Top News
#1: Continued Clash Over Royalties
The debate over royalties support on marketplaces like Magic Eden and OpenSea has recently evolved into a battle over NFT standards and control. The tug of war involves four different interested parties: creators who want to make money from transactions of their work, consumers who want to just pay the market price, marketplaces that want to incentivize more volume, and standards creators who want a consistent way of handling NFTs. Both marketplaces had originally started moving towards not supporting royalty payments before eventually backpedaling after community backlash.
The fundamental way that NFTs work is that they never actually leave a smart contract but instead simply change the indication of which wallet address owns them when transferred. This means that the creator of the NFTs has some level of control over how they operate, but following NFT standards to work correctly with marketplaces makes enforcing royalty payments not really enforceable. This has made marketplaces themselves the ones in charge of supporting royalty payments, but doing so increases the cost to buyers on top of marketplace and gas fees. As marketplaces compete for dominance, there is an incentive to start finding ways to motivate buyers and increase trade volume without reducing the marketplace fees.
Originally, Magic Eden made royalties optional, with the buyer able to choose whether to pay or not. The thinking is that if a buyer wants to support a project, they might opt into these royalties. There is some logic here, as you would think purchasing an NFT is already a sign that the purchaser is motivated to support the project and its ecosystem. What Magic Eden did, though, led to a number of other marketplaces seeing this as a competitive move and slashing royalties as well. OpenSea remained silent at first but then put out a Twitter thread stating that it was considering only enforcing royalties for brand new NFT projects using its proposed filter system and making it optional for the rest. The filter system is based on providing an “allow list” of marketplaces that respect royalties so that these NFTs can only transact there. After significant backlash, OpenSea changed its stance to not only continue enforcing existing royalties but also to open up control of the filter list more to a community approach. The community approach is important, because OpenSea having control over the list means it could essentially remove competitors it doesn’t like and only include those it does. At the end of the day, OpenSea’s stance was that it will only enforce royalties if they are enforced elsewhere to prevent being undercut by a competitor. OpenSea even tried to show how much of an ally it has been to creators by sharing that it has helped creators earn $1B in revenues in 2022.
Perhaps inspired by OpenSea, Magic Eden made a swift pivot as well to push a standard for enforcement called Open Creator Protocol. Magic Eden also added additional functionality for royalties to help incentivize adoption of the protocol for newly minted NFTs, as the standard can’t be applied to existing NFTs. Unfortunately, Magic Eden has stated, “For now, new collections that don't adopt the protocol will maintain optional royalties,” which is similar to OpenSea’s position of “If you don’t protect us from undercutting, we won’t protect your royalties.” Magic Eden did, however, state that it was open to accepting other community standards and not necessarily strong-arming new collections into using its protocol only. Both marketplaces pushing a standard was only the beginning of the battle, as the developer of the NFT standard on Solana, Metaplex, started a Twitter thread calling out Magic Eden and others for attempting to prevent Metaplex from moving forward with its proposed standards upgrade for royalty enforcement.
The public spat between Metaplex and Magic Eden partially rests on something that neither of the two marketplaces could provide — backwards compatibility to existing NFTs. It may seem obvious on the surface that backwards compatibility of royalty enforcement is purely a good thing, but it’s not that simple. In theory, when minters or purchasers of an existing NFT originally acquired that NFT, they didn’t agree to the standard being changed and the control over which marketplaces could be used. This dragged Metaplex into a debate over whether it should have control over the NFT standard if it can just decide to change the way NFTs work. Metaplex tried to set up the standard with some thought for NFT owners, such as a 14-day migration period notice, but Magic Eden has instead been calling out Metaplex to quickly decentralize control of the standard rather than have any direct control. The entire debate about control and decentralization is, of course, extremely relevant to the web3 community’s ethos, but the nuance over how that plays out in reality has proven to be complicated. The internet in general has been a good parallel because, in theory, it’s fully open and under the control of a standards body at best, but reality has shown browser makers like Google and Apple can have an extreme influence over those standards simply by being the primary user interface.
