Cobie: ApeCoin and the Death of Staking

I was recently contacted by a member of the ApeCoin Board of Directors asking for some feedback on some proposals, and I presented my thoughts on the phone.

I want to write about things that are openly discussed because I think they are interesting topics.

Before I start, I want to clarify: I don’t hold any ApeCoin, I don’t short ApeCoin, I used to own BAYC in the past, but now I don’t have any long-term or short-term exposure to anything related to the Yuga Labs ecosystem. I’m not a financial advisor, in fact, I’ve been rumored to be an idiot in the industry for a long time.

The death of staking

Staking has made some sense in the past. I think Peercoin was the first protocol to introduce a proof-of-stake (PoS) mechanism, about ten years ago. Since then, PoS mechanisms have become more and more popular in new blockchains, and all newer ecosystems are built on PoS blockchains.

For Peercoin and later PoS networks, staking has a purpose. Owners will provide their tokens as collateral for a chance to validate blocks, and they will be rewarded for doing so. Therefore, staking rewards users who risk their collateral and work: a function necessary to participate in the continued operation of the network or protocol.

But somehow, over time, the term staking has been redefined. Staking now seems to mean that if you don’t sell your current holdings, we’ll reward you with more tokens than if you contributed to the security of the blockchain Earn rewards.

These modern staking mechanisms have no function in the ecosystem to which they belong. They don’t do anything in a practical or technical sense, they don’t make the ecosystem stronger, they’re just shell games using names for different things to obscure their actual purpose, which is to encourage less selling.

Cobie: ApeCoin and the Death of Staking

When PoS protocols issue rewards to stakers, they are buying the security of the blockchain. When DeFi projects offer liquidity mining programs, they are buying growth and TVL. It seems worthwhile to trade something in order to make the protocol more sustainable, bigger, or more secure.

But these new “staking” mechanisms get nothing but reduced liquidity for potential sellers.

If you don’t stake, your stake in the network or protocol is diluted by new emissions. Plus, new staking is risk-free! You don’t lose coins because staking does nothing! So, lock up your tokens! Get them off the market now…in fact, we’ll pay you!

Simply using rewards to encourage users not to sell, and paying for the same assets that users choose not to sell seems to be the way in the late stages of Ponzi game creation.

ApeCoin

Okay, let’s take a quick look at what’s going on with ApeCoin.

It has a total supply of 1 billion and it does not mint or burn new tokens, so the total supply will always be 1 billion APE.

ApeCoin’s token ownership distribution is as follows:

  1. 47% belong to the ApeCoin DAO “ecological fund”
  2. 15% for community airdrop
  3. 15% to Yuga Labs
  4. 14% are “startup contributors” (investors?)
  5. 8% belongs to the founder
  6. 1% for charity

In terms of unlocking, it looks like Yuga Labs, founders, and investors will all be locked for one year, but there seem to be exceptions, some coins are unlocked immediately and some after 6 months.

The remaining unlock schedule appears to be in the 1-3 year range, with the entire supply 100% unlocked within 4 years.

anyway, back to the topic.

Staking of ApeCoin

There is currently a proposal for a staking scheme for ApeCoin, written by Animoca, which appears to be a crypto gaming VC software mixing company whose founders are members of ApeCoin’s board of directors.

In the words of the proposal authors, the goal of this proposal is to make ApeCoin the token of choice for web3 by incentivizing early NFT adopters and existing and potential ecosystem participants to participate in activities that benefit the APE ecosystem .

The proposal itself may seem complicated, but I can summarize it for you, it basically says:

We should pay the holders of ApeCoin 17.5% of the total supply of ApeCoin over the next three years, and if they also hold BAYC/MAYC/BAKC, we should give them a different rate of return.

It is unclear to me how the issuance of APE tokens to those who already hold APE “incentivizes early NFT adopters and existing and potential ecosystem participants to participate in activities that benefit the APE ecosystem”.

Isn’t that just paying ApeCoins to those who hold ApeCoins?

In fact, if we’re really being honest about this proposal, what it really means is “Let’s pay some token rewards to those who don’t sell when the founders/investors/contributors unlock, so that we It’s possible to fake some utility before it’s actually built.”

Cobie: ApeCoin and the Death of Staking

$2.6 billion in staking rewards, in exchange for just air

ApeCoin’s current overall valuation is around $15 billion, which means its DAO treasury holds around $7 billion in tokens.

Animoca’s proposal proposes to give away $2.6 billion worth of tokens (about 37% of the DAO’s remaining tokens) to APE holders for free over the next three years.

Because of this staking, it doesn’t actually do anything practically or technically, so you can simply think of it as a means of bribing users not to sell. The proposal reads: “If you don’t sell your APE or BAYC, we will give you more APE tokens!”

