#1: Fenix Raises $150M for Web3 Gaming
When three executives recently left Mythical Games, we speculated internally that they may have left for a specific new project and possibly together. Now we know that they went to form the core of Fenix Games.
The company revealed itself and its plans in an announcement of a $150M raise primarily from Phoenix Group and Cypher Capital. Cypher Capital is particularly notable here as it is a Dubai-based company, which is also where Fenix will be located. The UAE and Middle East in general have been heavily investing in both digital and physical gaming, including hosting this year's World Cup. This investment acts partially as a way for Cypher Capital to invest in multiple games at the same time as Fenix Games plans to acquire, invest, and publish both existing games and blockchain games of the future.
“You can think of us as like a VC fund,” said Chris Ko, CEO and cofounder of Fenix Games, in an interview with GamesBeat. “The market is similar to earlier [mobile gaming at the rise of free-to-play games] but it hasn’t found its Clash of Clans for blockchain games yet. We’re using the VC arm to fund the next generation of games. We’re actually going to start off with a huge base of capital to invest in those studios. We’re also looking to use our balance sheet to acquire a bunch of existing games in the Web2 space to build a portfolio. And that will be the right base for our portfolio.” (Source)
With mention of acquiring web2 games as a base for its portfolio, this implies adding blockchain features into already built games. While this can shortcut much of the game creation, the games’ economies aren’t usually well equipped to support open economies without a redesign. Thetan Arena demonstrated the pros and cons of this approach by being essentially a web3-added reskin of its previous game, Heroes Strike. Using an existing web2 game as a base does usually mean that at least a normal IAP-style monetization has been factored into the economy, but it’s unlikely Fenix Games will be acquiring already successful games, and instead will be targeting struggling games. With Blankos Block Party being fairly close in design to a typical web2 game, the former Mythical Games executives do at least have some experience in building a lighter user-friendly web3 approach. There is also the potential for Fenix Games to target struggling web3 games that have talent or design potential and hope to leverage those to success. Both of these strategies carry a lot of risk in that the web3 market hasn’t even defined what sustainable success looks like for Fenix Games to try and replicate, let alone with games that haven’t proven themselves on their own.
In terms of supporting games as a publisher, it’s unclear what advantages Fenix Games can provide to games and as a business model. It does have some depth of experience both in traditional game development and blockchain gaming, but there is already quite a bit of that embedded directly in many of the games announced over the last 6 months. There is the possibility for some web3-focused tooling or infrastructure support, but any that was developed while at Mythical Games likely remains there. Marketing and user acquisition are also largely underdeveloped in web3, and much of the web2 playbook is currently suffering from privacy changes. It’s also a big risk as a business model, since games with a strong chance of success are much more likely to self-publish, and Fenix Games’ name doesn’t carry any weight yet to increase the chances of games it’s publishing.
Fenix Games emphasized a focus on neutrality, even mentioning Switzerland, but it’s likely a position meant to try and broker better deals with blockchains, middleware, and other platform technology. This means Fenix Games will have to control a portfolio of desirable games to use as a bargaining chip or help deliver at least one big hit.
The current approach for many games is simply to choose a blockchain that offers the best support financially, and chains like Polygon, Immutable, and Avalanche have continued building business development units to increase that leverage. This puts Fenix Games in a tricky position of needing good games to negotiate good deals and good deals to be a benefit to good games. There is at least an existing relationship with Epic Games, with Blankos Block Party being the first web3 game launched on its store, which can make distribution much easier for Fenix.
One of the stated support initiatives for the company will be to leverage the experience of the team towards product management and asset management as a unique combination in a publisher. This will mean helping to develop the game itself as well as the more complex unsolved financial side in a combination it’s calling “Game Market Economies” (GME). Fenix is also looking to combine this with live-ops experience, which now has to blend with live open economy management and even new challenges in community management. Blankos Block Party hasn’t been around long enough to prove that the former Mythical Games vets have solid skills or strategy to make that new combination work.
As web3 games go through a cycle of bridging over traditional mobile and desktop gaming, a combination of VC and publisher with a large fund and access to further investment is in a good position to speed up the market ahead of the next big upswing. Chris Ko has likely even been a part of a similar cycle in the past with experience at Kabam, a company that successfully made the leap from Flash-based social games to mobile. The other members coming from Mythical Games — Rudy Koch and Matt Nutt — do bring over some experience with big publishers like Blizzard, EA, and Square Enix that can provide some missing traditional game development know-how to greener web3 game teams. We expect to see these key players leveraging their personal networks in the games and web3 industry to scout for strong early deals with developers with a solid product but struggling in the current financial climate. We haven’t reached a pure consolidation phase of web3 gaming just yet, but web2 mobile gaming is rife with opportunity as it struggles with post-IDFA challenges on games that could benefit from a web3 upgrade. We also expect the announcement of the fundraise and goal to motivate a number of game and blockchain middleware developers to start pitching to Fenix not only out of financial interest, but also from a marketing standpoint.
