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The blockchain gaming industry continued growing in November - albeit at a slower pace than last month. Unique active wallets (a proxy for users) increased 3% month-over-month. NFT (both collectibles and games) transaction volumes declined 11% month-over-month, but game-specific NFT volumes increased to $1 billion in the month for the first time. This was driven, in part, by demand for virtual land and continued strong performance from top games like Axie Infinity and Farmers World.

Meanwhile, funding activity for blockchain games remains strong, increasing nearly 200% from October. This was highlighted by Forte’s $750 million Series B round and Mythical Games’ $150 million Series C round. We dive into these trends and their drivers in more detail below.

Unique Active Wallets

• Per DappRadar, blockchain gaming daily unique active wallets (UAWs) increased 3% to over 1.2 million in November 2021. This is a deceleration from October’s 40% month-over-month growth rate but appears to mainly be month-to-month volatility. As we’ll discuss shortly, the top gaming decentralized applications’ UAWs grew meaningfully month-over-month.
• As a reminder, UAWs are not a perfect indicator of users. A user can have more than one wallet - potentially overestimating actual user activity. Conversely, a user can play a game but not transact with a blockchain over a period of time - potentially underestimating actual user activity. For example, Sky Mavis reports that Axie Infinity has surpassed 2 million daily active users (DAUs), which is more than the entire blockchain gaming daily UAWs as reported by DappRadar. Furthermore, some blockchain games, like Alien Worlds, have been prone to bots which leads to overestimating actual user activity.

Top Games by Unique Active Wallets

• Growth in unique active wallets this month was driven by Alien Worlds and Axie Infinity, which increased by 118% and 31%, respectively. Both projects recently released new products for its community that appears to be assisting with adoption. Alien Worlds launched its new Missions Game, which allows users to earn more rewards from staking the project’s Trilium token. Meanwhile, Sky Mavis, the maker of Axie Infinity, went live with Katana, its decentralized exchange, allowing anyone to more easily swap assets within the Axie Infinity ecosystem.
• CryptoMines entered the top 10 with impressive 253% month-over-month growth and is now the most active game in terms of wallets on the Binance Smart Chain. Bomb Crypto and BinaryX also moved into the top games by UAWs. Meanwhile, CryptoBlades, Farmers World, and Jelly Squish moved out of the top 10.
• We continue to see a concentration of wallets among the top 2-3 games. The top game, Alien Worlds, has nearly 10x the number of wallets as the 5th ranked game. Although we expect power laws between games to persist, the gap between the top 10 will likely shrink as more notable games launch in the next couple years.

Transaction Volume

• According to Cryptoslam, NFT (both games and collectibles) transaction volumes declined 11% in November 2021 to $2.5 billion. This decline was primarily driven by popular collectible projects like CryptoPunks and Art Blocks.
• Meanwhile, blockchain game NFTs continued to grow with DappRadar reporting monthly gaming NFT trading volumes surpassing $1 billion in November 2021. Top games, like Axie Infinity, Farmers World, and the Sandbox, all saw strong growth in November. In addition, virtual real estate generated over $200 million of trading volumes in the month, up 688% from October. We cover the trends among top blockchain game projects in more detail below.
• As a reminder, Cryptoslam only accounts for NFT volumes in the secondary market.

