Top News

#1: The SEC Goes After NFTs

In a move that should make even pro-regulation crypto fans nervous the Market SEC is investigating Yuga Labs for both Bored Ape Yacht Club (BAYC) NFT sales and ApeCoin distribution, according to a Bloomberg source. Thankfully, no charges or accusations have been raised so far; it’s merely a probe that the company is fully cooperating with. Those who‘ve followed the SEC’s stance on crypto regulation may have seen this coming based on public comments and the high profile of BAYC in general. Given his past career, many believed SEC Chairman Gary Gensler would be an ally of crypto, but ever since he took the role in April 2021, he’s acted with a vendetta against the industry. The aggressive regulatory activity has seemed at times to stem from jurisdiction against the SEC counterpart in derivatives of the Commodity Futures Trading Commission. With precedence being such an important part of US law, there seems to be a race to see who will regulate first in order to establish territory between the SEC and CFTC. Gensler has gone as far as stating that “nearly any other crypto token besides Bitcoin could be a security.”

While Yuga Labs is currently the main target of investigation, the SEC has also been investigating whether or not NFTs are being used to raise money similar to traditional securities (and thus fall under its jurisdiction). In a recent case against the Kardashians, the SEC used the term ‘securities’ multiple times. Last month, with the hype over The Merge, Gensler even suggested that proof-of-stake networks may also be required to comply with securities laws around stocks and bonds despite what seem like some clear mismatches. In general, securities are “fungible and tradable financial instruments used to raise capital in public and private markets,” and among the three types of securities (equity, debt, and hybrids), crypto assets seem to fall closest to equity. An equity is usually based on the ownership shares, and its purpose is often to create earnings in the form of dividends while also being subject to market or business valuation fluctuations. There is precedent, however, for works of art to be treated as securities under certain conditions.

In terms of Yuga-Labs-related projects, BAYC does have some relevant properties. While the art assets don’t necessarily provide dividends just for holding them, they do confer various access benefits around the community and events, as well as IP rights that have already been used commercially for profit. There are other similar NFT projects such as Bored Ape Kennel Club, Mutant Ape Yacht Club, and The Otherside with benefits for BAYC holders. This is where NFT projects will need to be careful as there is a push for greater NFT “utility,” which raises the odds of SEC involvement.

The probe is also focused on the distribution of ApeCoins. The ApeCoin situation may be trickier for the SEC since Yuga Labs is not officially associated with ApeCoins; it was issued by the legal organization, the Ape Foundation, and is governed by the ApeCoin DAO. Of course, there is some direct connection in the form of a 16% token distribution to Yuga Labs. This may turn out to be a sticky legal situation for the SEC, but it’s clearly motivated to at least consider its options.

Even though this is simply a probe at the moment, the implications of any legal or regulatory action could be tremendous for all of web3. After all, Yuga Lab’s projects have served as a blueprint for many in the space. Ensnaring NFTs, tokens, blockchains, and even DAOs into the (unfriendly) domain of the SEC or CFTC might lead to nearly insurmountable difficulties for most innovators in the space. There’s obviously been a desire for regulatory clarity around crypto for years, especially given how common “rug pulls” have been, but the fear of said clarity being overly negative is quite real. We are not lawyers and won’t offer any legal advice on this situation (although we know people who do if you need help!), but we hope that sensible logic trumps political motivation in order to preserve innovation while still intelligently protecting the general population.

#2: Shrapnel Shows Off Its Economy and Gameplay

Shrapnel, an upcoming web3 extraction shooter, previously revealed some project details in its original whitepaper, but it just released a far more detailed economy paper. The project is important because it not only represents a high-quality AAA game in the burgeoning genre of extraction shooters, but it also has a very well thought out player creation economy design. User-Generated Content (UGC) has become a hot topic in relation to web3 because of the potential for earnings through tokens and ownership through NFTs. Interestingly, Shrapnel refers to it as Player-Created Content (PCC) in the document, but the premise is the same. Rather than being part of a bolted-on system or mod creation tool, PCC is deeply ingrained in the gameplay as well as in the economy and meta gameplay loops. Realistically, though, it’s fair to say that the gameplay integration is more akin to crafting than full-fledged UGC, with the UGC-like parts focused on vanity gear and map creation.