While there are many projects and games built around the idea of generating revenue through these royalty fees, there is definitely а gray area as to how much they should be able to enforce them. On the one hand, by participating with those NFTs as a user, you are opting into the design that the creator intends, but on the other hand, the idea evolves from a pure ownership model to a licensing model. One of the selling points of NFTs is that the owners of NFTs, not the creators, get to decide what to do with them. There are arguments made around how ownership and possession are maintained regardless of what happens to the creator and how important that is. Smart contracts are meant to be a middle-ground in which the rights of an owner are coded transparently and enforced with code as law. However, just like it’s not realistic to expect that gamers read the End User License Agreements (EULAs) for every game they play, most NFT owners will never audit the smart contracts that control them. This is where the NFT standards such as ERC-721 come into play by defining a standard of behavior so that, ideally, NFT owners can know what to expect at least in terms of those standard functions. With royalty enforcement not being a part of that standard, we end up with a dilemma between ‘code is law’ and purchasing something as an opt-in agreement. There is, of course, the possibility of new standards being introduced and adopted for future NFTs, such as ongoing attempts at an NFT standard that enables refunds.
Even though much of the ongoing debate is geared towards NFT art projects, it directly affects games looking to use secondary transactions as a revenue model. Projects on self-controlled blockchains, like Ronin is for Axie Infinity, may not be impacted as much, but those looking to work on any standard blockchain that leverages 3rd-party marketplaces certainly will. Much like relying on token value as a business model has shown increasing weakness, this similarly shows some issues with the transaction fee model.
Games can naturally look to adopt one of these royalty-enforcing standards, but there’s a risk of a slippery slope movement towards returning to a license model where players once again truly own nothing — or at least don’t truly control what they own. One of the interesting aspects of decentralized ownership is the idea of returning to the American legal concept of the first sale doctrine, which “limits the rights of an intellectual property owner to control resale of products embodying its intellectual property.” It’s too nuanced to say if this is strictly good or bad, but it’s clear that the future of web3 game revenues is still up in the air.
#2: Sunflower Land Pivots Out of Beta
Back in January, Sunflower Farms gained some notoriety for its launch being so popular that its on-chain transactions essentially crippled Polygon with slow transactions and high gas fees. Some of this was due to being a transaction on-chain game that was easy for bots to latch on to. As a result, the developers shut down the game after about a month.
Eventually the team released a follow-up called Sunflower Land as a closed beta revamp in April (which we deconstructed here). Not only did they greatly reduce the need for constant transactions via a chain-syncing mechanism, but they also took the opportunity to start shifting and expanding the originally simple game design and even add some anti-bot mechanisms. Many of those who played the initial Farms version were still able to play in the closed beta, and the more dedicated players continued playing. As a result, the developers utilized the community as a solid source of feedback and continued iterating on the design, which led to a new version that finally opened to the public this week — Sunflower Isles.
The gameplay itself follows a pretty simplistic economic-engine-building loop based around timers like many city-building, farming, and 4X games. Essentially, players plant and harvest crops to expand their ability to better plant and harvest more crops, with some extra systems and resources involved. The biggest change from the original game is the incorporation of a player character known as a “bumpkin.” Leveling up your bumpkin acts as a bottleneck for many of the other game systems and also serves as an additional vehicle for cosmetics. The token for the game, Sunflower (SFL), is integrated very early on, with the game telling players they need to balance between cooking crops into food for XP or selling them to the game for SFL. As XP forms the aforementioned bottleneck, this diverts some of the game activity away from strictly farming tokens.
The SFL tokens will also need to be used for crafting tools needed to expand your land and gather resources for building new buildings. You need to use SFL to buy seeds to turn into crops, acting as a constant tax on SFL production that becomes less noticeable as you start planting and harvesting higher-profit crops with longer timers. Where things get especially tricky is the developers made the seeds, crops, building resources, and decorations into semi-fungible tokens (SFTs or ERC-1155s). This allows players to both buy and sell any of these resources on external marketplaces like OpenSea. Even more interestingly, these SFTs are one of the few launch collections for Niftyswap’s SFT AMM systems, allowing for trading them without requiring a counterparty.