While there’s no sure path to success, having a combination of experience and a significant amount of capital puts Fenix Games in a position to try and attract good deals during a slower market phase. Not every game it picks up needs to be the next Axie Infinity, but building a portfolio of even moderate hits puts Fenix Games in a strong early position in an industry that currently lacks native publishers. Of course, producing even one moderate hit has proven to be somewhat elusive in web3 so far. We expect to see Fenix take advantage of games already completed or well into development in this early phase to get quicker market traction while most AA and AAA developers are still building. We also expect that its neutral stance will quickly shift as partnerships materialize with blockchains and tool providers eager for early market share. Overall, we think this approach to VC and publishing is a needed improvement on the low due diligence shot-gunning of funds we’ve seen over the last year from VCs with little experience in the game industry. What remains to be seen is whether it makes sense as a business model in an industry that hasn’t needed publishers so far.
#2: Big Time Economy Reveal
As with many other anticipated web3 games, Big Time recently made a big deal out of its full economy reveal. This is part of a positive trend, however, where games are getting into alpha stages and thinking long and hard about economy design before doing a lot of public announcements about the same. Too many games have taken the opposite route only to find that by the time they actually have a game ready, the economy needs some pretty heavy pivots to be sustainable. Axie Infinity made it pretty clear that a very basic version of Play-to-Earn is just not feasible long-term with a lot more focus on token supply control and utility. Big Time’s take on this is what it calls a “Cosmetic Economy.” Taking a non-stat-based cosmetic approach is meant to avoid pay-to-win elements while still trying to align with web3 concepts of ownership. It does mean, however, that participation in the web3 economy is much more optional.
As “breeding” has become problematic in the way it grows supply out of control, games like Big Time are instead shifting towards “crafting,” which mostly only differs by being more resource intensive or consuming. Crafting itself can of course become just as problematic as breeding without the right kinds of constraints placed on production to prevent oversupply issues. Big Time is approaching the issue mainly by focusing on capping a maximum supply on both the production NFTs and using seasonal content. Each resource or NFT required in the chain of production it designed becomes a bottleneck as well as a potential source of trade or cooperation. Firstly, to produce anything requires SPACE (Land) which is limited to a fixed total supply. Then you need one of three types of production NFTs to use in the SPACE — Time Wardens, Armories or Forges. As with all the NFTs that can be used for production in Big Time, these are also limited in supply and will require other resources to be useful. Time Wardens are interesting in that they are the only thing that can lead to minting of the utility token $TIME by crafting Hourglasses that have to be equipped and played with in order to earn tokens.
The three production NFTs also play a big part in how they integrate into the other resources of the game. Big Time smartly includes a premium currency called Time Crystals that can only be bought but not sold or traded. Time Crystals are an important resource in upgrading Hourglasses, which ties a direct monetary income to the game developer in relation to $TIME token production. Time Crystals also have some other functionality related to Hourglass equipping, as well as in Armories and Forges. Big Time added some interesting twists to its soft currency, Cosmetic Shards. First, Cosmetic Shards are off-chain but still tradeable on the Open Loot marketplace. Second, the shards are divided into types by their function for the Armory, Forge, or Wild (both), and also by game season. The game season division is especially interesting in that it gives a time window of utility, after which they have to be exchanged for the next season’s version at an exchange rate determined by various economic factors which can help curb season-to-season inflation. Third, to make any use of the shards, they have to be turned into refined versions by using Armories and Forges, which, as mentioned before, are constrained.
$TIME Tokens are the only one of the three resources that is on-chain and the one needed directly for crafting cosmetics. As mentioned previously, just to produce $TIME crystals requires playing with an Hourglass equipped, which requires a Time Warden NFT and premium Time Crystals attached to a SPACE NFT. As you can imagine, all these prerequisites to production of the token can mean the opposite problem of Axie Infinity, where as the playerbase increases, consumption of the token can quickly outpace production. There is the risk of strong deflationary pressure causing prices to increase much higher than players are willing to pay. While the overall purpose is cosmetic in nature, the company could still fail as a result of lost revenue and player motivation. There is also an interesting price floor pressure due to the real-money cost of Time Crystals required to charge Hourglasses for $TIME production. This means if the price for $TIME is lower than the Time Crystals’ cost to produce it, then production should theoretically reduce, driving the price back up, assuming there is enough demand to do so. Of course, this whole economy depends on the demand for the cosmetics to be crafted.