The DAO uses the remaining 37% of tokens for bribes, so it must consider the importance of bribes.

Considering that these tokens can be spent on a lot of things, they are currently worth $2.6 billion after all! They can create a lot of value for ApeCoin, build a sustainable ecosystem and attract new external capital.

From an external perspective, the DAO appears to be spending over 1/3 of its remaining tokens to bribe people not to sell while early contributors pass the early unlock phase.

But when you consider the supply and demand dynamics that this staking program will bring, it seems more like a conspiracy than an actual malicious strategy.

There is currently about 15% of the circulating supply of ApeCoin tokens in the market, this inflation/emission plan will increase the supply in the market by about 75% in the first year only, but I don’t believe this will increase the demand for ApeCoin by 75%, Therefore, isolated staking schemes can harm the economic interests of locked token holders.

However, ApeCoin does have a real question: how does it provide additional supply to the market so that upcoming founders and investors don’t unlock the lion’s share of the liquidity supply?

Personally, I think it’s good to spend this earmarked money, but it should be spent on growth purposes and toward their original stated goal: becoming the currency of web3. Rather, these tokens should not be used to reward those who already hold the tokens.

ApeCoin DAO

The remaining assets of the ApeCoin DAO should focus on solving practical problems for users.

I don’t know what it means to achieve the mission of “becoming the main currency of the web3”, but I do know that there is a “user demand” in the NFT ecosystem, which can be funded or built by the ApeCoin DAO.

Why is OpenSea the main trading venue for the boring ape? Last year, traders in BAYC and MAYC spent about 20,000 ETH in fees on OpenSea, that is, $60 million per year to leave the ecosystem .

BAYC holders, or NFT holders in general, may want to get credit for the NFT while retaining ownership. Can the ApeCoin DAO create a major NFT lending marketplace?

Why do Bored Ape users keep getting hacked? What educational resources are needed to help people self-custody their assets more effectively? Can ApeCoin DAO launch an attractive custody service?

and many more. I’m sure the community will come up with some better ideas.

DAO should be committed to creating new value for APE ecological users and potential users, and it should solve the practical problems of users within the NFT community.

The funds should be used to acquire and incubate utilities, build revenue streams, and create sustainable DAOs.

Should there be a staking scheme?

I have a legitimate reason to think that 15% “retail” ownership share is too little, and the staking program for the first year or so (while the only token supply eligible for staking is from retail) could raise it to a more meaningful level.

I can also see the argument for a 10-15 year emissions plan: APE tokens have no minting function and cannot increase their own supply. If the DAO consumes all APE tokens in the first few years, it will have no more firepower to incentivize activity or gain future value. Also, over time, you will achieve a wider and more desirable distribution by extending the time someone has to be a participant in the ecosystem.

I can see an argument for why BAYC NFTs should be staked: to free users from having to choose between buying BAYC or buying ApeCoin to join the community. Also, newcomers are more likely to enter the APE community through NFTs rather than fungible tokens, as this is how everyone in the current APE community works.

I can also see an argument for why BAYC NFTs should not be staked: ApeCoin is a brand new entity that was created by the BAYC community but is no longer actually directly affiliated with NFTs.

In reality, these arguments don’t have much real-world basis, because it’s hard to say: what’s the point of this staking program? What is the program trying to achieve?

The proposal says some nonsense about “incentivizing participants to do things in the APE ecosystem”, but the staking proposal itself seems out of touch with that goal.

If the ApeCoin DAO hopes that the goal of the staking program is to acquire new members for the DAO, then a credible staking program might include issuing ongoing rewards to NFT holders within the APE ecosystem. The APE ecosystem may even acquire other collections of NFTs and issue APE tokens to these community members.

If the goal of the staking program is to support the liquidity of the BAYC ecosystem, then APE token emissions should be provided to LPs in the APE/WETH market, as well as those who provide liquidity to pools such as NFTX.

If the goal of a staking program is simply to push prices higher, then it needs to lock assets and provide higher returns for longer locks and stifle supply outside the market for as long as possible.

Without stated goals about the purpose of the staking program, it is difficult to design a staking program that can achieve those goals. Getting more supply into the market, bribing users not to sell, or offering “fake utility” are not credible goals of staking schemes.

Personally, I would design a small program to incentivize the introduction of more and more newcomers to the Ape ecosystem over the next ten years, and I would reward existing holders for their continued participation in the ecosystem. I personally believe that new users will be joining the NFT community, not fungible assets, and therefore should be paid to the NFT asset holders, not the holders of these tokens.

I would complement this staking program with an aggressive, larger buy-to-value program.

Governance

ApeCoin is now a multi-billion dollar organization and it needs a long enough plan. There should be a good answer to this question: How do we turn this $7 billion in APE treasury assets into $100 billion over the next decade or two?

