🎮 Can Gaming Fix Crypto?
Today the crypto industry is still mostly known for token trading and financial speculation of all kinds. But what will bring in the next 1 billion users? Perhaps crypto gaming or “GameFi” hold part of the answer. Let’s find out more.
The problem with crypto and web3
The crypto sector faces a few problems on the road to mass adoption:
Web3 wallets like Metamask are still difficult to use, require some technical configuration and “human error” mistakes can be made easily. There are few direct fiat “onramps” (from normal bank accounts and credit cards), so users must take additional steps to transfer their funds through a central crypto exchange.
High transaction fees on Ethereum. Fees on other platforms like Avalanche and Binance Smart Chain (BSC) also may impact the user experience.
Niche use cases - much of the activity in crypto is dominated by token and NFT speculation. Yield farming for high interest rates often serves as an extension of this speculative activity, and users frequently find themselves on the wrong side of “pump and dump” schemes.
The first two bullet points are what software developers often call “implementation details”.
In other words these are narrow technical problems which can be solved by incremental improvements to blockchain infrastructure and building more user-friendly interfaces. Constant progress is already being made in this area on multiple fronts so I’m not really concerned about these issues over the long-term.
The last bullet point touches on a much broader problem: can the crypto sector offer the “killer apps” which will attract a mainstream audience and the next 1 billion users?
Last year Lyn Alden, an influential investment analyst with over 388k followers on Twitter wrote an extensive report on Ethereum. In the piece she addressed the speculative and circular nature of the activity on this blockchain. It is worth quoting at length:
“Ethereum is heavily used for decentralized exchanges of crypto tokens, crypto stablecoins that serve as liquid units of account for trading crypto tokens, and lending and earning interest on crypto tokens which is a practice that serves as a liquidity/borrowing source for traders of crypto tokens. To a lesser extent, it is also used for gamified ways to earn or trade various crypto tokens. So, it’s a big operating system powered by crypto tokens, for the purpose of moving around… crypto tokens.”
But crucially she indicated that gaming could be the one bright spot.
Nowadays, there are a number of crypto-based games. I’m not as much of a gamer as I used to be, but if I were, I could certainly see why blockchains can potentially add something of value to the gaming ecosystem. The idea of having items/pets/characters that the user can hold independently of the game publisher, and maybe even have those items/pets/characters recognized by other games as well, certainly is cool.
The rise of “GameFi”: possible solutions
Clearly 2021 was a major boom year for NFTs, short for “non-fungible tokens”. (These assets are unique digital items which provide proof of ownership verified on public blockchains). But amidst the euphoria many also began to question what could actually be done with these so-called “Jpeg” image files.
These are the very same questions asked by skeptics in the early days of the internet when it was primarily text-based and only attracted a tiny niche of mainly academic users.
Let’s review some of the most prominent projects in the gaming and GameFi space which are looking to add new functionality, interactivity and therefore value to NFTs.
Bored Ape Yacht Club (BAYC)
BAYC is one of the most famous and valuable NFT projects with several celebrity owners from musicians such as Eminem, Justin Bieber and Snoop Dogg to sports personalities like Shaquille O’Neal, Steph Curry and Neymar Jr - to name just a few.
Yuga Labs, the team behind BAYC recently made headlines by announcing they raised $450 million from a number of prominent investors. This included venture capital firm Andreessen Horowitz, Coinbase and game company Animoca Brands. This round of funding placed Yuga Labs at a total valuation of $4 billion.
Prior to the funding announcement Yuga Labs also launched its own token called ApeCoin and acquired two other major blue chip NFT projects - CryptoPunks and Meebits. This is all part of an overall strategy to create an open metaverse-style game named “Otherside” which would allow multiple NFT projects to build and operate within the same virtual space.
Apart from the teaser video above, few details are known on exactly how Otherside will look and work in practice. One of the major hurdles other NFT projects have faced is that it takes time, a big budget and serious expertise to build quality gaming interactivity and visuals.
The new funding round of $450 million should provide Yuga Labs with a huge advantage in developing gaming and metaverse products which will appeal to a wide base of new users.
