Standing at the Edge of the Metaverse

Sanctor Capital
8 min readApr 25, 2023

The authors or their affiliates have ownership or other economic interests or intend to have interests in ETH and BTC, Axie Infinity 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.

This was supposed to be a quiet week. Everyone got a chance to breathe out and prepare for the next leg of the conference circuit starting with Consensus. However, the industry never sleeps, and so there is a lot to digest from AI and esports to fundraising and regulatory news. Buckle up and let’s dive in!

Start Looking for Sarah Connor

Since the emergence of ChatGPT it feels like AI has been entering every facet of our lives. It is no longer the stuff of science fiction shows, but a reality and the rapid evolution of retail facing tools and applications (GPT-4, Auto-GPT and more) and the extent of their potential commercial impact, suggest that we are looking at a paradigm shift.

Source: https://openai.com/

In the gaming industry, AI could help generate everything from visual and audio assets, to lore, storylines, and actually develop (and debug) the code for the game. It can also help monitor and balance the economy and provide personalized experiences for gamers. All of this could be done at a fraction of the typical time and cost, offering untold opportunities for game design experimentation, iteration with the gaming community and options for user generated content.

Interestingly GPT-4 has already been used to create simple games like Snake. Earlier this month Stanford and Google published a paper where they revealed the results of an experiment pushing AI agents to simulate human-like social behavior, by taking on the role of town inhabitants.

Source: https://arxiv.org/abs/2304.03442v1

The space is starting to take notice. For instance Jack Soslow highlighted a list of ideas involving gaming and AI that a16z is looking for from applicants for SPEEDRUN. At Sanctor Capital we have been excited about the possibilities of AI in gaming for some time. Last month, I hosted a WaypointWeb3 talk on AI and gaming that touched on everything from visual asset generation to intelligent NPCs. The possibilities are endless.

Source: https://twitter.com/ESYudkowsky/status/1649304463486914566

However, those of you following Eliezer Yudkowsky recognize that the path of AI, especially as we near AGI, is fraught with danger. So, keep an eye out for the Connors, just in case.

Another Attempt at Finding a Sustainable Esports Model

It is no secret that while audiences for esports events have grown, teams have struggled to adequately monetize this attention. Big game publishers, who control everything in the web2 gaming world, have not made things easy with exuberant franchise fees. This is why Epic’s Virtual Pass product could be a big deal. This is the publisher’s attempt to improve revenue for esports teams competing in League of Legends and Valorant leagues.

Source: https://www.riotgames.com/en/news/building-the-future-of-sport-at-riot-games

For many web3 games, esports have become a major part of the strategy for growing the gamer base. The approach has been questioned by many, especially given the nascent state of most midcore and hardcore, as well as small web3 gamer base. Nevertheless, many upcoming titles choose to run tournaments as part of their alpha releases and testing periods. Competitive gaming is seen as one of the key ways to attract and retain players, so it’s important for the web3 space to analyze the pitfalls and development in traditional esports and seek a financially sustainable path for its ecosystem.

Source: https://www.communitygaming.io/tournament/xtreme-championship-series-gu-month-1

On that note, it is encouraging to see XSET sign Brycent, one of the best known content creators focused on web3 gaming. Traditional esports brands have been extremely careful as far as any association with web3, so this is a nice bit of validation for the industry. Moreover, XSET is positioned to be a lifestyle brand and that, more broad level appeal, could be very welcome for web3 gaming. Web3 needs a bigger audience, and not all pro teams are great at growing a fanbase even when they are winning. Brycent joining XSET seems like a good fit.

Source: https://twitter.com/brycent_/status/1649037201345265664

Mobile esports also got some welcome news, with Call of Duty: Mobile being added to the Snapdragon Pro Series. The 2023 prize pool will total a tidy $1.5M across a number of events.

Another Gaming Ecosystem Opens its Doors

MeritCircle is launching Beam, a gaming focused subnet in the Avalanche ecosystem. The network will debut with 3 gaming titles (Xtreme, Walker World and Hash Rush) and also offer an AMM and an NFT marketplace.

Source: https://medium.com/avalancheavax/merit-circle-dao-to-launch-gaming-subnet-with-tooling-three-games-and-many-more-to-come-4cdcc7896779

Avalanche, a L1 network, has established itself as one of the top gaming ecosystems in the space. MeritCircle started out as a guild, and raised over $100M during its LBP in 2021. While many guilds have struggled to find identity MeritCircle has remained active as an investor and now has expanded its scope to infrastructure and ecosystem development.

There have been a number of ecosystem attempts including Ronin and Gala Games, but execution remains a challenge. For instance, Gala Games has announced its V2 token. The new token is supposed to replace the old one 1:1, while the new contract should offer improvements for tracking, security and upgrading capability. However, long-term frustrations have spilled over onto twitter.

Source: https://twitter.com/Benefactor0101/status/1649122277584420864

Building a community is not easy, even more so when you’re building a gaming one in the web3 space.

Funding the Unbeaten Path

Karate Combat made some noise with its announcement of an $18M funding round as it gears up for the launch of its application in May. It is encouraging to see a big round for a sports ecosystem outside of the big four (soccer, football, baseball, basketball), while the extended reality approach creates a nice path to the metaverse.

Source: https://www.karate.com/media/articles/karate-combat-raises-18-million-from-bitkraft-ventures

Additionally, TreesPlease Games announced an $8M funding round and its first game Longleaf Valley with an eco-friendly angle. While the game does not utilize blockchain technology, a raise of this size may encourage web3 companies to try eco-friendly themes. We have seen web3 teams working on trying to improve the carbon credits markets, perhaps eco-conscious games may also get a chance.

Source: https://viceventures.com/

Also, Vice Ventures announced the closing of its second fund. Led by Catharine Dockery, it focuses on sectors such as gambling, alcohol and sextech, that many investment firms are hesitant to approach. While the web3 industry has generally welcomed all legal use cases for the technology, founders working in the “vice” sectors may have found it especially difficult to fund raise given the combination of stigmatizing labels. Investors like Catherine Dockery help make it easier for founders who are making a difference in “unpopular” sectors.

Big gaming names are delving further into the web3 space. Square Enix announced a partnership with Elixir while Krafton intends to launch Migaloo, a web3 gaming platform by the end of the year. Asian companies have shown the most willingness among the big gaming studios to implement web3 technology. A number of others have demonstrated serious intent, including Com2uS and FunPlus.

Bring Popcorn for Regulatory Drama

Gary Gensler faced a tough line of questioning during a Congressional hearing. The past few months have been tough for the web3 space as the SEC appeared to take the regulation by enforcement approach to a whole new level. However, it looks like Congress may not be on board for that. In fact, Congressman Warren Davidson introduced a bill that asks for the removal of Gary Gensler from the position of Chair of the SEC.

Source: https://twitter.com/WarrenDavidson/status/1648388979757072385

While the US still searches for regulatory answers in the web3 space, the EU Parliament voted to approve Transfer of Funds regulation, clearing the path for MiCA in 2024. The regulatory framework may not be welcomed by everyone in web3, but it has generally been viewed as a major positive, providing much needed regulatory clarity in a major economics region.

Source: https://twitter.com/BoredApeYC/status/1650197954207072258

Yuga Labs received a favorable ruling in its lawsuit against Ryder Ripps and the RR/BAYC project, effectively defending its trademarks. While damages will be determined at trial this certainly looks like a win. The only thing that could mar this victory, is if the negative noise that was generated from this dispute reemerges due to something like the Streisand Effect.

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.

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