A Parade of Good News
The authors or their affiliates have ownership or other economic interests or intend to have interests in BTC, ETH, SOL, Axie Infinity NFTs, Mighty Action Heroes and associated NFTs, and may have ownership or other economic interests or intend to have interests in other organizations and/or crypto assets discussed as well as other crypto assets not referenced.
Last week was packed with events, but before I get to them, it’s time for a shameless plug: our portfolio game Mighty Action Heroes is now in Beta! It’s an exciting battle royale game bringing some retro feels to the new age, while offering all of the crafting functionality your heart desires.
Obviously, I am biased, so check it out for yourself! Still this wasn’t the only exciting thing to happen last week:
- Money continues to pour into web3 gaming despite the tough market
- The Microsoft Activision Blizzard deal looks set for completion after US court ruling
- Ripple notches a win against the SEC
- Google Play opens its doors for NFTs
- SAG-AFTRA goes on strike after egregious AI offer
- The brain in a vat experiment is being played out with Doom
Let’s dive in!
Investors Continue to Deploy Capital Into The Gaming Sector
2023 has been a challenging year for web3 startups, especially so for teams looking to fundraise. However, as the Metaverse Post Q2 report suggests, gaming remains the go to sector for capital deployment among investors.
While the $115M among 20 projects is nothing too spectacular, it far outpaces the next sector, which is Social Networks. Curiously, while DeFi has been quietly stirring itself into a bit of a revival the financial sectors attracted a minimal amount of capital in Q2.
Gaming has also seen a number of high value deals of late, for example Xterio raised an additional $15M from Binance, Embrace $20M and Gardens attracted $31.3M. Earlier we saw big rounds for Mythical Games ($37M) and Argus Labs ($10M).
The Xterio deal is particularly interesting. The publishing platform previously raised $40M on a SAFT, and represents FunPlus’ big move into the web3 space. The involvement of the gaming powerhouse should ensure a steady stream of titles to the platform.
Now Binance brings the prospects of the biggest user bases in web3 and liquidity to the games launching on the platform. Binance has been relatively quiet of late as it looks to deal with regulatory concerns.
Nevertheless, Binance has long been looking to establish a gaming ecosystem, but its efforts have found very limited success. This sizable investment looks to be a signal that the company has not given up on the sector, and may be looking to go even harder at it.
Microsoft Scores a Victory And is Close to Acquiring Activision Blizzard
Speaking of massive gaming deals, Microsoft’s $68.7B acquisition of Activision Blizzard gets closer to completion as the FTC was denied a temporary injunction. The FTC has appealed the decision and there is the issue with the UK regulator, but many expect the deal to complete.
This is a dangerous deal for the gaming industry that is already incredibly top heavy. Games are incredibly difficult to develop and publish and the increased centralization further stacks the odds against indie houses that lack such scale and reach.
It is encouraging to see more and more capital come into the space, and there is hope that AI will help level the playing field a bit in terms of production times and costs, but the road for new studios is not easy.
Ripple Scores a Major Victory Against The SEC
Generally, I try to focus on gaming news in this newsletter, but some events impact all the industries at once. The recent ruling which identified that programmatic sale of XRP did not classify it as a security was a huge win for all of crypto.
The SEC has been using regulation by enforcement in a way that has been incredibly damaging to the industry. This ruling potentially halts this regulatory assault or at the very minimum give the industry a precedent to fight back with.
XRP has had many notable challenges as far as its perceived centralization, and in fact the judge saw the private sales of XRP as sales of unregistered securities. However, it looks like token contracts on their own don’t make something a security, and sales on exchanges were ok.
While this raises a lot of questions about the future changes in the primary markets, this gives precedence for many if not most tokens to also be classified as not security assets. The jubilation in the markets propelled XRP into the top 4 by market capitalization.
For the gaming space the most immediate implications may be for infrastructure related tokens such as RON. In-game tokens will likely still have to navigate their own set of legal hurdles,as there are more legal precedents on gaming currencies.
