Market Update - October 2021

The blockchain gaming industry experienced dramatic growth in the past quarter. Both unique active wallets (a proxy for users) and transaction volume increased 100%+ and 750%+, respectively, quarter-over-quarter. As a result, gaming has become a trojan horse for broader blockchain adoption. As depicted below, DappRadar notes that games accounted for over half of blockchain wallet activity in the third quarter. This trend continued in October 2021 with gaming eclipsing 1M daily unique active wallets, on average, for the first time. Meanwhile, funding activity for blockchain games remains strong with Sky Mavis’ $152 million Series B round highlighting a busy month. We dive into these trends and their drivers in more detail below.

Source: DappRadar

Unique Active Wallets

  • Per DappRadar, blockchain gaming daily unique active wallets (UAWs) averaged 1.2 million in October 2021 or up 44% compared to September. This is the first month above a million UAWs! 
  • At 1 million UAWs, the blockchain gaming market is significantly smaller than the 2.7 billion gamers in the world.
  • 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.
Source: DappRadar

Top Games by Unique Active Wallets

  • The growth in UAW over the past month has mostly been driven by growth in Axie Infinity and Splinterlands wallet activity, which have increased 24% and 57%, respectively.
  • There is also a large disparity in wallet activity between titles. The top title by monthly UAWs, Alien Worlds, has 10x the activity as the number ten title, Jelly Squish.
  • The top titles are dominated by independent developers. Large traditional game publishers have yet to release any major blockchain game titles.
  • We believe that it’s a bit too early to break everything down by genre but hope to do that once more notable games are live.
Source: DappRadar

Unique Active Wallets by Protocol

  • According to DappRadar, WAX is the most popular blockchain for games as measured by UAWs. WAX games averaged over 350,000 daily UAWs in 3Q 2021. Alien Worlds, the top game by UAWs, drove most of this activity; however, remember that Alien Worlds has also faced bot problems.
  • Polygon has seen significant growth in UAWs in recent months. This growth was primarily driven by the release of Arc8 by Gamee, a casual blockchain-based mobile game. Polygon recently formed Polygon Studios and announced a $100 million fund to support blockchain gaming growth, so we would not be surprised to see further growth in UAWs in the future.
  • Ethereum is one of the few blockchains to see a decline in gaming activity. Ethereum’s relatively high and volatile transaction fees have led many games to move to or launch on Layer-2 or other Layer-1 blockchains.
  • It is important to note that DappRadar does not support every blockchain. For example, DappRadar only just began tracking Solana, which has several high-profile games (e.g., Aurory and Star Atlas) in development, and it does not currently track some popular Layer-2 chains like Immutable X or Ronin (but that may change soon). As a result, the below chart is not a perfect representation of wallet activity by protocol, but it’s still notable.
Source: DappRadar

Transaction Volume

  • According to DappRadar, blockchain games’ trading volumes grew 762% quarter-over-quarter in Q3 2021 to $2.32 billion. After a sequential decline in September 2021, October data suggests trading activity has returned to growth.
  • It’s important to note that DappRadar estimates that one project (Axie Infinity) accounted for $2.08 billion or ~90% of total trading volume in Q3 2021.
  • Annualizing the most recent quarter implies that the blockchain gaming NFT market is just under $10 billion. It is worth noting that this figure excludes fungible token transactions (e.g., Axie Infinity’s AXS). For context, the blockchain gaming NFT market size is significantly smaller than the $173 billion gaming and content IP market as measured by revenue.
Source: DappRadar

Top Games by Transaction Volume

  • The growth in transaction volume over the past month has been driven by growth in projects like LOSTPOETS, CyberKongz, and Farmers World. LOSTPOETS is a new project that benefited from its NFT mint. Farmers World has become one of the fastest growing NFT games since launching in August. Meanwhile, CyberKongz volumes have exploded after the project launched its BANANA token (that can be converted to fiat) as a reward to NFT holders.
  • Conversely, Aurory, Zed Run, and Parallel Alpha experienced large month-over-month declines in transaction volumes. Aurory, which has seen strong demand since its NFT mint in August, experienced a decline in volumes this month, as the team continues to work towards launching the game. Parallel Alpha minted its first trading cards in August, so it’s not surprising to see activity slow down in the months following a successful mint. Zed Run transaction activity has been volatile month-to-month but we’ll be tracking the longer-term trend.  
  • Like with UAWs, power curves dominate sales volumes too. The top blockchain gaming title by monthly sales volumes, Axie Infinity, has approximately 63 times more activity than the number ten title, NFT Worlds. Similar to the early days of crypto projects, we highly expect this top 10 composition to significantly change over the upcoming months as more projects go live.
  • We note that transaction activity for several titles (e.g., Aurory, CyberKongz) are related to the trading of avatar NFTs. These projects have announced plans to release a game(s) in the future, but transactions are not involving currently functional in-game items.
Source: Cryptoslam

