is only 0.6E.) It is the expectation of the market for Yuga Labs' game and the trust in the fairness of the game that have created such a profitable trading market.

Unfortunately, despite the "suspicious" detection during the game process, there are still very simple ways to bypass the anti-cheat system:

@xClearHat

The core logic is: Although Dookey Dash seems random and cyclical, the selected process is actually limited. This process actually depends on a "process seed". When entering the game multiple times, as long as the same seed is inserted locally, the game process can be generated completely the same, from rewards to obstacles. The anti-cheating logic set by Yuga Labs itself is that as long as the "game process corresponding to the local process seed" matches the "player's actual operation input server data", the player is considered to be a real person. With a determined process map, cheaters can design a rule-based bot or use the best path algorithm to efficiently pass these obstacles when collecting fragments. Since the bot itself can simulate mouse movement and clicks, it is difficult to judge whether the player is cheating based on the bot - the player can even play games while streaming on Twitch, actually just randomly moving on the locked mouse, while the little monkey on the screen dodges obstacles and collects enough fragments with incredible accuracy, pretending to be fascinated, and receiving cheers and applause.

Unfortunately, the author @xClearHat believes that Yuga could have avoided/delayed the complete invasion of cheaters in the game through the following methods:

- Provide process maps and data on the server side, not locally: This means higher costs, as low latency requires bandwidth, and bandwidth means dense deployment of servers, while Dookey Dash players are spread all over the world.

- Encrypting game rules: Two days before the end of the first round of Dookey Dash, the game will be shut down for maintenance and the Javascript files will be recompiled into new files that can partially obfuscate cheaters. Previously, the files used by the game were almost plaintext, making the aforementioned reverse engineering exceptionally easy. Since Dookey Dash is a time-limited game, as long as the cracking process is complex and time-consuming enough, it can actually maintain the fairness of the game.

- Establish a dynamic system that provides process seeds at random intervals: players can no longer directly use a specific process seed to generate game progress at any time and correspond with the server, but need to find the appropriate timing - this will greatly increase the difficulty of cheating.

Despite the widespread dissemination of this thread, it could not stop Yuga Labs from ultimately announcing the game result - the first-place esports player was not actually in first place, but after kicking out the cheaters in the game video, he received a valuable key. But how many cheaters are still undiscovered, who are not greedy enough to compete for first place with the esports player, but just want to maintain a high ranking? We do not know. The games in the blockchain world are not always fair and just - at least web2.5 games are not.

@xClearHat created a cheating system to play Dookey Dash as an example.

Perhaps it is the wide spread of this thread that is enough to attract attention, or Yuga Labs has already arranged the next stage of strategy change. HV-MTL's Forge has cleverly weakened the impact of bots and cheats on the competitive experience through voting. In each of the six stages, the AMP level is determined by ranking, which is determined by voting. Users can choose to upvote and downvote - even if they use bots to vote for their HV-MTL to the highest level, if the base's screen name is not true, or other players believe that the increase in votes is not reasonable, then it may also be downvoted to a very low ranking.

https://forge.hv-mtl.com/preview/1

Of course, the spontaneous supervision of the community is a good solution, which transfers part of the audit cost from the pure project party to the game players. To advance to the highest ranking, not only requires advanced computer technology (although the operations that require human clicking from time to time can still be completed through plug-ins, there is a risk of being banned), but also requires extensive social relationships (group chats for mutual voting), and sufficient capital (if there are not enough people, more mech votes can be obtained, or tickets can be purchased OTC at a price of about 1 USDT/ticket). But the question is, why spend so much time and energy on a game with average gameplay and ranking as the top priority? Currently, the main ways to canvass votes are still "mutual voting" and "having more mechs to vote for oneself". Although Yuga has set up Twitter account binding for non-holders to vote, it is actually used to distinguish the ranking score range of the same holder's votes, and is not the core distinguishing factor for ranking (from the results, there are indeed many situations where the same score range occurs, so it is necessary to attach importance to Twitter binding voting).

@0xCygaar

The first season, which ended at the end of July, gave some clues. More than 20,000 HV-MTL were issued, but only 133 received the highest level AMP. The AMPs in the first season corresponded to the head of the mecha, while the ongoing second season corresponds to the weapon of the mecha. If Yuga Labs can achieve or even exceed expectations, six AMPs should form a pretty cool mecha. But will there still be thousands of ETH buying golden monkeys or the myth of keys?

