As a primary market investor, even in the current situation where GameFi is overheated, it is still necessary to calmly judge the follow-up development, prepare for the next wave, and invest in the layout.
The current GameFi is in an overheated stage, and the entire market is supported by irrational funds and new users to support project values and coin prices. Once the market enters the adjustment, the currency price and the value of in-game assets decline, the overall in-game economy will be greatly tested, the high probability of users and funds will be transferred to other sectors, and the current hustle and bustle is bound to usher in a wave of large adjustments.
Three phases of GameFi
Phase 1 GameFi 1.0 - Play-to-"Earn"
The current Play-to-Earn theme is Earn, and gameplay and refinement are more like a plus to the narrative of ancillary projects.
A complete project that meets the following criteria can be considered a complete project that meets the current phase:
- Can I earn money for a certain period of time?
- Can the mechanics be designed to make money for early adopters?
- Is it an incentive for new users to continue to join and invest money?
- Is there an economic model that can sustain a game for at least a few months?
Even if the picture quality of the game is not necessarily good, or the gameplay is very different from the computer game, it does not affect the key narrative of GameFi at this stage.
At this stage, for first-level investors, we are more concerned about whether the team itself has a long-term operation of mindset, no one can say the exact appearance and trend of GameFi in the next year, and this article is only based on the prediction of the market at this moment. The best strategy is to find projects with low valuations, willing to invest in the long term and have the ability to earn enough income in the bull market, so as to ensure that the project can continue to operate in the bear market and continue to iterate on products and mechanisms, increasing the chance of recalling lost users in the bear market.
If the project has good mechanism design and product quality, and strong marketing ability, it will attract a large number of users who come to make money in the early stage, and the project can make millions of dollars in profits in a few months by selling the role NFT or blind box. Even though the game may not be online yet, tier 1 and tier 2 investors can make a good profit in the process.
In summary, we pay more attention to the projects at this stage:
- Can you attract pure new users to invest incremental funds from the real world
- Can it attract existing crypto users to do stock fund transfer from other projects
For the first point, we focus on the project DNA, since we began to lay out the Southeast Asian GameFi at the beginning of this year. As far as Southeast Asia GameFi is concerned, we pay more attention to whether the project has the ground pushing capabilities and marketing resources in Southeast Asia, which includes guilds and KOLs.
Such projects have a small demand for VC funds, preferring to give up investment quotas to KOLs and communities in different regions. The ability to provide sufficient advice for the game mechanics and give effective marketing resources to the project became the key to the fund's involvement.
The quality of GameFi projects in Southeast Asia is uneven, and there are many chain transformation projects with problems in token design and allocation of private investment quotas. Such projects will be quickly launched after financing and quickly obtain profits, through market value management to pull out dozens of times the price increase to attract secondary retail investors to invest, and harvest and leave within a month.
It is more difficult for first- and second-level investors to find familiar investment institutions as endorsements in the cap table, because the investors in such projects are mostly local VCs or communities. That's why we launched a deep cooperation with KardiaChain in Vietnam at the beginning of this year, investing in and accelerating projects such as MyDeFiPet/Thetan Arena/Mytheria/Whydah, ensuring project quality and long-term management attitude through strong local partners.
Thetan Arena has more than six million users
On the second point, we focus on Earn's mechanism design; although this is the basis for project construction, most of the projects are not done well. Many of the current GameFi projects are transformed by traditional game studios, and the token economy is mostly copied from the white papers of existing projects. With these issues in mind, you need to pay attention to when making investment decisions:
- Whether the influx of new users can accumulate the value of project tokens and increase the value of in-game assets
- Return cycle
- Potential causes of mechanism failure
- There are no additionally attractive narratives (super-beautiful/strong investment lineup or ecosystem support)
- The distribution of tokens, whether there will be too much sell-off in the early stage, etc
In fact, such games often need to rely on a certain degree of pulling in the early stage to attract users, if TGE/Cliff's token distribution and time design is not good, it may lead to excessive token sales, unable to attract the attention of secondary users through the price of the coin. (However, the high probability of a short period of exaggeration is to release a small amount of circulating tokens, use small funds to operate the pulling disk to attract retail investors to enter, and quickly harvest).
risk
At this stage of the game, it is very likely that when the number of new users is slow, the mechanism design has a crash, the project side suddenly changes the mechanism, or the market pullback, there will be a sharp price adjustment to the current obvious premium. Not to mention that most games have only a very small market circulation disk in order to manage the market value, which can easily lead to a huge change in the price of the coin in a short period of time, or even zero overnight. Even Axie Infinity cannot determine the impact of a bear market on its existing ecology and economic system.
