Gaming guilds amassed huge treasuries during last cycle’s Axie Infinity-inspired blockchain gaming bull run. But how did they survive the grinding bear market and pivot their treasuries to set themselves up for the bull market?
And more importantly, which one is in pole position to take advantage of the big opportunties expected this year?
Gaming guilds — organized groups of sponsored gamers — were the hot Web3 business model of 2021. They emerged because popular blockchain games, most notably Axie Infinity, required expensive NFTs to play, and “scholarships” enabled gamers to access resources to learn and to play through the gaming guild.
Valued as cash cows in 2021, gaming guilds were a customer acquisition masterstroke, on-boarding players from developing countries reeling from unemployment due to Covid lockdowns.
The guilds became very lucrative. Including micro guilds they were believed to number over 20,000. There were 800 guilds in the Phillipnes alone. The Merit Circle guild raised $100 million and Avocado guild raised $45 million in 2021. Merit Circle raised over $100 million in November 2021 and YGG was valued over $10 billion dollars for a concept that suggested the revenue would keep coming in indefinitely.
Then Axie Infinity, the game most of the guilds had built their economies upon, collapsed.
Mitch Penman-Allen, the co-founder of the Perion gaming guild told Magazine:
“By the end of 2022, we were certain that the Axie Ecosystem would not be sustainable. We had scaled down our exposure to Axie and had diversified our business model. We had also started to strategize and plan a roadmap for the future, however the collapse came faster than we thought – accelerated by a $620 million hack of the Axie Ecosystem.”
And so the guilds were left with huge treasuries and a need to pivot. But to what?
As the bear market ravaged user bases, revenue and interest, some guilds pivoted to making and investing in new games in search of a new hit. Others, like the guilds in this story, Perion, CGU and YGG have embarked on a variety of endeavors focused on building gaming community infrastructure with their massive raises. Some died.
With a new Bitcoin ETF-fuelled bull market on the horizon, have the battered and bruised gaming guilds developed a clear and discernible strategy to take advantage of it?
There is at least a clear theme, the gaming guilds have all pivoted to online reputational building in various forms.
But first, how did we get here in three short years?
The original and the copycats: how the gaming guilds began
Gabby Dizon founded YGG, the original Web3 gaming guild in 2020. He tells Magazine “the key lesson of that period was that though some guilds focused on making as much money as possible. My end goal was to grow my user base.”
Long before crypto, Dizon was a pioneer in the Philippine game industry as part of the team that released the first Filipino-made game in 2003 called Anito: Defend a Land Enraged and since 2014 ran his own Manila-based gaming studio, Altitude Games.
Sustainable tokenomics
He learned about blockchain and liked the fact that “smart contracts can transfer value around and Ethereum could program value inside virtual economies.” But financial applications of blockchain left him cold. It was when he saw CryptoKitties popularize the idea of NFTs for gaming applications, he began to get excited. He discovered Axie in 2018, an online blockchain based game from Vietnamese studio Sky Mavis. As Covid got a grip on the globe, in “2020 things started moving from a hobbyist community to the idea of earning tokens from gameplay.”
While playing Axie Infinity and breeding Axies, he discovered it was possible to lend Axie NFTs without giving away your private keys. This was the foundational idea for YGG, the first guild concept to scale. It quickly raised $1.25 million in seed funding, led by Delphi Digital.
The guilds became a way to profit from renting assets but relied on community managers, especially in the Philippines, where Axie first took off and had the biggest user base.
Axie Infinity became the most successful game of 2021, thanks in part to a big Filipino community of players borrowing Axies from the guilds to play the game and earn additional income during Covid.
Dizon capped his token sales at just $12 million. He tells Magazine the copycat guilds were inevitable – and the height of the market and the insane figures raised scared him.
“While some people raised $100 million for their guilds, the reality is that there are now huge expectations of that money.”
Now everyone is scrambling to prove they are building something of value for web3 gaming and their scholarship communities.
The guilds pivot to user reputation building?
Dizon initially used YGG’s treasury to re-invest in breeding Axies (creating new NFTs), and bought other NFTs to invest in other up-and-coming games. Today, he is still focused on the same mission since day one: improving gaming for gamers.
In late 2021, he started building a Questing and Achievements platform using YGG’s treasury funds. It allows gamers to earn achievements in different games and to build up their on-chain reputations. Reputation will be one of the most valuable things to build in Web3, he tells Magazine.
YGG’s Guild Advancement Program, or GAP for short, is an exercise where gamers can complete tasks in-game and community-based quests in order to provably demonstrate their capabilities, as well as their contributions to the broader community.
“So for example, if an individual is able to pass certain quests, it can be proven on-chain with a non-transferable NFT, which is called a Soulbound Token, or SBTs. These are proof of their achievements in web3. A combination of all of these SBTs tell a story about the individual. And based on that, the holders are able to access, for example, other games or communities,” explains Dizon.
