NFT

Translation: Twitter personality Cobie discusses the death of staking, but what he's really talking about is the future of ApeCoin and the NFT community.

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Translation: Twitter personality Cobie discusses the death of staking, but what he

Twitter personality Cobie published an article on the 21st titled "ApeCoin & the death of staking", discussing the misuse of the staking mechanism which has lost its original intention, resonating with the community. However, the actual focus of the article is on the proposed distribution of ApeCoin tokens; Cobie also admitted that he wouldn't attract readers without a headline like "staking is dead."

Abstract

  • The concept of Staking has been misused and confused, with many staking mechanisms nowadays merely incentivizing users not to sell their coins, rather than serving any real purpose.
  • The staking proposal for ApeCoin should clarify the target and purpose of staking, focusing on NFT holders and ecosystem development as the main drivers for utilizing funds.
  • The governance outcomes of retail investors typically do not positively impact medium-term development and often fail to address long-term issues, leading to the failure of many DAOs.
  • Cobie believes that the current governance proposals for ApeCoin are detrimental to the long-term token economy development.

It is believed that the misuse of the term "staking" has been prevalent in the DeFi era, with many cases deviating from its substantive meaning. With the NFT giants entering the coin issuance ecosystem, the discussion of this unresolved contradiction has resurfaced. While the NFT giants in the boring ape ecosystem seek sustainable development solutions within the lively NFT community, taking the first step back into the coin circle represents a significant indicator for many NFT teams in evaluating future development directions.

Full Translation

Below is the full translation and commentary:

Recently, a member of the ApeCoin board of directors, presumably equivalent to the board of the boring ape token, contacted me seeking opinions on some proposals and shared my thoughts during the call.

I wish to publicly write about some of the things we discussed because I find the topics very interesting, especially those that are not suitable to be resolved by "token voting governance."

Disclaimer: I do not hold ApeCoin, nor have I shorted it. I previously held BAYC boring apes, but have not held any Yuga Labs boring ape developer ecosystem products in the short or long term. I am not a financial advisor, and there have been rumors for a long time that I am quite stupid.

The Death of Staking

Staking once held significant meaning. I believe Peercoin was the first to introduce the proof of stake (PoS) consensus protocol, so it may have been about ten years ago. Since then, PoS has become more and more popular, and all the latest and trendiest ecosystems have adopted PoS consensus blockchains.

For Peercoin and subsequent PoS protocols, staking was purposeful. Holders used tokens as collateral to obtain the opportunity for block validation and thus receive rewards. The staking mechanism rewards users who bear collateral risk and assist in verification, which is a necessary function for participating in the blockchain network and protocol's continuous operation.

However, over time, the purpose and definition of "staking" have changed drastically.

Current "staking" seems to imply that if you do not sell the tokens, we will reward you with more tokens, rather than collateralizing tokens and contributing to blockchain security to receive rewards, haha.

These contemporary staking mechanisms serve no function in their ecosystems and are of no practical or technical assistance. They do not make the ecosystem more robust but rather a gambling shell game, often fraudulent, confusing their actual purpose with different names to encourage users to reduce their selling intentions.

When PoS protocols reward stakers, it means that the protocol itself is paying for the security of the blockchain, which is a valuable use case for shareholders.

When DeFi protocols launch liquidity mining programs, they aim for overall growth and total value locked (TVL). Based on their design mechanisms, liquidity mining may also be a fair and worthwhile application to make protocols more sustainable, further expand, and enhance security. The spending of equity and tokens for the protocol to be more sustainable, further expand, and enhance security seems worthwhile.

However, the current staking mechanisms that only provide rewards without any real functionality offer staking rewards that are meaningless, except to reduce the liquidity selling pressure from potential sellers.

If you do not stake, the share of tokens you hold in the protocol will inflate due to continuous token issuance. Furthermore, staking carries no risk, requires no action, and does not result in token loss, so please stake your tokens, withdraw liquidity from the market immediately, and we will pay you!

Simply paying non-selling users, they receive the same assets as staking, which is very much like the later stages of a Ponzi scheme game.

ApeCoin

Okay, a quick overview of the basic information for ApeCoin APE.

Total supply of 1 billion APE remains constant, with no additional issuance or destruction. The breakdown is as follows:

  • 47% - ApeCoin DAO "Ecosystem Fund"
  • 15% - Community Airdrop
  • 15% - Yuga Labs
  • 14% - "Launch Protocol Contributors (Investors?)"
  • 8% - Founders
  • 1% - Charity Affairs

In terms of token lock-up periods, Yuga Labs, founders, and investors typically have a one-year lock-up period, with exceptions where some projects unlock immediately, while others unlock after 6 months.