Top Games by Transaction Volume

• There was quite a bit of month-to-month turnover in November. Only five (Axie Infinity, Farmers World, Sorare, Treeverse, and ZED RUN) of last month’s top 10 remained, with a few notable titles, including Aurory (yet to launch), falling out of this month’s top 10.
• November’s gaming-related NFT transaction volumes were driven by Axie Infinity, Farmers World, and the Sandbox. Axie Infinity benefited from the release of its decentralized exchange, Katana, and the liquidity it affords. Meanwhile, the Sandbox volumes have surged ahead of its multi-week alpha launch event starting November 29th.
• Conversely, Treeverse and ZED RUN were the only two titles in the top 10 to decline month-over-month. We will cover ZED RUN’s economy in more detail next week, but the game has seen transaction volumes decline precipitously since August 2021.
• Transaction volumes continue to be dominated by the top games. The top game this month, Axie Infinity, had 100x the volume of Colonize Mars, the number ten game.
• Looking at transaction volumes by protocol, Ethereum Layer-1 and Layer-2s continued to have the most games this month. Meanwhile, WAX now has three games in the top 10 versus only one last month. WAX’s focus on transaction speeds and low transaction fees has contributed to NFTs used for games now accounting for ~90% of the top 50 NFT collections on WAX in daily sales volume. Keep in mind, in the same way that we expect the top 10 games to heavily churn in the coming months and years, a similar pattern will likely emerge on the protocol front. We dig into the ongoing ”blockchain market share wars” in the next section.
• Again, Cryptoslam only accounts for secondary market transactions, with primary market transactions (those between a game and player) being excluded. For games where primary transactions are a key component of revenue, the below results can miss the full picture. For example, Axie Infinity generates the vast majority of its revenue from the breeding of new Axies (a primary market transaction). Per Axie World, Axie Infinity’s total revenues declined in November, because breeding fees (driven by primary market transactions) decreased even while marketplace fees (driven by secondary market transactions) increased. Simply put, the Cryptoslam data provides an indication of a game’s economic health. But it does not provide a perfect picture of a developer’s revenue, especially in cases where primary market transactions are the main driver of revenue.

Fundraising Events

• Fundraising activity rose significantly this month to $1.1 billion or a nearly 200% month-over-month increase. Forte’s $725 million (~70% of the total) Series B was the primary driver of the increase.
• In terms of stage, seed rounds continue to dominate which is unsurprising given how the industry’s novelty. Game studios continue to attract the most investment activity by deal count. That said, infrastructure providers (e.g., Forte) and gaming guilds (e.g., Avocado Guild) are raising significant funding rounds.
• Even though the downward slope of the hype cycle may hit in 2022, we expect funding activity to increase over time, albeit with wide month-to-month variations, as the industry gradually matures, more developers participate, and later stage projects require larger funding rounds. We’ll also keep an eye on token / NFT sales; this is often a source of revenue for teams, but it can in many cases also be considered funding that’s separate from the traditional venture rounds.

Top 3 Industry Developments

#1: Ember Sword & Blockchain Market Share Wars

In early November, the upcoming and hotly anticipated blockchain game Ember Sword announced it will be moving to another blockchain. The MMORPG is moving to Immutable X, an Ethereum Layer-2 blockchain, from its previous partner Polygon, another Ethereum Layer-2 blockchain.

At first glance, this isn’t a huge surprise. With more and more user traffic on Ethereum, its gas fees have risen to $100s - $1,000 per transaction. As a result, Layer-2 and other Layer-1 blockchains have begun taking market share away from Ethereum. Several articles have been published about blockchain market share wars in the DeFi space since 1Q 2021. The story goes that the Total Value Locked (i.e., total value of cryptocurrency staked in a DeFi protocol) in smart contracts has increased exponentially since 3Q 2020.

While Ethereum has benefited, other blockchains have increased their relative market shares over time due to scalability constraints on Ethereum. The chart below depicts Ethereum’s market share of Total Value Locked decreasing from 95% to 65% over the past 18 months.

NFTs, which include both collectibles and games, have also experienced parabolic growth over this period. According to Cryptoslam, NFT transaction volumes have grown significantly since the start of 2021 with the release of NBA Top Shot on Dapper Labs’ Flow blockchain.

However, unlike DeFi apps, Ethereum has not dominated NFT transaction volumes to the same degree. Ethereum’s NFT market share has varied from 20% to 80%+ and is currently ~70%. Dapper Labs’ NBA Top Shot (on Flow) and Sky Mavis’ Axie Infinity (on Ronin) have contributed to Ethereum’s relatively smaller NFT market share. The list is constantly evolving, but notable protocols for building games (excluding layer-1 Ethereum) currently include:

• Flow
• Immutable X
• Polygon
• Ronin (we are not aware of Sky Mavis opening up Ronin to third party developers yet)
• Solana
• Terra
• Tezos
• WAX