Instead of differentiating between utility and governance tokens, Shrapnel sticks to a single token economy with a token called SHRAP. It is used as a utility token in the marketplace and for minting fees while at the same time acting as more of a governance token as part of the PCC staking, voting, and curation systems. This also means that the token distribution is divided into multiple pools around gameplay, creator, and ownership rewards. Even though the token acts as the medium of exchange, it's really the NFTs that underpin much of the economy in the form of gear, maps, and land. The gameplay itself revolves around acquiring gear and extracting it with varying levels of risk and reward. There are multiple crafting, minting, and burning systems around the gear and components, as well as a marketplace functionality provided by both players and Shrapnel for buying and selling. There is also the vanity/cosmetic system in which the PCC part interacts with the gear to support creators as part of the economy.

Map creation and land ownership form a symbiotic relationship that binds creators and landowners to a degree that most games haven’t achieved yet. With gameplay unfolding on maps that can be player-created, there naturally has to be a way for quality maps to surface and their creators be rewarded. Rather than just leave this to a simple voting or rating system, Shrapnel ties map status to land and, as a side effect, created another type of economic participant — the Curator. There is curation of vanity gear with various rewards, but it’s a more straightforward endeavor. Map curation, on the other hand, can involve acting as a middleman between map creators and landowners to both discover and broker deals for the benefit of all three parties. This happens through maps needing to exist on land (one map per land), and the land consists of different tiers of player discoverability and rewards.

There is an entry-level map called No Man’s Land, which has very little player exposure. Curation begins at the next level of land, Arena, of which 84 land NFTs will exist. Arena maps have exposure by default but can be boosted by staking and activity performance. This acts as both a voting system and a rating system to elevate a map in status and reward map creators, curators, and landowners. Maps that reach the top six of Arena status can be swapped for the bottom six of the next tier (the Podium), which acts as a more direct form of map competition. Interestingly, Shrapnel again changes ownership personas here as Podium landowners don’t engage with curators but simply act as larger stakeholders and community participants.

The economy paper also goes into great detail about how the economy balances around sources of gear through player and map seeding, as well as sinks through crafting and player loss. The system’s balance seems very well designed to scale with the player count while keeping rewards and costs from spiraling out of control. There are a number of levers mentioned as safeguards and variables yet to be calculated, but they showcase a good amount of foresight and learning from the problems of existing economies. The economic loops should provide a good balance of inflation and deflation, depending on where things shift. The real test will be whether or not the gameplay loop is compelling enough to fuel economic demand, especially for player-created content. Much of this will come down to a mix between well-made in-house content and polished tools for creators and players to interact with the other systems. Luckily, the team is fairly experienced in working with Unreal Engine and seems confident in its ability to build tools, but we have yet to see any of it.

The Shrapnel team showed off in-engine alpha gameplay that gives a strong Call of Duty vibe, which could bring in large numbers of gamers compared to many of the tamer web3 game experiences. The video demonstrates a fast-paced FPS experience across multiple rooftops with standard FPS gunplay, such as hip-fire, aiming down sights, recoil, and reloading. There was a fair amount of camera wobble that we imagine will be toned down to avoid making players seasick, but it’s clearly meant to convey a sense of speed and action. Both the previously released trailer and the new gameplay footage demonstrate that using Unreal Engine 5 provides high production value, which should help attract players. While many gameplay mechanics are likely not on display here, it seems clear that most FPS gamers will get familiar with the game pretty quickly. Assuming the polish and depth of the final release are up to expectations, the game should be an easy sell, at least initially.

Game Launch Radar

• Axie Infinity: Raylights, the previously announced land minigame, is live for landowners. Link
• Guild of Guardians announced a roadmap update that pushes the game launch to 2023. Link
• Metalcore announced an Open World Alpha for NFT owners and a waitlist starting October 13th. Link
• Revolving Games revealed details and a teaser for its upcoming Skyborne Legacy game. Link
• BoomLand revealed a trailer for its upcoming Hunters On-Chain game. Link

