The Strength of Community
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Last week was relatively calm in the gaming space as the industry continued to go through a consolidation period. Gamer communities play a pivotal role in making a game successful and companies are looking for ways to better utilize their energy:
- Apes score a victory in the court and in DAO voting
- Animoca buys Azarus despite a slowdown in M&A
- Nintendo tries to regulate community tournament initiatives
- Capcom is working on a new version of RE Engine
- Nightshade introduces a poison pill defense against AI
- Valve reaffirms its disinterest in NFTs
Let’s dive in!
Yuga Labs Wins in Court But Community is on Edge
Yuga Labs won its case against Ryder Ripps defending its brand while also being awarded around $1.5M in compensation. The relationship between Yuga Labs and RR/BAYC has gotten ugly, and it’s positive for the entire web3 space to see a web3 native IP successfully defended.
Despite the impressive victory all may not be well in the Ape universe. AIP 337, the proposal to slash in half the salaries of ApeCoinDAO special council members did not pass. However, the vote was close: 14M to 10M indicating growing frustration within the community.
BAYC has become one of the strongest web3 native IPs and a cornerstone for Yuga Labs, in large part, through the energy and efforts of its community. However, recent games and lackluster price action have flustered participants. ApeCoinDAO may need a new strategy.
Animoca Acquires Azarus Amidst M&A Slowdown
Animoca continues its strategy of building a vertically and horizontally gaming ecosystem empowered by web3 technology. The acquisition of Azarus enhances streaming capabilities for Animoca’s portfolio.
Streaming has become a key tool for game distribution and gamer engagement. Azarus’ overlay technology as well as token-enhanced incentive mechanism makes it a solid option for games building within the web3 space and/or looking to experiment with the technology.
The acquisition comes at a time of an M&A slowdown. Announced transaction volume for Q3 ’23 is down 60% year over year. Given that the deal size was not disclosed, it is reasonable to assume that Animoca negotiated very appealing terms,
Nintendo’s New Community Tournament Guidelines Raise Questions
Competitive gaming events have become a key engagement tool for gaming companies, and community driven events are an important part of that. That’s why the new Nintendo guidelines, that aim to regulate among other things, console use, seem a bit restrictive.
There are teams, such as Sanctor Capital portfolio company Blast, that aim to simplify tournament creation and management with web3 technology. Challenges in the esports space, particularly for community led events, such as payouts need to be addressed.
However, Nintendo’s policy seems to be focused on protecting its IPs and brand more than gamer needs. Community-led events generate content, and as PUBG Mobile’s $100M Creator Fund exemplifies, it has a lot of value. Nintendo may have to rethink its approach.
Capcom is Working on The REX Engine
It may be easy to fall into the trap of thinking that UE and Unity are the only two game engine options available to studios. However, with Unity’s runtime policies still having aftershock effects, other technologies are coming into the spotlight.
I have written about the open source Godot and Amazon’s Lumberyard, but it appears that Capcom is building the next version of the RE Engine. The engine has been used to power titles in the Residence Evil, Devil May Cry, Street Fighter and Monster Hunter franchises.
The new iteration will offer a number of new technologies around things like profiler, launcher, asset stream, flows and more and will try to address challenges around asset scaling that are present in the current version.
Nightshade is Able to Poison Generative AI
Content creators have been clashing with AI tool developers for some time, demanding that their creations are not used without permission and their styles not replicated at will. It appears that a new tool, Nightshade, may enable the creators to go on the offensive.
Nightshade manipulates visual asset data in a way that does not visually impact the image, but wreaks havoc on the algorithms trying to use the image for training purposes. When used in large quantities, poisoned images can do real damage to models.
In the absence of clear regulatory guidelines, creators may start looking for more aggressive means of defending their works. If models using attributed data become more vulnerable, companies may be more incentivized to use custom models and sandboxed data.
Valve is Still Unimpressed by NFT Technology
In a recent interview Valve’s CS2 team was asked about NFTs in the context of asset migration. They answered: “Sometimes people talk about NFTs in the context of Counter-Strike items, but to be honest we don’t know enough about NFTs to weigh in on that conversation.”
The dismissive answer indicates that web3 adoption is still far off for Steam. While games utilizing NFTs and fungible tokens are technically not allowed on Steam, more and more web3 games have made their way onto the platform.
This is typically achieved by bifurcating the experience into a traditional web2 one (on Steam) and a web3 enabled one (available through a standalone site). The recent comment from Valve highlights the massive education effort that’s needed to onboard more developers to web3.
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.