The trend of game applications moving away from Ethereum Layer-1 makes sense considering the average game NFT price. According to Nonfungible.com, popular NFT project assets traded in the $100 to $10,000 range during 3Q 2021. Given current Ethereum gas fees, that implies Ethereum transaction fees make up 10% or more of users’ total purchase price. Clearly, this situation is untenable, especially if games teams want to target even larger audiences at even lower average prices. Several popular blockchain games have moved from Ethereum to Layer-2 chains or to other Layer-1 chains offering improved scalability (e.g., faster transaction speeds and lower costs). For example, Axie Infinity saw transaction volumes explode after leaving Ethereum for Ronin, Sky Mavis’ proprietary Ethereum Layer-2 solution. We expect this trend to continue for blockchain games until Ethereum gas fees fall and become less volatile (and by then other chains may be more fully solidified).

Even still, Ember Sword’s decision — to move from one Layer-2 scaling solution (Polygon) to another (Immutable) — is unique among blockchain games. In a blog post, Ember Sword’s developer outlined five reasons for moving to Immutable: 1) Immutable’s massive [transaction] speed and responsiveness, 2) increased accessibility, 3) [ability for users to] pay with a credit card, 4) no need to hold tokens to pay for gas, and 5) improved security.

Custodial wallets and paying with credit cards are available on Polygon. However, transacting on Immutable is gas-free meaning a user does not need to store ETH (technically “wrapped ETH”) or MATIC (Polygon’s native token) to complete transactions. Simply put, Ember Sword believes that it will be easier for users to get onboarded and transact on Immutable than Polygon.

This brings up an important question that many game developers are wrestling with: which blockchain is best to integrate with my project? A longer analysis is required to sufficiently answer this question. However, here are some key considerations.

• Security: How likely is manipulation, theft, or loss of faith in the network? This relates to how likely the validators running the decentralized network can manipulate or steal from users. It’s important to emphasize that security varies across the different blockchains. While we discussed how Ethereum struggles with scalability given slow throughput speeds and high, volatile transaction fees, it ranks strongly in security.
• Throughput Speed: A crucial consideration for blockchain scaling is that there is an interplay between scalability, security, and decentralization. This is known as the scalability trilemma, which suggests that in order to increase one, you necessarily make trade-offs in the others. While the trade-off between security and scalability holds true for most platforms, the magnitude of the trade-off is improving as certain blockchains innovate with design architecture. For example, Ethereum is optimized for decentralization and security, which limits its throughput to ~15 transactions per second. On the other hand, Immutable X can facilitate 9,000 transactions per second without meaningfully weaker security since its built on Ethereum and leverages StarkWare’s ZK-rollups technology.
• Transaction Fees: The cost to settle transactions on a blockchain is important. As we discussed, successful blockchain game assets are currently valued in the $100 - $10,000+ range. Transaction fees can only go so high before asset ownership becomes unprofitable.
• Fiat Gateways: Does the blockchain allow for users to transact with fiat (e.g., credit cards)? It’s important to consider both how easy it is for funds to enter and exit the blockchain ecosystem. Many gamers are unfamiliar with the multi-step process of purchasing cryptocurrency on a decentralized exchange, transferring it to a Layer-1 wallet (e.g., Metamask, Phantom, etc.), and in certain instances bridging crypto to a Layer-2 wallet. One key driver of NBA Top Shot’s success was its easy UX, which allowed users to purchase NFTs with their credit cards.
• Ecosystem Support: How easy is it for developers to leverage the existing building blocks on a blockchain? For example, Ethereum has a large ecosystem of applications. Also, even though many developers and users seek out max decentralization, more centralized blockchains like Solana and Flow have core teams that are able to provide assistance and advice, which can be valuable.
• Asset Mobility: This refers to the ease in which NFTs can be moved from one chain to another (e.g. withdrawals to Ethereum Layer-1). Again, Ethereum ranks highly here as it has several asset bridges.
• Environmental Impact: The environmental impact of processing transactions on decentralized blockchain networks can be significant. Critically, this impact is much higher when reaching consensus via a proof-of-work mechanism than a proof-of-stake one. For example, Bitcoin and Ethereum are examples of proof-of-work blockchains, although Ethereum is planning to switch to proof-of-stake in the near future. Other popular NFT blockchain, such as Ronin, Flow, and Solana, use proof-of-stake (and in Solana’s case proof-of-history) to reach consensus on the network and make a significantly lower economic impact.

