The Bored Ape really knows how to play: the community issues coins and gives them to the project party?

The market has recovered slightly recently, and the bitcoin price has returned to around 42k. The bright spot in the depression is the series of market actions of the NFT of Bored Ape BAYC. We briefly introduced it in "Bored Ape Reaches the Top" on March 18.

From their series of actions, we can also see some creative features of NFT project parties. For example, the acquisition of the ancient work Cyptopunks, known as the "Bitcoin of the NFT world". On March 19, "Thoughts from Yuga Labs' Acquisition of Cryptopunks" discussed how this acquisition presented the unique nature of NFT IP that is different from the decentralization of Bitcoin.

So today we are going to talk about the second creative move of this project, which is the legal structure design it made in issuing the token ApeCoin a few days ago.

In order to better understand this matter, we need to briefly review the development history of ICO and DAO.

ICO is quite familiar to people in the blockchain industry. Although a large number of variants have emerged since the coin issuance boom in 2017-2018, such as IFO, IEO, IDO, etc., the essence remains the same. In the final analysis, the project party "creates" a certain amount of virtual currency, or tokens, and exchanges them for "hard currency" in the hands of coin speculators - or investors, who are actually a group of speculative retail investors or institutions - such as Bitcoin, Ethereum, USDT, etc. according to a certain ratio.

The legal essence of this behavior is obviously suspected of illegal fundraising and unregistered securities issuance. The main reasons for the defense at that time were two: first, the investors did not use legal currency to contribute funds, but digital currency (BTC, ETH, USDT, etc.), which did not comply with the legal currency contribution required by the law; second, the tokens "sold" by the project party were not securities and did not meet the definition of the "Howay Test", but were a kind of "utility tokens that use project functions", just like the game coins in the game hall, which did not have the nature of securities.

What is more interesting is that the first type of defense idea is Eastern, that is, the continental legal system, and the second type of defense idea is Western, that is, the maritime legal system.

In addition, a group of project parties went overseas to set up so-called foundations as the issuing entities of coins, as if they expected a legal entity to be able to resist the penetrating supervision of the law.

In the years since then, the US regulatory agency SEC has handled several ICO cases, all of which have resulted in bloodshed, making these so-called "compliance" a joke. my country also revised its judicial interpretation on February 26, as detailed in "Supreme Court: Criminalizing Illegal Fund Raising through Virtual Currency Transactions", which directly sentenced the first line of defense to death.

Why is ICO illegal fundraising? Before the transaction: the project party owns: air coins (i.e. project tokens), and investors own: Bitcoin (for example). After the transaction: the project party owns: Bitcoin + air coins (a certain proportion), and investors own: air coins. It is clear.

Let me briefly talk about DAO. The full name of this thing is Decentralized Autonomous Organization.

Without mentioning its beautiful vision, nor the old history of The DAO incident and Ethereum hard fork, let’s talk about the capital-raising nature of DAO.

The function of DAO is first and foremost to raise funds. Of course, it is certainly suspected of illegal fundraising and unregistered securities issuance. However, unlike ICO, the funds raised by DAO can be controlled by DAO, rather than being left to the project party to use (squander) at will.

Usually, a project initiates a DAO, and investors deposit their capital into a smart contract, which automatically gives a certain amount of tokens. The capital is controlled by the smart contract. After the fundraising is completed, the funds can be handed over to the project owner or to the community for joint management. When the first situation occurs, DAO will degenerate into ICO-like behavior. We will only discuss the second situation below.

In the second case, before the transaction: the project party owns: nothing, and the investor owns: Ethereum (for example). After the transaction: the project party owns: air coins (DAO governance tokens), and the investor owns: air coins + Ethereum (smart contract control).

How can the community jointly own Ethereum? Usually, a few well-known KOLs with high moral character and high moral character are found to jointly control a multi-signature wallet, and then the fundraising funds are transferred to this multi-signature wallet. In this way, no one, including the project owner, can embezzle public funds privately.

When the money needs to be used to develop projects, people holding DAO governance tokens can vote together to decide, and KOLs will come forward to use the money according to the voting results.

It can be seen that the DAO+multi-signature wallet method is an improvement in fund control and use compared to traditional ICO.

So there is still a problem here, that is, the project party is still the initiator of the fundraising, and if its legal responsibility is carefully examined, it will still not be able to escape the responsibility.

This time, the Bored Ape project has made a more creative demonstration: let the community initiate the fundraising themselves. The law does not hold everyone responsible, or in other words, a group of people voluntarily raise funds and jointly manage the funds, which seems to be impeccable.

Yuga Labs does not participate in the custody and control of the raised funds, and invites industry celebrities to serve the community as multi-signatories.

Not to mention that this time, Boring Ape’s coin issuance does not involve capital investment, but only issues an “air coin” ApeCoin.

However, once ApeCoin is listed on an exchange, it will have a price, which means it is “funding” in a sense.

In fact, all those who obtained ApeCoin exchanged it for "hard currency" from the buyers in the secondary market in the exchange.

So since Yuga Labs does not participate in the coin issuance at all, how does it benefit from it?

Now comes the fun part: when the community issues ApeCoin, it donates a percentage of the tokens to Yuga Labs and its founders.

What is the proportion of this donation?

8% was donated to the founders and 16% to Yuga Labs.

The community (DAO) issues coins, donates them to project owners and founders, airdrops them to NFT holders (early participants), third-party industry celebrities keep the token funds, and the exchange allows the secondary market to take over and pay for them.

It’s really a novel and creative way to play!