Written by: Vader Research
Compiled by: TechFlow
Value accumulation is a critical but often overlooked topic in Web3. In this article, we will take a deep dive into how the value generated within the Yuga ecosystem is distributed to different stakeholders (Yuga Labs, $APE, BAYC, MAYC, etc.).
1. Capital structure and corporate value
In Web2 businesses, the capital structure is typically composed of equity and varying levels of debt. Senior creditors typically have greater collateral security but receive lower interest rates, while junior creditors hold less collateral security but receive higher interest rates.
Enterprise value is like a company's price tag. It tells us how much the company is worth in total, including the money it owes to others (like banks) and the money that belongs to its owners (like shareholders).
Enterprise value = equity value + debt value
Creditors and minority shareholders have legal rights in the earnings and assets of a business. In contrast, NFT and token owners do not enjoy such protections. Nevertheless, by including tokens and NFTs issued by Web3 companies as part of the overall capital structure, we can enhance the design and structure of value-added.
Applying the same logic, the value of the Yuga ecosystem is equal to the value of the entire Yuga universe. It is the sum of all funds owned by Yuga Labs equity entities and the value of all existing NFT collectibles (BAYC, MAYC, etc.) and tokens ($APE).
Yuga Ecosystem Value = Yuga Labs Equity Value + Yuga NFT and Token Value
2. Intrinsic Value
Intrinsic value refers to the future value of an asset, and we can estimate its intrinsic value based on future profitability. But because future money is not as valuable as present money, we discount future earnings.
Therefore, the fundamental value of a company, token, or NFT is equal to the discounted value of its future earnings. Using the same logic, the value of the Yuga ecosystem is also equal to the discounted value of its future earnings.
Yuga ecosystem value = discounted future earnings
3. What is YUGA’s business model?
How does the Yuga ecosystem generate revenue? Let’s take a look at the basic sources of revenue for the Yuga ecosystem.
Yuga has two main revenue streams:
NFT and Token Sales → Create and sell new tokens and NFT collectibles;
NFT Royalties → A fee is charged for each secondary NFT transaction.
4. The dark side of issuing new NFTs: dilution
The Yuga ecosystem has gained an important source of revenue by creating and selling new NFT collections such as BAYC, MAYC, and Otherdeeds. Yuga Labs received $100 million from the first sale of MAYC and $330 million from the first sale of Otherdeeds, while holding more than $2 billion in Ape Coin and $40 million in Otherdeeds on its balance sheet.
However, releasing a new NFT set also has its downside: it dilutes the ownership of existing Yuga ecosystem shareholders (Yuga Labs, APE, BAYC). For existing Yuga ecosystem shareholders to benefit from the dilution, the dilution costs need to be offset by the value created by issuing and selling new NFT sets.
The idea is similar to the concept of mergers and acquisitions (M&As), where an acquiring company acquires a target company through a share exchange. As a result, the shareholders of the acquiring company will experience dilution. The success of the acquisition depends on whether the value created by the target company exceeds the dilution cost. If the value created is greater, then the acquisition is considered a success; otherwise, it is considered a failure.
5. BAYC Sales | May 2021
When Yuga Labs issued and sold 10K BAYC at $200 each, they created a new group of stakeholders called BAYC holders, who received $2M from the initial sale.
It’s important to note that the NFTs sold by the PFP Project and Web3 Game Studios are not just virtual goods, people buy them with the expectation that their value will increase over time.
This is why BAYC owners are considered an independent stakeholder group in the Yuga ecosystem, as the issuing company has responsibilities towards these NFT owners.
In the months following the sale, the BAYC's price increased significantly, reaching $66,000 by the end of August.
This means that BAYC could have a market value of up to $660 million, and if we assume a 1:1 conversion rate between BAYC’s market cap and Yuga Labs’ equity entity valuation, then Yuga Labs’ valuation would also be around $660 million.
The analysis of the above Machinations chart is as follows:
Yuga Labs sold 10,000 BAYCs and raised $2 million in funding.
In 4 months, the price of BAYC increased from $200 to $66,000.
In month 4, Yuga Labs has already earned $2.5 million in BAYC royalty revenue.
6. MAYC Sales | August 2021
Next, let’s analyze the issuance and sale of MAYC. Before the launch of MAYC, BAYC’s market value was approximately $660 million, and the entire ecosystem consisted only of BAYC holders and Yuga Labs owned by the four founders.