On the other hand, there are fears that the company may have raised too much money too fast. This is what happened during the 2017 crypto bubble when a number of blockchain projects were at an early seed stage, but raised IPO level capital. In many cases these projects never delivered on their original promise.
Defi Kingdoms
In contrast to BAYC, Defi Kingdoms (DFK) did not take outside funding from VCs. Instead the team funded themselves independently through the game’s native “Jewel” token. This means the team’s incentives are more clearly aligned with the overall community of Jewel holders.
As the name suggests, DFK replicates a number of the core features found in many other decentralised finance projects, but displayed in a retro pixelated game interface. This functionality includes a decentralised exchange (DEX), dual token yield farming, and single staking of Jewel at an interest rate of around 17%.
But in addition to the standard DeFi elements, DFK also has an NFT marketplace for in-game characters called “heroes” which can be used to generate income through the completion of quests.
Two heroes can be used together to create or “summon” new heroes. This is similar to the breeding mechanic used in earlier NFT games such as Axie Infinity and Cryptokitties. If you are interested in the various features of DFK you can read more in this guide series.
The skilful combination of elements from both DeFi and NFT ensures that unlike in other crypto projects, the price of Jewel is protected (at least to some extent), as only Jewel can be used to purchase hero NFTs.
On Wednesday March 30th, DFK is also going live on the Avalanche blockchain with a new game called Crystalvale. (Previously DFK only had one game called Serendale on the lesser-known Harmony blockchain). This is a major development for DFK and its Jewel token in two important respects. First, this is one of the first web3 games to go “cross-chain” or operate seamlessly between multiple chains.
Second, the Crystalvale game will operate on its own mini-blockchain or “subnet” within the overall Avalanche blockchain. In addition to offering major performance improvements, the ability to run the game on its own subnet means that users will be charged for their transaction fees in Jewel. In theory this will mean that there will be more natural demand for Jewel and the price will continue to be supported.
The gradual gamification of NBA Top Shot
NBA Top Shot is an officially licensed NFT marketplace of short basketball video highlights called “moments” which also appear as cube-like objects when the video is not playing.
In February 2021 prices on Top Shot soared as record numbers of new users flooded in, while the number of moments available could not keep pace with this new demand. As more moments were minted and sentiment began to shift, by late March / early April the market “corrected” causing prices across the board to plummet.
Since then Top Shot has continued to oscillate between periods of optimism and pessimism. But in the meantime the overall platform has become more than just a self-contained NFT marketplace.
This season’s roll-out of daily “flash challenges” means that users have a reason to use their moments every day to complete challenges and stay engaged on the platform. This challenge mechanic can be seen as an early (albeit primitive) element of gamification which may be a sign of more ambitious gaming features to come. Indeed, Top Shot’s creators have hinted that a mobile game called “Hardcourt” is in the works, but no timeline and very few details have been forthcoming so far.
Final Remarks
Despite the wider macro uncertainty I’m generally bullish on the future potential of gaming in crypto or GameFi. As we spend more of our lives online and in digital spaces (whether 2D or 3D), it makes sense that we would want to own digital objects and interact with them to achieve some purpose - ie. a game. Crypto in general is badly in need of this use-case in order to appeal to a wider demographic and move beyond simply providing markets for token speculation.
I have outlined just three of the most prominent examples in the crypto gaming sector but there are countless others at various stages of development. Just as during the dotcom boom of the 1990s, picking winners is notoriously difficult and major failures will be commonplace. All I can advise is to start experimenting with projects that speak to you or you find interesting. If nothing else the experience will be fun. But it could also lead to you discovering the next big thing!
What did I miss? - These reports are a learning process for me and I’m very open to constructive feedback and suggestions.
What stock or crypto asset should I cover next? You can contact me by email: hellorobostox@gmail.com or feel free to leave your response in the comments. You can also follow me on Twitter: @daneasterman.
Disclaimer: I am not a financial advisor, none of this report should be taken as financial advice. Instead this should be viewed as starting point to conduct your own research. I am long on DFK’s Jewel token and hold multiple NFTs on NBA Top Shot at the time of writing.