The remaining token unlock period seems to be 1 to 3 years from issuance, with a total circulation unlocking within 4 years.

Anyway, back to the main topic.

ApeCoin Staking

There is a staking proposal for ApeCoin written by Animoca, a comprehensive company in the gaming, venture capital, and software sectors, with the founder being a member of the ApeCoin board of directors.

Quoting the proposal content, it aims to:

The proposal essentially states:

"Within the next three years, we should pay ApeCoin holders 17.5% of the total supply of ApeCoin, with a higher proportion if they also hold BAYC/MAYC/BAKC."

I do not quite understand how giving more APE tokens to ApeCoin holders is supposed to "incentivize early NFT holders and existing/potential ecosystem participants to actively engage in activities beneficial to the ApeCoin ecosystem."

In fact, this proposal, in plain terms, essentially means "when the tokens of founders, investors, and contributors unlock, we pay a little money to token holders to prevent them from selling coins." This way, we can create some use cases before building actual applications.

The Meaningless $2.6 Billion Reward

The current valuation of ApeCoin is about $15 billion, which means ApeCoin DAO holds around $7 billion. The proposal by Animoca suggests distributing $2.6 billion in tokens over the next three years, representing 37% of the DAO treasury.

As the ApeCoin staking mechanism offers no practical or technical assistance, it can be simply seen as a means of bribing holders not to sell, as the proposal states, "If you do not sell APE or BAYC, we will give you more APE!"

Allocating 37% of token equity to bribery implies that the DAO regards bribery as important. This amount, currently valued at $2.6 billion, could create substantial value for ApeCoin, build a sustainable ecosystem, and attract external funding.

From an external perspective, it seems that ApeCoin DAO is using one-third of the treasury's token supply for bribery, ensuring that token holders do not sell when early contributors unlock their tokens.

However, when considering the changes in supply and demand dynamics brought about by the staking mechanism, it appears to be more of a conspiracy than a malicious strategy.

The current market circulation of ApeCoin is about 15%, with an inflation rate that would increase the token supply by 75% in the first year. I do not believe that demand will increase by 75%, so this staking mechanism is likely to harm the economic interests of token stakers.

Additionally, ApeCoin faces a real issue:

How will they allow additional unlocked token supply to enter the market to prevent the upcoming unlocks from founders and investors becoming the largest source of supply in the market?

Personally, I believe this designated equity should be spent on protocol growth, moving towards the initial goal of "becoming the primary Web3 currency," rather than just rewarding token holders.

ApeCoin DAO

The remaining tokens of ApeCoin DAO should be used to address real issues for users.

I do not know what the mission of "becoming the primary Web3 currency" entails, but I understand that there are "user needs" in the NFT ecosystem that could be supported and established by ApeCoin DAO:

1. Why is OpenSea the primary trading platform for boring apes? Just last year, trading fees for BAYC and MAYC on OpenSea cost approximately 20,000 ETH, representing over $60 million flowing out of the boring ape ecosystem annually.

2. Boring ape or other NFT holders may wish to obtain asset credit while holding NFTs. Could ApeCoin DAO launch an NFT lending market?

3. Why are boring ape holders constantly being hacked? What cybersecurity education is needed to help users manage assets more effectively? Or could ApeCoin DAO offer custody services?

4. And so on, I believe there are people in the community with better ideas than I can come up with.

ApeCoin DAO's equity should create value for existing ecosystem users and potential users, address practical issues in the NFT community, or be used for acquiring, incubating practical applications, establishing revenue sources, and building a sustainable DAO.

Staking Mechanism: Should It Exist?

I believe there is a reasonable argument that the 15% allocation to retail investors is too small, and it would make more sense to introduce a staking proposal that only accepts retail investors in the first year.

I even have an argument for a lock-up period of 10-15 years:

ApeCoin will not issue additional tokens. Assuming the DAO spends all tokens in the first few years, it will be unable to further promote activities or capture future value. Additionally, you need to extend people's willingness to continue participating in the ecosystem to broaden the token distribution and make it more widespread and ideal.

My understanding of the argument "NFTs should be the target of staking":

Allowing users to join the ApeCoin ecosystem through NFTs rather than ApeCoin, as new users are more likely to join the boring ape community through NFTs rather than ApeCoin, which is the current operating mode of the boring ape community.