However, crypto investors don’t always have a long time horizon, and on average I guess they don’t care much about what their token project will do in 2 months, let alone 10 years.

So if you tell the community, “Hey, we decided there won’t be a staking program, we’re going to invest in growth by paying the builders to contribute to the ApeCoin DAO ecosystem,” they’re probably going to be very upset.

“I don’t get any tokens for free anymore? And outsiders get millions of dollars worth of tokens? Just to build a lending market? What the heck?”

Retail investors are unlikely to strictly consider the impact of ” OHM -style supply inflation” on existing holders, nor do they consider the knock-on effects of falling price charts.

So the governance of complex and multifaceted issues of analysis is an odd environment that quickly finds its way into the political realm.

I hardly believe retail investors’ token votes will give the best mid-term results, in fact they are more likely to vote for disruptive mid-term results.

I read an article today saying that Sushi’s treasury coffers have shrunk from $1 billion to $30 million in 1 year. I don’t know if this is exaggeration or fiction, but I think this will be a common story for many failed DAOs.

Summarize

Staking mechanisms should be designed to support ecological goals, and they should be used to incentivize parts of a product, community, or network that require people to work or take risks.

The ApeCoin DAO currently has $7 billion in funding, which it should use to incentivize people to take risks, work, and grow the community, rather than giving it an interest rate bribe to existing holders to reward them for not selling.

Without utility or value capture, 37% of fiscal coffer spending on emissions is not only worthless, but could actually be damaging to the long-term prospects of the APE ecosystem.

We should have refused to change the meaning of the word “staking”, but it may be too late. The term is now inherently misleading and can mean several different things.

I really hope we don’t live in a world where the internet’s primary currency is called “ApeCoin”, but I’m hoping to try to avoid this apparent bias in this article, which is the same as any DAO that finds itself in a similar situation. related.

How bad is ApeCoin’s staking proposal

The Bored Ape community is known for failing self-custody in the crypto space.

In response, the ApeCoin committee suggested that BAYC NFTs would actually “contain” your APE tokens.

How Staking Works for NFT Holders
If an NFT holder in the BAYC ecosystem wants to stake in pool 2, 3 or 4 (depending on the NFT), they will share the NFT with their ApeCoins are paired to enter the relevant staking pool. The NFT itself is not pledged, it just acts as the key to hold the pledged ApeCoin “treasury”. NFT holders still retain the ability to sell their NFTs. By default, if you sell an NFT that is actively staking ApeCoin, you are also selling the key to access the related staked ApeCoin.
If only NFTs are to be sold without selling the related pledged ApeCoins, the NFT sellers will release the pledged ApeCoins before listing the NFTs.

This means that if you lose your BAYC, you also lose your APE tokens!

You can’t split your NFTs and your APE tokens into different wallets, which means if someone steals your BAYC, they don’t need to do anything extra to take your APE tokens. By default, APE and BAYC are used together! marvelous!

This design seems intentionally confusing and produces more bad results than good ones. Even forgetting that you’ve staked APEs behind a particular NFT can be a huge financial mistake and a really bad design.

The ApeCoin Board of Directors also issued the following statement:

“Why can’t I just stake a BAYC ecological NFT?
We believe that everyone in web3 should control their own assets, and in order to provide this right to the NFT owner, the NFT itself will not be staked into the staking pool. In addition, by staking ApeCoin instead of NFT, ApeCoin DAO incentivizes and facilitates the long-term development of the ApeCoin holder community.”

This seems like a straightforward pun. Everyone should control their own assets, so you can’t put those assets in contracts. But you can put other assets into contracts!

It doesn’t really make sense, I can only conclude that they are treating users for fools.

Anyway, what happens after three years of staking?

“What happens at the end of the three-year staking period?
A new AIP needs to be drafted and voted on to determine the future staking mechanism, and that decision is then put into the hands of the community. Ideally, within a 3-year staking period At the end of the day, the DAO will have ongoing income to continue to incentivize staking and reward ecosystem participants.

“Ideally”? So wouldn’t it be better to decide on an income plan before a staking plan? What if a solid income plan took 5 years instead of 3? It also seems insane to design a staking program without understanding the product and revenue program that was originally just being used as a subsidy.

It doesn’t matter anyway, because staking won’t do anything in this case, it’s just bribing people to stay in the community.

Oh, and the current staking proposal also includes $1.3 billion in token emissions next year (at current market prices). Assuming all holders are in a reasonably ‘Western’ high tax regime, this alone would generate $700 million in selling pressure. That’s cool.

Writing here, I don’t want to write anymore.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/cobie-apecoin-and-the-death-of-staking/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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