A major CryptoPunks-centric deal is expected to spur more acquisition action in the market for non-fungible tokens (“NFTs”). On Friday, Yuga Labs, the titan behind the Bored Ape Yacht Club (“BAYC”) and Mutant Ape Yacht Club (“MAYC”) NFTs, announced that it has “acquired the [intellectual property] of the CryptoPunks and Meebits NFT collections from Larva Labs,” another giant in the digital assets space, which means that Yuga now owns the underlying “brands, copyright in the art, and other [intellectual property] rights for both collections, along with 423 CryptoPunks and 1711 Meebits [NFTs].” The company says that its first move will be to grant CryptoPunks and Meebits NFT holders “the same commercial rights that BAYC and MAYC owners enjoy” in a move that “further align[s] CryptoPunks and Meebits with the web3 ethos.”
The Yuga, Larva deal is meaningful for a variety of reasons, including Yuga’s plans to grant the existing holders of the CryptoPunks and Meebits NFTs greater rights in the digital art tied to the tokens. Traditionally, parties that buy NFTs, including previous buyers of CryptoPunks and Meebits NFTs, acquire a personal-use/non-commercial license to use the assets associated with the token. These uses typically see the buyer of an NFT displaying the image associated with the NFT as his/her profile photo on social media platforms, for instance, which is distinct from making and selling products bearing that image. This ownership scheme is precisely why Yuga was able to acquire the intellectual property rights in the CryptoPunks and Meebits from Larva in the first place, and to do so without interfering with the ownership enjoyed by individual holders of CryptoPunks and Meebits NFTs.
Among the major exceptions to the norm of restricting NFT holders uses in the underlying works associated with the tokens are, of course, the BAYC and MAYC NFTs, the terms of which allow buyers to make commercial uses of the images and trademarks of the Bored Apes associated with the NFTs. (The scope of the BAYC and MAYC NFT buyers’ rights in the underlying assets likely has had a hand in driving up the often eye-watering prices that are paid for these NFTs, which directly benefits Yuga Labs, as the company generates revenues not only from initial sales of the NFTs but from royalties from secondary sales.)
Moreover, the acquisition by Nicole Muniz-led Yuga Labs – the terms of which have not been disclosed but are being described as “substantial” by those with knowledge of the terms – is striking as it brings together the two biggest names in NFTs. “Bored Ape Yacht Club is the most valuable NFT collection in crypto,” per Bloomberg, while CryptoPunks are the second most valuable. And beyond the sheer size of the deal, the headline-making tie-up is being touted as likely to prompt an array of consolidations in the NFT space. We can “expect more acquisitions,” Adam Bomb Squad co-founder Bobby Kim stated on Friday. “It happens in every industry, every marketplace, every time there’s a seismic move like this.”
An impending spike in NFT-centric M&A may also likely be prompted in an attempt by companies to buy up – and absorb – close competitors (and reduce competition) before any reported regulation comes into play. After all, the U.S. Securities and Exchange Commission is said to be probing the market for NFTs; the agency also recently released a proposal to widen the scope of the rules governing alternative trading systems, including by adopting a new definition of exchange, which could bring currently unregulated blockchain-based cryptocurrency platforms into the fold and subject them to all of the regulatory requirements that other exchanges face.
Meanwhile, President Biden signed an Executive Order this week (you can read it here) calling on various government departments and agencies to study and potentially draft a comprehensive regulatory framework for the cryptocurrency/digital asset market mainly over the next 180 days. Included in the order is a specific call for the Federal Trade Commission – which is responsible for ensuring that M&A transactions do not “reduce competition and lead to higher prices, lower quality goods or services, or less innovation” – to consider “what, if any, effects the growth of digital assets could have on competition policy.”
Reflecting on the deal on Friday, Larva Labs co-founders Matt Hall and John Watkinson said, “Yuga Labs are the innovators of the modern profile picture project, and the best in the world at operating these projects.” Hall and Watkinson – who will remain following the acquisition of the two NFT collections by Yuga, confirmed that Larva will retain the rights to its other big NFT collection, Autoglyphs, “as well as a group of our favorite Punks and Meebs” – further stated that Yuga is “the ideal steward of the CryptoPunks and Meebits. In their hands, we are confident that they will continue to be vital, thriving projects in the emerging decentralized web.”
Not the only deal that is reportedly in the works, Yuga Labs was said to be in “advanced talks” with Silicon Valley-based VC Andreessen Horowitz ahead of a large funding round that could value Yuga at $5 billion.