Observations and Predictions on the Future of Gaming Guilds
Introduction
Similar to the DeFi summer of 2020, NFT markets saw a boom in activity in 2021, prices hit record highs and gas rose above 1 500 gwei in August. Popular art NFTs hit seven-figure sums while gaming NFTs like Axie (AXS), from the popular Play-to-Earn game Axie Infinity experienced massive adoption, so much so that at one point over 66% of NFT trade volume in a 30 day period could be attributed to Axie Infinity (US$600 million of US$900 million).
Beyond the early NFT market boom, blockchain gaming has continued to be a major part of overall blockchain usage accounting for 52% according to DappRadar. Play-to-Earn games rose to become a driving force behind a lot of the market activity and an entry point for new users, specifically, the popularity of Axie Infinity became a gateway for developing regions to interact with web3. In places such as the Philippines and Venezuela token rewards from gameplay generated income for players resulting in a greater demand for the game, at the same time prices for Axie increased. These price barriers at a time of promising market growth created the perfect opportunity for the introduction of P2E gaming guilds.
In this article we take a look at crypto gaming guilds, introducing an overview of their origin and function within blockchain gaming, then we will analyse the general model of guilds and profile the major players. Finally, we make some predictions and observations on the future of gaming guilds.
Figure 1: Unique Active Wallets (UAW) connected to DApps (source: Dappradar.com)
An Overview of Gaming & Guilds
To understand the significance of crypto gaming guilds it is important to understand how gaming has changed over time and the evolution of gaming guilds, we’ll keep it brief for context (for an in-depth breakdown of the evolution of gaming business models see Three Body Capital’s Report titled ‘Video Games and their Brave New World’).
Initially, video games were limited to the consoles they were played on, were largely isolated experiences and monetization was a once-off purchase. As technology advanced gaming became more open with the introduction of gaming distribution platforms like Steam, social platforms like Twitch and the overall improvement of processing power. These advancements created an opportunity for mobile games to target more casual gamers. Initially, free-to-download, monetization for mobile games usually involved a pay-to-win/pay-to-keep-playing model as seen in games like Candy Crush.
The introduction of blockchain gaming was significant not necessarily in a technical sense, as it was in essence just a transference of the benefits also seen in DeFi but more in the enabling of players to become active owners of their in-game assets. Gaming assets like land and playable objects became tradeable on exchanges and created new incentives for gamers. From this mix of incentives and opportunity, the Play-2-Earn/GameFi model was pioneered by Axie Infinity. Games like Axie Infinity reward players for playing with tokens ($SLP) that have utility within the game and are tradeable on exchanges for fiat currency.
During the Covid-19 pandemic in places such as the Philippines players with low means of earning an income were able to earn $SLP they could then trade for their local currency. At one point the game was so popular that 50% of all players were from the Philippines. Similarly in Venezuela, a country constantly struggling with the highest inflation in the world, Play-to-Earn games provided an alternative means of earning an income independent from their local currency. In 2021, with the game’s growing popularity the price of Axie increased to the point of becoming inaccessible for most aspiring players. At one point the average price of one Axie was US$355, according to DappRadar - in total players would have needed US$1,065 to purchase 3 Axie to form a team and play the game, this fact would have been more acute for players in low-income countries. This created a price entry barrier for players but an opportunity for gaming guilds to emerge.
Pioneering guilds like Yield Guild Games noticed this market opportunity and began offering ‘scholarships’ to players who were unable to afford their own Axie upfront. Guilds loan NFTs required for gameplay to scholars (in the case of Axie Infinity; 3 Axie NFT’s), in return guilds receive a share of the earnings made by scholars. Prior to the P2E model, gaming guilds existed to fulfil a social need gamers felt to share gaming tips and experiences.
Figure 2: P2E Market Relative Growth Rate (Y-axis for Price Multiple)
(source: AAG Ventures Medium Blog)
The General-ish P2E Guild Model
Gaming as a form of media has become as significant as music or tv/film, investment in gaming NFTs rank amongst the highest in NFT subcategories as reported by a Messari article. In July 2021 Axie Infinity made US$194 million in revenue, more than any DeFi protocol at the time. This in part can be attributed to gaming guilds, the general aim of most guilds is to invest their treasury holdings into blockchain game NFTs that are subsequently lent out to scholars to yield returns (and in some cases invested into yield generating DeFi protocols), these funds are typically raised from investor rounds and/or token sales. The revenue split between guilds and scholars ranges between 50% - 70% going to scholars, subsequent splits may occur if a coach/manager is involved. Discord acts as their main channel for scholar recruitment, scholarship management approaches thereafter vary per guild.
Expectations for blockchain gaming are high, activity grew 2000% from the previous year (Q1 2021 - Q1 2022). Guilds typically ‘partner’ with games by investing in-game NFTs and governance tokens. Gaming partnerships we observed tended to include live and upcoming games. Guilds for the most part act as the entry point for most people from developing nations into the web3 space with P2E games being seen as a viable means of making money. This is supported in a statement made in Nov 2021 by Angelica Valle (Celo ecosystem lead in Mexico) in an interview about Axie Infinity with Coindesk:
“Venezuelans don’t think about it in terms of crypto,” “They think this is a game and see it as a means to earn money.”