Fundraising Events

  • There was over $364 million raised by blockchain game companies in October 2021. Sky Mavis’ $152 million Series B was the largest raise during the month by 2x - 3x.
  • October 2021 fundraising activity was down 65%+ from the over $1 billion of financings in September 2021, when Sorare ($680 million) and Dapper Labs ($250 million) raised major financing rounds. Month-to-month lumpiness is to be expected.
  • That said, October 2021 blockchain gaming fundraising activity is over 4x the $72 million raised in all of 2020, according to
  • We expect fundraising activity to remain strong in the near-term, given the amount of new blockchain and gaming-dedicated funds being formed (covered in more detail below).
Source: Various Sources

Top 3 Industry Developments

#1 Steam vs Epic: Different Takes on Distributing Blockchain Games?

This month Valve added a rule to its “What you shouldn’t publish on Steam” list that includes applications built on blockchain technology that issue or allow the exchange of cryptocurrencies or NFTs. This change was pointed out on Twitter by developer Space Pirate, who is working on an NFT based game.

Source: Age of Rust

According to Space Pirate, Steam’s decision was driven by its desire to not allow items that can be cashed out for real-world value on its platform. In our view, it’s likely that Valve wants to avoid any potential legal ramifications from an industry with a history of fraudulent activity and regulatory uncertainty. With regard to the latter point, we note that Steam’s CS:GO skins market restricts buyers to wait at least 7 days before they can re-list an item for sale. In this way, the company likely has a stronger argument against any purchases being made for the expectation of profit. Simply put, we think that Valve’s legal department is likely trying to protect the company from a hornet’s nest of issues. 

Shortly after news of Steam’s policy change broke, Epic told The Verge that it is “open” to blockchain games in its Epic Games Store “provided they follow the relevant laws, disclose their terms, and are age-rated by an appropriate group.” However, in September 2021, Epic Games’ CEO Tim Sweeney expressed similar concerns about NFTs.

While these two statements seem to be contradictory, Sweeney appears to be taking different approaches for Epic as a game developer versus Epic as a game distributor. This is a strong strategic announcement by Epic, which positions the company as forward thinking and open to supporting blockchain games. Much of crypto Twitter expressed this sentiment after the announcement. However, the part about “following relevant laws…” isn’t getting enough attention. How easy will it really be for blockchain game developers to convince Epic that their games comply with securities, anti-money laundering, intellectual property, etc. laws and regulations? Color us skeptical that the Epic Games Store becomes a bastion for blockchain games in the near-term.

Zooming back out for a minute, it’s important to consider the implications of large platforms refusing to distribute blockchain games. Steam is potentially the largest private US marketplace and the largest distributor of PC games. At the same time, the blockchain gaming industry’s trading volume grew 700%+ to $2.3 billion in 3Q 2021, and 50% of blockchain gamers use PCs. This young, emerging market is clearly a business opportunity for distribution platforms; it’s just a question of which platforms want to attack the opportunity and outcompete others who are trying to fill the void.

Source: DappRadar

Currently, blockchain games seem to primarily build awareness via word of mouth and Twitter, develop communities on Discord, and distribute directly to players via their first-party websites. One major positive of this approach is that blockchain games can circumvent centralized app store rakes entirely. Of course, a drawback is not having an obvious destination to access users. Community must be built from the ground up.

The process of actually installing and starting to play these games can be quite cumbersome, however. For example, to play Axie Infinity, players need to follow multiple steps, which include buying ETH on an exchange, creating a crypto wallet, creating a Ronin wallet, depositing the ETH in the Ronin wallet via a Ronin bridge, and then buying at least three Axies on the Axie NFT marketplace. And that’s all before a user’s even installed the game! 