While the game has introduced much more variation to the systems as well as complexity, there are still some of the same issues the original had. There are definitely extra diversions for SFL, but the game is still fundamentally about investing for net-positive growth of SFL earning, which is obviously inflationary. Despite this, the price of the SFL token has actually performed pretty well, with the current price of around $0.12 hovering near the price at the start of June. So far, the all-time low for the token was a dip down to $0.05 in August, after which it mostly went slowly upwards again. The methodology keeping the token price under control is a “halvening” event that happens at SFL supply milestones. These halvenings reduce the SFL gained for selling crops to the game by half each time and happen at a semi-regular cadence.
The first 5 milestones (100K, 500K, 1M, 5M, 10M) are variable in their gaps, but after 10M it happens again with every 10M minted. An intentional side effect of this system is that the earlier you get into the game, the more profitable. While this has done a good job of maintaining the token price so far, the other side effect may be that new players always start with a disadvantage that could discourage joining. There is a flipside to this, however, provided by the secondary market. Competition amongst early players to sell goods for profit on secondary markets could drive down the prices of resources, making it easier for new players to purchase with lower earnings.
The secondary SFT AMM market provided by Niftyswap has some interesting influences on the game’s economy. First, while there are liquidity pools for both SFL and USDC, the SFL pool is by far the deeper one. This is likely because there’s a much lower risk to provide deep SFL liquidity than USDC for LP providers. Due to the imbalance, it potentially encourages a higher sense of utility and value for SFL compared to games whose NFTs end up being traded for network tokens (ETH, MATIC, etc.) or stablecoins (USDC, USDT, etc.). The other effect is on the part of the game economy around tools and resources versus seeds and crops. Crops can provide both valuable XP for progress and SFL, whereas tools act as consumables to trade for resources like wood, stone, etc. that can’t provide XP or SFL.
Since SFL is, in theory, the most desirable resource long-term, this encourages use of the secondary marketplace to trade these resources for SFL whenever they aren’t necessary to alleviate a bottleneck. This has also resulted in a situation where the reverse is true, and it’s simply more efficient to focus on crops that can be sold for SFL and then traded for the needed resources on the secondary market. This is a good example of how a secondary market has the potential to subvert game loops. It’s possible, of course, that due to the AMM system and player growth, the liquidity of these resources on Niftyswap might end up low enough to be more profitable to sell than buy.
With a somewhat shallow and relatively linear gameplay, it’s unlikely that Sunflower Land/Isles is going to be any kind of huge hit. It may, however, scratch a particular itch with a small but dedicated playerbase that could help sustain development. For being a very small development team, it has at least shown a dedication to continue attempting to improve the game and even innovating with events like the crossover with Millions on Mars we have discussed before. The halvening system is unlikely to be a permanent solution to inflationary issues of P2E games, but it will be interesting to see how the price tracks as the game has finally opened up again to the general public. The anti-bot system is also noteworthy for at least being a slightly varied captcha-like system that rewards you in seeds for completing it. If there ends up being profit in developing bots for the game, it’s pretty easy to imagine that the limited variations of the captcha-like popups could be subverted by a skilled bot developer. Whether bots end up attracted to the game or not, it’s safe to say that player growth will only speed up future halvening events and test the sustainability of the token value.
