The Mega Deal: On Bored Ape’s Historic CryptoPunks Acquisition

The Mega Deal: On Bored Ape’s Historic CryptoPunks Acquisition

On Friday evening, Yuga Labs, maker of Bored Ape Yacht Club, announced it acquired the brands, copyright and IP rights to the CryptoPunks and Meebits NFT collections from creator Larva Labs.

For the NFT community, it was the equivalent of Google buying Apple — or something. Suffice to say it was a mega deal too stupendous to believe. Indeed, prior to the official announcement, holders of both NFTs voiced considerable skepticism about the rumored acquisition on the assumption it was simply too far-fetched to be true. Between them, Bored Ape Yacht Club and CryptoPunks are valued in the low single-digit billions — at a minimum. Last month, Axios reported that Andreessen Horowitz is in “advanced talks” to lead a funding round for Yuga, possibly valuing the company at $5 billion.

To most NFT proponents, the deal seemed to legitimize the space. A key detail involved the granting of commercial rights to CryptoPunks holders, consistent with the rights enjoyed by owners of Yuga’s tokens. Even if that doesn’t entail the transfer of a full copyright, it does allow holders to use the IP in the real world. There are many such projects already, and it’s something some CryptoPunks owners have long sought. In November, Universal Music Group signed four Apes to a record deal (of sorts).

If such rights are indeed desirable, the read-through for NFTs more broadly is ambiguous. On one hand, it’s bullish: Successful real-world applications of the commercial rights to PFP projects bode well for other NFT projects that confer the same rights upon holders. You get the token and the commercial rights, so it’s not “just a jpeg.” There are two ways to get rich: Hold the NFT and hope it appreciates, or monetize it with a derivative project.

On the other hand, it raises a few odd questions. For one thing, when tokens are synonymous with at least limited commercial rights for PFP (or any other) projects, it opens a Pandora’s box. Anybody can do pretty much anything with the IP, and one imagines that with a decent lawyer on board, “pretty much anything” could mean “anything at all.” Creators like Yuga claim they want just that, but what happens when a derivative project gets bigger than the original? Or what if, say, a huge corporation wades in and attempts to commandeer the majority of the rights by, for example, issuing debt and using the proceeds to buy up a large lot of IP-conferring tokens with immediate plans to monetize it utilizing the full resources of a multinational? How would that sit with the community of individual holders? Presumably quite well at first. But maybe not so much after it becomes clear that the multinational is making more money every hour from the project than the creators and individual holders make in a year.

Relatedly, if real-world applications of the IP do end up becoming more valuable through, say, physical apparel or some other kind of branding initiative that doesn’t involve Web3 in any way, what does that say about NFTs? To me, it suggests the “technology” is little more than a way to assign a novelty premium to something that might otherwise be mostly worthless. How much would Bored Ape Yacht Club be worth as a collection of non-NFT cartoons? The answer is probably that it depends on whether Yuga was able to successfully develop the brand into something that had appeal for television, movies, apparel, toys and so on. That could happen quickly, but not overnight. Putting it out as an NFT project put the cart before the horse. Bored Ape Yacht Club is already a billion-dollar brand. And all celebrity purchases, Rolling Stone covers and media attention notwithstanding, almost nobody in the real world has ever heard of it.

Conceptually, this is similar to 2017, when a bevy of companies rushed to change their business models to incorporate blockchain during that year’s Bitcoin gold rush. Some of those firms immediately saw their shares trade higher simply by amending blockchain to their corporate mission. With NFTs, that premium is built in from the very beginning. I have similar questions about photography NFTs. Why is a random person’s photograph of a sunset worth nothing as a regular jpeg, but worth thousands as an NFT? Tokenizing the picture (a very simple process) confers a novelty premium. Is that sustainable?

Upon hearing the Yuga-Larva acquisition news, some on social media seemed tempted to plow money into lesser projects on the notion that the deal was infinitely more important than Facebook’s rebranding exercise when it comes to establishing Web3 as a real thing. “Does anyone else feel an NFT bull market coming?”, one netizen wondered, in a tweet.

In an interview with The Verge, Greg Solano, a Bored Ape Yacht Club co-founder who goes by the pseudonym Gargamel, called CryptoPunks “just iconic.” “It’s visionary, and it’s gonna be here forever,” he said, noting that Yuga was “just immediately excited” about the idea of acquiring it, “without knowing at all what we would want the next step to be.”

Clearly, Yuga is savvy in many respects. But based on comments from Wylie Aronow (another founder who spoke to The Verge for the same piece), I worry that not even Yuga has the answers to the myriad questions that need answering. He said that while the company plans to put its “tentacles” into everything from events to games to “et cetera,” he described the road ahead for CryptoPunks as “just a matter of figuring out and extending that utility to these new IPs.”

Unlike Bored Apes, CryptoPunks and Meebits won’t generate incremental revenue with each new sale. That’s a legacy inherited from Larva, and Yuga isn’t going to change it, apparently. That means they need to monetize the 423 CryptoPunks and 1,711 Meebits they bought some other way. To be sure, they’re already (very) valuable. Christie’s famously auctioned 9 CryptoPunks for around $17 million last year, in a landmark moment for NFTs. But these are basically balance sheet assets now, and if blue chip NFTs were to fall into a bear market before Yuga either sells them or figures out how to create a revenue stream based on them, they’d presumably need to be marked down. At the same time, a hypothetical bear market would doubtlessly weigh on both the volume and price of secondary Bored Ape sales.

