Gaming is finally coming into the crypto psyche in a big way, so we thought that it was time to start a sub-dialogue of “Bits of Signum'' specifically on this topic. In future posts, we will cover specific topics like Play-to-Earn (and point you to some great primers by others), with the ultimate intention of going deeper into crypto gaming and gaming generally. Today we write a snap shot of where we are - the good, the bad and the ugly. In early 2018, we got really excited about the idea of NFT powered skins (New Blockchains and NFTs in Gaming — No Copy Cats!) and even left a traditional investment bank in pursuit of cute kitties.
Of course, we are ebullient in thinking through all of the innovation over four years, but we also see a couple of red flags worth highlighting. First, the crypto industry feels like it is drunk in a flywheel of money and FOMO. And as the waves of DeFi Summer and the Year of the NFT recede, all eyes (and money) are on the next wave of crypto - Gaming. Not surprising, a lot of games are in the works and will be delivered in the next year or so. Unfortunately, also at the same time, gamers themselves aren’t even close to buying in yet. In fact, if I play word association with a friend in the gaming / non-crypto world, I might say “crypto” and they might respond “money grab” or even “Monet grab” for a play on words. :) Yes, of course, crypto is a really fun game in its own right, but we would warn against confusing that game, crypto, with the gaming industry.
First the good -
We have always believed that future players will agree - ‘I want to take my Gucci bag with me from the Mario party to the holiday party!’ This is happening. In addition to this, we have seen completely new forms of identity and social behavior that we didn't at all anticipate. Dipping into the Bored Ape Yacht Club community reveals a close knit culture of crypto degens, with heartwarming descriptions of life-changing camaraderie in the midst of a global pandemic.
This points to the explosion of NFTs that we expect to continue. Similar to our analog closets that might be stocked with both business-casual and party attire, we expect that our online closets (aka wallets) to be even more jammed to the gills. Yes, we will similarly have an appropriately-dressed avatar for “work” along with some wild(er) and craz(ier) outfits for parties and concerts with friends.
But NFTs that adorn our avatars will only be one type of NFT. We will also need NFTs that allow us to do things, like go to concerts and enter into contracts, to prove ownership of things, and to show membership to groups, both in games and at work. Membership will extend to accreditations and “jobs done” in DAOs (decentralized autonomous organizations) - both DAOs in which we work, and DAOs in which we volunteer for the sake of a particular organization’s advancement.
The entire concept of social status membership that we have seen so far in crypto is mind blowing - picture everyone suddenly self-organizing and self-identifying one’s social status, with very few barriers to entry at all, other than money and spot trading acumen. I’m convinced that the price of a Bored Ape Yacht Club NFT continued to march higher for the same reason that tuition for Harvard would be so much higher than ~$50,000 if one could simply pay for the slot and then contribute to the social fabric to get in.
Currently, most of the energy and interaction in these NFT communities is limited to social media like Twitter, Discord, a few metaverse meet ups, with some IRL conferences sprinkled in. Displaying an NFT as one’s profile picture (PFP) is even more fun now that Twitter has rolled out the ability to connect your crypto wallet and use a verified NFT. As NFTs and the metaverses that they inhabit develop, they unlock new opportunities for revenue streams between users, creators, developers, publishers – everyone. We believe that NFTs will be the currency of the metaverse, and that they will ultimately integrate AI, which will give them agency to grow and develop multi-dimensional ownership and “personalities” over time. (Another deep dive discussion that is coming in a future post!)
All in, on the positive side, there has been an explosion of creative energy and innovation to create these NFTs that has trumped anything I have seen in my career. And since these digital assets need further utility, games which provide new metaverse backdrops make logical sense.
Yosuke Matsuda, president of Square Enix, which owns titles such as Final Fantasy, Dragon Quest, Tomb Raider, and Space Invaders, Matsuda explains, “games have traditionally involved a unidirectional flow whereby creators such as ourselves provide a game to the consumers that play them. By contrast, blockchain games, which have emerged from their infancy and are at this very moment entering a growth phase, are built upon the premise of a token economy and therefore hold the potential to enable self-sustaining game growth.”
Now, a warning -
While the bigger picture is all very exciting, it must be pointed out that there is a high level of skepticism among gamers regarding all things NFT/crypto. We were surprised to pick up consistent evidence of this in our conversations at the Esports Awards in Dallas - simply put, players want to have fun, and they don't want to be scammed. We have always believed that the initial winners will have the ability to bridge this gap between traditional and crypto gaming.
So far, crypto trading is the game. 2021 marked the transition of NFTs being perceived as confusing, pointless JPEGs to digital assets that can be bought, sold and traded. It’s easy to quantify this transition given the transparency of the largest trading platform, OpenSea, which saw an explosion from $8m in volume during the month of January 2021 to $3.3 billion in the month of December, or almost $1 billion in annualized revenues. To get some grounding on these numbers, the Chicago Mercantile Exchange Group Clearing & Transaction Fees in 2020 were reported at $3.897 billion. In addition to the Bored Ape craze, CryptoPunks surged from less than 1 ETH (~$300 at the time) to the current floor of ~70 ETH (~$200k as of 2/4/22), and we have already seen an acquisition of metaverse brand RTKFT by NIKE in December. While much of the excitement in the space is generated by these headlines, it is the communities that form around these technologies, and their potential applications, which are far more exciting to us.
