NFT powerhouse Yuga Labs, the startup behind the Bored Apes Yacht Club (BAYC) monkey JPEGs, launched its native ApeCoin cryptocurrency in March to much fanfare. Through the launch, the startup was able to expand its ecosystem beyond the few thousand individuals who already hold its NFTs, and it eventually plans to expand ApeCoin's use by, for example, incorporating it as a payment system in video games featuring characters from its universe.
For regulatory reasons, the actual structure behind its token issuance was fairly complex (more on that here from my colleague Lucas Matney), but one thing is clear -- whatever Yuga does, other NFT projects will seek to ape. That's part of the thesis behind Co:Create, a new protocol that aims to provide infrastructure and tooling to NFT projects looking to launch their own tokens, similar to ApeCoin.
For an NFT project, the rationale behind launching a native token is to expand access and reach. Not everyone can afford to purchase a pricey digital image, so issuing tokens provides projects with a more scalable (and innately less scarce) way to expand and engage their community beyond just selling NFTs.
The full protocol is set to launch in beta this fall, while its website with developer tools and documentation should be released this summer, Co:Create co-founder and CEO Tara Fung told TechCrunch in an interview.
While the protocol is still just an initial prototype, it has already attracted some high-profile backers. Usual suspect a16z led the company's $25 million seed round, with participation from VaynerFund, Packy McCormick’s Not Boring Capital, FTX's Amy Wu, the teams behind RTKFT (a sneaker-focused NFT design studio Nike acquired last December) and fractional.art, and others.
"The Co:Create protocol puts creators on the right path to designing and implementing the most challenging components of successful NFT communities," a16z crypto's Chris Dixon, who led the firm's investment into the startup, wrote in a statement to TechCrunch.
Alberto Simon, co-founder of art investing platform Masterworks, is leaving his current role at Gemini's Nifty Gateway NFT platform to join Co:Create as a co-founder and chief product officer, Fung said. Co:Create has two other co-founders but Fung declined to name them, saying they are still in the process of exiting their current roles to join the protocol full time.
Co:Create is focused on three core pillars, Fung said. The first is to help projects expand their communities.
"NFT projects are great at acquiring customers, if you will, and getting folks excited about drops, but they aren't really able to expand their communities using NFTs as standalone tools," Fung said. "We think that by decentralizing the governance of the project through a fungible token and also then using that fungible token as the way to expand that community over time is a really powerful prerequisite for building these sustainable decentralized brands."
Secondly, the protocol aims to help projects incentivize participation from their communities through mechanisms such as grant programs and rewards, Fung explained. Third-party developers may be incentivized to build products like games centered around a particular NFT project in exchange for an allocation of that project's tokens, for example.
Co:Create co-founder and CEO Tara Fung. Image Credits: Co:Create
"NFTs are meant to be these programmable assets that do more than collectibles, like unlock events, games and experiences, but there needs to be a reason for third parties to build games, events and experiences that benefit NFT projects and communities," Fung said.
Co:Create's third area of focus is governance, according to Fung. Limited tooling available to NFT projects today have resulted in a high degree of centralization, where a particular group or subset of conributors to a DAO (decentralized autonomous organization) largely calls the shots on key decisions involving the project, she added.
A native token that signifies membership in a DAO "can give a voice to everyone in the community and expand that community to include not just the collection holders, but the contributors as well," Fung said. She hopes native tokens will serve as a tool to encourage decentralization of project governance and creative control over time.
While the highest-profile NFT projects, such as BAYC, tend to live on the Ethereum blockchain today, competitors like Solana have been rapidly attracting new projects to their ecosystems through the promise of greater efficiency and lower costs. Co:Create will be chain-agnostic, meaning it will support the blockchains on which its customers have built their NFT projects, Fung said.
Yuga Labs' virtual land sale for its Otherside video game revealed some of the scalability challenges Ethereum-based NFT projects tend to face, as demand far exceeded expectations and users had to pay exorbitant gas fees to mint their digital assets. Although the sale was chaotic and rife with failed transactions, Fung sees those challenges as inevitable for any startup this early to building in the nascent NFT market.
"What I so appreciate about Yuga Labs is that they are showing what is possible, and they are testing the boundaries, and they're trailblazing -- which means that there are a lot of learnings associated with that," Fung said. "Clearly, Ethereum is not meant currently to be a high-transaction protocol, and whenever there is a lot of demand on that network, we see it reflected in the gas fees ... so that's also speaking to why we will be chain-agnostic and supporting multiple chains for our clients."