Similar to DeFi protocols, most guilds are structured as DAOs with varying levels of control between guilds. At the time of writing this article, most of the DAO tokens attached to guilds had limited functionality and in some cases, the utility had yet to be fully realised as described in their respective documents. The P2E guild market is in its early stages relative to DeFi with many guilds starting up in late 2021. To get a better perspective of the market participants and how they differ it’s important to look at them individually, however with over 520 guilds in the Philippines alone, we have shortlisted 15 to profile based on their visibility and membership numbers.
Classifying Guilds
The general model of guilds described above applies to all guilds to an extent, however, variations between guilds can be classified into 3 main categories, namely Vanilla gaming guilds, Investor gaming guilds and Ecosystem gaming guilds. To analyse the layout and trajectory of the market we have grouped the profiled guilds by the similarity of their guild models - beyond the general one described above.
Vanilla Gaming Guilds
‘Vanilla’ guilds are mainly focused on their scholarship program. Products and tools developed are geared towards managing their scholarships. These guilds may also invest in other areas of GameFi but this aspect mainly supports their scholarship program (present and future).
Investor Gaming Guilds
Scholarship programs are a part of guild operations, these guilds also look to invest in game development and have features added to their overall scholarship system. The main difference between Vanilla and Investor guilds is that Investor guilds aim to incorporate investments made into their guild operations.
Ecosystem Gaming Guilds
Scholarship programs are just one part of their present or future offerings, these guilds look to build out products and platforms within the gaming/guild space.
Evolving Guilds
A few recurring themes stick out about the guilds profiled, the initial sponsorship model for most guilds is only part of their long-term strategy. DAOs like PathDAO and Unix Gaming are diversifying their offering to become less reliant on the revenue split model. Expanding into blockchain services and infrastructure seems to be the next phase of P2E guilds along with finding ways to bring in more traditional gamers into the space. Another interesting aspect is the scholarship management approaches taken with some guilds being more hands-on (e.g. Astra Guild Ventures, PathDAO & Good Guild Games) incorporating community managers to train and recruit while others (e.g. AvocadoDAO, GuildFi & AAG Ventures) have already developed or are developing more automated approaches.
In most of the guilds reviewed Axie Infinity seems to represent a significant portion of their scholarship program revenue, this was the case for YGG when looking at their earnings for Q4 2021, AvocadoDAO’s tracked earnings on their website (denominated in $SLP) and Astra Guild Ventures scholars being entirely Axie scholars (tracked on their website). The need to expand game offerings is even more pressing given the growing demand of players in other parts of the world, currently, ASEAN nations have been the hotspots but as we’ve shown above, countries like Venezuela, Brazil and Nigeria are getting involved.
Partnership Forms
The relationship between games and guilds mostly involves guilds investing in NFT assets that are then lent out to players and the governance tokens as a way of being involved in the game’s management. Some games have taken the initiative of going beyond this general arrangement to include more elements to partnerships, below we take a look at a few games that have expanded their roles with some of the guilds profiled in this report:
Sipher: a 3D live-action RPG blockchain game, expanded their guild partnership approach to include:
Facilitating guild recruitment processes
Hosting guild exclusive activities
Exclusive guild communication channels on their Discord
Early game testing & feedback
Reservation of in-game NFT assets
Pegaxy: a futuristic PvP racing game, based on their website the game has an on-chain marketplace for NFT rentals, enabling scholarships managed with an automated escrow and transparent pay-outs to scholars.
Splinterlands: multi-level partnership deal with YGG includes asset purchases, involving YGG in coordinating the games marketing release and special offerings to the YGG community.
The Sandbox: strategic partnership with UniX Gaming that makes the guild an ecosystem builder for the virtual world game. This role enables UniX to support new partners entering the game and creates networking opportunities for UniX.
Vulcan Forged: the game studio and marketplace behind VulcanVerse, AAG Ventures partnership involves product development being mutually supported with testing, data exchange, and custom technological improvements.
Thetan Arena: created their own Guild Accelerator Program (G.A.P.). Guilds who participate in this program receive grants and game-related privileges. Multiple guilds mentioned in this report have participated in the program.
Based on several partnerships we looked at, instances of games expanding their relationships with guilds were in the minority compared to the general partnership format. This observation seems to apply to current and upcoming games. Partnership arrangements with upcoming games and guilds involved guilds becoming early-stage investors in game development. Below are some examples of upcoming game and guild partnerships:
Illuvium (largely under development): YGG partnership with the open-world sci-fi adventure includes investment alongside Venture Capital firms.
Planet Mojo: Avocado DAO partnership involves investment in the ongoing game development.
Blast Royale: Merit Circle partnership involved investment into the games seed round, the guild will also contribute towards the distribution of the game.