“We’re deeply engaged with the community that’s formed around BAYC, and it’s inspiring to watch them build, collaborate and continuously up the ante,” Yuga said Friday, adding that, “CryptoPunks and Meebits have their own unique communities, and we’re excited to see what they do with IP rights.”

I don’t doubt they’re excited. As someone who owns a few NFTs, I’m excited myself. The problem, again, is that the future of the space is starting to sound less futuristic and more traditional.

As The Verge put it, “the acquisition is a big deal [because] it’s perhaps the first sign of the NFT space professionalizing and consolidating.” The same article went on to say that “Yuga Labs is starting to act like a real company.”

It seems as though NFT proponents are now paradoxically arguing that the future of Web3 is brighter the more overlap there is between the metaverse and the real world.

11 thoughts on “The Mega Deal: On Bored Ape’s Historic CryptoPunks Acquisition

  1. Speaking from the perspective of an NFT creator rather than buyer, this is a mixed outcome, at best.

    If I am reading this correctly, they are eliminating tiny fees creators receive every time the NFT changes hands on the future. That feature is a key attraction for many artists. Removing this pulls the rug out from under any notion that NFTs are a beneficial “sea change” from an artist’s perspective.

    The boys in Silucon Valley are seeking to make NFTs work like the music for hire contracts on sites like Taxi where music composers sign away all rights (copyrights) for a small cash payment. Just like ad jingle writers have long been forced to do.

    As our Dear Leader sagely noted, the NFT buyers universe is not all that large. Many looked at NFTs as a wonderful extension of the libertarian allure of cryptos. This will thin the ranks of buyers even further as the true believers move on to other shiny things.

    Not a huge surprise. It’s similar to how utopian imaginations surrounding the whole metaverse concept are giving way to the reality that it is quickly becoming nothing more than an evolutionary advertising vector rattan a revolutionary liberariam wonderland.

    PS: those of you who have spent time on NFT marketplaces may rightly cringe at my use of the terms “artist” and “artworks” in this context. For some good reasons. So many offerings are rather crude computer-generated (highy pixalated) “limited offerings” of single icon or image soley differentiated by the unique color combinations applied to each individual file.

    In this humble observers mind, calling this crap art is a very long stretch. Like comparing a Beany Baby to a Calder mobile. Many or even most NFTs should be classified as collectibles and dropped into the same bucket as other “collectibles”, such as Beans Babies and Hummel figurines.

      1. Typos

        My only source of making comments is a smartphone that purposefully abuses my texts and communication efforts. I feet your pain.

        While I’m here, NFT stuff to be is like a cross between Fox news and Russian propoganda mixed with money laundering, scammers, pyramid schemes and total stupidity, but, apparently it’s pixels have a vast capacity for storing future value, I’m skeptical!

        Between real world adoption and critical links to dollar exchanging that tiny universe of speculation has about as much liquidity as a ruble. I really don’t mean to be closed minded and as an artist I’m drawn to adapting to new markets and future value, but as I researched it all, it just seems like pet rocks or cabbage patch dolls nested into cool technology. Instead of wealthy mom’s collecting beanie babies, we have mom’s chasing digital lotto tickets that eventually will vaporize into pixel dust.

    1. There are things that have intrinsic value such as food, commodities, some manufactured goods, etc. Then there are things that have value because people assign value to them, such as art, music, and in some ways currencies. When times are tough, people somehow manage to figure out what has intrinsic value.

  2. They used to say that a Brit would bet on anything, like which raindrop will reach the bottom of his windshield first. These days it seems like this idea is not too farfetched. Sports betting, fantasy football, NFTs, crazy crypto, meme stocks and other “modern inventions” seem to me very scary as a collective omen. People with money don’t seem to know what to do with it and those without are totally trapped. I just get the creeping feeling we have no place to go but down.

  3. You know what inflates Nuevo Assets? Liquidity. Specifically excess systemic liquidity (central bank driven) and/or illicit siphoning of liquidity (criminals and sanction circumvention). Both sources are likely to become outflows in the near future and the next “big event” will likely wipeout 95%+ of the value of NFTs and Cryptos.

    Central Banks need to fight inflation = significant tightening = outflows from the Nuevo Assets

    Criminals and sanction circumventors have up to now been given a free pass. Global regulators and various civil authorities will now be hunting them to the ends of the earth and will find a way break the market.

    More and more it is looking like the next “big event” will take out financial assets globally within the next 6-18 months.

  4. NFT speculation is clarifying.

    I recall something Peter Lynch said too long ago about Avon, like, in order for Avon earnings to make valuation sense, all the Avon ladies would have to sell their make-up crap to all the other Avon ladies.

    The point being, if you go back to the mid 1920 period of roaring excess, the speculation market was driven by a supply of speculators who all depended on the next lemming in the pyramid.

    The process of wealth accumulation at certain points isn’t about future value or growth, it becomes a phycological phenomenon that connects idiots to risk in a search for fast easy returns.

    We see this in home flippers and the entire risk free pandemic run-up, including a willingness by some people to turn crypto speculation into a derivative that makes CDO squared risk look safe.

    People get sucked into narratives easily and rationalize insanity. It’s like China building millions of empty apartments and pretending they have stability. That goes for almost any addiction, from zealous polarized politics to bonehead speculation. As usual, it’s a liquidity thing.

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