As mentioned previously, we generally see many differences between traditional gamers and crypto natives. Similar to the gamer angst over the years against in-game advertising, the gamer suspicions of crypto run high. Players were outraged at Ubisoft's NFT announcement of Digits, which may have intensified after Ubisoft management was interviewed and commented,
“Gamers don't get (it) what a digital secondary market can bring to them.”
Similarly, the game developer GSC Game World quickly made a decision to scrap their NFT plan for Stalker 2. Here is a tweet that occurred about 90 minutes after announcing NFTs for its shooter/RPG -
“Based on the feedback we received, we’ve made a decision to cancel anything NFT-related in STALKER 2.”
As many know, we are very excited about Discord’s accelerating growth and its increasingly clear title as “home” in the metaverse. While Discord started as a communication platform for gamers, it has evolved into a community platform for the whole world, and is now trending toward a place to start and grow community-based businesses.
We call Discord a place where the home page meets the inside of the classroom/coffee shop with a helpful assistant and a (future) cash register.
As part of Discord’s growth, crypto communities have also exploded onto the scene. There is a misperception that Discord is exploding because of crypto. Not true - crypto is one type of community, albeit a strong and loud one, that is settling into the Discord platform as home.
Discord’s management appears to understand that its core base is gaming and so not surprisingly, the company has been very conservative about getting involved in anything NFT or crypto related. After a hint of Discord-linked NFTs and crypto wallets emerged on Twitter, the user backlash was so strong that it evoked this from CEO Jason Citron -
We appreciate all the perspectives we’ve been hearing in response to the internal concept you may have seen in a tweet earlier this week and want to clarify we have no plans to ship it at this time. We’re excited about the potential for web3 technology and the positive ways these communities are coming together on Discord, especially those organized around environmentally friendly, creator-focused projects. However, we also recognize there are some problems we need to work through. For now we’re focused on protecting users from spams, scams and fraud.
In fact, traditional gamers do get it - they want to have fun.
It is reasonable to be suspicious if the chances of getting caught in a cash grab are as high, if not higher, than simply having fun. And meanwhile, just one slice of the gaming industry, mobile gaming, is already spending $85 billion and already working really hard to create engaging and beautiful games. Again, we are excited too, but in the midst of NFT mania, it’s easy to forget that the demand side of the equation, 2.5 billion gamers, determines success or failure of any particular game.
Major Game Publishers Views on Blockchain Gaming are Instructive
Epic Games - Tim Sweeney, CEO, Oct. 15, 2021
“Epic Games Store will welcome games that make use of blockchain tech provided they follow the relevant laws, disclose their terms, and are age-rated by an appropriate group. Though Epic's not using crypto in our games, we welcome innovation in the areas of technology and finance.” (Side note from us: this came right after Steam announced that they would not be distributing blockchain-based games.)
Sega - Haruko Satomi, CEO, Nov. 8, 2021
“...we have already started many different studies and considerations but nothing is decided at this point regarding P2E...there are users who show negative reactions at this point. We need to carefully assess many things such as how we can mitigate the negative elements, how much we can introduce this within the Japanese regulation, what will be accepted and what will not be by the users...if it is perceived as simple money-making, I would like to make a decision not to proceed.”
Ubisoft - Nicolas Pouard, VP of Ubisoft’s Strategic Innovation Lab & Head of Blockchain Initiatives, Dec. 3, 2021
So far, Ubisoft upholds their belief in blockchain technology. Didier Genevois, Blockchain Technical Director at Ubisoft says, “We know it is a major change that will take time, but we will stay true to our three principles which are: use the tech responsibly: building a safe environment for players to get acquainted with these new possibilities; only leverage energy-efficient, proof-of-stake blockchains (side note from us: they chose Tezos); and focus on meaningful value propositions for players that benefit their gaming experience.”
EA Games - Andrew Wilson, CEO, Nov 4. 2021
"The play to earn or the NFT conversation is still really, really early, and there's a lot of conversation… I think that in the context of the games we create and the live services that we offer, collectible digital content is going to play a meaningful part in our future…So, it's still early to tell, but I think we're in a really good position, and we should expect us to kind of think more innovatively and creatively about that on a go-forward basis."
Take-Two & Zynga - Frank Gibeau, Zynga CEO, Jan. 10, 2022
“In terms of NFTs, it’s very early days… It’s a process that I think conceptually we have a lot of faith and belief in—the idea that players will play-to-earn or play-to-own is a very compelling idea that we think will have legs as the industry develops.”
Valve
In October, Valve silently edited their Rules and Guidelines to forbid blockchain or NFT marketplaces from games published on Steam. What you shouldn’t publish on Steam: “Applications built on blockchain technology that issue or allow exchange of cryptocurrencies or NFTs.”
Now that the groundwork has been laid, we look forward to digging deeper into a lot of topics related to gaming. If you have any requests, please feel free to send them our way. Until then, we look forward to seeing you in our Understanding Discord Series. Next up - Interview with Nookazon Founder Daniel Luu.
GAME ON!
Shout outs to Mythical, Axie Infinity, Yield Guild Games, Blockade Games, Whaleshark, Decentraland, Cryptovoxels, Forte, The Sandbox, Immutable, Engin, Gala, Pixelynx, ReadyPlayerMe and many others.