Yuga Labs’ catastrophic NFT launch deals a blow to Ethereum’s prestige

Bored Ape Yacht Club founder Yuga Labs launched a meta virtual land sale around May 1. Photo illustration: Rafael Henrique/SOPA/LightRocket via Getty

Yuga Labs’ foray into NFTs is seen as a blow to Ethereum, and the aftermath could lead to a $2.5 billion hole in the world’s leading blockchain.

The creator of Bored Apes NFT and apecoin caused a massive increase in transaction fees, known as gas fees, on the Ethereum network when they launched their land sale on the Otherside metaverse on May 1.

During the sale, a total of 55,000 virtual metaverse land coins were sold, at a fixed price of 305 apecoin, a currency created by Yuga, which was worth around $7,000 at the time of the event.

Demand for Yuga Lab’s latest NFT offering has stifled the Ethereum network, causing gas fees to rise so high that one individual paid $44,000 in Ether transaction fees to push the sale of virtual land from worth about $7,000.

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Yuga Labs then released a statement shortly after the sale that further damaged Ethereum’s reputation.

The company behind the Bored Ape NFTs, which have been bought by celebrities such as Jimmy Fallon and Paris Hilton, has announced that it will be removing its apecoin token from the Ethereum mainnet and integrating it into its own native chain, in response to rising transaction fees. This removal of apecoin could see $2.5 billion leaving the Ethereum ecosystem.

Yuga Labs’ move was a direct response to the experience of high gas costs during the sale, they said, and the reason for Yuga Lab’s move

The Ethereum blockchain can only support around 30 transactions per second. Thus, when the scale of transactions increases, congestion of unsettled payments occurs. Gas fees are the additional price users pay to Ethereum miners in order to prioritize their transactions.

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So, in a first-come, first-served buying frenzy, such as the Yuga Labs Otherside metaverse sale, the amount of money paid out to miners to push sales skyrocketed.

The Ethereum gas fee fiasco that ensued on May 1 has damaged public perception of the world’s second-largest cryptocurrency.

Yuga Labs NFT’s unprecedented virtual land sale has caused such demand on the Ethereum (ETH-USD) blockchain that gas fees have reached ridiculous levels.

There was also a ripple effect felt by other users on the Ethereum network who were not involved in the NFT launch.

They also suffered excessive transaction fees, with one user reporting a $1,700 gas fee for sending $100 from one wallet to another.

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The Otherside Metaverse land sale sold out in minutes, selling over $200 million in virtual real estate, with each plot of land costing 305 Apecoin, or about $2.7,000 at the time of writing.

People who were able to afford the excessive gas charges and managed to hit an Otherside NFT fast enough would then flip the virtual title deeds to the OpenSea NFT platform for over $15,000, making a quick profit of $10,000.

However, in line with the current downturn in the crypto market, many Otherside NFTs have now fallen below their original price.

The company described the event as “the biggest NFT currency in history” and purchases were made in Apecoin, the Ethereum-based cryptocurrency recently launched by Yuga Lab.

Crypto analysts agree that the spike in transaction fees during last Tuesday’s NFT land sale was avoidable and spoke to Yahoo Finance Will Papper from Syndicate DAO said he stressed the need to view the event as a learning curve where “other forms of mechanized mint design need to be developed.”

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But the fallout from the Yuga Labs event wasn’t limited to just the popular BAYC NFT brand, as the large sums of money spent on gas fees drew mainstream attention to the scalability issues of long-standing associated with ethereum. network.

The event wrested $170 million in gas fees from most small retail investors operating in the cryptocurrency ecosystem and handed it directly to Ethereum miners who validate each transaction. A fact that goes against Ethereum’s philosophy of being a decentralized, egalitarian and democratic ecosystem.

As a result, the costly process has brought to light some uncomfortable truths about the fundamental design of Ethereum itself.

This inability of Ethereum to keep transaction fees affordable when used at scale is at odds with what founder Vitalik Buterin once said: “The Internet of Money shouldn’t cost 5 cents per transaction is a bit absurd.”

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However, Ethereum is trying to address the lingering issue of transaction fees with its Eth 2.0 upgrade, but the date for it is constantly being pushed back.

Ethereum has decided to prioritize moving from a proof-of-work consensus mechanism to a less energy-intensive proof-of-stake consensus mechanism at the expense of implementing sharding on its blockchain.

Sharding would greatly improve the scalability issues the blockchain so visibly faced when it launched Yuga Labs NFT.

The gas fee fiasco has highlighted the advantages of rival and alternative blockchains, such as solana and cardano.

Solana’s scalability ensures that all transactions stay under $0.01 and transaction speeds are as fast as 400 milliseconds per block. However, in keeping with the “blockchain trilemma”, it could be argued that Solana has sacrificed security for the sake of its scalability success.

Currently Ethereum can only process around 13-15 transactions per second and the average transaction fee in April was $42.

Another blow through the ethereum arc came shortly after the disastrous NFT selloff, when Yuga Labs announced that it would be pulling its apecoin token from the ethereum mainnet and onto its own native chain, in response to soaring transaction fees.

This removal of apecoin could see $2.5 billion leaving the Ethereum ecosystem.

Yuga Labs, which also acquired CryptoPunks and Meebits NFT collections, apologized for the episode, but the tone of their response came across as condescending and dishonest, infuriating the legion of retail investors who have so much lost in ethereum gas fees and felt the hit of apecoin’s rapid depreciation after the event.

Investors had to buy apecoins to buy the virtual land when NFT launched.

After the event, Yuga Labs tweeted, “We’re sorry for turning off the lights on Ethereum for a while.

“It seems quite clear that apeCoin will need to migrate to its own chain to scale properly.

“We would like to encourage the DAO to start thinking in this direction.”

Referring to speculation that Yuga Labs will create its own blockchain, former Wall Street banker Brian Rose spoke to Yahoo Finance and said, “The recent NFT strike by Yuga Labs of the Bored Ape Yacht Club, the biggest in history, crashed the ethereum network and shows that it’s only a matter of time before apecoin migrates to its own chain to scale properly.”

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The CEO of youtube channel London Real, who will soon be debating crypto with the “Real Wolf of Wall Street” Jordan Belfort, added: “When the public sees these ridiculous gas charges for a single NFT mint, it forces Ethereum to innovate faster.

“It also shows the public that other protocols already offer much higher speeds and lower transaction costs, such as Solana, AVAX and Tezos. And that there is a lot of money and utility in providing solutions alternatives.

It’s easy to cast a cynical eye on the events of last Tuesday, where privileged holders of overpriced images of cartoon monkeys received free land in a virtual multiplayer game. But, the rest of that virtual land was put up for sale to the public, causing a frenzied FOMO bottleneck of desperate buyers who were forced to pay more and more in ethereum gas fees to accelerate their transactions.

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The cynic would point out the details of NFT’s launch last Tuesday, which saw some people pay up to $44,000 in transaction fees to purchase pixelated 3D images costing $500 in what is essentially a multiplayer computer game. This economic exchange would defy everyday common sense.

This could easily lead to conclusions that the Yuga Labs NFT land sale was the culmination of a period of mass hypnosis that could never last.

The Otherside NFT land sale could be the critical moment when the whole NFT house of cards begins to fall.

Or, we could look back and see that those early Yuga Labs metaverse buyers were ahead of the curve and had invested in an ecosystem that we may all need to migrate into at some point in the future.

Yahoo Finance has reached out to Yuga Labs and Ethereum for a response to the gas fee issue and plans to move apecoin to its own blockchain, but they have yet to respond to the request.

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