Other Game Announcements

• Fuzzles announced a mint for a new series of Fuzzles and a minigame for Fuzzle owners. Link
• Voxie Tactics announced Season 0 rewards. Link
• MotoGP Ignition launched its Championship Tournament. Link
• Crabada revamped its battle game and announced the discontinuing of its idle game. Link
• Cryptoblades launched its Octoblades event with major rewards and discounts. Link
• Arc8 launched G-Bot NFT upgrades and breeding. Link
• Synergy Land announced a crafting feature. Link
• Big Time released a large update with fixes and gameplay improvements. Link
• Infinity Arena released its marketplace and mining game. Link
• Gods Unchained announced a change to circulating supply of the GODS token. Link
• Crypto Unicorns released a gameplay trailer for its upcoming Jousting game. Link
• War Park revealed information on its in-game economy and tank NFTs. Link
• SolChicks launched its Catheon gaming ecosystem with 25 live games. Link
• W3E announced a $15K prize pool Ev.io tournament as part of Istanbul blockchain week. Link
• Decentraland welcomed an on-chain casino and responded to confusion over its DAU/MAU numbers. Link
• X-Metaverse launched Grand Prix Phase 9 with multiple economy adjustments. Link

Funding Announcements

• Homa Games raised $100M to scale its tech in a Series B co-led by Quadrille Capital and Headline. Link
• Flowstate Games raised $2M in a pre-seed round for its car combat game, Smash Stars: Thunderdome, led by Play Ventures Future Fund. Link
• Tribo raised $1.17M for an unrevealed web3 F2P multiplayer game from Play Ventures, Sisu Game Ventures, and Joakim Achrén. Link
• Muus Collective raised $5M for its fashion-centric studio led by Griffin Gaming Partners. Link
• Golden, a web3 data company, raised $40M in a Series B funding round led by Andreessen Horowitz. Link
• Metav.rs, a metaverse consultant, raised €3M in a round led by Jsquare, consulting firm SIA Partners, and the 50 Partners investment fund. Link
• AlterVerse raised an undisclosed amount of funding from a range of venture capital firms, including Binance Labs and Polygon Ventures. Link

Ecosystem Updates

• Mythical Games created the Mythos Foundation with participating companies including Ubisoft, Krafton, Netmarble, Kakao Games, and five companies not ready to be named. Link
• Polygon announced the launch of its zkEVM public testnet with a goal of mainnet launch in 2023. Link
• Joyride announced Joyride Wallet for easier onboarding of its mobile games. Link
• Matterverse announced 10 partners for its metaverse platform, including Digifun, Magipop, MetaStreetMarket, NetEase, StarHeir, AptosYo, WonderfulDay, Voka AI, and more. Link
• Japan’s Prime Minister announced further investment in web3. Link
• Oasys announced a partnership with TofuNFT to support its expansion. Link
• Google announced a partnership with Coinbase to expand cloud services. Link
• Ready Player Me launched an API for its cross-game avatar system. Link

Notable Market Moves

• Unfortunately, the entire crypto market faced a tough downward week. Bitcoin and Ethereum fell approximately 6%, and the rest of the market followed.
• StepN performed roughly the least worst out of the top 10 blockchain game related tokens, but news around the project isn’t great. Rumors of layoffs and absorption by the parent company, Find Satoshi Lab, led some to believe that the project is winding down despite StepN itself denying this. Regardless of assurances, this may create doubts that cause many GMT holders to sell.
• Wax also held up better than most other tokens this week, perhaps because of two announcements: 1) Forge Arena will be available on the Epic Games Store, and 2) the release of an open beta of Blockchain Brawlers.
• Sky Mavis is trying to stop the bleeding of AXS, which most recently is caused by negative reports around low player counts and weak engagement for Axie Infinity: Origin. While the release of Raylights may help keep land holders occupied, it isn’t going to increase player count for the main game. In an effort to instill confidence in AXS, Sky Mavis put out a Twitter thread announcing that it would stake nearly 11.5M AXS from its balance sheet. However, with Origin being the supposed pivot point, there aren’t a lot of tricks up Sky Mavis’ sleeve to turn things around without growing interest in spending money in the game.
• Recent debates over Decentraland’s active user counts have bled over into questioning the value of The Sandbox, which increased the downward pressure on both MANA and SAND tokens. While the Alpha seasons may bring some renewed interest in brand partnerships and incremental platform improvements, they aren’t driving any significant interest in the SAND token or land purchasing. At this point, it may be worth looking at managing a wider release than simply Alpha experiences to drive economic growth.
• As usual, we recommend you look long-term, especially in tough weeks, towards the technology’s potential. Individual projects could come and go, and some on this list may not be around in 2023, but there’s a large and exciting pipeline of other games being developed.