Still, the victory for crypto may catalyze the return of retail capital as well as push institutional investors into more open market operations. This in turn could bring more capital to the gaming sector as well.
NFTs Can Now Come to The Google Play Store
Google has updated its policy to open its doors for NFT usage. This is a monumental event as it should dramatically improve UX/UI for mobile games utilizing web3, enhance conversion and retention through a critical distribution channel and put pressure on Apple to do the same.
While studios working with web3 have been deploying on the app stores for some time, usability left much to be desired. Since, NFTs were not allowed, games had to host web3 features on a separate website fragmenting the gaming experience for users.
The new policy changes mean that at least some games can start offering a comprehensive mobile experience involving web3. There will obviously be rules attached: identification as a blockchain game, transparency, no “glamorization” of crypto asset trading and more.
The new rules do offer challenges, for instance loot box mechanics will need to be rethought, but developers now have clear standards to adhere to. Now, the pressure is on for Apple to do the same.
Even before, it was clear that it was much easier for gaming startups to launch on the Google Play Store than to even get a Tesflight version up on the Apple App Store. For a long time an android device has been a must have for anyone doing playtesting of mobile web3 games.
Assuming games utilizing web3 start seeing meaningful traction, it is reasonable to expect Apple to rethink its own policy on NFTs.
SAG-AFTRA Go on Strike Amidst The Boom in AI
The Screen Actors Guild went on strike after the Alliance of Motion Picture and Television Producers offered, among other things, that background performers would effectively give up rights to their digital scans, image and likeness for a day’s pay.
The strike is only the latest case of AI data rights questions becoming a sticking point in recent days. AI models can do incredible things, but they need data to train, and proper ownership attribution and compensation become a challenge.
I have written quite a bit about these challenges in gaming, but what’s happening with movies may have long standing implications for gaming as well. We have seen how IPs can go from gaming to movies and animations and vice versa.
Big name actors such as Keanu Reeves, Will Smith, Nicolas Cage have seen their likeness appear in a number of movies. AI scans described in the offer to SAG could potentially be used to populate gaming worlds with characters.
Web3 can address a lot of these concerns with proper data mapping, attribution and royalties distribution. Already the film industry has been experimenting with NFTs, with The Flash being the latest to come with NFT attached experiences.
Nevertheless, without clear regulation in the AI space, we can expect organizations to continue to test the boundaries of what is acceptable as far as data rights. So, I expect more groups like SAG to take a stand to try to create a fair environment in the new AI-enhanced world.
The Brain in a Vat Plays Doom
While some are trying to build artificial intelligence, others are approaching the compute problem from an organic angle and are building Neural Multi-Electrode Arrays. Effectively, it is an organic neuron network capable of performing tasks.
The neurons will be stimulated with pleasant and unpleasant sounds when they get a kill or die to help the network train. Outside of a multitude of ethical questions, it’s curious if an organic network can compete with an artificial one.
When I was at Boston University, I took a philosophy class where we discussed the brain in a vat dilemma. Essentially, it asks if all you were, was just a brain suspended in a vat with different stimuli passed to you, would you be able to recognize that?
I think this particular experience makes it harder to argue that you would. On a more practical level, it does open up a number of possibilities with respect to in-game AI, most notably NPCs. Again, this does not take ethics into account, but the NPCs could become very human-like.
This wraps it up for this entry. As always, if you are working on something exciting in the web3 gaming space, or are a traditional gaming team looking to explore the possibilities, don’t hesitate to reach out to any of us at Sanctor Capital. Have a great rest of your week!
Ilya Abugov (@AbugovIlya)
Disclaimer: This commentary is not investment advice. It does not purport to include any recommendation as to any particular investment, transaction or investment strategy, or any recommendation to buy or sell any investment. It does not reflect any attempt to effect any transactions or render any investment advice.
This post is solely for informational and entertainment purposes. It is inherently limited and does not purport to be a complete discussion of the issues presented or the risks involved. Readers should seek their own independent legal, tax, accounting, and investment advice from professional advisors. The views reflected in this commentary are subject to change at any time without notice.