My understanding of the argument "NFTs should not be the target of staking":

ApeCoin is a new entity created by the boring ape community but is no longer directly affiliated with NFTs, and holders are not completely overlapping.

These arguments are mostly not based on the current situation because it is difficult to say what the central focus of the overall staking plan is and what goals the plan aims to achieve.

The proposal talks about "incentivizing participants to do things in the ecosystem," but the staking plan seems disconnected from this goal.

If the purpose of the ApeCoin DAO staking plan is to attract new users to the DAO, then a reliable staking plan includes continuously rewarding NFT holders in the ecosystem, and ApeCoin's ecosystem might even acquire other projects and distribute token rewards to their communities.

If the staking plan aims to support liquidity, it should provide token rewards to APE/WETH liquidity providers and users providing liquidity to NFTX pools.

If the staking plan aims to boost token prices, it needs to lock tokens outside the trading market, offer higher returns for longer lock-up periods, and minimize market circulation as much as possible.

If the ApeCoin board does not have established goals for the staking plan, it will be challenging to design a comprehensive staking plan that brings more circulation into the market, bribes users not to sell, or provides "fake applications." These are not reliable goals for a staking plan.

Personally, I would design a mini-plan to incentivize more new users to enter the ApeCoin ecosystem over the next ten years, and I would reward existing holders to continue participating in the ecosystem.

I believe new users are more likely to join the ApeCoin ecosystem through NFTs rather than ApeCoin, so NFT holders should be rewarded rather than paying a specific interest rate to token holders.

I would adopt a more aggressive and larger plan to complement this staking plan to capture value.

Governance

ApeCoin is now an organization worth tens of billions of dollars and requires a long-term plan. This issue needs a good answer:

How do we transform the $7 billion, APE-focused treasury assets of the DAO into $100 billion in value within the next year or two?

However, the time cycle of crypto investors is not very long. On average, I don't think they care about what their token projects will do in two months, let alone in ten years.

Therefore, if you tell the community, "Hey, we've decided to cancel the staking plan and invest the money in ApeCoin DAO's ecosystem construction for growth," they may not be very happy.

So I can no longer get any tokens for free?? And outsiders get millions of dollars in tokens?? Just to create a lending market, WTF???

Retail investors are not likely to closely examine inflation patterns of tokens like OHM, and they do not consider the chain reaction that occurs when the K-line chart they trust most shows a decline, even if staking rewards indicate increasing asset value.

Moreover, governance, which is overly complex and multifaceted, is a strange environment. It quickly descends into a political level.

I find it difficult to believe that retail governance voting results are best for the mid-term of the protocol. The fact is that they are more likely to vote to destroy better results for the mid-term of the protocol. I read an article today mentioning that the community decided to reduce the SushiSwap treasury funds from $1 billion to $30 million in a year. I do not know if this is exaggerated or fake news, but I think it is the same story many DAOs have experienced failure.

Conclusion

Staking mechanisms should be designed to support ecosystem goals, incentivizing work or risk-taking in products, communities, or networks that require people to participate.

ApeCoin DAO has a $7 billion treasury and should use it to encourage risk-taking, work, and community development, rather than giving it to existing holders as an interest bribe not to sell NFTs.

Without practical use and value capture, expending 37% of the treasury assets as staking rewards is not only worthless but may have harmful effects on the long-term vision of the APE ecosystem.

We should oppose changing the meaning of "staking" from "rewards for working as a consensus mechanism with collateral risk" to "Oh, I don't understand anything, but as long as I lock the tokens, I can get more money without risk."

However, it may be a bit too late now. I think Gensler, the police chairperson, is quite interested in the confusion around this concept, as the term itself is now inherently misleading and may imply multiple meanings.

I sincerely hope we do not live in a world where the primary currency on the internet is called "ApeCoin," but I also try to avoid the overt bias in this article. The issues discussed here can also be applied to DAOs with similar conditions: having a large amount of funds, good token distribution, and the opportunity for large-scale mergers.

Complaint Zone for the Poor Quality of Staking Proposals

The boring ape community in the crypto field is notorious for constantly failing in secure self-custody. In response, the ApeCoin board of directors proposed that BAYC NFTs would actually "include" your APE tokens:

Here is how staking works for BAYC ecosystem NFT holders:

"If BAYC ecosystem NFT holders want to stake in pools 2, 3, or 4 depending on their NFTs, they will pair their NFTs with their ApeCoin to use the corresponding staking pool, but the NFT itself does not need to be staked. The NFT acts as a vault key, and the vault contains staked ApeCoin. This allows N

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