ApeCoin leads in NFT and Metaverse market share, but are APE’s hefty stake rewards sustainable?
In January, ApeCoin (APE) underperformed compared to metaverse-based tokens such as Decentraland (MANA) and The Sandbox (SAND). The APE token increased by 61% compared to the 90% and 150% respective gains seen in SAND and MANA. The muted gains can be attributed to the hefty APE stake rewards which are 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 provide further headwinds for the token. The profit in APE will depend on the success of the blockchain game projects in the ApeCoin ecosystem and new partnerships between Yuga Labs and big brands.
Traders benefit from oversized APE stake rewards
ApeCoin DAO launched its APE staking mechanism in December 2022. The APE staking pool produced 90% annualized returns in the first two months. Holders of Bored Ape Yacht Club (BAYC) NFTs and related collections are eligible for twice as much returns of around 171%, adding significant selling pressure to the token.
However, these traders are primarily interested in capturing risk-free APE gains rather than hoarding the token. As a result, they can eventually become a source of constant sales pressure.
The token has been heavily shorted in the futures market, especially after the launch of the staking mechanism. The funding rate for perpetual APE/USD contracts has been negative since December 2022.
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 the virtual world. APE will be the primary currency of the Otherside metaverse. The Otherside metaverse has 100,000 virtual plots that have a base value of 1.6 ETH. In comparison, Sandbox has 113,400 plots with a base price of 0.98 ETH.
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 have Otherdeeds and contribute to the development of the Otherside.
The decentralized organization has passed a number of 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 by crypto analytics firm Messari, the developments are “useful, but unlikely to drive significant structural demand on their own.”
Although ApeCoinDAO is registered as an independent entity, Yuga Labs plays a major role in its adoption. Recently, the firm launched an endless runner game (think Temple Run), Dookey Dash, for holders of BAYC and related NFT collectors.
According to players spent 2 million dollars playing this game. While efforts such as Dookey Dash are promising, they failed to generate significant demand for the token. Most of the money was spent on the NFTs that provided access to the game.
Going forward, the development and user engagement of the Otherside metaverse will determine the traction of APE’s use.
APE will see significant token dilution in 2023
In addition to the stake reward, the earning plan of APE provides additional dilution risk from unlocks of tokens allocated to the team and investors. These include one-time unlockables and monthly releases.
On March 15, 2023, an additional 25 million tokens will be unlocked for launch contributors. Additionally, 8 million tokens awarded to Yuga Labs and BAYC founders will also be unlocked. Around 8.90% of the supply will be unlocked immediately with additional monthly unlocks.
Related: ApeCoin geo-blocks US stakers, two monkeys sold for $1M each, marketplace launched
By 2023, the circulating supply of APE will almost double, which could induce volatility in the token’s price. Typically, token unlocks mean supply dilution, which increases selling pressure. However, when many traders try to take advantage of this plan, the market usually reacts by moving to the upside first to wipe out the liquidity of short sellers.
The crucial support and resistance levels for APE/USD are around $3.29 and $7.69 respectively. If either sellers or buyers can overcome these levels, it could reinforce a move in the direction of the breakout.
Still, given the selling pressure of rewards and upcoming token unlocks, with a lack of real returns or use of APE, the path of least resistance looks to the downside.
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