Top News
#1: Battle of the Layer 2s
While Ethereum is an open platform with no company to represent it, the Layer 2 networks building on it are primarily business-driven platforms. Like many other networks, Layer 2s naturally live or die based on two-sided network effects — both on the supply side (projects choosing to build there) and demand side (users flocking to projects on that chain) — and those who see their network effects accelerate are the ones who ultimately grab meaningful market share. While there are a number of smaller blockchains focusing heavily on games, like Oasys and Wemix, the fight over the larger Layer 2 pie has been heating up mainly between Polygon and Immutable.
Polygon has long appeared like an early winner in the space, because its EVM compatibility attracted teams who wanted to stay on (or start with) Ethereum, and its sidechain enables superior scale out of the gate (and is easy to port to). Polygon focuses on more than games, but it’s still been a top choice for games teams.
Immutable’s success was also a result of solving for the same Ethereum-based scalability issue, but it was actually originally built for a specific game — Gods Unchained. Building for an actual game and gaming marketplace has its advantages; the team can tailor the infrastructure and capabilities exactly for what most games would need (versus being more general). However, it also means — at least in the case of Immutable — that it takes a bit longer to open up to third parties (similar to Sky Mavis’ Ronin network, too). Additionally, Immutable started with some interesting benefits such as gas-free trading and an early Starkware ZK-Rollup technology, which Polygon is still trying to move into post testnet status.
As Polygon gained traction, it picked up Ryan Wyatt from YouTube Gaming to be the CEO of its business side, Polygon Studios. Wyatt and Polygon Studios have done an incredible job ramping up both fundraising and business development (getting huge wins like partnering with Stripe, Meta, Disney, Starbucks, and many others), but lately they’ve been facing significant competition from Immutable when it comes specifically to games. After all, when picking a blockchain to develop on, game developers lean toward what’s tailor-made for gaming as well as who is willing to provide the most technical and financial support.
After Polygon Studios started using its funds to woo developers, Immutable saw an opportunity to do the same. With Gods Unchained helping to flesh out the technology side, Immutable obtained some significant fundraising and immediately began looking to attract games to its platform. A big early win was Illuvium, which attracted significant attention and signaled that Immutable was open to big third-party games. Immutable’s internal reinvesting into other games like the forthcoming Guild of Guardians also shows the company’s outsized dedication to gaming above all.
One could compare the battle of Layer 2s to the earlier battles of consoles and storefronts; only so many networks can achieve tremendous scale. Unlike consoles, though, most web3 games are usually exclusive to a single chain (with a few exceptions), so the fight to bring high-profile games into the fold is even more important. Therefore, rather than convince game developers to add support for Immutable in addition to Polygon, Immutable has successfully gotten games to change chains mid-development. Ember Sword and Delysium are two notable examples of games that have been poached from Polygon in recent months thanks to funding partnerships. The two blockchains also competed over taking in refugee titles from the collapsed Terra blockchain, with Immutable snagging Deviants’ Factions and Undead Blocks, and Polygon getting Derby Stars along with many dApps. The poaching isn't one way either, as games such as MetalCore switched from Immutable to Polygon.
While both blockchains are Layer 2 networks on top of Ethereum, transferring assets around the whole ecosystem is still far from trivial or cheap due to Ethereum‘s relatively pricey gas fees. The two networks often rely on on-ramp providers such as Ramp (Skyweaver) and MoonPay (Gods Unchained) to avoid the high cost of buying tokens for fiat on Ethereum and then bridging them. In general, players will be pretty hesitant to try and bridge any assets between Polygon and Immutable, at least anytime soon. The question then is whether Polygon’s broader dApp economy competes well against Immutable’s gas-free trading.
Allowing players to trade assets gas-free has been a concern for many game developers who are looking to make money from transaction royalties. That said, Immutable has another ace up its sleeve with the recent announcement of enforcing royalties at a blockchain level and expanding that to Ethereum through “allowlists.” This, combined with the ZK-Rollup scalability tech, gives Immutable a fairly strong advantage.