• Existing Users: All else equal, blockchains with high existing user bases are more attractive than those without. It currently remains unclear which blockchain(s) will dominate user activity. According to Cryptoslam, Ethereum, Ronin, Solana, WAX, and Flow are currently the top blockchains by NFT trading volumes. However, it’s important to note that Cryptoslam doesn’t track every blockchain.
• Developer Funds: Several blockchains are creating developer funds to attract more applications to their ecosystems. For example, Polygon announced a $100M fund for developers to integrate NFTs into their games. Solana announced a $100M game development fund in partnership with exchange FTX and VC firm Lightspeed Venture Partners. Finally, Enjin, a blockchain gaming platform that has a proprietary Layer-2 blockchain, announced a $100M metaverse fund to integrate games onto its platform. We expect to see more of these funds get announced over the coming months as the land grab for developers building interesting games continues.

Using these criteria, developers can begin noting trade-offs and triangulating which blockchain is best for them. For example, Ethereum arguably ranks highest for security given its open, permissionless network, but its adoption and scalability are hampered by its slow transaction speeds, high transaction fees, and relatively high environmental impact (which will improve once validation moves to proof-of-stake). As a result, we expect most activity to continue moving to Ethereum Layer-2s and other Layer-1 blockchains. In our view, top chains for building games currently include Immutable X (ETH Layer-2), Polygon (ETH Layer-2), Solana (Layer-1), and Flow (Layer-1). In a future update, we plan to do a deeper analysis of the trade-offs between each blockchain.

In summary, there are currently several trade-offs between Layer-1 and Layer-2 blockchains. Game developers have to consider technical, economic, and environmental trade-offs when deciding which blockchain to integrate with their game. Longer-term, we expect speed, cost, and security across the most popular blockchains will continue to improve, and most users won’t need to think about the underlying infrastructure at all. Eventually what will matter is the ecosystem and user base that exists on a chain, and the builders (i.e., developers) will be the key drivers of that. The blockchain gaming market share war has only just begun and we will be watching its progression closely.

#2: Forte’s Massive Raise & Scaling Games on the Blockchain

Forte, the blockchain infrastructure company, raised a massive $725 million Series B round this month. Valuation wasn’t disclosed, but if the company’s Series A valuation ($185 million at a $1 billion valuation) is a guide, Forte is likely now valued at more than $3 billion. For context, Forte’s Series B was the largest blockchain gaming round of the month by almost 5x and was the largest round of the year so far, eclipsing Sorare’s $680 million raise in September. Clearly, investors have a lot of confidence in the Forte team, its vision, and business model.

That is also a lot of money for a pre-revenue company. So what exactly does Forte bring to the table, and how is it differentiated from other emerging infrastructure providers? In Forte’s own words, it is “an end-to-end solution for token-based game economies and NFTs that benefits the community.” In our words, Forte aims to provide a suite of technology and services that makes blockchain adoption easy for game developers and users. Much like a Unity or Unreal Engine provides developers with an engine, Forte aims to provide critical blockchain tools and services. This allows game developers to focus on what they do best: making fun games!

While the company has been fairly tight-lipped about its exact plans, we can get some idea of Forte’s platform offering from its website, interviews with CEO Josh Williams, and extrapolating based on its vision. We see four key pieces to the puzzle:

• Technology Integration: The company helps developers integrate their game assets on the blockchain. This includes providing token wallets, NFT minting and marketplaces, and payment rails. However, unlike some other blockchain gaming platforms (e.g., Immutable, Enjin, Mythical, etc.), Forte does not have its own proprietary blockchain. Instead it seeks to work with as many top blockchains as possible.
• Economy Design & Optimization: One way to make blockchain adoption easier for game developers is to provide them with a token economy playbook. Given the novel nature of token economies, this is being figured out in real-time. Any potential best practice that Forte can bring to the table is extremely valuable. Indeed, according to Linkedin, Forte is hiring game designers for its Partnership Group. This will likely be a service offering for game developers.