Despite fragmented distribution and confusing UX, the blockchain gaming industry is growing rapidly. And perhaps, that’s the strongest validation of the industry’s product-market fit. There are, however, crypto-native start-ups trying to solve the distribution problem. For example,, Vulcan Forged, and OP Games are new platforms aiming to provide distribution for blockchain-based games. Meanwhile, crypto-native game studios like Mythical Games, Immutable X, and Sky Mavis have expressed interest in or have already begun allowing third-party developers to access their technology stack and/or their existing users. It’s potentially a massive opportunity, as long the industry continues on its current trajectory and legacy platforms continue to choose not to participate. 

It is difficult to speculate where things go from here. But, if history is any guide, we expect some amount of centralization in market structure. Web 2 has been dominated by platforms aggregating data and content. Even among NFT marketplaces, centralization has begun to take hold. According to DappRadar, the largest marketplace on Ethereum, OpenSea, has facilitated $2.9 billion transactions over the past thirty days compared to only $61 million of volume at the second largest marketplace on Ethereum. 

In video games, Steam came to dominate PC game distribution after its parent company Valve released successful titles like Half-Life 2 and required users to sign-up for Steam to play. Steam, as a destination home to a large number of PC gamers, then became a valuable platform for third-party developers to launch their games and acquire new users. In our opinion, crypto-native studios with successful titles and large existing user bases (like Sky Mavis’ Axie Infinity) are well-positioned to repeat Valve’s playbook, especially if incumbent platforms decide to sit on the sidelines. There’s just more competition today than Steam had many years back.

Regardless of how things play out with Steam, Epic, and other emerging distribution platforms, we’re excited to see how blockchain gaming’s distribution evolves over time. Will centralized platform(s) dominate or will grassroots community development continue to be the norm? Perhaps the most incredible thing to keep in mind is that industry growth has exploded in spite of its distribution challenges. Imagine what could happen when key friction points disappear.

#2: The Rise of Token Dedicated Funds and its Potential Implications

When it comes to dealmaking, the games industry is having quite the 2021. According to investment bank Drake Star Partners, the first nine months of 2021 saw $71 billion in 844 announced or closed deals. For VCs that focus on private placements, there was a record $9 billion raised over the period with $1.8 billion of that total invested into blockchain gaming companies. Importantly, this nearly $2 billion figure only includes equity-based investments and excludes any investments into fungible and non-fungible (“NFTs”) tokens. And there are several venture firms now raising capital around this strategy.

Source: GamesBeat

Indeed, October 2021 was busy for VCs announcing new funds in this emerging space. So far, this fund formation can be divided into three categories:

  1. Funds focused on both equity-based & token-based investments: Galaxy Interactive announced a $325 million fund that will make both equity and token investments in games and related technologies. 
  2. Funds focused on fungible & non-fungible token investments: BITKRAFT Ventures announced a $75 million fund focused on making token investments in blockchain games and digital entertainment. 
  3. Funds focused on only non-fungible token investments: Meta4 Capital announced a $100 million fund focused on making “rare” NFT investments with backing from well-known VC Andreessen Horowitz. 

It is important to note that the above categorization applies to traditional VC funds. Perhaps the first investors to pool assets to purchase gaming NFTs were gaming guilds, like Yield Guild Games (“YGG”). In addition to providing “scholarships” to gamers who can’t acquire the assets necessary to play and earn in games like Axie Infinity, YGG also has invested directly in game tokens themselves. However, these guilds are structured differently than the traditional VC funds discussed in this analysis. With the GP/LP structure of traditional VC funds, the fund’s GP manages fund activity. Conversely, YGG is structured as a decentralized autonomous organization (“DAO”) whereby YGG issues tokens that allows its holders to decide on many governance decisions. YGG’s recent token issuance raised $12.5 million and sold-out in 30 seconds. In short, YGG and other decentralized gaming guilds are also major buyers in this space.

Source: Yield Guild Games

For General Partners (“GPs”) of traditional VC funds, the decision to launch token-specific funds seems to be primarily driven by 1) dynamics around token investment size and 2) Limited Partners’ (“LPs”) concerns about regulatory risks. With regards to the former, token issuances (“mints”) are typically smaller and allocated across a wider pool of participants than a traditional venture round. As a result, a token allocation may not consistently meet a VC fund’s minimum check size, making a token strategy at odds with a traditional equity-based fund’s investment mandate.

