NFT Blue Chip Yuga Labs Dives Into Web3 Gaming, But Speculative Frenzy Could Leave Some Investors Hurting

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What Happened

Yuga Labs, the cre­ators of the suc­cess­ful NFT col­lec­tions the Bored Ape Yacht Club, Mutant Ape Yacht Club, Bored Ape Ken­nel Club, and Oth­er­side meta­verse, has launched its first Web3 game called Dookey Dash.

Hold­ers of Bored Apes and Mutant Apes were able to mint free “sew­er pass­es” which are NFTs required to play the game. In total, 23,390 pass­es were issued across four tiers of hold­ers, with high­er tiers receiv­ing in-game bonus­es and access to exclu­sive con­tent. The top tier pass­es were issued to wal­lets hold­ing both Bored Ape and Ken­nel NFTs, and the bot­tom tier were sent to wal­lets hold­ing a Mutant Ape NFT.

Dookey Dash went live on Jan­u­ary 19th and will only remain playable for three weeks, through Feb­ru­ary 8th. The game is an “end­less run­ner” style expe­ri­ence rem­i­nis­cent of the pop­u­lar mobile game, Tem­ple Run, and the game­play entails dodg­ing obsta­cles and col­lect­ing spe­cial items.

The more items play­ers gath­er and the longer they sur­vive the trek through the sew­er sys­tem, the high­er their score. The goal of the game is to achieve the high­est score among all play­ers dur­ing the three-week peri­od. High scor­ers will receive spe­cial prizes, which have yet to be revealed.

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Broader Context

Yuga Labs is known for cre­at­ing the world’s most valu­able pro­file pic­ture (PFP) NFT col­lec­tion, through its Bored Ape uni­verse. Ini­tial­ly mint­ing 10,000 units for 0.08 ETH (~$200) per NFT in April 2021, the Bored Ape Yacht Club col­lec­tion has inspired a ded­i­cat­ed fol­low­ing of com­mu­ni­ty mem­bers, reward­ing them with sub­se­quent drops, live events, and brand collaborations.

Across all of its affil­i­at­ed NFT col­lec­tions and cryp­to projects, the Bored Ape uni­verse has an aggre­gate mar­ket cap­i­tal­iza­tion of ~$4.3 bil­lion, com­pris­ing Bored Apes ($1.1 bil­lion), Mutant Apes ($440 mil­lion), Ken­nels ($122 mil­lion), Oth­erdeeds for Oth­er­side ($267 mil­lion), ApeCoin ($2.3 bil­lion), and Sew­er Pass­es ($112 million).

In March 2022, ven­ture cap­i­tal firm Andreessen Horowitz led a $450 mil­lion invest­ment round in Yuga Labs at a $4 bil­lion val­u­a­tion to fund the devel­op­ment of the Bored Ape ecosys­tem. Yuga Labs is in the ear­ly stages of build­ing out its own meta­verse world, the Oth­er­side, most of which is shroud­ed in mys­tery. Despite the secre­cy sur­round­ing their meta­verse plans, Yuga Labs suc­cess­ful­ly sold 55,000 Oth­er­side deed NFTs rep­re­sent­ing own­er­ship of vir­tu­al land in the future meta­verse, yield­ing over $318 mil­lion in pri­ma­ry sales last year.

Yuga Labs recent­ly hired Spencer Tuck­er as its first Chief Gam­ing Offi­cer, sig­nal­ing its focus on devel­op­ing con­sumer-focused Web3 games. Tuck­er pre­vi­ous­ly held high-rank­ing posi­tions at mobile gam­ing com­pa­nies Scope­ly and GREE.

Axie Infin­i­ty is the sem­i­nal Web3 game that launched the entire play-to-earn incen­tiviza­tion phe­nom­e­non in 2018. Play-to-earn is a method for ear­ly projects to boot­strap user growth by reward­ing play­ers with native tokens of the pro­to­col when they play the game. In the case of Axie Infin­i­ty, this has led to explo­sive user growth and price spec­u­la­tion in the bull mar­ket, but then pre­cip­i­tous declines in the bear mar­ket due to the over­hang of new token sup­ply con­stant­ly being issued. Axie’s month­ly active user count fell 85% from 2.8 mil­lion in Jan­u­ary 2021 to 430,000 in the last 30 days, and its native gov­er­nance token, AXS, has fall­en 93% from its all-time high of $160 to $11 today.

Where­as Axie Infin­i­ty is a mass mar­ket game appeal­ing pri­mar­i­ly to play­ers in emerg­ing coun­tries such as Thai­land, the Philip­pines, and Viet­nam, Dookey Dash has been launched as a val­ue-add game reward­ing exist­ing com­mu­ni­ty mem­bers with­in the Bored Ape uni­verse. Addi­tion­al­ly in con­trast to Axie, Dookey Dash has a lim­it­ed run­time and no native game tokens to incen­tivize users.