• Compliance & Legal: Forte provides critical compliance support for game developers and players. The company’s compliance offerings cover anti-money laundering, KYC, tax compliance, IP protection, and more. Given the industry’s current regulatory uncertainty, this allows developers to build with confidence that they won’t infringe on any laws.

• Interoperability: As mentioned, Forte is seeking to integrate its platform with many different popular blockchains. In doing so, the company aims to provide developers with greater choice and flexibility. It also opens up the potential to more easily move assets between blockchains. Along these lines, the venture groups at popular blockchains, such as Solana, Polygon, and Cosmos, participated in Forte’s Series B round.

In short, Forte has an ambitious vision of building an end-to-end platform where developers can integrate and scale their blockchain token economies. The company will have to compete for third-party developers with other crypto-native game studios building platforms (e.g., Immutable, Sky Mavis, Mythical Games), other blockchain infrastructure providers (e.g., Enjin, Venly, Stardust.gg), and even studios integrating themselves. In our view, Forte’s platform is unique in its high touch approach, focus on compliance, and decision to partner with various blockchains as opposed to building its own proprietary one.

Now that we have an idea of what Forte is building, how’s it going so far? According to the company, Forte currently has 40+ game developer partners, including Netmarble, Kongregate, and Will Wright’s Gallium Studios.

Forte also reports 15+ million players across its partner games. For comparison, Nonfungible reported 412,578 active wallets in 3Q 2021 across all NFT projects (both games and collectibles) on Ethereum. Meanwhile, DappRadar reported just over 1 million daily active wallets in October 2021 across its tracked universe (includes Ethereum, Polygon, Ronin, Flow, Wax, Binance Smart Chain) of blockchain game applications. Forte’s numbers suggest it has been 10x+ more successful in onboarding players than all the games tracked by Nonfungible and DappRadar. In our view, Forte is likely counting wallets as all players within its partners’ games as opposed to those transacting NFTs and fungible tokens with real-world value. We aren’t aware of any current top blockchain games, as measured by wallets, partnering with Forte. Simply put, we are skeptical of Forte’s wallet number in the context of the industry numbers reported by third parties.

The company plans to use this new funding to “expand its suite of products and services [and] accelerate the onboarding of the world’s largest and emerging game and content publishers.” In addition to hiring and building out its technology, Forte is looking to help fund the burgeoning ecosystem too. Forte already announced a $100 million developer fund with Ripple in 2019, but with Polygon, Enjin, and others announcing similar funds over the past few months, Forte is looking to up its funding game further. In November, Game7 — a $500 million blockchain gaming DAO — was approved. Forte is committing $100 million, BitDAO is committing $400 million, and supporters include entities like Alameda Research, Solana Ventures, Polygon Studios, Warner Music Group, and more. According to CoinTelegraph, “15% of the funds will be allocated to grants promoting the research, development, tooling and regulatory compliance of novel blockchain games. Next, 5% of funds will be used to educate developers on building token economies. Finally, 80% of the funds will be given directly to game studios and DAOs.”

Longer-term, Forte’s CEO has talked about decentralizing various parts of its platform. In this way, the company resembles a “labs” or venture studio business where it incubates projects and spins them out at scale to live and be governed as stand-alone entities. We’ve seen this model work in other contexts, but it remains to be seen how the mechanics of this model will work in practice here and if the process will create tensions between developers, users, and the institutional venture capitalists who have invested hundreds of millions of dollars.

In summary, Forte’s fundraise illustrates the capital requirements to execute on an ambitious vision as well as the strong current appetite among investors for blockchain gaming and infrastructure companies. All told, Forte’s business model aims to make blockchain integration and the scaling of token economies as low friction as possible. It appears to be building a comprehensive and flexible offering. At the same time, Forte is betting big on a nascent industry with several competitors also running hard at the potential prize. It also remains to be seen how and when Forte will begin to monetize. From an industry and investment perspective, Forte will remain a fascinating business to follow.