AMP Concept Diagram

Cheating has always been a key element in destroying the Magic Loop in the traditional gaming industry. Web3 games need to pay more attention to the rampant "hair-pulling party" and bots due to the introduction of richer incentives. Community self-regulation may be a good solution, and "bot friendly" may be another solution - the auto-chess mode has been increasingly introduced into the original game mechanism by traditional game developers. When auto-chess simplifies most of the player interactions in the game, what players want to experience is what we need to consider. Is it the result of the "play & earn" account balance growth, the immersive experience of a story, the pleasure of showing off skills and defeating bosses one by one, or the social status symbol that can be boasted among friends?

From Dookey Dash and HV-MTL's perspective, the core goal of players may be simple - to obtain scarcity, which refers to NFTs with higher potential value. There may be some social value and cultivation experience, but not much.

1.1.2 Release of Tokens and Consumption of Economic System - Value Capture of a Drop in the Bucket

When it comes to the consumption and value capture of $APE, we first need to clarify a concept - where did the tokens for consumption go?

As players directly use $APE, it is not a buyback; $APE will not increase or burn on the total supply of 1B, so it is not a burning deflation - in fact, the income of $APE goes into Yuga Labs' wallet. For Yuga Labs, this is their game revenue.

According to Arkham's analysis, the revenue of the Dookey Dash game was partially transferred to Coinbase shortly after the game ended, while another portion briefly stayed in another multi-signature wallet before also being transferred to Coinbase.

https://platform.arkhamintelligence.com/explorer/address/0x9223abD716FF22C62Db2c6760eB6A59a33AF729E

https://platform.arkhamintelligence.com/explorer/address/0xDa7a4a45cE9c5b42102fcb456AE2532beD252a24

That is to say: the consumption of $APE does not lead to a long-term decrease in circulation, but rather brings a certain degree of buying pressure in the short term, as well as a short-term circulation lock-up - as for how long this time is, it depends on Yuga Labs' mood. Moreover, if Yuga Labs holds a large amount of $APE, it may also bring the problem of concentrated selling pressure.

Under this premise, we can analyze the $APE consumption of Dookey Dash and HV-MTL separately:

Regardless of whether the tokens received by Yuga Labs are already available for sale at any time, even if the project party does not sell these tokens with integrity, it is only a small portion of the token rewards allocated by the staking system during the same period, as well as the unlocking of tokens by investors and project parties.

1.1.3 NFT Utility vs. Narrative——BAYC 的价格为何不复辉煌？

Translation:

1.1.3 NFT Utility vs. Narrative - Why is the price of BAYC not shining again?

After the price of BAYC fell from its "floor stability around 50E" pedestal, there has always been confusion in the market: why hasn't the price and consensus of BAYC returned to its former glory?

The answer may be very simple: the past glory was the result of retail investors riding on the train of wealth creators - once the big players who hoarded BAYC exited the market, the liquidity consensus and value consensus of BAYC disappeared. Among them, Machibigbrother.eth and Franklin were the most prominent.

The former became a core holder and evangelist of the BAYC NFT series early on in the BAYC minting process, holding dozens to hundreds of BAYC tokens. The latter once used "Franklin has 61 Apes" as their Twitter handle to display their identity in the BAYC community. They also staged several self-directed dramas of market crashes and liquidations under the name BendDAO, earning the nickname "Monkey Market Maker" (for more information, please refer to Jessica's analysis in "BAYC Price Drop: A Comprehensive Analysis of the "Danger" and "Opportunity" of NFT Lending Leader BendDAO").

During the market downturn in the past six months, Maji fell victim to Blur's bidding wall in February this year and accidentally acquired 71 BAYC. However, due to significant losses, Maji was forced to sell all of the BAYC at once, causing a waterfall effect on the price. Franklin 4.19 announced his temporary departure from Twitter and sold all of his remaining BAYC, further reducing the number of large buyers willing and able to absorb the selling pressure.

On June 22nd, after establishing a position in BAYC, Maji proposed the ApeCoin DAO, suggesting that the DAO use its treasury to buy back NFTs to maintain their prices. When the information began to circulate in the market, on June 25th, he sold off 39 BAYC tokens - evidently, what small holders saw as faith and narrative, was merely a tool for hype and profit in the hands of big players. (In reality, there was still a considerable distance between the ApeCoin DAO proposal and the voting stage, and Maji's previous proposal had never been recognized by the DAO for voting, but the news itself was enough to scare the public who were not familiar with this ecosystem and receive some market feedback.)