Going forward, the value in differentiating partnership agreements may become more prominent as games look to attract top tier guilds that have strong engagement and member/scholarship numbers. Guild partnerships provide a valuable distribution channel for current and upcoming games, though what impact these relationships will have on games is still yet to be determined. A possible negative consequence could be the disproportionate influence exerted by oversized guilds on game governance.
As profit driven organisations and governance token holders, guilds will likely look to influence game development to go in directions that will maximise their earnings. To put this into numbers currently is difficult: When looking at the most recent treasury figures of Merit Circle and YGG; the amount of governance tokens held by each is either undisclosed or mostly vested (0* amount). What is helpful to look at is the monetary value of these partnership investments, in all cases the token values were in the hundreds of thousands (US$). Considering that one game like Pegaxy has more than 160 verified guilds it’s not unreasonable to see how guilds could influence a game in ways that prioritise generating revenue over its gameplay.
Changing Market Conditions
At this point only including the rapid growth of the P2E market and the emergence of guilds doesn’t paint a full picture of the market. In early May 2022 several gaming and metaverse tokens suffered significant losses as reported by Cryptobriefing. More recently the crypto market slumped dramatically with the significant meltdown of Terra affecting the market as a whole and saw TVL in DeFi drop by US$100 billion. Prior to this, the P2E market experienced a similar dropoff with market favourite $SLP dropping from USD$0.35 (July 2021) to less than USD$0.02 (March 2022), a more than 95% drop in value.
Such downturns call into question P2E’s long term sustainability. Declines of this nature would have impacted player earnings. Sustainability issues also call into question the long term viability of P2E guilds, since assets owned by guilds face the risk of losing value if a game suddenly loses players or collapses e.g. cash flowing out of games exceeding cash flowing inwards. In such scenarios, a guild's earnings could dry up as fast as the market becomes unfavourable.
Beyond the tokenomics issue, there is also the need to look at the strength of P2E games as just games. Traditional games involve players sacrificing some form of value either in time, money or both for the objective of playing the game for fun. The emergence of Axie Infinity bots farming $SLP raises some red flags on the strength of games in P2E. It's unclear if the games that currently exist and that are yet to come will be able to gather enough players who willingly sacrifice their resources to play these games not solely in the pursuit of making money but for the gameplay primarily. The absence of this important group would leave the market vulnerable to players solely looking to cash out, causing an inevitable collapse.
Market Reaction & Sentiment
Crypto gaming appears to be more resilient than the general crypto market as a whole. A key indication of this is the fact that despite crypto prices crashing in early May 2022 six of the top ten Dapps tracked by DappRadar during this period were in the games category (9 May - 16 May), 1.3 million unique active wallets connected to games. Over the last 12 months investor sentiment on blockchain gaming has been pretty bullish with a number of funds aimed at the industry.For example, Framework Ventures’ US$400 million fund announced in April 2022, along with the number of investors backing each guild.
In Conclusion
Guilds in their current form have shown how blockchain technology can positively impact the lives of people in third world countries, enabling positive wealth transfers and representing an opportunity that games have in introducing open systems to people who could most benefit from them.
Not without flaws guilds have to contend with the dynamics involved in the P2E market, as described in this piece and within the competitive landscape. In the early stages, competing scholarship incentives could test profitability as guilds look to entice more gamers. In such a scenario the market could burn out if a diverse range of games aren’t available to retain players or if the infrastructure isn’t robust enough to support the ecosystem. It is quite evident that demand for blockchain gaming from gamers and investors is still pretty strong despite the shifting market conditions. The growing trend of guilds diversifying also needs to be inspected over time, the success of this approach is yet to be determined. Like with most new technology life cycles, blockchain gaming is evidently in its early phases.
Our analysis indicates that more guilds are looking to cooperate with other guilds in partnerships or by offering guild management tools. Over time these interactions will likely include the ability for scholars to own their data, allowing for things like transferable player profiles. Diversifying guilds made up the majority of the guilds we profiled, they all shared the aims of incorporating more areas of gaming, building infrastructure and offering extended services. The majority of guilds appear to be leveraging their existing users to spin out into other areas while also attracting more traditional gamers, this has obvious upsides overall for both guilds and gamers alike.
KyberVentures Involvements with Game Guilds
Our theory in investing in GameFi is based on the conviction that GameFi can provide financial and social opportunities on top of the same quality as traditional games. Recent growth evidently indicates that this industry will absorb an increasingly bigger crowd, by shifting the entire gaming industry, especially in terms of how players interact with games. The video game industry is already bigger than the movie industry. In fact, the gaming industry has surpassed the movie and music industries combined, in terms of revenue. A large part of this growth is coming out of Asia, which is where the team of Kyber Ventures is situated and the market we know best.
Kyber Ventures has successfully led and invested in Asia-based GameFi projects, such as Pegaxy, Sipher, Cadenverse, The Parallel, Metamerge, Heroes of the Land(HOL), Cyberium, Elpis Battle and MadMonkey guild.