The non-transferrable nature of an SBT is very important as this means that the minted record of achievement cannot be bought or traded, it can only ever be earned through the wallet holder’s demonstrated effort.
Another core part of YGG’s questing program is Superquests which launched earlier this year in a partnership between YGG and Axie Infinity. It allows gamers to develop new skills in a learning program delivered through short form video content created by top community influencers and YGG esports champions. And while it’s for members of the guild community, it’s not a closed shop and new members are welcome.
“10-15 years from now I want people to match their skills with virtual economies. In crypto, reward for effort is a crucial currency.”
Dizon suggests that the ERC-6551 token standard or Token Bound Accounts (TBAs)will be influential to blockchain gaming, and developers are already starting to use it to thread AI into games.
TBAs are a byproduct of the standard which allows NFTs to own other NFTs. So you could have a TBA that is also a Soulbound Token (SBT) that cannot be transferred.
In future metaverses, Dizon says, virtual economies will one day rival small countries in terms of GDP. The emergence of AI will send us there sooner than you think and reputational tools will be even more important.
On-chain reputation for quests in virtual worlds can be checked via wallet history, proof of contribution along with SBT achievements and associated metadata. These Web3 tools display what someone actually did and who they are.
“This is really important because I think the next phase of crypto will be all about people’s web3 reputation. In things like yield farming, we didn’t really segregate between useful people or people who were just there to extract money. I think reputation will go a long way towards separating who is most useful in guilds and in other communities,” noted Dizon.
“What have you contributed to a community if you are just a wallet address?”
Strava for gaming
Perion DAO has also built a gamer reputation tool, along with a bunch of other stuff in the bear market using their hefty treasury. There’s 2-state, a platform that would allow users to trade and redeem NFTs backed by limited sneakers. ZBET is a prototype platform that allows users to wager social bets on web3 games that will become its own entity that will get licensed and go-live in January.
They also previously invested part of their treasury in gaming VC plays, meeting with 200 gaming firms, and investing in 15, a mix of equity, tokens, and NFT deals. They’ve since ceased investing in games in 2022, they have deployed multiple Delta-neutral strategies (a hedging strategy) to net solid returns on DeFi, more than doubling their runway to around 5 years, with 90 per percent now allocated for internal product development.
Co-founder Mitch Penman-Allen notes the climate facing the guilds as the bear market emerged in 2022.
“This is not the death of the web3 gaming market. We were certain that Axie was just an early experiment of applying blockchain to gaming that had failed in a market where experiments explode in popularity overnight, and die just as fast….and a $620mm hack didn’t help. The hook was there, we’d seen the potential. We just needed to find the long term use-case.”
He says the guild still believed gaming would be a massive on ramp to consumers into crypto, but the games weren’t there yet.
“We knew strong teams were working on AAA games with blockchain applications, however building a good game takes time. Hence, we decided to go back to what our experience was: Building high growth products. We decided to focus on introducing, often skeptical Web2 gamers, to the value of web3 applications in gaming.”
Another issue was mainstream gamer skepticism over blockchain games being just another way for companies to screw players out of money.
“Gamers had seen it cost $1000s of dollars to play Axie Infinity. They considered the financialisation of gaming sacrilege. And this came after years of predatory monetisation tactics such as micro-transactions, subscriptions and increasing game prices from non-web3 gaming studios.”
So if financialisation wasn’t the hook, what was? Rewards for a job well done. Like YGG, Perion is also focused on online reputational building, but for gamers in general, targeting highly popular games like Fortnite.
They are working on XP, which is a sort of Strava for gaming — referring to the fitness tracking app for boasting to your peers about how fast you run or complete a mountain bike trail etc. Early market testing looks promising. The guild’s gaming reputational leaderboard, XP.gg, means that gamers can see how they stack up against their favorite gamers or just their friends. Localized leader boards can provide a new spin on poker nights.
Penman-Allen explains, “XP is a logical step for us. The merging of the traditional gaming ecosystems with proven models for rewards, incentives, competition and ultimately real benefits to the end user.”
Penman-Allen says they have no plans to play for money as “we don’t want to be relegated to a dark corner of the internet.”
This product could be a natural evolution for Play-to-Earn guilds. Before, particular NFTs were the entrance ticket, like a poker buy-in, to get a seat at the gaming table. But they were pricey, so guilds emerged to rent out NFTs for players. Now gaming leader boards might offer studios a different mechanism to incentivise gamers.
Gaming guilds and Work-to-Earn
Elsewhere some gaming guilds are staying true to their Axie guild roots by “building gaming products or creating pathways for developing countries to Play-to Earn or Work-to Earn,” says Raman Nambiar founder of gaming guild CGU.
“Axie created a community that could engage and find these jobs and then suddenly there’s no pathway ahead for enabling an effective workforce.”