Upcoming Game Announcements
- Illuvium released a private beta gameplay slice of its Overworld system. Link
- Sparkadia announced it will be launching Edenbrawl on Epic Games Store in 2023. Link
- Chumbi Valley released its first gameplay video. Link
- Neopets announced a winter update to its alpha and an upcoming release of a mobile game in the Neopets metaverse called Faerie’s Hope. Link
- Dogamí Doga House went live with the soft launch of its pet game. Link
- My Neighbor Alice ran a land sale from the 6th to the 15th. Link
- Legacy ran a Deed Holders Playtest from the 12th to the 16th. Link
- Mobland released “Turf” land minting. Link
- The Beacon, a free-to-earn RPG, released a preview version. Link
- Tiny Digital Factory announced a partnership with Aston Martin for NFTs in Infinite Drive. Link
- Derby Stars released new details on its upcoming food system. Link
Live Game Announcements
- Gods Unchained announced plans to mint the Welcome card set from its Star Store as NFTs in addition to a new, upcoming, winter-themed mini-set called Winter Wanderland. Link
- Infinite Fleet announced a free-to-play by invite system for NFT holders. Link
- DragonMaster launched Season 8 with 242K $DMT in prizes. Link
- Battlebound launched a new pet racing game mode, Cosmic Cup. Link
- Kingdom Under Fire, a serverless RTS game on Locus Chain, launched on Steam. Link
- Gelixir Labs launched its P2E MMORPG, Astel of Astra. Link
- Aavegotchi announced a new PVP mode with a test release running from December 16-19. Link
- Decentraland launched its land rental contract system. Link
- Pegaxy announced updates for handling of its primary token VIS (Vigorus) around withdrawal and locking. Link
- Splinterlands opened land claiming from deeds and began a governance-voted plan to burn unsold card packs of its Chaos Legion set. Link
- Blockchain Brawlers announced the start of its esports events for December 18th. Link
- Dark Country, a western gothic trading card game, announced the addition of Guild Wars. Link
- Spider Tanks released more details about its upcoming Greater Gala Community Championship. Link
- Hedera network launched a licensed FIFA World Cup 2022 game. Link
- DeFi Kingdoms went live on the Klaytn blockchain. Link
- Sorare Football announced new ETH Thresholds and Capped Modes for 2023. Link
Funding Announcements
- Nillion raised over $20M to build a non-blockchain decentralized network. Link
- Outdefine raised $2.5M to build a decentralized hiring community for web3 talent led by TCG Crypto and Jump Crypto. Link
- DOGAMÍ raised $14M total funding in a seed round with a $7M seed extension led by European tech investor XAnge. Link
- Shibuya raised $6.9M for its NFT video platform in a seed round co-led by Andreessen Horowitz and Variant Fund. Link
- Public Pressure raised $6M for its web3 music platform in a round of funding led by digital asset manager Scytale. Link
- Infinite Reality, a company that takes companies into the metaverse, announced plans to go public through a SPAC to raise at least $128M at a valuation of $1.85B. Link
- Forum3, a company that helps brands build web3 loyalty programs, raised $10M in a seed round. Link
- Spaceport raised $3.6M for its web3 licensing protocol for monetization of intellectual property. Link
Ecosystem Updates
- FTX founder Sam Bankman-Fried was arrested in the Bahamas and is currently being held without bail, pending US extradition and prosecution on multiple charges. Link
- GameStop announced putting its crypto projects on hold after significant FTX-related losses. Link
- Game7 released Web3.Unreal, an Unreal Engine blockchain plugin, on its GitHub repository. Link
- Oasys announced the launch of its first NFT project, OASYX, by the creator of Virtua Fighter and Shenmue, Yu Suzuki. Link
- Twitter is reportedly working on crypto tipping and native coin. Link
- Yield Guild Games (YGG) announced a partnership with Elixir, a web3 game launcher that provides a variety of services. Link
- Forj, an Animoca Brands subsidiary, announced a partnership with VIKER to launch its new PolkaPets World NFT called ‘VIKER PolkaPet Pass’ (VPPP) that will be usable in VIKER’s solitaire play-and-earn mobile game. Link
- Nifty Gateway, an NFT marketplace hosting Starbucks Odyssey which just debuted, announced integration of its native token with ImmutableX. Link
- Azarus announced a partnership to have Animoca Brands list its tokens on Uniswap and promote them on a live stream. Link
- Immutable announced a partnership with Moonpay to enable direct fiat payments on its platform called NFT Checkout. Link
- Ledger announced its new NFT-friendly ‘Stax’ wallet for launch in early 2023. Link
- WAX blockchain announced restructuring and layoffs. Link
- Fractal announced a partnership with Stripe to enable fiat cryptocurrency purchases in-wallet. Link
Notable Market Moves
- It was a slightly down week on average, although there wasn’t much major market news to heavily drive prices one way or another.