It’s also worth noting the short-term success of the Immutable’s GameStop partnership, which has led to significant marketplace volumes and Gods Unchained bonuses for GameStop members. As a reminder, the partnership entails Immutable being the Layer 2 of GameStop’s NFT marketplace, and they established a $100M fund in IMX tokens to grant reward to web3 creators in their ecosystem. As Immutable looks to eventually bring in more traditional gamers, being linked to GameStop may provide some solid leverage; of course, GameStop isn’t exactly the same force in the industry that it used to be.
So far, none of the hyped next-gen web3 games have been released, so there is still plenty of potential for both blockchains (or others!) to capture market share. We look forward to both networks continuing to drive games forward alongside other non-Ethereum blockchains like Solana and Avalanche. There’s room for a handful of winners, and at the end of the day it’s players who should ultimately benefit the most from this competition — with better funded and supported games, faster and cheaper transactions, and more user-friendly platforms.
#2: More Ripples from the FTX Bankruptcy
As we noted last week, the situation around FTX continues to unfold. Again, there are many non-gaming aspects we won’t hit on, but when it comes to games, the largest and most common issue we see is teams that lost funds because they were stored on FTX.
Star Atlas may have been the worst hit; while the team didn't lose its entire savings in the FTX freeze, it did lose a meaningful chunk of its liquid cash assets. As CEO Michael Wagner stated, “While previously we had multiple years of runway given current operations ahead of us, that has presently been reduced by approximately one half.” Star Atlas’ runway has been cut from 20-24 months to just 9 now. The developer is still confident in its ability to deliver, but this could lead to further issues if not careful, such as needing to operate more leanly or pushing back the release schedule. In order to shore up the liquidity issues, the company is now looking to raise funds from VCs, which is going to be a bit harder and likely more dilutive in the current environment.
This highlights important issues around accounting, fund management, and security for web3 games, which often hold significant non-cash assets. We have previously seen issues of mismanagement of funds, but clearly the risk of centralized storage and transparency has been high, too. Many games teams have come out with statements making it clear whether or not they were affected by the FTX fallout, but it still begs the question of how much transparency game developers should have when entrusting assets to certain platforms. Hopefully, other games are looking to shift assets over to safer locations like cold wallets.
One potential issue is that moving funds en masse could trigger some type of bank run, which is what caused the liquidity crunch for FTX. We may be seeing this issue play out on Gemini (the exchange platform founded by the Winklevoss twins), too. The company’s Earn product, which was popularly used as a high-yielding savings account of sorts, has halted redemptions, because its chief lending partner, Genesis Global Capital, has hundreds of millions tied up in FTX. And this has caused lots of asset movement off of Gemini as a whole. We’ll see how the Gemini story shakes out and whether other companies face similar issues. However, it really does enforce two obvious and long-spoken truths: 1) don’t store important money on centralized exchanges (not your keys, not your coins), and 2) high yields are never risk-free.
Unfortunately, this is unlikely to be the last in a chain of troubles for crypto companies tied in some way to FTX. We are likely to see more liquidity issues, and some teams are likely still figuring out how to rethink their runways / fundraising / future plans in light of lost funds.
Confusion around what exactly happened with FTX continues to spread, no thanks to founder/ex-CEO Sam Bankman-Fried’s weird tweets, strange interviews, and ethically disturbing puff pieces from traditional media (namely the New York Times). The likely outcome of this situation is a renewed push for regulation, which should eventually do some good in terms of better enforcing trust in these major centralized players. Also, with game developers already doing a lot of fundraising via somewhat dubious strategies (like IDOs) and regulators sniffing around, it's probably going to become a tougher environment in 2023 for web3 business models, at least in certain jurisdictions.