CGU has pivoted from Play to Earn, to Work-to Earn in developing countries, notably Africa. Another name for work to earn is “a job”. “We pivoted by staying true to our original mission – getting people in developing countries employed and using crypto to pay people for their work,” he says.
CGU also has a user reputation building system in the form of a Talent Management System (TMS). “This evolved from our player management system that originally tracked a players earnings and engagement and became a ‘skill mapping’ system where we can identify what skills our community has and tailor the work opportunities presented to them based on their skills, the courses they have completed and the previous tasks they have completed,” he says.
CGU pays mostly-African Internet users for micro tasks. Before this meant playing games, now it is writing posts, following social media, data labeling and data cleaning tasks. They have progressed to teaching ChatGPT as well as social media AI tools. For Nambiar, “this is true to the original gaming guild mission”. Although probably not as much fun. So CGU is now a microtask service provider, often providing services to feed AI models.
“When it started there was one employer Axie, then Axie got chopped and the mission was to find alternative employers. All games crashed with the crypto markets, so we have been trying to find the right employers for these guys, but they need to understand AI to do these jobs.”
In Africa, crypto payments make sense. There are millions of un-banked without accounts or who face high transaction fees and internet services can be hit-and-miss. So for CGU, “another revenue stream was figuring out mobile money and how they get paid, paying at scale in those countries.”
“Internet is hard to access or configure in places like Africa or remote islands in South East Asia. We stumbled across internet services as a business by trying to provide possible workforces a way to connect with the digital economy.”
Nambiar is also providing web3 services to web2 companies such as creating NFTs, wallets and Metaverses on mobile and laptop.
“By providing basic social media skills, software development and design basics combined with exposure to AI tools we are able to help workers compete in the digital workforce.”
One of the big reasons blamed for Axie’s failure was its unsustainable tokenomics, and various projects are trying to learn from its mistakes.
After starting out as a guild in 2021 (and raising US$5.6 million in token sales) Balthazar DAO and then experimenting with NFT asset management and a marketplace, Balthazar is now designing its own games.
They recently created Wallet Wars, a Space Invaders like-game where you can shoot crypto’s biggest wallets. It’s a play on the idea that gamers can be the good guys in a world full of crypto’s bad actors.
“Through Wallet Wars, we aim to reignite faith, unity, and hope in a community that has faced adversity, creating a rallying point for those who have encountered the trials of crypto with unwavering resilience.” Balthazar DAO’s Co-founder John Stefanidis tells Magazine.
“To showcase our technology, we developed a heavily financialised, web3 arcade-style shooter, that combines a variety of win mechanics that gamers can share in a prize pool. It’s called Wallet Wars, as a tribute to those who have weathered setbacks and challenges, encompassing the scammed, the rugged, the hacked, the misfits, the underprivileged, and the weary.”
Stefanidis says the game was originally designed to showcase web3 technologies, however it developed into a whole new financialisation model for NFT gaming. It has resonated with the crypto community, as the first mint sold out within minutes on October 19, and its inaugural season launches in early December.
Wallet Wars offers two tokens. The raW Pass NFTs, are an ERC-721 NFT on the Ethereum blockchain and include unique DAO benefits such as refer to earn, governance through factions and BZR points (a reward system). The second token is raW Ships, on zksync, which are needed to play the game. Stefanidis explains the sustainable tokenomics model as follows:
“Players need a code from one of the raW Passes to purchase a raW Ship NFT, which gives raW Pass holders a commission for every sale using their code. The majority of revenue goes into the prize pool, and it will never be more than the revenue coming in, which maintains sustainability.”
To play Wallet Wars you will need to have raW Ships
To farm zkSync through Wallet Wars you will need to have raW Ships
To maximize your ecosystem rewards you will need to have raW Ships
pic.twitter.com/ysno9UnMqo
— WalletWars.io (@WalletWarsGame) November 13, 2023
It’s important to remember that one part of tokenomics is just cold impersonal pure math. Zero consideration of human interaction. So the raW token, in theory, could be fine. Unless the DAO starts adding utility to the token or repurposing it, which is hard to do. Or if operational costs increase for the business. So whilst the tokenomics may be mathematically sustainable, this does not mean the business is yet.
But if Balthazar DAO can pull off a sustainable tokenomics model for web3 gaming, this could prove a harbinger for the web3 gaming industry.
Will Web3 gaming surpass its Axie Infinity heights?
The guilds were a great customer acquisition tool capitalising on opportunities created by Covid and unemployment in the developing world. Their new directions in 2024 give us insight into where Web3 gaming and their scholarship clubs are going with reputation building a clear theme.
The guilds may still have high hopes for the next bull market, but as yet there’s no telling if games will emerge that offer the same sort of opportunities Axie once did and attract a critical mass of players.
For now there’s still a lot of experimentation, but YGG’s Dizon suggests: “It’s still early for guilds but we welcome people to build digital communities, which are the precursors to future digital economies.”
week.
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