On regulatory risk, there is still much uncertainty about how governments will treat fungible and non-fungible tokens. In the US, Gary Gensler, the Chairman of the Securities and Exchange Commission, has criticized crypto and suggested that the space needs stronger investor protections. Simply put, the rules are still being written in real-time. LPs who allocate capital to gaming VCs may be comfortable with venture risk but not this novel regulatory risk. BITKRAFT founder Jens Hilgers cites regulatory risk as one driver of their token fund formation in a recent interview with GamesBeat: “investing in tokens as an asset class is something where, after consultation with some of our LPs, we got to know that some of them are actually not comfortable investing in something that’s still — I don’t want to call it the regulatory wild west, but regulation is still in the making.”

In addition to new venture fund strategies, the amount of capital flowing into game-based tokens has a few other potential implications:

  1. More blockchain game projects. Projects usually complete an initial token mint prior to actually developing a game. Developers use proceeds from the token issuance to fund their project roadmap, which includes the game’s development. The process is similar to how Kickstarter works. With even more funding flowing into blockchain game tokens via fund formation, developers are likely to have more confidence that they can raise the funds necessary to execute on their game ideas, resulting in more blockchain game projects.
  2. Potential governance issues. Several blockchain games have announced governance tokens that allow holders to directly influence a project’s direction. The idea is to decentralize ownership among a game’s users and community. However, there could be governance issues if institutional investors -- who are primarily motivated by financial returns rather than fun gameplay -- end up centralizing ownership in a project by acquiring a sufficient number of tokens. Much like we see in public equity markets, are we going to see “activist” token funds emerge that re-shape the direction of projects? Will investors always play nice with gamers? VC firm Andreessen Horowitz has written extensively about governance and token delegation best practices. Among their decisions, a16z is transferring their voting rights to others so that these “delegates” can more actively participate in a project’s governance. This is similar to a shareholder proxy. Per its writing, a16z seeks individuals with diverse perspectives, alignment to the project’s success, commitment to the project, full independence from a16z, subject matter expertise, and a history of stewardship. While this approach is to be admired, we can imagine instances where issues arise and/or parties have an opportunity to act in bad faith.
  3. More funds to share with a game’s community. More funds flowing into token economies means that blockchain game studios have more funds to share with their communities. This dynamic can create a strong network effect that differentiates blockchain games from traditional ones. In doing so, certain metrics - such as UA costs and retention metrics - will likely benefit, all else equal. However, the longer-term success of blockchain game economies will still depend on attracting users who are not primarily motivated by financial returns, in our view.     
  4. Higher prices especially for rare and popular tokens. This is perhaps the most obvious. More capital chasing tokens will result in higher prices for fungible and non-fungible assets, all else equal. For example, a digital asset fundpurchased the rarest NFT in the Aurory project (a blockchain fantasy RPG) for 2,400 Solana tokens, equivalent to $384,000 at the time.

With the abundance of capital being raised, these are exciting times for the blockchain gaming ecosystem. At Naavik, we expect to see more token dedicated fund announcements in the coming months. And we will be watching closely how potential regulations and new funding strategies influence this fast emerging space.

#3: Concept Art House and the Race for Blockchain Gaming Talent

This month Concept Art House, which was founded in 2007 and creates art for game studios and NFT collectibles, announced a $25 million Series A financing. CEO James Zhang, whose first job was at LucasArts creating starfighters for Star Wars: Republic Commando, was a longtime art creator for video games. Over its decade-plus history, Concept Art House has helped ship more than 1,000 games, working on titles such as Call of Duty: Mobile, Fortnite, Game of Thrones: Conquest, Hearthstone, League of Legends, Magic: The Gathering, Marvel: Contest of Champions, NBA 2K series, Roblox, PlayerUnknown’s Battlegrounds, and more.

Adding to its prior successes, Concept Art House’s business has now been a major beneficiary of the NFT boom. The company supplies NFT projects with the art that gets used to sell collectibles to fans and gamers. For example, Concept Art House partnered with Gala Games to create an NFT “drop” for Frank Miller’s 30th anniversary of Sin City, with an original piece of art titled I Love You, Nancy Callahan selling for over $840,000.

Source: GamesBeat

Zhang described how the gaming NFT boom has driven a step-change in demand for the company’s services: 

“Ultimately, the thing that paid off and led to this higher valuation was blockchain gaming NFTs. We provide art content across different protocols. The top NFT projects are doing well with three or four-person art teams. And we’ve got this, like, shortage of people who are doing the art that’s needed in this space.”