- ApeCoin’s week wasn’t bad overall but it saw meaningful day-to-day volatility. Part of the reason for ups and downs is staking going live, and then rewards started to accrue on the 12th.
- MAGIC is the new token to break its way into the #10 spot this week, knocking Render off at least temporarily. MAGIC is the token for the Treasure gaming ecosystem, and it shot up drastically on the 11th due to Binance announcing it would list it in its Innovation Zone. While it is still positive overall, we’ve already seen the price trickle back some.
- As always, we recommend looking long-term. While crypto in general has slowed a bit since the wild ride of the last two years, 2023 looks to show a a mix of opportunities and challenges. We’re excited to see what comes next!
Content Worth Consuming
- Pursuing the Holy Grail of Web3 Game Interoperability (Bitkraft) - “There are also a lot of complexities when it comes to negotiating the business/financial incentives for allowing external assets into a game. For instance, how does the game developer protect their user base and profitability if their assets can be taken elsewhere or if external assets created and paid for in another game or bought on secondary markets can enter their game? Interoperability adds complexity both in terms of execution and game balance, and thus increases costs for the developer. It will also likely introduce compromises in game functionality, as games will need to support a more generic asset model rather than tailoring to the specific game experience. As such, there will need to be significant incentives to adding interoperability features to a game to make it viable from a business perspective. This does not necessarily mean that cross-game interoperability is an impossibility, but it does add a significant hurdle.” Link
- Understanding Player Types & Motivations in Web3 Gaming (Nami) - “Despite the frequency of its application in a variety of gaming contexts, motivational segmentation as it exists today is still underdeveloped as a way to drive successful engagement and monetization in web3 gaming. The integration of blockchain technologies and the introduction of open economies to gaming has given way to a variety of new and unusual motivations not typically seen in traditional games. This requires a rethinking of the problem and a novel approach to motivational segmentation – something that we here at Nami see as key for successful web3 games.” Link
- Designing Game Markets to be Fun — Web 2.0 and Web3 (SuperLayer) - “For a market game designer, revealing information should be an orchestrated event. For example, a balance patch to Skyweavers that changes the power (and thus price) of different cards will shake up the market considerably. Major balance patches should be a planned event, similar to the Federal Reserve’s monthly meetings. The changelist itself could be made more transparent with more lead time, smoothing out the information revelation. Players could even propose and vote on potential changes. Volatility should be an important design lever as well. Too much volatility might deter the faint of heart, but too little volatility is dull and uneventful.” Link
- Web3 Enables Coordination Without Hierarchy (Kazm Blog) - “While there are teams of people who work with the protocol, ownership does not equate to control over the network. In each case, an ecosystem of apps might emerge and compete to help users interact with the same underlying open dataset, but network effects will continue to accumulate to the protocol. Users benefit from network effects without driving the formation of centralized hierarchies. Unlike a corporation, the original protocol team can’t opportunistically change prices, remove previously granted access, or selectively alter the rules of engagement.” Link
- Web3 Skill-Based Gaming & Esports: NOR Games (Vader Research) - “NOR Games founder & CEO Brooks Brown joins Vader Research Podcast to discuss the problems with gaming & esports, what NOR Games is building to solve these problems, NOR Games' web3 economy and monetization model, and the tokenomics of $FATE.” Link
- Land Speculation & Economies (The Metacast by Naavik) - “Why are there housing crises in online games, and how did a plot of “virtual land” go for $4M in Sandbox’s Metaverse last year? What is a land economy, and how do you run it? We bring on Lars Doucet, virtual land economy consultant and author of “Land and Why It Matters” and Khaled Alroumi, Head of Monetization at Big Time Studios, to discuss the concept of land economies, whether land should be a primary or secondary driver of your game economy, what to do about taxes and rent, and the do’s and don’t’s of running one. Hosted by Alexandra Takei.” Link