This reminds me of my conversation with Shim before: the narrative consensus at the beginning of an NFT project, and the most intuitive manifestation may be the price consensus - not only in the NFT market, but also in the traditional luxury goods industry. Looking back at the changes in the past year, it can be seen clearly that Yuga Labs' price consensus is declining, while the game product power consensus is rising. That is to say, its NFT is shifting from a luxury product that is difficult to price and can skyrocket overnight to a consumer product that can be priced similarly to its peers.

When BAYC moved from a consensus without pricing to a tool for calculating cash flow discounts through retroactive airdrop prices, and then became a part of the game as props and functional enhancements, it moved from pure narrative to increasing utility. Utility improves the price baseline, but also limits the price ceiling. At the same time, holders have shifted from being collectors who "HODL and show my status" to speculators who "ambush before the airdrop and sell after the airdrop". Even though Yuga Labs tried to differentiate BAYC from MAYC, BAKC, HV-MTL, and $APE through psychological positioning, they still cannot change the fact that they influence each other and that BAYC has fallen from its pedestal as a luxury item.

1.2 Otherside Subline: Low Prices, but Promising Game Quality

In March 2023, Otherside 2nd trip will be launched, dividing players into four teams led by esports anchors, gamers, NFT community KOLs, and competing for scores. Unlike last year's 1st trip, this experience truly realizes 1) interaction and data uploading of thousands of people on the same screen, and 2) gameplay attempts of thousands of people on the same screen.

https://youtu.be/_RmFWo9Htwg

Although the author was limited by the load and couldn't enter the game (although more than 5w Otherside holders were able to enter the game, with only about 8,000 people watching the live broadcast), they could still experience the gorgeous graphics of UE5 and the excitement of fighting with thousands of people. From single-player games to MMOs, from MMOs with dozens of players to thousands of players on the same screen, technological upgrades have brought new possibilities for gameplay, and Otherside is likely to be a pioneer in the gameplay of thousands of players on the same screen.

Otherside's delivery of this experience was undoubtedly beyond expectations, but such exceeding expectations did not bring about an increase in Otherdeed's price. The winner of 2nd Trip received a helmet as a prize, Otherside Relics, a total of 2220 pieces, airdropped by Otherside to the wallet of the corresponding Otherside holder of the winning team. On the day it was airdropped, the price of Otherside Relics reached as high as 0.7 ETH, and it still has a floor price of 0.2 ETH.

And the subsequent separation of Otherdeed further exacerbated the decline in Otherdeed prices.

Otherdeed (without Koda): Separated into Otherdeed Expanded and Otherside Vessels. The Vessel will evolve into Mara in the subsequent Mara mini-game and can be combined with Koda to form Kodamara.

Otherdeed (with Koda): Separated into Otherdeed Expanded, Otherside Vessels, and Otherside Koda.

Obviously, Otherside hopes to maximize the gaming properties of NFTs. However, from the perspective of investing in NFT series, overly complex series nesting will make most non-hardcore players confused, and the dispersion of liquidity also makes it difficult to support NFTs returning to their original prices. Therefore, we have seen the continuous decline of Otherside series floor prices.

On July 28th, 2023, Otherside released a leaked video of their offline playtest on their official Twitter account. The experience is no longer limited to exploring scenes with colorless robots, but rather a true exploration of jungles, mountains, lakes, and bars with avatars. It seems that the official release of Otherside's game is no longer just a pipe dream and may potentially achieve the experience expected of the first Web3 game.

https://twitter.com/OthersideMeta/status/1684756832265621504?s=20

1.3 ApeCoin DAO Subline: Ecological Scarcity and Astonishing Inflation

Over the past half year, ApeCoin DAO has only passed more than 20 proposals, many of which are related to governance processes and improving Ape Staking efficiency (which seems absurd - it is hard to imagine a company established in a traditional way spending a lot of time improving departmental configuration and management processes more than a year after operation), some of which are rewards for $APE contributors (also in line with the interests of voters), and the remaining part is mainly related to BD and narrative, creating movies, games, and comics with Ape's philosophy as the core narrative. The only proposal that seems more promising is the establishment of an Ape ecosystem project incubator led by Forj - although it is still too early to see substantial output.