As we said last week, everything about this FTX news is sad, unfortunate, and maddening. It reduces trust, sets the industry back, and makes it evident that there’s much more work to be done for the industry to grow up and mature out of the Wild West situation we are currently in. It won’t happen immediately, and there will likely be more shocks, but we’re optimistic that the next wave of fun-centric games will at least move our corner of the industry in a more positive direction.
Upcoming Game Announcements
- FIFA announced that its future non-EA games will be blockchain-focused with four partnerships. Link
- Sorare announced a partnership with 18 national soccer teams to launch a new game called Sorare: Global Cup ‘22. Link
- The Apocalyptics revealed details of its web3 RTS game. Link
- Phantom Galaxies released a new Proof of Experience NFT for its Astrafite Rush event. Link
- Animoca Brands announced a new chess game, Anichess, that adds powers to chess. Link
- Illuvium released some significant development updates. Link
- Kongregate launched an open beta for its first Bitverse game, Bit Heroes Arena. Link
- Zoids Wild NFT Arena, a trading card game that incorporates units from the Zoids Wild franchise, launched a beta. Link
- Big Time released its 0.23 patch update. Link
- Polycade announced a new kind of arcade machine you can hang on a wall and partnered with Atari for a collaboration called Polycade Limiteds. Link
- Puffverse announced the launch of a PuffGo Football beta for November 20th. Link
- Superior is now on sale for early access on Steam without web3 features. Link
- Fortitude launched a second alpha playtest. Link
- Myria launched an alpha of farming game Moonville. Link
- 9Tales launched an open alpha. Link
Live Game Announcements
- Roblox announced it will integrate NFTs but downplayed the terminology to avoid backlash. Link
- Gods Unchained announced Community Contests and cosmetic cross-chain migration.
- Decentraland launched a new feature to improve spatial navigation. Link
- Splinterlands announced additional utility and features for its new Runi PFP/Card hybrid NFTs. Link
- Nine Chronicles announced details of its upcoming Arena Championship 2. Link
- The Sandbox announced a partnership with Argentinian digital agency LEAPR Studio to increase metaverse exposure in Latin America. Link
- Undead Blocks announced a partnership with GameStop to release new Loot Coffin NFTs on its marketplace. Link
- Clash of Moland launched its Season 3 update. Link
- Sorare launched an NBA daily drop feature to increase collection flexibility. Link
- Com2uS Holdings launched a new fantasy game on the XPLA mainnet called Dear, Ella. Link
- Yuga Labs has acquired 10KTF, an NFT game created by popular artist Beeple with hints of integration into The Otherside. Link
- Axes Metaverse launched its top-down, fantasy-themed, PvP, battle royale brawler Axes: Battleground. Link
- Yumon launched its fantasy-sports-like game based around influencers. Link
Funding Announcements
- Ramp raised $70M for its on-ramp infrastructure in a Series B round co-led by Mubadala Capital and Korelya Capital. Link
- Matter Labs raised $200M for its zkSync 2.0 network in a Series C round led by Blockchain Capital and Dragonfly. Link
- Theia Studios raised $2.4M for a decentralized modding platform for strategy games. Link
- Notifi raised $10M for its cross-chain messaging layer in a seed round led by Hashed and Race Capital. Link
Ecosystem Updates
- Japanese messaging app Line launched a new NFT marketplace through its LineNext NFT arm hosted by DOSI, a successful NFT platform it runs. Link
- Polygon announced a deal to help an airport enter metaverse territory. Link
- Optimism developers released a tool called Magic Mirror for mirroring Ethereum NFTs onto the Optimism blockchain. Link
- Binance announced plans to help mitigate the kind of damage done by FTX’s collapse with a crypto recovery fund. Link
- Gala Games is now accepting direct credit card payments for items and services. Link
- Layer 1 blockchain Aptos announced a partnership with South Korean gaming studio Npixel to bring Web3 tech to its platform. Link
Notable Market Moves
- Overall, the crypto market continues to feel the aftershocks from FTX’s bankruptcy. Of course, some networks and projects fared better than others; for example, Polygon’s MATIC token performed decently while Solana’s SOL token still suffered heavily. Among the game tokens, there was a fair bit of mirroring the market, with a few exceptions.