#3: Traditional Game Companies Enter Blockchain Gaming

November saw several traditional game companies make announcements related to blockchain gaming. EA’s CEO Andrew Wilson called NFT games “the future of our industry” but added that it’s “still early” in figuring out how to implement NFTs in games. Take-Two’s CEO Strauss Zelnick said that he is a “big believer in NFTs,” but he’s not sure how much value NFTs provide in their current incarnation. Netmarble’s CEO Kwon Young-Sik announced the company is developing a blockchain game during the company’s third quarter earnings call. GAMEVIL COM2US formed a strategic partnership with Terraform Labs to bring Summoner’s War (50+ million downloads) and other IP to the Terra blockchain. And Zynga hired a VP of blockchain gaming, but Zynga’s President Bernard Kim acknowledged that the company is still in the “exploration phase.” Simply put, major game publisher executives are beginning to position themselves to participate in the blockchain games industry. Of course, given rampant game developer skepticism, it’s hard to imagine that these companies’ employees at large are fully bought in yet.

Why does it feel like so many publishers are announcing their entrance into blockchain games all at once? The flurry of announcements coincides with parabolic growth in NFT sales volumes (depicted below) over the past quarter. According to DappRadar, NFT sales volumes increased from $28 million in 3Q 2020 to $10.7 billion in 3Q 2021. Meanwhile, popular blockchain game Axie Infinity surpassed 2 million DAUs. Product market fit is increasingly hard to ignore.

Several industry observers have compared the NFT gaming boom to the mobile free-to-play secular growth story. During the latter boom, major game publishers were skeptical and slow to participate in the emergence of free-to-play gaming, which became the primary driver of industry growth over the past ten years. So, it’s understandable that publishers want to “dip their toe in the water” and explore the possibilities of blockchain technology and NFTs. They may not want to take on the risk of being first movers, but they also don’t want to be as late to the potential party this time around.

That said, Ubisoft stands out as the only traditional publisher that has been active in blockchain games for some time. Earlier this month, the company said that it wants to be one of the industry’s “key players.” But Ubisoft has been experimenting in blockchain gaming since 2018, announcing several projects in the blockchain gaming scene. Ubisoft has released a couple play-to-earn games (Rabbids Token and One Shot League) and has worked with several leading play-to-earn games via its Entrepreneurs Lab accelerator program. Collaborators include the creators of Sorare, Axie Infinity, and Guild of Guardians. It’s worth watching Ubisoft’s GDC video from 2019 to understand how they view the future of blockchain games.

Additionally — and on the day before publishing this report, December 7th! — the company announced Ubisoft Quartz, a platform where players can acquire Digits, the first Ubisoft NFTs. These are unique collectibles / in-game cosmetic items (think weapons, vehicles, etc.) that are initially playable in Ghost Recon Breakpoint (and may be playable elsewhere in the future - tbd). The NFTs won’t impact gameplay, the first three are free to acquire, they’ll be tradable on certain third party exchanges, and this is a low risk way to start. Notably, Ubisoft is leveraging the Tezos blockchain (the first time we’ve seen Tezos pop up regarding games) and emphasizing its low environmental impact. The experience is also the opposite of permissionless; users must use Ubisoft Connect on PC, be 18+ years old, and be a resident of / located in eligible countries. Even banned players won’t (theoretically) be allowed to buy NFTs on third-party marketplaces. It’s not shocking to see these requirements (even though its counter to what most blockchain gaming enthusiasts are excited about), and more big publishers that jump into NFTs will also likely set strict parameters around how these assets can be acquired and used. We’ll briefly note that the sentiment from players so far (if Twitter is any guide) has been negative, and, frankly, we think that this approach negates a lot of what’s interesting about blockchains, but we’re curious to see how it’ll go and how Ubisoft will learn and improve from the launch. Lastly, this is an example of taking new NFTs and plugging them into existing games, but we also wouldn’t be surprised to see Ubisoft be among the first traditional publishers to launch a major crypto title, too. If Quartz is any guide, though, Ubisoft may struggle with the idea of giving up absolute control.