When the bull market-started game encounters a decline in coin prices, the economic system and key coefficients may fail in the short term, the user return cycle rises, and the asset value declines rapidly, which will cause a huge blow to the credibility of the project, and the game users will lose a large number of users and it is difficult to recall. This is also why many games want users to continuously accumulate assets in the project, increasing the cost of leaving the user.
The good news is that GameFi will still have a place in a bear market. After all, the bear market is moderate, the market situation is not good, playing games to make money is one of the best ways to pass the time and white prostitutes. The GameFi project launched in the bear market still has great potential, but the first and second level funds will begin to shift to iterative projects and narratives that can solve the Play-to-Earn problem, and the industry as a whole will move forward to the next main theme.
Phase II GameFi 2.0 - Solves the economic problem of a single game
At this stage, there are higher requirements for the basic quality of the game and the token economy, and the low-quality Play-to-earn GameFi will become a short-term speculative tool for a small number of high-risk enthusiasts like the Earth Dog Mine. We'll pay more attention to the way to solve a single in-game economic mechanism, as well as the Pay to Play project with social attributes.
Even Axie Infinity will experience slower new user entry, excess NFT assets, and declining revenue for all. Axie does a good job because its numerical design is good, while the economic activity link and the acquisition cycle is long, each user needs a certain amount of investment and time precipitation to have a way to benefit for a long time. However, if the long link economic system is only looped within a single game, factors inside or outside the game may affect the success or failure of the project.
The mechanism that avoids token value looping only within a single game will be a good target at this stage, with better narratives.
The first idea to solve the problem is to establish an economic ecology of multi-game interoperability, for example, Mobox quickly publishes a number of games on its own platform through a strong development team, attracts developers to use platform tools through traffic and platform funds, and the economic system of tokens runs through each game on the platform and is not limited to a single game. Sandbox purchases land and provides development tools through users, expecting user UGC content to continuously generate valuable content and applications for SandBox to support the price.
The other is to invest in game incubation platforms. One of the potential narratives of the next stage is game interoperability, where the same incubator can have lower friction costs in the future in addition to ensuring quality and mechanics. For example, we invested in Whydah, seven game incubation platforms incubated by Kardia Chain, and several games to be launched by Hotwire Studios. This line of thinking can alleviate the failure of the economic system and exchange time for space.
Nitro League was the first game to be launched for Hotwire Studio
The reason why there is a single game economy is that most gameFi is to consume new users to continuously bring in the game ecology to provide everyone with income, the game itself is only packaging and medium rather than the real purpose, does not provide real play value.
So another idea is to let users feel that the game is the purpose, willing to Pay to Play. In addition to the funds brought by new users, the "consumption" of existing users in the game can also solve the current game economic dilemma. This kind of game also has the value of turning to Dao, otherwise Dao is still a short-term means of attracting users to take platform tokens to solve the sell-off.
If you can attract users willing to spend in-game, large capital investment in making high-quality games will also be a way. But there are already many top AAA games to choose from on various platforms outside of crypto, and users don't have to spend time understanding the crypto mechanics. So whether the game has a social attribute and whether it is Crypto Native will be an extra concern for us.
Can I communicate with other crypto users and make friends on it?
Can it reflect social status and assets, satisfy the psychology of showing off, and connect NFT assets?
Can I link to a user identity and extend to other GameFi or DeFi applications?
Can it be extended to users' real social media?
Games that reflect this value are extremely valuable investment targets.