Key Quote

“The future of gam­ing will be pow­ered by play­er own­er­ship, social col­lab­o­ra­tion, and cre­ative expres­sion.” — Spencer Tuck­er, Chief Gam­ing Offi­cer of Yuga Labs

Key Statistic

At the time of writ­ing, trad­ing vol­ume of sew­er pass­es is 25,200 ETH (~$40.3 mil­lion), and giv­en the NFT col­lec­tion enforces a cre­ator roy­al­ty of 5%, Yuga Labs has earned $2 mil­lion in sec­ondary sales rev­enue to date. At the cur­rent run rate, Yuga Labs is on track to earn ~$5 mil­lion in roy­al­ty fees over the three-week period.

Outlook and Implications

Valu­ing exclu­siv­i­ty over acces­si­bil­i­ty, Yuga Labs has always viewed itself as a lux­u­ry brand cre­at­ing dig­i­tal items and expe­ri­ences at high price points.

Dookey Dash is not meant to be a mass mar­ket game to pull new par­tic­i­pants into the Bored Ape ecosys­tem. Rather, it is meant to reward exist­ing com­mu­ni­ty mem­bers with a trad­able game pass that pro­vides access to the web brows­er-based game and has val­ue on the sec­ondary mar­ket. To date, the game has had over 3.6 mil­lion playthroughs with 19,000 unique players.

The floor price of sew­er pass­es cur­rent­ly sits at 2.9 ETH (~$4,600), mean­ing it costs that amount for play­ers out­side of the Bored Ape ecosys­tem to play the game. The fact that Yuga air­dropped entry pass­es that will reward play­ers with new NFTs based on their scores, sup­port­ed a high­er floor price as spec­u­la­tors could bet on the future val­ue of the NFT rewards and their game­play skills.

This nat­u­ral­ly leads to ques­tions about the val­ue and util­i­ty of these pass­es once the game ends. A source famil­iar with Yuga Labs says that sew­er pass­es will give the hold­ers the right to par­tic­i­pate in the next iter­a­tion of its vir­tu­al world, The Sum­mon­ing, which remains shroud­ed in mys­tery. It would not be unrea­son­able to expect a pre­cip­i­tous decline in sew­er pass prices as Feb­ru­ary 8th approaches.

Note: There is a way for a pass hold­er to del­e­gate the token to a user to try the game with­out actu­al­ly tak­ing cus­tody of the asset, but those engage­ments must be nego­ti­at­ed separately.

Inter­est­ing­ly, head­ing into the launch of the sew­er pass NFTs, Bored Ape sales vol­ume remained flat, how­ev­er, Mutant Ape sales vol­ume spiked from ~$2 mil­lion in dai­ly vol­ume a few days before to over $6 mil­lion the day of the sew­er pass launch. Mutant Apes have a low­er floor price than Bored Apes ($21,500 ver­sus $102,000 respec­tive­ly), and thus are rel­a­tive­ly more acces­si­ble by new buy­ers who were like­ly pur­chas­ing Mutant Apes to receive the pass­es. In the fol­low­ing days, Mutant Ape sales vol­ume fell down towards $1 mil­lion, pre­sum­ably as the pass­es were already minted.

Decision Points

Projects that con­tin­ue to pro­vide val­ue to their com­mu­ni­ties are the ones that will per­sist through the vicis­si­tudes of the NFT and cryp­to mar­ket cycle. Alter­na­tive­ly, many projects have “rug-pulled” their com­mu­ni­ties, indi­cat­ing they aban­doned and dis­con­tin­ued project devel­op­ment or did not ful­fill the promis­es made to their hold­ers. Yuga Labs appears com­mit­ted to con­tin­u­ing to pro­vide val­ue to its NFT holders.

NFT Investors and enthu­si­asts should seek out projects that have a his­to­ry of exe­cut­ing and deliv­er­ing on their promis­es. To increase account­abil­i­ty and avoid rug-pulls, hold­ers should favor project teams that doxed them­selves, mean­ing team mem­bers revealed their real-world iden­ti­ties rather than remained anonymous.

Games exclu­sive­ly playable by mem­bers of spe­cif­ic NFT com­mu­ni­ties are just one way projects can reward hold­ers and build loy­al­ty over time. Oth­er meth­ods include cre­at­ing exclu­sive media con­tent and expe­ri­ences such as movies, tv shows, music, live events, phys­i­cal mer­chan­dise, and oth­er forms of intel­lec­tu­al prop­er­ty that res­onate with audiences.

How­ev­er, any­one look­ing to pur­chase a pass on the open mar­ket should do so with cau­tion. Rel­a­tive­ly illiq­uid tokens with uncer­tain val­ue can be prone to high volatil­i­ty. Unless investors are deter­mined to play Dookey Dash and be among the top scor­ers of the game, it would be dif­fi­cult to jus­ti­fy pay­ing over $4,000 for the pass. Yuga Labs has yet to reveal the rewards and util­i­ty bestowed upon pass hold­ers after the game clos­es on Feb­ru­ary 8th, and it is like­ly sew­er pass NFTs will decline in val­ue head­ing into the game’s expi­ra­tion date.

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