In our view, there are three high-level strategies for major publishers to organically enter Web3 gaming.

1. Mint collectible NFTs based on existing game IP. This strategy is relatively straightforward. It creates merchandise-like revenues for publishers and doesn’t involve many of the complications involved with integrating tokens into virtual economies. Some major publishers are already pursuing this path. For example, Sega announced a partnership with and investment into blockchain game developer Double Jump Tokyo earlier this year. The two companies aim to sell NFT collectibles based on classic Sega IP, such as Sonic the Hedgehog.
2. Mint or move in-game assets onto a blockchain, thereby creating in-game NFTs. Whereas collectible NFTs live outside a game economy, major publishers can also create NFTs with in-game value. In this way, in-game NFTs have both hedonic and functional value for players / owners. And players can trade these NFTs with other players for cryptocurrencies (e.g., Ethereum) or fiat. At the same time, this creates new challenges for game economists and designers, who now have to integrate assets with real world value into their games and maintain a sustainable game economies.
3. Create full-blown token economies, which can include fungible engagement-like tokens (e.g., Axie Infinity’s Smooth Love Potion) and governance tokens (e.g., Axie Infinity’s AXS). This is the most challenging strategy, but it can also be the most beneficial for user acquisition and retention, in our view. Players, who own governance tokens, now have a stake in the game economy’s future performance. For game developers, they now have more considerations when balancing the game economy. And in cases where decision making is increasingly decentralized, developers potentially cede some amount of control to token holders. That said, most blockchain games that have a governance token, like Axie Infinity, are still quite centralized in decision making.

We think most major publishers will likely take a crawl (strategy 1) and walk (strategy 2) approach to blockchain games before running full speed (strategy 3). Conversely, many crypto-native studios are going full speed into experimenting with token economies. As a result, we’ll likely see new entrants — like Sky Mavis, Mythical Games, and Sorare — carve a niche, while the majors get more comfortable with token economies, incentive models, etc. before fully integrating them into blockbuster game economies. Along these lines, we think it’s possible major publishers use their major IP for strategies 1 & 2, but we don’t expect them to fully tokenize their popular titles for some time until design is better understood.

Regardless, the game industry’s sponsorship of blockchain games will likely accelerate the industry’s growth. More talent and capital will be focused on creating fun games and sustainable economies. Even still, it will take time for the majors to release polished crypto games. There is much left to figure out when integrating NFTs into games. Indeed, despite impressive revenue growth, it’s important to remember how early we are and how many barriers (e.g., UX, regulatory, economy design, etc.) must be overcome. For example, DappRadar reports data on just over 1,100 gaming dapps. This is far fewer than the early days of mobile gaming.

Right now, the long-term future looks bright for the blockchain gaming space. The major publishers aligning with that viewpoint is a good thing, in our view, and signals that more competition, capital, and games are on the horizon. We’ll keep you posted on any major developments in the future.

Other Key Developments

• Game7 will fund $500M to accelerate the adoption of blockchain gaming. Game7 is led by BitDAO and Forte with community partners including Alameda Research, Warner Music Studios, Solana Ventures, Polygon Studio, OP Games, and others.
• Gigi Levy Weiss is launching a new $450M NFX fund. The fund is looking to invest in a variety of areas including crypto gaming, marketplaces, fintech, and proptech.
• Mythical Games, the developer of the NFT-driven Blankos Block Party game, raised a $150M Series C round.
• FTX, Lightspeed, and Solana Ventures will invest $100M in Web 3 Gaming. The funding will support gaming studios and technology that integrate with the Solana blockchain.
• The Sandbox raised $93M to expand its virtual gaming world.
• Faraway raised $21M from Lightspeed Venture Partners & FTX. The funds will enable the company to build out more games with player-driven economies.
• Upland raised $18M for a virtual NFT real estate game.
• Core Loop raised $12M to develop a sandbox MMO using blockchain technology.
• Neon raised $10.5M and the funds will be used to build its blockchain first person shooter called Shrapnel.
• Mixi, a leading Japanese mobile game and app publisher, announced it will launch NFTs and games on Dapper Labs’ Flow blockchain. There are now more than 600 teams building on Flow.
• Discord walked back plans to integrate NFTs after negative user feedback.
• Lumikai's last blog post covers the various use cases for blockchain gaming.
• Katana, Sky Mavis’ decentralized exchange, went live. Katana allows people to exchange between assets, without the need of a traditional bank or other trusted third party via smart contracts.
• According to TechCrunch, the market for crypto-focused investing has been growing rapidly. There are now 64 companies worth $1 billion or more.
• EA declared that NFT and blockchain games are “the future of our industry”.
• Matthew Ball’s original metaverse essay was auctioned as an NFT and bought for 100 ETH or roughly $434,400.
• Multiple major gaming publishers indicated that they are investigating blockchain gaming, but these novel game economies may also attract attention from regulators, including the IRS.
• South Korean regulators ban NFT gaming on gambling concerns.
• Hackers stole $1M from the Phantom Galaxies community by exploiting the game’s Discord server.