In addition, a total of 20,000 MAYC NFTs were created, of which 10,000 were sold to the public and the other 10,000 were distributed to BAYC holders. This means that Yuga Labs and BAYC each received 50% of the proceeds from the MAYC issuance.
Unlike other PFP NFT series, BAYC holders can claim future Yuga NFTs for free. This sends a clear message to BAYC holders that they have a vital position in the Yuga ecosystem.
Yuga Labs successfully sold 10,000 MAYC NFTs at $10,000 each, earning $10 million. The 10,000 MAYC NFTs given to BAYC holders were theoretically worth $10 million at the end of the MAYC sale.
There were a few concerns that could impact MAYC at the time of its release. First, there was uncertainty about whether Yuga Labs would be able to sell all 10k MAYC NFTs. Second, there was a concern that selling new collectibles (MAYC) would dilute the value from BAYC, causing the price of BAYC NFTs to drop due to increased competition.
Yet despite these concerns, the MAYC sale was a huge success for Yuga Labs, generating $10 million in revenue and paving the way for future NFT products.
Let's analyze the Machinations diagram above:
Yuga Labs sold 10,000 MAYCs for $100 million.
The price of MAYC increased from $10,000 to $58,000 in 7 months.
By month seven, Yuga Labs had generated $25 million in royalty revenue through MAYC.
In the weeks before ApeCoin launched, BAYC was trading at as high as $2.2 billion, while MAYC was trading at $1.1 billion. Yuga’s launch of new NFT collections created huge new value, attracting well-funded late-stage crypto venture investors.
Yuga raised a staggering $450 million seed round led by a16z at a $4.5 billion valuation, which will be public a few weeks after ApeCoin launches. If we do not consider the 1:1 NFT market cap and equity rule, and instead use the seed round valuation, the value accumulation structure would look like this.
7. $APE Release | March 2022
The launch of ApeCoin in March 2022 was a significant event in the Yuga ecosystem and received a lot of attention from the NFT community. Yuga Labs has had several successful launches in the blockchain space, so many people were eagerly awaiting the launch of ApeCoin and hoped that it would live up to the high standards set by Yuga Labs.
The initial token distribution is designed to allocate 47% of tokens to the ecosystem, 15% to Yuga Labs, 1% to philanthropy, 8% to founders, 14% to venture capital, and 15% to BAYC and MAYC holders.
Our definition of Yuga ecosystem stakeholders (Yuga Labs, BAYC, MAYC, VCs) allocates a total of 52% of the tokens. Let’s look at the distribution of this 52%:
While the numbers mentioned above provide some insight, they do not fully reflect the actual situation. It is important to note that Yuga Labs’ venture investors and founders also have a fundamental interest in Yuga Labs, which means that they indirectly receive more tokens than the numbers mentioned above. Therefore, it is necessary to further analyze these numbers to obtain a more accurate distribution of tokens.
Assuming no employees or advisors have any ownership in Yuga Labs, and we also exclude potential equity dilution from the Larva Labs (CryptoPunks IP) acquisition. Based on the $450M seed round, it looks like the Yuga Labs founders own 89% of the company, while Yuga Labs VC own the remaining 11%. When we total these numbers, this means that the Yuga Labs founders have a token allocation of 41% and the Yuga Labs VCs have a token allocation of 30%.
Since the distribution method of $APE Coin is very different from that of MAYC, the distribution method of $APE Coin is more inclined to Yuga Labs shareholders rather than BAYC and MAYC holders.
Our calculations show that Yuga Labs and its shareholders received 71% of the allotment, while BAYC/MAYC holders received only 29%. This equates to a 2.4:1 ratio, which is higher than the 1:1 ratio for the MAYC allotment. Thus, a16z and the founders of Yuga Labs received a larger $APE Coin allotment at the expense of BAYC and MAYC holders.
It is worth noting that tokens allocated to BAYC and MAYC holders are available for use immediately, while tokens allocated to Yuga Labs, VCs, and founders are subject to a 4-year lock-up period.
8. OTHERDEEDS Available | May 2022
In the days leading up to the Otherdeeds sale, Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club (MAYC), and the $APE token all traded at record highs.
BAYC has a staggering market cap of around $4 billion, MAYC has reached around $2 billion, and the $APE token has a market cap of $6.5 billion. Yuga Labs has managed to transform 10,000 monkey JPEGs with no utility into a multi-billion dollar empire in less than two years!