- ApeCoin suffered quite a bit this week in relation to the FTX collapse. Initially, there was a rumor that Yuga Labs had 18K ETH stuck in Blockfolio which was acquired by FTX. Yuga Labs replied that it was in FTX.us and hence could be moved out to Coinbase successfully, so we may see some recovery next week.
- Decentraland also saw a pretty significant drop despite reports from Decentraland itself that the Music Festival it ran gave the platform a notable, if temporary, boost.
- AXS had an interesting week thanks to a compromised Binance account causing a huge pump and dump of the coin.
- StepN saw slight gains this week thanks to excitement over its new ASICS partnership. The StepN team had talked about wanting to do partnerships with physical fitness brands for some time, and this was a pretty significant one.
- As always, we remind you to remain long-term-focused. FTX falling apart likely won’t be anywhere near the last major shock to the system, but at the end of the day creating great, sustainable games that players want to play at scale is what matters most. That will continue to be the main thing we focus on throughout all the other noise.
Content Worth Consuming
- Web3 gaming needs to get away from speculation (VentureBeat) - “An argument can be made that virtual land has a certain scarcity, but even that kind of falls flat if you really think about it. That’s still speculation. It’s all digital. People can fly. Portals exist. Instances exist. Owning land isn’t nearly as valuable as developers are treating it. To me, it looks like developers are looking at Bitcoin, seeing that the well eventually runs dry, and collectively deciding that that is the point. There are only 500 of this specific item, ever, in this game, therefore the item is valuable. But we all know there could be an unlimited amount of items. Gamers generally will eventually wise up to things. Web3 needs to distance itself before that happens, or it’s maybe too late. Artificial scarcity with no real reason for it is a surefire way to push out players, let alone drawing new players in.” Link
- DeFi, NFTs, and Game Dapps Affected by the FTX Crypto Crisis (DappRadar) - “FTX, through its FTX Ventures arm alongside Alameda Research, invested in countless Web3 projects. For some, they provided funding. Others had their entire treasury on the exchange. Some projects are fast to show transparency, and they have no underlying reliance on FTX or Alameda Research in an attempt to calm the nerves of their investors and communities. Others are still looking at the situation to assess the full scale of the impact.” Link
- Removing the stigma from NFTs (VentureBeat) - “Players have, mostly, rejected any and all NFT additions to popular games. As mentioned earlier by Brooks Brown, a lot of current NFT offerings are there to monetize a group of players. Much like owning a collectible, the hope is that your NFT will increase in value monetarily. However, outside of the crypto world, gamers aren’t that interested in a fancy bauble. Players want something they can use.” Link
- Why MystenLabs raised $300M to build a better Layer 1 for web3 gaming (Deconstructor of Fun) - “It's big #20! In this latest episode of Tokenomics, Ethan sits down with Koh Kim, Head of Ecosystem at Sui maker MystenLabs. The company, formed by ex-Meta veterans, has raised a $300m treasure trove to build a new and better Layer 1 blockchain purpose-built for Web3 gaming. Koh tells us about her history in gaming, how she red-pilled on Web3, why she joined up with Mysten, and how the Sui blockchain is the Layer 1 that will allow game devs like you and me to build better Web3 game experiences.” Link
- How to choose a blockchain + FTX? (The Metacast by Naavik) - “Should you build your game on Solana or Polygon? L1, L2, or sidechain? What are the technical, financial, ideological, and game design frameworks a web3 developer should think about when making this decision? In this week’s episode, your host, Alex Takei, talks all things chain choice with Aron Beierschmitt, CEO of Laguna Games, the studio responsible for Crypto Unicorns, and Sridhar Muppidi, co-founder of YesGnome, a skill-based mobile gaming company. Plus, hot takes on the FTX debacle and what implications it might have for Solana given SOL is Alameda’s second largest token ecosystem holding.” Link