From the ApeCoin DAO Council, initially composed of investors, to the Council members elected by the community, we have seen less and less innovation and courage. The actual participants in DAO activities are also few and far between. With billions in circulation, the total number of votes cast in each vote is always around 10M. It seems that $APE holders are not interested in governance content, and for them, the greatest utility of $APE is just staking.

Looking back at what we mentioned before, ApeCoin DAO introduced the use case of $APE:

- Ecological Token: Yuga Labs' products all use $APE for payment, but the actual demand does not match the circulation (see 1.3), and there is no significant growth in the DAO ecosystem. It is difficult to see the possibility of matching ecological value and currency value.

- Payment methods: Although some NFTs from Gucci / Times / OpenSea do accept $APE as payment, this seems more like a gimmick than an actual use case. Few people are willing to hold a token with fluctuating prices as a payment tool in the long term.

- Pledge Profit: The price of $APE has dropped from $5 at the beginning of Staking to less than $2, which means that without hedging, there is a high risk of significant losses. However, if all pledging users hedge their positions, does it really mean that the pledgers are optimistic about the future of $APE?

It seems that these use cases, in the idleness or incompetence of ApeCoin DAO (or the entire Yuga Labs token/NFT holder community), only rely on staking for profit realization - pure coin mining with coins. Even if users make a profit, is it really beneficial to the Yuga Labs brand? Staking + rewards is only a means of buying time and leaving opportunities for ecological construction with tokens. If the ecology cannot thrive during this time and inflation is quite terrifying, it will be a huge blow to the token price, and it can only wait for the reality of the token being halved again and again.

2. Potential Upside and Downside Analysis

Reviewing Yuga Labs' problems, challenges, and achievements, we have summarized the following potential Upside & Downside points:

2.1 Potential Upside

Otherside is launched and fun to play.

Now it's the 2nd trip, but there have been rumors circulating about offline Playtest. Yuga Labs' delivery level in gaming has not disappointed.

Breaking the circle of people

Brand deep cooperation (such as previous collaborations between adidas/Gucci) not only depends on the team's BD level, but also needs to conform to the trend of joint branding in the larger environment.

Securities Narrative Reversal

Last October, Yuga Labs was investigated by the SEC, but in June of this year, the SEC's list of charges did not include the value capture of $APEApe's consumption mech game (in terms of previous activities, consumption was relatively limited compared to inflation).

Ape Fest (the next offline gathering will be in HK, which may drive high-net-worth individuals in Hong Kong to purchase NFTs).

2.2 Potential Downside

Price Anchoring and Narrative No More + Liquidity Shortage

Without market makers (previously known as Mahjong and Franklin) and with a high dependence on Yuga Labs within the community, the price will continue to fluctuate with the effects of Yuga Labs' new activities. However, in the current low liquidity market, the price is not greatly affected by positive news but will experience a significant drop with negative news. This is different from the decentralized art collection logic of Punk, where collectors are mostly indifferent to short-term prices and do not have a desire to sell, thus avoiding the fate of being pulled down from the altar due to short-term liquidity shortages.

Token inflation.

$APE still has a high level of inflation, and investors may further sell off (the current price is already lower than the primary market valuation of 2 billion FDV, which is less than the 4 billion given by VC at that time, although VC holds not only the token mapping but also the corresponding IP of Yuga Labs equity).

Source: Token Unlock

Token use cases are almost non-existent.

Payment purpose - Not many people use $APE for trading on OpenSea, it's just a gimmick.

Ecological Construction - In the past six months, the efficiency of ApeCoin DAO has been extremely low, and the organizational form of DAO is inefficient and lacks incentives, which instead drags down the level of Yuga.

Staking - the only real use case at present. However, the APR (Annual Profit Rate) has dropped from over 300% at the beginning to 50% (pure $APE)/140% (paired with NFT). Hedging miners may profit, while naked stakers suffer heavy losses.

Currently, it appears that the Downside is still stronger than the Upside. Of course, Yuga Labs' delivery level may mean that they will still stand firm in the industry (not die but may be surpassed), but perhaps "bursting the bubble" will still be a major trend for Yuga Labs' assets in the foreseeable future.

Reference and Acknowledgements

This article could not have been written without the discussion on cheating in Dookey Dash with @Noah_nftn @Z57831357, as well as the detailed data tracking on HV-MTL by @CryptoScott_ETH. Special thanks to @anymose96 for the detailed breakdown of HV-MTL rules and current situation sharing, as well as @0x_bobo @alpacacheeze for brainstorming and discussion at every critical moment.