Content Worth Consuming

The Wonders of Web3, How to Pick the Right Hill to Climb, Finding the Right Amount of Crypto Regulation, Friends with Benefits, and the Untapped Potential of NFTs (Chris Dixon and Naval Ravikant on The Tim Ferriss Show): Link

• This conversation takes place between Chris Dixon, General Partner at a16z Crypto, and Naval Ravikant, CEO at AngelList.
• “Denying and pushing back against NFTs and crypto is basically saying: ‘We’re not going to have a collectively owned future. We’re going to have a corporate-owned future, and we’re going to have a government-owned future.'”
• Web3 is not only better for the world, but it's going to be more popular than Web 2.

The 9 Types of Blockchain Gamers (Master of the Meta): Link

• According to Wikipedia and based on a 1996 paper by Richard Bartle, the Bartle taxonomy of player types is a classification of video game players according to their preferred actions and/or motivations within the game.
• The nine blockchain gamer types showcased are a function of a player’s key motivations to engage with blockchain games. Therefore, we expect players to have a mix of motivations when playing blockchain games.
• We can further break down each of the player types based on factors that truly define them, their key motivations to engage with the blockchain game, what kinds of on-chain assets they usually interact with, and how one can go about acquiring and retaining them.
• This thought framework helps put some structure around target audience and player motivation conversations while the future of play-to-earn continues to be built.

‘Play-to-Earn’ Gaming and How Work is Evolving in Web3 (Zoran Basich): Link

• Play-to-earn is part of broader trends — the changing relationship between players and platforms, new incentives for participants in blockchain-based networks, and the new internet era that is coming to be known as Web3.
• One of the key things is making sure that there continue to be different groups of players who are participating for different reasons and deriving different kinds of value.
• People creating the value should be participating in the upside. That’s really the core belief at the center of what’s happening with Web3.
• Gaming is going to be a key way in which the next hundreds of millions of users onboard into crypto because historically, it hasn’t been easy to get involved and the barrier to entry is pretty high.

Overcoming the resistance to blockchain games (Dean Takahashi): Link

• NFTs, cryptocurrency, and blockchain games have been tough to understand for developers, and consumers often have no clue how to use things like cryptocurrency wallets.
• Pre-blockchain, players invested billions of dollars into digital items in other online games without a tangible way to benefit from it beyond occasional gameplay advantages.
• Blockchain games are relatively new, and the use of NFTs within games opens up interesting possibilities for users to interact and collaborate. They also have the potential to make games more decentralized, democratic, and player focused.

Metaverse, Metaverse, Metaverse (Benedict Evans): Link

• Over and over again, the tech industry asks ‘what’s the next cycle?’
• One term that’s exploded beyond others, and broken out of tech Twitter into pitch decks at IT outsourcing companies with amazing speed, is ‘Metaverse’.
• The second thesis, quite widespread in tech today, is that games will, so to speak, break out of games. Hardcore, rich, immersive games have always been a big business.
• The final pixie dust to tie all of this together is NFTs - this year’s set of ideas for how crypto can get from pipes and rails to applications - to a Netscape moment.

Big thanks to Jimmy Stone for writing this report!