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

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.