Bored Ape Land Sale and Gas Wars
You might have heard the term gas wars thrown around in the Crypto press. With the huge Bored Ape Metaverse land sale last weekend, I thought this was a good time to cover this topic. The sale was so hot, it kicked off the biggest gas war we’ve ever seen before.
I’ve written before about the strengths and challenges of the Ethereum blockchain and the many competitors coming after their dominant market share. Ethereum is the most established programmable blockchain with about 80% share of the NFT market. This is down from 95% a year ago, as cheaper and faster alternatives like SOL and FLOW have grown. Most of the biggest and highest priced projects all are on $ETH. If you are creating a new product and want it to have the ability to trade at massive prices in the secondary, $ETH is still the top choice.
The biggest player in NFTs today is the Yuga Labs. The company created the wildly popular Bored Ape Yacht Club (BAYC) and several spinoff projects. Celebs like Jay-Z and Steph Curry own their NFTs. In March, Yuga Labs raised their first round of outside capital, and it was a whopper. They pulled in $450MM at a $4Bn valuation led by A16Z with participation from other leading investors in web3. This allowed Yuga Labs to pull off the biggest M&A deal so far in web3, when they announced the purchase of the intellectual property of the popular CryptoPunks and Meebits projects. No price on the deal was shared, but it had to be huge. Along with the IP, Yuga received 423 CryptoPunks and 1,711 Meebits that the seller Larva Labs held in their treasury. Those NFTs alone are worth well north of $100MM.
One of the big items on the roadmap for Yuga Labs was the Otherside Metaverse. They haven’t shared a ton of details, but they did drop this super cool video trailer. The video shows the BAYC, CryptoPunks, and Meebits characters interacting in this new virtual world, and it also showed popular projects not owned by Yuga Labs like World of Women and Nouns. It is important to add that all of these projects are on the Ethereum blockchain.
Fast forward to last Saturday, April 30th. Yuga Labs made available 55,000 Otherdeeds NFTs that conferred ownership of virtual land in the Otherside Metaverse. The land was priced around $5,800 per plot, so Yuga Labs was set to realize over $300MM in revenue on the sale. You still think the $4Bn valuation was crazy? Now they do actually have to build the Metaverse game, which will cost tens of millions to do it well, but this was still a massive profit event for Yuga Labs. Plus they will earn a royalty every time the land sells in the future…forever.
Most of the land was made available first to holders of BAYC projects via a whitelist. This meant that existing holders had to verify their ownership of BAYC items to get approved to participate in the initial land sale. There was a strange added wrinkle that Yuga Labs required everyone to complete a Know Your Customer (KYC) process to buy the land. They didn’t really ever explain why, but the guess is they will be distributing cash flow somehow to landowners in the future. This KYC process didn’t scare away potential buyers, they signed up in droves and it was clear the land would sellout fast. Yuga Labs allowed way more people on the whitelist than they had land to sell, so everyone in the market knew this was going to be a crazy minting process.
Now it’s time to discuss gas wars. When a large number of people are attempting to post transactions to a specific blockchain at the same time, there are not enough validators on the network to process the spike in activity. Potential buyers can increase the amount of gas they are willing to pay on their transaction to jump the line. The person offering the highest gas fee to validators gets processed first, and everyone else has to wait. The gas can jump from the normal fee of $25–50 to something much higher, and boy did it on Saturday.
I was in touch with someone lucky enough to be on the whitelist on Saturday night. He jacked up his gas fee multiple times, and eventually he was able to buy the land with a gas cost of $5K (1.5 ETH). He told me a friend went all the way to $10K (3 ETH) to get his minting done. The total cost of gas fees paid for these initial 55K transactions was reported at nearly $200MM. Who gets this money? Not Yuga Labs. It goes to the validators on the Ethereum network.
Yuga Labs was roundly criticized for the way they managed this sale. It was one of the first big missteps for the company that has dominated the collectible NFT space. Many other projects use a minting process where the people on the whitelist are assured a certain number of purchases and can space these out over a 24-hour period. This way there is not a big rush to mint all at once, and the gas fees don’t spike. Maybe Yuga Labs wanted the press from a feeding frenzy sale. Maybe they didn’t care about saving their customers money on gas fees since most of the participants own $300K Apes already. I don’t know, but it wasn’t a good look. It will be interesting to see how this high profile gas war affects future hot NFT sales in the future.
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