Hitting Pause on The Renaissance
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Just as I started wondering about a PFP revival, Azuki and Yuga Labs came out with a couple of giant disappointments. Not to worry, with Ordinal venturing into gaming and Ubisfot developing a web3 game, there was no shortage of excitement last week:
- Azuki and Yuga made money but disappointed users
- Ubisoft dropped a teaser of a web3 game it is building
- Sony’s data leak revealed the cost of AAA titles
- Unity released tooling and Valve rejected games as IP became a sticking point for AI
- Team Ricochet took a new approach to dealing with cheaters
- Ordinal Labs offered a path to gaming on Bitcoin
Let’s dive in!
A Couple of Golden Goose Eggs From Azuki and Yuga
It was impossible to go on crypto twitter last week, at least before Elon Musk decided to break it, and not see the disappointment and outrage of the Azuki community. The Elementals mint brought the team around $38M as the collection quickly sold out.
The mint itself was poorly organized, which naturally drew criticism, but the reveal was met with shock, and not the good kind. The new collection was so similar to the original that the community felt cheated.
The team held a community call to try to work through the issues and admitted to a number of missteps. However, the floor prices of the primary and associated collections took a tumble off a cliff and have been falling ever since.
The story of Yuga’s HV-MTL Forge game is less egregious. As with the Dookie Dash game those outside the community met the new title with a mix of skepticism and criticism. However, the community was more accepting.
The main issue is that even those in the web3 space were disappointed with the quality of the game. This likely won’t stop Yuga Labs from enjoying financial success in this endeavor. The collection has already surpassed $42M in sales volume.
That may be the biggest problem. Some of the top, supposedly, community focused projects, appear to leverage their communities as cash-cows while simultaneously lowering the bar as far as quality.
The amount of capital some of the top PFP projects have accumulated over time should give them the ability to acquire high-end studios to churn out high quality products for their audience. Perhaps, M&A will be the end result, but for now communities are paying to be let down.
Ubisoft Prepares to Take Another Swing at Web3
Ubisoft dropped a teaser of its upcoming web3 title Champions Tactics, as the publisher appears to be working on another attempt to integrate web3. The Quartz and Digits debacle was rather unfortunate as far as PR, and Ubisoft has had to backtrack on NFTs web3 before.
To the company’s credit it has not given up on the idea. In Asia, big studios such as Com2Us, FunPlus and Krafton have been quick to start experimenting with the burgeoning technology. Perhaps the western giant felt some competitive pressure, and did not want to fall behind.
The move also put indie studios on the clock. Previously, many have assumed that big western companies will wait for small and midsize players to succeed before jumping into web3 through M&A. However, given this news, and previously announced EA NFT plans, they are not waiting.
Sony Reveals the Massive Cost of Making AAA Games
As the Microsoft v FTC drama becomes more and more Hollywood worthy, there is an increasing amount of tangential information that is coming to light. Most recently, some of Sony’s redacted documents ended up being not so thoroughly redacted.
The reveal of $200M+ budgets for Sony’s titles should give the web3 gaming space a lot to think about. There are quite a few titles in our sector that aim to compete with the big traditional IPs. They are typically raising $10M-$50M and putting together a team of 30–100 people.
For the web3 space that sounds very significant, but as far as competing with traditional giants is concerned, that is far too little. At the moment there aren’t many revenue generating companies (outside of maybe Yuga Labs) that are able to bankroll games like Ubisoft.
Moreover traditional publishers still aren’t eager to open up their wallets for titles utilizing web3. I am certainly not the first to point this out, but it stands to reason that many of these studios are raising far too little to succeed, but quite enough for the industry to feel the pain.
Don’t get me wrong, this doesn’t mean VCs should give up on web3 gaming. However, both investors and studios need to get realistic about costs, timelines, projected revenue and valuations.
There are definitely reasons to be optimistics. Globalization and remote employment has opened up new talent pools allowing for a reduction in staffing costs. AI promises to further reduce the cost and time of development, and web3 opened up new revenue opportunities.
The figures leaked by Sony were not a big shock to gaming industry veterans, but they may serve as a wake up call to the web3 space that’s prone to creating echo chambers and drinking its own kool aid.
The future of the web3-empowered virtual universe is bright, but game development is a long, hard and expensive process. There are no guarantees, so tread lightly.
Data Rights Become a Sticking Point For AI in Gaming
Unity is making a big push into the AI space. Last week the company announced Muse and Sentis as well as its AI marketplace to further grow its AI tooling capabilities. The goal was to allow developers to integrate AI into their workflows, and make processes faster.
The initiatives are part of a larger trend that has seen companies attempt to develop tooling for gaming content and logic generation. While some met the news with excitement others were concerned about IP rights with respect to the data used by the underlying models.
The concern around data rights has already prompted Valve to reject certain games that developers tried to publish on Steam. Notably, Valve is not taking an anti-AI stance, but rather focuses on the issue of data rights.
The trend towards AI enhanced development looks to be unstoppable, as new tooling such as Moonlander’s platform appears seemingly on a weekly basis. The allure is that it not only improves productivity for professional developers, but also opens doors for novices.
However, the question of data is a big one as privacy and attribution concerns are growing. I would expect to see a growth of ecosystem based data sandboxes. For instance EA may have its own data sandbox, which AI models could use in the development of new EA titles.
Web3 can potentially play a big role in cross-ecosystem data sharing and open marketplaces. By placing data on-chain and tracking data utilization web3 could enable proper attribution and royalties distribution, potentially alleviating copyright concerns and rewarding creators.
Team Ricochet Strikes Back at Cheaters in a Creative Way
It would seem that cheaters are an unavoidable part of the gaming world. Companies try to ban them, but the attackers find new ways to get around and abuse the system. It’s a neverending arms race with new tools coming all the time on both sides.
Team Ricochet is trying something different. Instead of trying to ban the cheaters, it is sending them on a wild goose chase by showing them “hallucination” figures that only they can see, and continuing to track their behavior.
The approach makes it challenging for the malicious actors to know that they’ve been discovered and allows the company to spy on them and collect additional data. As we know — data is king!
It is not the first time developers try to dupe gamers. For instance the loading bar during gaming downloads appears to have little to do with the actual download progress. However, the “hallucination” approach may have long running implications for discovering cheaters’ patterns.
We May See Games on Bitcoin
It is safe to say that inscriptions on Bitcoin have grown to be more than just a short term trend. However, Ordinal Labs is expanding beyond just Bitcoin NFTs, and is looking at on-chain gaming as the next frontier.
The recently published post on the Ord Games protocol, introduces an approach to putting games on Bitcoin. However, just because something can be done, does not necessarily mean it should be done.
While Ordinal has been pushing very creative technological novelties in the Bitcoin ecosystem, not all of them may find commercial utility. Inscription based NFTs meshed nicely with Bitcoin’s focus on scarcity and the community’s search for new catalysts.
However, the needs of games, chiefly high throughput and low transaction costs, may clash with the primary utilization of Bitcoin. The deflationary dynamics of BTC coupled with the network’s current scalability limitations may make gaming unrealistic.
That’s not to say that games on Bitcoin won’t be built and that Bitcoin maximalists won’t try to use them as proof that all we need is Bitcoin. However, given the network’s and the cryptocurrency’s properties, it’s unlikely that we see mass-adopted games on it.
However, depending on the initial interest and traction, this may catalyze a new wave of development of Bitcoin forks as they may try to capitalize on the hype around Ordinal.
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.
