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Why gaming will be THE biggest crypto trend to date, and why the current token model is completely broken.

Gaming will undoubtedly be the sector that finally brings mass adoption to crypto. When it does, it will create more new millionaires than any other crypto trend has to date. That said, the current model for crypto gaming (‘play to earn’) is terrible, and projects frequently devolve into ponziesque communities, despite founders’ best efforts.

Play-to-earn may as well be paid testing with a terminally devaluing token. In fact, there is no demonstrable benefit to having a dedicated gaming token above and beyond what ETH or USDC can already do. The current dynamic is broken, with projects using a token as an attempt to incentivize players to play a game that they probably would not otherwise play. Long-term, this comes at the expense of both the token holders (investors) and players alike.

This is unsustainable — not just for the games — but for the industry as a whole, and ultimately leads to a lack of trust in the gaming industry as a whole. To break this cycle, projects must move beyond a play-to-earn model and toward a more sustainable approach that provides meaningful value to gamers. This could take the form of tokenized rewards, staking rewards, or even loyalty programs. With these incentives, gamers will be incentivized to stay engaged with games for longer periods of time and be rewarded for their loyalty. Additionally, by providing real value to gamers they will have an incentive to invest in the game’s token and help grow its value over time. at the expense of token investors, with an inevitable march to zero. The model of being paid in native crypto to play a game is not sustainable, offers no net benefit to simply using ETH or stablecoins, and takes a completely backward approach to building a successful game.

There is a token model that can work though — a way to integrate crypto and gaming such that the current value-accrual imbalance that favors the corporate sponsors and game creators shifts to a more equitable model, allowing players and fans to partake in the value they contribute to building their player community. A model that allows true asset ownership, without the ponzinomic baggage.

To understand the solution, we need to first understand the problem, and why crypto (or more accurately, blockchain) can solve it.

What is the core issue with Crypto Gaming in 2023?

The issue with gaming today is that players do not have true ownership of the value they build while playing: the characters they level up, the items they farm, the currency they earn, the achievements they accomplish.

Players dedicate countless hours to gaming because they enjoy it and they can feel a sense of accomplishment that perhaps illudes them in work, school or other facets of life. It is in many ways very much like sports … a form of entertainment, a community to belong to, a team to play with, friends with common interests, an outlet for unspent ambition, and much more.

Gaming has come a very long way, with professional esports teams and even university programs garnering significant and growing interest. Professional players and streamers oftentimes earn as much as professional sports players, and tournaments offer huge prize pools in the multi-millions of dollars and growing. This financialization of the gaming industry has come at a cost to the players and fans that are the core contributors to the growth of the industry. There is an imbalance in the value accrual dynamic.

The problem, as it were, is that the players are not the owners of the fruits of their labors and achievements; the game companies are. Each game is a closed-value silo, and all the value is worth absolutely nothing outside the game itself. Once gamers can truly OWN their in-game assets, both gaming and crypto will be catapulted to entirely new levels.

How does crypto solve the problem?

Blockchain (the technology that gives value to crypto) solves the underlying issue with modern-day gaming … it allows players to own their assets permissionlessly, independent of any game, and to transact and realize value from those assets at their discretion. In other words, crypto creates an ownership settlement layer independent of the game itself.

Integration of gaming with crypto not only enables true ownership of your in-game assets, but also full custody of your reputation and achievements. Imagine being able to scout pro players based on their achievements, or provide perks for players or fans that supported a championship team, or offer collectibles that provide in-game benefits. The possibilities are endless.

Once players can migrate their value wherever they wish, games will be forced to compete for their hard work and gaming efforts, and the interests and attention of their fans and viewers. That courting of the players and fans will in turn require sharing of the spoils. Revenue streams will have more equitable splits between sponsors, players, investors and fans.

Game assets, reputations and achievements can be owned via NFTs or SBTs (souldbound tokens). In-game currencies can be transacted for ETH or USDC or even Universal Gaming Tokens (UGTs — more on that shortly).

Why current Game Tokenomics are NOT the answer:

Play to Earn. 🤮

Solving the pain points of modern-day gaming by using crypto for asset settlement and ownership does not necessitate a token. Current token models in crypto gaming are designed to attract players looking for a yield, or investors chasing a moonshot and are generally inflationary cash grabs. They do not attract players looking to play a game for its own merits, nor do they add features to the game or improve the gameplay experience. The harsh reality is that ETH or Stablecoins can perform the same functions as a game token but better, are far more stable and liquid, and create an all-around better gaming improvement than current gaming tokens can.

Problems with current game token models:

  • They are typically hyperinflationary. (sell pressure)
  • The play-to-earn models are not sustainable and result in permanent sell pressure. Though they may initially bring in players, they are destined to bring the token price to zero, and the number of players with it.
  • Free team tokens are absurd, unless they are a means of aligning interests in lieu of equity. Options to buy the tokens would be a better avenue, much like TradeFi
  • Governance and staking are not real utilities, at least certainly not ones that have a dollar value for tokens. A game does not need to be decentralized, only the settlement layer does.
  • Transactions do not require a game token, they can be just as easily performed with USDC and ETH in-game.
  • Pre-sale and VC investors get tokens way cheaper than retail and create unnecessary sell pressure while also degrading gameplay by creating a pay-to-win model.
  • A mandatory game token raises the barrier to entry. Better to allow players the ability to settle their assets on chain “a la carte” and perform all transactions in-game, much the way they do now.

The reality is that the game needs to come first. Build a game that attracts players because it is phenomenal, and THEN integrate crypto as a means of empowering the players. The current model of raising funds via token sales to fund a game that does not yet even exist, while using still more tokens to pay team members and incentivize players to play your game is a recipe for a disaster, and entirely backward.