It’s worth noting that the market cap of NFT collectibles is calculated based on the reserve price multiplied by the circulating supply, so if someone wanted to buy all the circulating Yuga ecosystem assets at once, the actual valuation could be much lower.
Of the total 100,000 Otherdeeds issued, 55,000 were sold publicly, 10,000 were given to BAYC, 20,000 were given to MAYC, and 15,000 were retained by Yuga Labs.
Overall, 70% of Otherdeeds were allocated to Yuga Labs. We see another situation where Yuga Labs acquired assets from NFT and $APE token holders at excessive prices. In addition, MAYC holders received excessive allocations at the expense of BAYC holders, while $APE holders received no Otherdeeds allocations.
Let’s analyze this:
Yuga Labs sold 55,000 Otherdeeds NFTs for $310 million. The $310 million in purchasing power was used to purchase Otherdeeds NFTs, but Yuga Labs promised not to touch the $APE proceeds for a year. Therefore, the current value of the $APE proceeds from Yuga's Otherdeeds sales is approximately $80 million.
Otherdeeds prices dropped from $31,000 to $2,000 in 7 months.
Yuga Labs has generated $56 million in Otherdeeds royalties by month 7.
While we said earlier that APE holders did not receive any Otherdeeds allocations, it is important to note that the main sale was conducted using $APE. However, using APE as a medium of exchange to purchase Otherdeeds assets at auction does not necessarily gain value to $APE or make it a sustainable aggregation point.
Only if $16,000,000 of $APE is deposited into the $APE DAO treasury by Otherdeeds purchasers will value accrue to $APE in perpetuity. If so, the excess $APE held in the treasury will be subject to a collective vote by the APE governance team to decide how to utilize it - as it will remain on the APE DAO balance sheet.
In this hypothetical chart, we can observe several events happening. Each month, 5 million APE tokens are entering circulation through scheduled token unlocks and staking rewards. Additionally, we can see that each month 1,000 APE tokens are transferred back into the $APE reserve through the sale of Sewer Pass IAPs in Yuga’s mobile game (we’ll discuss this shortly).
As more tokens accumulate in the reserve, the value of $APE will theoretically increase. However, if tokens are not accumulating in the vault but are staked, this will only delay the inevitable - Yuga Labs selling their own allocation of tokens.
Regarding the sale of Otherdeeds, it is important to note that the $APE paid by the purchaser went directly into the Yuga Labs wallet, not into the APE DAO's treasury. This means that Yuga Labs has full control over these tokens and can sell them at any time and distribute the proceeds to its shareholders. However, Yuga Labs has promised not to sell the $APE tokens obtained from the Otherdeeds sale for one year.
In reality, Yuga Labs is somewhat locking up $APE tokens for a year, but they are likely to sell some of them at the end of the year. This causes $APE tokens to become a scarce resource within a year, but in reality, the tokens obtained from the Otherdeeds sale are still under the control of Yuga Labs.
In this hypothetical chart, we demonstrate a scenario where the proceeds from the Otherdeeds sale only temporarily slowed the selling pressure on $APE in a scenario where Yuga Labs was periodically selling 5M $APE.
9. SEWER PASS RELEASE | January 2023
Prior to the launch of Sewer Pass, Yuga’s asset value was declining as the entire cryptocurrency market fell. Specifically, the value of the Yuga ecosystem fell from $17 billion in May 2022 to $3.8 billion in January 2023.
Now let's analyze the structure of the Sewer Pass release.
Here is the capital structure of the Yuga ecosystem as of March 2023:
Yuga Labs: Owning NFTs, Games, and Other Assets
Bored Ape Yacht Club (BAYC): Hold Sewer Pass NFT
Mutant Ape Yacht Club (MAYC): Hold Sewer Pass NFT
APE DAO: Owns APE tokens and Otherdeeds NFTs, controlled by APE token holders
Among them, Sewer Pass NFT is considered to be a channel connecting the BAYC and MAYC communities with Yuga Labs. However, since Yuga Labs itself does not hold Sewer Pass NFT, the value of this NFT collection is not included in Yuga Labs' total assets. At the same time, although in-game microtransactions can be purchased using APE tokens, the scale of their benefits is negligible compared to Sewer Pass NFT.
10. Benefits of YUGA Ecosystem
The table shows the revenues that Yuga Labs, BAYC, and MAYC have earned from issuing and selling Yuga NFTs and tokens. While BAYC and MAYC holders appear to have earned more, at $1.3 billion and $572 million, respectively, Yuga Labs' revenues are $412 million, excluding tokens and NFTs held in its reserves. It is worth noting that Yuga Labs holds $2 billion in $APE Coin in its reserves.