Surprisingly, the actual crafting of items is also limited by ‘per item’ rarity distribution, preventing oversupply past a fixed point of any given rarity. This guarantees some scarcity of the final product of all the other highly limited requirements. Part of the design is based around the idea that going up one rarity level requires three of the current rarity level. This pyramid structure guarantees that there can only be one of the top rarities — the aptly named Unique. Big Time believes that this structure makes crafting exciting by creating a season-long “race to the unique,” which is estimated to take the majority of the season as a sort of collaborative player effort. Big Time is betting on this to be compelling for at least one player archetype, and that will help fuel the other archetypes necessary to form all these production chains. With these being seasonal cosmetics, however, there is always the potential that some seasons may see more players and concentrated player effort than others.
While all the current economic designs being developed and employed have significant risk and uncertainty, Big Time seems to be leaning into high constraints and production pipelines to try and mitigate them. We have seen the downsides of both major bubble prices and crashes from oversupply which have taken games from initial huge successes to well publicized craters. The hope here is that by limiting supply in many key areas, Big Time will incentivize the different archetypes to align with where they fit into the economy while paying and being paid accordingly. Of course, with any economy designed around protecting yourself from an overabundance of players causing economic imbalances, there is always the risk of the opposite and no one showing up and/or the game just not driving player motivations in such a way to balance production supply and consumption demands. The economy design is balanced around the hopes that enough players will participate to keep the supply chain moving. We hope to see some solid data from the game when it’s fully released in terms of the economic flow and how it scales with players, to find out if heavy constraints and player interdependence will be part of the secret sauce we hope it could be.
Upcoming Game Announcements
- Champions Ascension announced a limited-time pet burn. Link
- Colonize Mars announced a closed beta for December 6th. Link
- Mist, a Binance MMORGP, opened a phase 2 pre-alpha. Link
- Phantom Galaxies released its Poster 4. Link
- Everseed released an updated demo with pet companions. Link
- Elemental Raiders announced in-game economy changes. Link
- Rifters announced an upcoming beta and NFT mint. Link
- Walken announced a CAThlete Fusion Event to celebrate 2M players. Link
- Pixelynx announced the launch of its upcoming Elynxir game with a scavenger hunt event. Link
- Cryowar announced registration for its upcoming open beta. Link
- War Park announced a community playtest for mid-December. Link
Live Game Announcements
- Limit Break announced it will be doing free live NFT mints via a QR code during its upcoming Super Bowl commercial. Link
- The Sandbox announced Land sales with brand-partnered neighborhoods. Link
- VRJAM announced the Initial Exchange Offering for its VRJam Coin. Link
- The Pixels launched Chapter 1 with a large amount of updates to gameplay and economy. Link
- Thetan Arena released a new Fusion Event to celebrate the game’s first anniversary. Link
- Clashdome announced new decoration functionality that ties into token earning. Link
- Alien Worlds followed up its recent Battledome interoperability by announcing a new tournament for it. Link
- Blankos Block Party announced its Season 1 Party Pass will release on December 7th. Link
- Splinterlands released its much delayed non-card marketplace along with bulk sale discounts. Link
- Spider Tanks released details of its Generation 2 NFTs. Link
- Tiny World announced the release of its gameplay, Tiny Pets. Link
- Animoca Brands announced plans to launch a $2B Metaverse fund. Link
- Game7 launched a $100M grant program for web3 game development. Link
- Roboto Games raised $15M for a survival and crafting MMO in a round led by Andreessen Horowitz (a16z). Link
- Midnight raised $7.5M to develop a variety of web3 games in a seed round led by Shima Capital. Link
- HitBox Games raised $1.6M for its RPG, Swords of Blood. Link
- Wanderers raised $2M to build a web3 game based on its IP in partnership with Blowfish Games in a seed round led by Animoca Brands and GameFi Ventures. Link
- BlockFi filed for bankruptcy as a result of the FTX collapse. Link
- Polygon launched Football NFTs for each nation participating in the World Cup. Link
- Metamask released a new data collection policy that’s receiving backlash. Link
- Uquid, a web3 retailer, announced Polygon integration. Link
- Binance gathered financial support from Polygon, Animoca Brands, and more for its web3 industry recovery initiative. Link
- WeMade had its $WEMIX token officially delisted from some exchanges, causing a major stock drop. Link
- MoonPay acquired some top talent from Time. Link
- Gamejam pivoted from hypercasual mobile into web3 with a rebrand to Superfine. Link
- Nominees were revealed for the Inaugural Web3 GAM3 Awards. Link
Notable Market Moves
- Most of the tokens except ApeCoin followed the general crypto market with a sharp drop on November 28th, followed by a slow climb back up.
