Monday, July 22, 2024

ApeCoin leads in NFT and Metaverse market share, but are APE’s hefty staking rewards sustainable?

In January, ApeCoin (APE) had an underwhelming performance compared to metaverse-based tokens like Decentraland (MANA) and The Sandbox (SAND). APE token gained 61% compared to the 90% and 150% respective gains seen in SAND and MANA. The subdued gains can be attributed to the hefty APE staking rewards that is likely creating some selling pressure.

An upcoming unlock of around 9% of APE’s circulating supply in March 2023, along with not-so-impressive fundamentals, will add further headwinds for the token. The gains in APE will depend on the success of the blockchain gaming projects in the ApeCoin ecosystem and new partnerships between Yuga Labs and big brands.

Traders take advantage of oversized APE staking rewards

ApeCoin DAO launched its APE staking mechanism in December 2022. The APE staking pool yielded 90% annual returns in the first two months. Holders of the Bored Ape Yacht Club (BAYC) NFTs and related collections are eligible for twice the yields of around 171%, adding significant selling pressure for the token.

ApeCoin staking yields. Source: Dune

However, these traders are primarily interested in capturing risk-free APE gains instead of accumulating the token. Thus, they may eventually become a source of constant selling pressure.

The token has been heavily shorted in the futures market, especially after the launch of the staking mechanism. The funding rate for APE/USD perpetual contracts has been negative since December 2022.

Funding rate for APE/USD perpetual swaps. Source: Coinglass

Otherside Metaverse and Yuga Lab’s influence

The ApeCoin ecosystem is the most valued metaverse project ,not only in total market capitalization, but also the total value of its virtual world. APE will be the primary currency of the Otherside metaverse. The Otherside metaverse has 100,000 virtual land plots which have a floor value of 1.6 ETH. In comparison, the Sandbox has 113,400 land plots with a floor price of 0.98 ETH. 

Otherdeeds sale price. Source: OpenSea

There will be a total of 200,000 Otherdeeds and currently 100,000 Otherdeeds are available. The other 100,000 NFTs will be awarded to people who hold Otherdeeds and contribute to the development of Otherside.

The decentralized organization has passed numerous grants to develop the Otherside metaverse’s gaming space. The ApeCoin ecosystem will also see a native NFT marketplace and a clothing brand. According to a report from crypto analytics firm Messari, the developments are “helpful, but they are unlikely to drive significant structural demand on their own.”

Although ApeCoinDAO is registered as an independent entity, Yuga Labs plays a big role in its adoption. Recently, the firm launched an endless runner game (think Temple Run), Dookey Dash, for the holders of BAYC and related NFT collectors.

Reportedly, players spent $2 million playing this game. While efforts like Dookey Dash are promising, it failed to generate considerable demand for the token. Most of the money was spent on the NFTs that gave access to the game.

Moving forward, the development and user engagement of the Otherside metaverse will determine the traction for APE’s usage.

APE will see significant token dilution in 2023

Besides the staking reward, the vesting schedule of APE adds additional dilution risk from unlocks of tokens allocated toward the team and investors. These include portions that are unlocked in one go and monthly releases.

APE token release schedule. Source: CoinGecko

On Mar. 15, 2023, another 25 million tokens will be unlocked for launch contributors. Additionally, 8 million tokens allocated to Yuga Labs and BAYC Founders will be unlocked too. Around 8.90% of the supply will be unlocked immediately with additional monthly unlocks.

Related: ApeCoin geo-blocks US stakers, two Apes sell for $1M each, marketplace launched

In 2023, the circulating supply of APE will nearly double, which could induce volatility in the token’s price. Usually, token unlocks mean supply dilution, which adds selling pressure. However, when many traders try to benefit from this plan, the market usually responds by moving to the upside first to wipe out the liquidity of short sellers.

The crucial support and resistance levels for APE/USD lie around $3.29 and $7.69, respectively. If either sellers or buyers can overcome these levels, it could amplify a move in the direction of the breakout.

APE/USD daily price chart. Source: TradingView

Still, given the selling pressure staking rewards and upcoming token unlocks, with a lack of real yield or usage of APE, the path of least resistance looks to the downside.