World of Warcraft Case Study: In-Game Economies need Crypto

If you are as old as me, you may remember the hay days of World of Warcraft (WoW). This was one of the first big MMORPG sandbox games, where players entered an entirely open fantasy world and developed their characters over many months of hard work. Players would work to earn super rare items, or farm gold to buy upgrades, and join guilds to conquer extremely challenging raids and bosses. Hardcore players became well-known in their servers and guilds, and certain players were highly sought after and recruited regularly.

The in-game economy became as complex as the character development, and an integral part of the success of the game. Players were able to trade all manner of items, gold, gems, upgrades and even playing time via the Auction House, a universal marketplace where anyone could list their items. Soon, players farmed materials and crafted items all day long; a job in the digital World of Warcraft. Economies and black markets even arose around leveling up your character, or selling your account. Black markets were necessary because Blizzard (the game producer) outlawed any off-platform trading, including account sales and paid leveling. In other words, WoW had a thriving marketplace worth hundreds of millions a year despite it being heavily restricted and confined to the game itself. The players, though, had to trade on black markets and expose themselves to scams and fraud to realize any of that value.

Imagine the possibilities if WoW had enabled full ownership of all your assets, where players could transact on-chain independently of the game, where ownership was permissionless and transparent, and players’ efforts and accomplishments were not taxed and restricted by the game companies. It would be beneficial to all parties, as the more open economy would undoubtedly attract far more exchange of value and more players and monetize those transactions, and on-chain royalties would yield huge profits for the gaming companies while empowering players by letting them participate in the value chain.

Some of the main benefits are outlined below:

  • Renting assets to other players as a way to monetize player achievements, enforced by smart contracts
  • Settlement of assets on-chain for full transparency
  • Ability of players to crowdfund on-chain and share team/player earnings
  • Recruitment based on on-chain credentials and achievements/experience
  • Cross-game asset potential. WoW assets could be calibrated for use/perks in other games like Dota 2 or Elder Scrolls
  • On-chain royalty protection
  • Proveable providence for items or collectibles. An item used by a famous player in a championship battle could have huge collectible value.
  • Loans against asset values
  • Tokenization of in-game assets

There are a plethora of ways that crypto would unquestionably revolutionize the gaming and Esports spaces, and even more ways we have not even considered.

One model that I am working on that I think has serious potential as a substitute for the current game token model is what I would refer to as a Universal Gaming Token (UGT). Think of it as a highly liquid token with fixed monetary supply, housed within an Ethereum layer 2, used to buy and sell gaming assets, but not tied to any single game specifically. The key components are that it is not inflationary, does not get used to incentivize playing, but can be purchased by games to use in their ecosystems and has a bootstrap liquidity model.

Actionable Intel: How do I invest?

Ok great, so we agree (surely) by now that gaming and crypto are like Romeo and Juliette without the sad ending. But how to invest and set yourself up to profit from the narrative that we as early adopters see so clearly?

Here are a few ways that I am positioning for the biggest narrative, in the biggest technology shift amplified by the most dangerous macro environment we have seen in decades (not financial advice, just my perspective on standouts in the industry):

1. XBorg:

Several times in the past. This is effectively a GameFi infrastructure project on steroids, providing access to a game-specific launchpad, Initial Team Offerings (Esports team tokenization), an all-in-one gaming passport, and a lot more.

The genesis Prometheus NFTs are at the center of the protocol and accrue value from all aspects of the project. They are also entitled to an airdrop of XBorg tokens (sold out in minutes on Swissborg Alpha), and a slew of other benefits.

The price at the time of writing is approx. 1 ETH, and has been steadily climbing since mint. Less than 1% of supply is listed on OpenSea (NFT p2p marketplace).

2. WAGMI Games:

WAGMI is unique to the crypto gaming space for two reasons:

  1. They’re a game studio attempting to create a whole universe of game series, spinoff games, and more with very well developed head-canon and lore, and
  2. They hired an incredibly talented all-star team of video game industry veterans in order to accomplish this.

Unlike 99% of crypto gaming projects of the past years, WAGMI are tokenizing in order to create games — Not creating games in order to tokenize (aka thinly veiled cash grabs).

Humble brag: A handful of CryptoFemme community members and I minted a bunch of WAGMI Genesis NFTs back when no one had ever heard of the project a year and a half ago. Pro tip: Seek out crypto projects based on their long-term value as opposed to short-lived hype, and you’ll sometimes strike gold. 🥇

3) Nexus Gaming

This is a gaming-specific toolset that can be thought of as a combination between Nansen, Messari, Dextools and Seedify for gaming. It was founded by OxHustlepedia who is connected with the Crypto Banter and Neo Tokyo teams.

The Nexus Pass is the NFT that will provide lifetime access to the platform, as well as guaranteed launchpad allocations for seed, private and IDO sales.

Mint is technically still ongoing, and if you are resourceful you can likely still secure a spot. If not, they will likely be trading on the secondary market shortly. This project is hugely under the radar and is a prime candidate to be a GameFi juggernaut in the coming bull run.

Conclusion:

All it takes is one big gaming success in Crypto or one large Web2 game integration, and GameFi will see a parabolic run like nothing the cryptosphere has experienced. A super successful web3 game would open the floodgates to huge amounts of capital, and given the relatively large number of gamers in the space, you can rest assured that every game coin (good or bad) will see a commensurate rise in their token prices.

Equally importantly, this integration of gaming into crypto will finally level the playing field for players, fans, teams and gaming companies alike. And yes, token holders as well.

Good luck out there and see you on the next one!

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