- ApeCoin saw a strong rise of 20.53% this week thanks to a BAYC tweet teasing content related to a previous lore tease. As usual for Yuga Labs, the less details, the better for speculative behavior. We expect less gain next week without any further news but potentially no significant correction either.
- The Sandbox also saw some good rebound thanks to land sale announcements that require SAND, giving the token some short-term utility.
- Axie Infinity did fairly well after announcing upcoming Season 2 content and changes.
- WEMIX, as expected, dropped off this week after its short appearance last week. The token has been delisted from some exchanges following accusations of inaccurate circulation numbers. Render Token managed to take its place with a decent bump just before the general market correction, with RNDR settling back into the same ~$0.475 range it held earlier in November.
- As always, we encourage readers to look long-term. As with all markets, but especially crypto, there are good weeks and bad weeks. Outside of occasional new entries, this top 10 list has been relatively stable most of the year and is likely to continue thus into 2023. That being said, there is a lot of good stuff currently being built, so barring any Luna/FTX-type collapses and heavy regulation, the overall future is looking bullish.
Content Worth Consuming
How generative AI could create assets for the metaverse (GamesBeat) - “Huang: Without generative AI, how would consumers be able to create virtual worlds without great effort? Now you can create virtual worlds in 3D, which is coming around the corner. You can see it about to happen. We can now do generative AI for images. We can do it for videos. At the rate that it’s moving, you’ll do it for entire villages; 3D villages and landscapes and cities and so on. You’ll be able to assemble an example of an image and generate an entire 3D world. That’s going to enable the metaverse like you can’t believe. You need it. Absolutely. That’s exactly the reason why I always say, when we’re talking about the metaverse, when we’re talking about Omniverse, that AI and Omniverse go hand in hand. To me, it’s the same thing.” Link
Adding NFT trading does not make a game successful (Evolution of Web3 Gaming) - “As Peter Thiel proposes in his book Zero to One, creating an innovative product that dominates existing competitors requires a ‘10x improvement'. Something needs to be 10x better than its closest competitor in order to truly be differentiated and win. For example, Google gave 10x better search results when it first came out, and Uber made it 10x easier to hail a taxi to get around. I believe the same thing applies to Web3 gaming. Adding trading to a great web2 game will not actually lead to disruption, because it doesn’t represent a 10x improvement. Players won’t switch from Fortnite to an equally good (but unknown) ‘Web3 Fortnite’ clone just because skins in the clone were tradable. The switching costs are too high and the network effects of web2 giants will be very challenging to compete with.” Link
What Do You Own - Illuvium Edition (Matt H Gaming) - “As well as the Immutable X founder talking about the importance of asset ownership, the Illuvium whitepaper also references it… Ownership is vital to collection games. If you don’t own your collection, the entire value proposition falls apart. This is why digital media has struggled in this space and why games with tangible assets, such as card games, have stood the test of time. But with the advent of NFTs and the investigation of their implications, the conventions about ownership, value, and utility of digital property all change. Clearly therefore, ownership is an important part of the Illuvium brand not only for the game directly but also the Immutable X platform on which it operates.” Link
Why NFTs Will Upgrade Everything (Kazm Blog) - “NFTs can also be combined to enable use cases that are impossible when data is siloed. Representations of our style and physical form can personalize shopping experiences. NFTs of our calendars, tastes, locations, and relationships can be combined to auto-plan personalized events for every group, or schedule dates. Data about belongings can be used to surface qualified services and add-ons, like insurance or integrations. Credentials, schedules, and interests can be used to identify professional or educational opportunities across platforms. User-owned data also unlocks new applications of AI. AI needs to process user data to generate user-specific solutions. For example, Vana requires a user to upload multiple photos of their face to generate a gallery of artistic portraits – without access to that data, it can’t generate relevant portraits.” Link
Learnings from EVE Online (FOGDAO Deep Dive) - “In this FOGDAO Deep Dive, we go deep into complex game economies. Your host Nico Vereecke is joined by Carlos Pereira in a conversation with Hilmar Veigar Pétursson, the CEO of CCP Games, the creator of EVE Online. Hilmar has nearly 2 decades of experience managing one of the most economically complex games in the world, and his learnings and anecdotes are absolutely fascinating. Enjoy!” - Link
Future of UGC, and does it need the blockchain (The Metacast by Naavik) - “’UGC Gaming is Gaming 3.0’ says Uri Marchand, CEO and co-founder of Overwolf, a software platform that powers one of the biggest modding communities in the world and recently signed a massive partnership with EA for the Sims 4. In this episode, your host Alex Takei chats all things UGC, the role of IP in creating the metaverse, centralization and moderation in a creator economy, and whether any of this really needs the blockchain.” Link