Content Worth Consuming

Coda Labs: Global poll shows gamers haven’t embraced Web3 games yet (Venture Beat) - “About 37% of the gamers who are playing Web3 games do so because they can earn money. About 45% of crypto non-gamers and 60% of crypto gamers also play because they can earn money. That is, money is the motivator. Can Gökalp said, ‘That is going to be a problem because the real motivator ought to be fun.’ Do players like them? Sort of. Once they gave Web3 and NFT games a chance, players rated them 7.1 out of 10. The overall feeling of all surveyed gamers was around 4.5 out of 10, or close to neutral. Crypto natives rated the games at 8.1 out of 10.” Link

Overcoming negative NFT hype for ordinary gamers (Blockchain Gamer) - “At the online conference Pocket Gamer Connects London 2022, Sean Kauppinen (Hiber), Nick Sadler (Goldfinch), Kim Soares (Social First), Tsahi Liberman (Lightneer), and Bozena Rezab (GAMEE) discuss the stigma that ordinary gamers have when it comes to NFTs. They talk about the nuances of introducing blockchain games to mass market users. How to best set up wallets, security issues that developers need to solve, the fact that gamers are not financial experts, and how can developers make things simple to understand without the steep learning curve are all things that are addressed in the talk.” Link

Metaverse builder Improbable says most metaverse land is mispriced (The Block) - “In this episode of The Scoop, Improbable’s founders, CEO Herman Narula and Chief Product Officer Rob Whitehead, explain how they believe the metaverse creates value, and why developing entirely new experiences is crucial for success. According to Narula, nothing 'metaverse'-related will be able to retain value without authentic engagement.” Link

Sky Mavis co-founder Leonard Larsen is determined to prove Axie Infinity’s critics wrong (The Block) - “’We have designed it in a way so that the economy is more sustainable and able to handle these users, especially when we look at the SLP ratio being burned,’ Leonard Larsen said. ‘There are things inside the game that are circulating out of production on a, let’s say, 6-8 weekly basis. So, that really means that for people to compete, they need to commit more capital by that season and then spend money to be able to earn something.’” Link

Why Transcend Fund believes the opportunity for game investments is only getting bigger (Venture Beat) - “He noted that some analysts estimate the video game industry will generate over $500B by 2028, and recent reports from McKinsey and Goldman Sachs note the key role of games in the multi-trillion-dollar potential of the metaverse. According to Pitchbook data, Transcend’s first fund is already in the top quartile of returns for all 2020 vintage venture funds. In two years, Transcend has built an industry-leading portfolio of nearly 30 companies, including one unicorn and the creators of several of the most hotly anticipated titles in the space.” Link

From Starbucks to Soapy Joe’s: Web3 and Customer Loyalty (Kazm Blog) - “Web3 adoption will reach diverse audiences at all levels of scale. Starbucks is a publicly traded international coffee goliath with one of the most recognized brands in the world. In contrast, Soapy Joe’s is a regional car wash company whose signature branding involves a kitschy air freshener. That these very distinct companies are both revving up their customer loyalty programs with NFTs is just further evidence that web3 adoption isn’t coming, it’s already here. And it’s unfolding simultaneously across dramatically different operational scales. Even further, it can be targeted to all types of customers. The fact that car wash customers — who are rarely thought of as tech-savvy early adopters — were so engaged by the NFT promotion speaks volumes about the potential for web3 tools to reach large and diverse audiences.” Link

Ryan Wyatt: Polygon’s Quest for Scale (The Metacast by Naavik) - “In this episode, the CEO of Polygon Studios joins Naavik co-founder to discuss how Polygon Studios works, its grand ambitions, why teams should consider using it as their Layer 2 of choice, what Ryan learned about “excellence in scaling” at YouTube, how running a web3 business presents unique challenges, what will unlock the next phase of growth for blockchain games, advice to teams during ‘crypto winter,’ why he doesn’t worry about educating gamers, and, as a venture partner at BITKRAFT, what other trends in gaming excite him.” Link

Aqua CEO Sean Ryan on building a better Web3 NFT marketplace (Deconstructor of Fun) - “Sean Ryan has a deep history in gaming, from his highly innovative involvement in Sega's early online plays to a decade-long stint overseeing gaming partnerships at Facebook. But as this is Tokenomics, of course he's here because he's red-pilled on Web3 gaming as the CEO of NFT marketplace AQUA. In this episode, Ethan talks to Sean about his history in gaming, how Ethan is a verified Sega Boi, and the opportunity he sees that brought him to AQUA to build a new gaming-focused NFT marketplace.” Link