The Incentives For Mass Adoption
The authors or their affiliates have ownership or other economic interests or intend to have interests in BTC, ETH, SOL, GODS, 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.
Tensions between big companies and gamers continue to rise, as players are becoming more acutely aware that they are being profited off of. The web3 ecosystem is maturing, as it prepares to offer a viable alternative for gaming world infrastructure. The proverbial camel is looking tired and the straws are piling up:
- Microsoft’s acquisition of Activision Blizzard gets Playstation implications
- Battlestate threatens bans for data mining Escape From Tarkov
- Twitch v Kick rivalry heats up as more streamers flip
- Gods Unchained arrives on the Epic Games Store
- PFP blue chips prepare to stage a comeback
- Zora Network will have its own L2
Let’s dive in!
Microsoft Activision Deal Threatens Console Market
The gaming mega deal has prompted many monopoly related concerns. The regulators in the UK seemed to have focused on the cloud gaming sector, in the US at least some of the worries are due to console market consolidation.
Activision supports a number of franchises that have been consistently shipped to both Xbox and PlayStation. If Activision Blizzard were to come under the same roof as Xbox, Sony would be forced to reduce cooperation with the publisher and not share as much information on its new console.
Xbox would be expected to benefit from better optimization and performance for key titles and potentially start pushing Sony out of the console market. The prices on Xbox consoles are already expected to go up, and the acquisition has not even gone through yet.
If the deal goes through, it may send the wrong message to other technology giants. With both Apple and Meta announcing new AR/VR hardware, there was renewed enthusiasm for virtual reality gaming, but that vertical is extremely concentrated.
If monopolization is permitted, gamers and indie developers will be put at a further disadvantage.
Battlestate is Ready to Fight Over Data
The company behind the popular game Escape From Tarkov has declared it will ban dataminers and those aiding them. The threat comes as another clear example of developers and publishers wanting to exercise total control over gaming universes.
The community was quick to point out that documentation provided by the data miners has been instrumental in making the game playable. However, Battlestate does not want the game patterns and content plans revealed.
This controversy highlights the difference between the web2 and the web3 approach. The latter counts on exposing data and having the community develop tooling and even additional content throughout the universe.
The industry has witnessed time and time again from the gold farming and botting examples that threats don’t solve issues. Behavior can only truly be changed through incentive realignment.
Web2 studios are struggling to incentivize, “by the book” behavior, and are not properly set up to take advantage of the new data paradigm. Curiously, Escape from Tarkov inspired two of the biggest FPS titles in web3, Shrapnel and Deadrop. Let’s see if they can take advantage.
Shrapnel, for instance, has extensive UGC plans, and its Insignia Beta has recently gone live.
Twitch and Kick Rivalry Heats Up
The massive xQC deal may have created a domino effect, as other creators jump ship. Soon after the streamer joined Kin, another Twitch star, Amourath decided to join Kick. However, those loyal to Twitch aren’t staying quiet.
Pokimane’s comments and the surrounding debate demonstrate some of the core issues at stake. For those arguing for Twitch it’s about the moralistic anti gambling stance. Those switching over to Kick feel Twitches monetization policies are unfair.
The position that if you already have money you shouldn’t sacrifice morals for more money, is shaky at best from an ethics perspective. Moreover, the question of revenue share has been a painful one across many creator verticals.
For the web3 space there may be an alliance to be made. The early days of gaming in the industry were filled with gambling projects. Moreover, space still suffers from gambling and speculative associations due to high volatility of the markets.
Most importantly, both seem to share the core principle of enabling fair economic rewards for creators. Perhaps Kick could become a new gateway for educating and onboarding gamers in the space.
Gods Unchained is Set to Test Out Epic Games Store
The CCG enters the launcher as the most seasoned game coming from the web3 space. The title dates back to 2018 and has had a long albeit uneven run. However, despite its tenure, the game has a lowly sub 8K 30-day unique active wallets number on DappRadar.
While the number is not an accurate representation of user activity, given that the gameplay largely happens off chain, it is understood that user acquisition has been a challenge over the years.
The game’s appearance on the popular launcher will be the first true test of Epic Games Store as a distribution channel for titles with web3. While the CCG is not the first or the only game on the platform, it is perhaps the most seasoned.
The majority of other titles are in an early stage and may not be ready for mass adoption. Gods Unchained on the other hand is much more polished and should be able to compete in the CCG space.
Additionally, ImmutableX’s flagship title is being rolled out on mobile, where web3 titles have found at least limited success. Between the popularity of Cross The Ages in France and NFL Rivals hitting 1M downloads mobile app stores have shown to be an easier path for games.
It will be important to factor out mobile when analyzing user statistics to identify if launching on Epic Games makes a difference. A lot of games in the web3 space are counting on the platform to break through to the mainstream audience. It will be key to validate their hypothesis.
Blue Chips Are Making a Comeback
The recent announcement of the HV-MTL Forge game, is the latest in a series of positive news of PFP projects that are powering through the difficult market. This will be another extension of the BAYC ecosystem and the broader Yuga Labs one.
The previously released Dookie Dash mini-game was well received by the BAYC crowd, and was wildly profitable for Yuga Labs. It was also announced that Improbable granted early access to the MSquared tooling for the Otherside.
The news follows a string of activations by other prominent PFP projects including the Pudgy Penguins merchandise sale, and the Azuki Soulbound drop in preparation for the Elementals presale. Others like 0N1 Force are looking to make a comeback.
Despite a difficult market the blue chips have figured out a way to maintain in some cases expand their community. The continuing IP development should open up commercial opportunities such merchandise sales, animated series, and more.
A number of PFP communities are looking to develop ambitious gaming projects, and here I have concerns. Most if not all of the PFP teams have very limited gaming experience, and outside of Yuga Labs few have the budget to assemble the right team.
While games have the power to onboard millions and billions, the reputational and financial damage a failed game can do to a nascent IP should not be overlooked. It is one thing to build mini-games like Dookie Dash, it is another to deliver a fully fledged midcore or hardcore title.
Nevertheless, it is encouraging to see web3 native IP find success. Working with established IP makes it easier to find an audience for a gaming title. So, in time we may see games leverage the strength of blue chips.
Zora Network to Launch L2 Keeping With The Trend
Zora Network is the latest to jump on the L2 bandwagon. The Zora protocol supports an NFT marketplace and creator tooling and has a substantial audience. The trend may have industry wide implications.
With L2 infrastructure becoming easier and easier to spin-up, more and more projects are choosing that route over launching on a shared chain, or launching their own L1. An L2 affords team economics flexibility while enabling them to stay a part of the Ethereum ecosystem.
If the trend persists it is unclear where that leaves monolithic L1s and interoperability focused networks like Polkadot and Cosmos, as Ethereum’s network effect will only grow. However, the question of cross-chain communication will need to be answered.
In the past, bridges have shown to be some of the most vulnerable points in the ecosystem and were subjected to costly attacks. Scaling through L2s will require these issues to be addressed.
It will also be interesting to see if L2 tokens will come to replace application governance tokens. With SAND and AXS being named in the SEC Coinbase lawsuit gaming teams may feel uneasy about launching tokens for their titles.
However, launching tokens for the underlying infrastructure may be a way around the issue. It may also simplify economics for teams. The infrastructure token should benefit from onchain activity. As such teams need only incentivise activity as opposed to drive value to a game token.
This may allow studios to better utilize fiat transactions, and create a smoother path for opening up in game economies.
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.