However, at this stage, whether it is to develop a mechanism innovation platform such as Mobox or a high-quality and social game, a single development team may lack sufficient resources, and we expect that medium and large developers with resources will begin to exert efforts at this stage. We are currently on the rather cautious about ultra-high valuation games that will take years to develop.
The reason is that the development iteration of GameFi is not clear enough, and there may be huge changes in gameplay/mechanics/token model/scalability every six months, and single economic system games that are launched after a few years are more risky. In addition, most of the project prices have been overdrawn at the moment, so it is not too late to reinvest in similar projects when the logic is clearer, after all, only one AAA GameFi masterpiece in the market can never be successful.
The advantage of such projects is that there will be a lineup of the most well-known investors in the industry, the speed of perceived market change will be faster, the ability to launch the game at the most appropriate time and adjust the economic model to meet the trend of the market at that time. At the same time, the project basically guarantees that the delivery will not run, and generally the worst will choose a soft run (the price of the coin falls, handed over to the foundation).
Other points of interest
Games with union tools
GameFi development takes time to iterate, if you look at GameFi users and funds, it is safer to invest in games and guild tools. Can be split into issues focused on solving the problems of the current parties involved, including players, guilds, and project parties. For example, Gametaverse, a tool that provides users with data display and the income of game assets in the wallet, Kyoko, which provides game prop rental and Guild loans, and Provides Dao solutions such as Dora Factory or Ink Finance to project parties.
We expect that there will be a deeper integration of NFTs and game finance, and more scenarios that focus on financial extension are needed to make the current fragmented game assets and funds have stronger liquidity. For example, NFT mortgage lending provided by Drops and Vera Finance, and NFT cross-chain solutions provided by XY Finance.
Open up the game's data standard/physics engine
Pay-to-Earn and multi-game platforms can alleviate the economic difficulties of a single game, but the best solution is to treat each game only as a link in a super-economic system, the so-called meta-universe economic system.
For example, users may earn money by contributing productivity, providing value, and then spending on high-quality, highly gameplay-B games in the A game Create-To-Earn, Design-to-Earn, or Write-to-Eran. As in the real world, if assets and value can circulate between games, it can solve the problem that the existing Play-to-Earn economic link is too short and single.
Therefore, NFTs and game data standards, as well as the corresponding physics engine, allow the adopted games to have the same physical response, which will be the underlying project that can undertake all the value of GameFi in the next stage, and the metaverse of the third stage after the construction of this type of infrastructure is possible.
The third stage of the metaverse attempt
This stage began as an attempt by humans to live in a virtual economy, and GameFi, as the best-understood metaversal application, would serve as a diversion tool. Whether users can provide productivity in the virtual world in exchange for funds, consume or perform financial behavior in different but interoperable applications, and even interact with their real selves is our current ultimate imagination of GameFi.
Of course, the metaverse has been so much rendered and fantasized that no one at this point is sure what form it will eventually take and how long it will take to build. Meta-universe infrastructure construction is also a long way off, so investment thinking at this stage is not carried out here, and will be described in a separate article.
conclusion
To sum up, an Eran-based game is a way to distribute project tokens. For those who don't want to spend too much time delving into DeFi or for most people who are not crypto native, it is a friendlier and more familiar way to get project tokens. Whether it is DeFi or other tracks, gamification can increase the attention and participation of the project, and even stimulate positive behaviors such as user voting, and there may even be mining services that gamify the original distribution mechanism in the future.
As long as the project has the need to distribute tokens and market, the money-making-oriented GameFi is likely to continue to exist. However, whether the tokens distributed are used as short-term incentives, means of increasing the price of the coin or encouraging long-term positive behavior will be something that the project side and users need to think about before participating.
Today's GameFi and NFT share the role of attracting users outside the coin circle. It's at the height of GameFi 1.0, but the most important thing for investors is to focus on the long-term development of the ecosystem and find truly valuable innovations and teams.
Risk Warning
Axia8 Ventures has positions in most of the above projects, and the content of the article does not constitute investment advice, and readers need to make their own judgment.
Special thanks to Wayne Lin and Rui for their advice and assistance in this article, and will write an analysis of the current project and subsequent layout planning of the metaverse.