Royalties have become an important source of revenue for NFT projects, although their viability is challenged by ongoing competition in the NFT market.
Yuga Labs charges 2.5% for BAYC and MAYC, while they charge 5% for Otherdeeds and Sewer Passes. It is worth noting that all royalties earned go to Yuga Labs and are not distributed to other stakeholders in the Yuga ecosystem. As a result, Yuga Labs has accumulated $182 million in revenue from royalties.
Royalties generate much less revenue than primary sales, which, as we have argued previously, are a superior mechanism for monetizing IP. However, royalties can serve as a supplemental revenue stream, providing an additional source of income.
11. Stakeholder issues
One of the biggest challenges when dealing with multiple holders is the misalignment of interests. In the absence of laws or predetermined smart contracts that dictate who is entitled to what, each holder may strive to maximize their short-term gains. At some point, internal conflict may arise between multiple stakeholders as everyone tries to accrue value to their assets.
To avoid this from happening, Yuga Labs must take responsibility for managing multiple stakeholders in a relatively fair manner when building new issuances and creating new revenue channels. A well-designed structure should aim to maximize collaboration among all stakeholders and minimize instances of misaligned interests.
think:
Suppose Yuga launches a new series tomorrow, how will the company distribute the series to its stakeholders?
If Sewer Pass holders don’t receive any airdrops, what value or utility does a Sewer Pass have? Why would anyone continue to hold their Sewer Pass? Why wouldn’t they sell it? This question also applies to Otherdeeds.
What percentage of the game/metaverse revenue will be shared with Yuga stakeholders? Will BAYC/MAYC holders not receive any stake in the game revenue?
If the proceeds from the game are distributed only to $APE and Otherdeeds holders, what will the distribution be? 50/50? 80/20? Will the distribution be based on the most recent market price or the main sale price?
Let’s think about this from a retail investor’s perspective. If someone wants to invest in the Yuga ecosystem, which asset should he buy?
This question is very important because each asset provides a different income channel for investors to earn returns in the Yuga ecosystem. If Yuga performs well in the future, but the asset purchased by the investor does not perform well compared to other Yuga assets, it will be very disappointing for the investor.
There is a compelling value proposition for buying BAYC and MAYC. By owning these assets, investors can receive a percentage of each new Yuga NFT or token issuance. Even if Yuga sometimes distributes smaller rewards to BAYC and MAYC holders, they will still receive a percentage of the issuance.
If you believe that Yuga's future NFT and token collections will have value, then BAYC or MAYC are the assets to buy. However, you will not receive royalty benefits from Yuga. The minimum capital required to purchase these assets is relatively high, as the floor prices for BAYC and MAYC are $110,000 and over $20,000, respectively.
$APE tokens offer a different value proposition. Currently, $APE offers vague and superficial "empowerment" with no explanation of how the Yuga ecosystem enables $APE to accrue benefits. While purchasing Otherdeeds with $APE provides temporary value, it only delays the inevitable. Once $APE token holders realize that the value created from the Yuga ecosystem will not accrue to $APE, they have no reason not to sell it.
Using $APE for in-game microtransactions is a clearer utility (assuming the proceeds go into the $APE DAO's coffers). We may see more $APE enabled in Yuga's games/metaverse. However, Yuga has not yet announced the utility of the existing asset. Delaying this announcement is actually a smart move on their part, as it will lead to more speculation and anticipation among asset holders.
This means that if the promises are not delivered, there is a risk of unhappy asset holders. Even if Yuga develops a great IP, game, or metaverse, if BAYC holders or Yuga Labs gain more from it relative to $APE or Otherdeed holders, then these holders will be unhappy.
12. Summary
Value accumulation structures are a challenging topic in the Web3 world. Every set of NFTs or tokens issued by a project becomes a liability in the project’s Web3 capital structure. To ensure that all stakeholders are aligned and working together effectively, projects need to have a well-designed value accumulation structure.
If you are an investor, it is extremely important to conduct due diligence thoroughly to fully understand the returns and value pipeline you will face. When you make mistakes in selecting assets, you may be deeply disappointed even if you make the right decisions in terms of the projects and teams you invest in.
In short, a well-structured value accumulation model is critical to the success of Web3 projects, and investors should take the time to fully understand the assets they are investing in to avoid disappointment later.
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