Indeed, the blockchain gaming space has seen an influx in capital and valuations; however, company headcounts remain small. Gaming industry analyst Joost Van Dreunen recently did an excellent analysis of Linkedin data at top blockchain gaming companies. The analysis suggests that, despite billion dollar-plus valuations, most blockchain gaming companies currently have tens to a couple hundred employees. For example, Sorare, a company that was recently valued at $4.3 billion, only had 34 employees. Compare these figures to the 10,000 employees at Activision Blizzard and 11,000 at Electronic Arts.

Source: Joost van Dreunen

Clearly, blockchain gaming companies will be competing for new hires as they scale their businesses. They will also likely need to train employees as blockchain technology requires specialized skills (e.g., coding in Solidity, designing games where assets can leave the game environment). Given this reality, it’s interesting - albeit unsurprising - that Concept Art House’s investment round included several blockchain game studios (Animoca Brands, Gala Games, Dapper Labs) and executives (Gabby Dizon of Yield Guild Games, Jiho Zirlin of Axie Infinity). The company will allow blockchain game projects to outsource art conception and creation to a capable third party, assisting with the current talent bottleneck. Furthermore, it wouldn’t be surprising to see acquihires of companies like Concept Art House in the near- to intermediate-term. Meanwhile, other companies, like Forte, are offering end-to-end solutions for blockchain game developers, which includes support with token economy design and monetization.

Concept Art House is a good example of the diverse types of talent necessary to successfully launch a blockchain gaming project. Its successful fundraise also illustrates the demand for best-in-class teams in the midst of a NFT gold rush. While capital is abundant, Concept Art House reminds us that talent is a rare asset.

Other Key Developments

  • Centralized crypto exchanges Coinbase and FTX announced NFT platforms and trading.
  • Axie Infinity’s Sky Mavis raised a $152M Series B at a $3B valuation. Sky Mavis plans to build out a platform to "fuel the play-to-earn revolution". 
  • BITKRAFT Ventures launched a $75 million token fund that it will use to put money into blockchain gaming and digital entertainment investments.
  • Dapper Labs acquired Brud to launch a new business unit, Dapper Collectives, with the mission of bringing decentralized organizations to the mainstream.
  • Ethan Levy’s 5 reasons on why he switched his stance and became bullish on blockchain gaming.
  • OP Games will launch Arcadians, their first NFT collection. OP Games also raised $8.6M to build a blockchain gaming platform that will allow for third-party games.
  • NFT sci-fi card game Parallel raised at $500M valuation from Paradigm. The project has a fantasy storyline about humanity’s escape from space following an apocalyptic attempt to resolve a global energy crisis.
  • Facebook is planning to rebrand the company with a new name. Facebook wants its new name to reflect its focus on building the metaverse.
  • VC Fund NFX announced a $450M seed fund with focus at the intersection of gaming and web3. 
  • GreenPark Sports raised $31M ahead of its NFT drop. GreenPark is a mobile platform that targets communities of sports and esports fans.
  • Animoca Brands raised $65M at a $2.2B valuation from Ubisoft, Sequoia China, Dragonfly Capital, others. The new capital will be used to fund strategic investments and acquisitions, product development, and licenses for popular intellectual properties.
  • Genopets raised $8.3M to create a “Move-to-Earn” mobile game.
  • Laguna Games announced raising $5M to launch its digital pet game Crypto Unicorns. The developer will seed the marketplace with 10,000 Unicorn Egg nonfungbile tokens (NFTs) starting next month.
  • Treeverse raised a seed round at a $25M valuation. The company will use the funds to build its pixel-themed metaverse.
  • Jackson Dahl’s thread on crypto, gaming communities, and adoption. The role of anyone building the future is to look behind them and offer an outstretched hand.

Content Worth Consuming

Investing in Crypto Gaming with Gabby Dizon & Yield Guild Games (Metacast):  Link 

  • Naavik recently sat down with Gabby Dizon, co-founder of Yield Guild Games. 
  • Yield Guild Games is a play-to-earn gaming guild that invests in NFTs from blockchain virtual worlds and games, like Axie Infinity. 
  • In this conversation, Naavik discusses how Yield Guild Games evaluates investment opportunities, its operating and governance model, the growing value of blockchain gaming, and the future of the play-to-earn space.

Ultima Online, NFTs, and Player-Run Economies (Mobile Dev Memo): Link

  • How can NFTs be meaningfully implemented into games to stimulate player-led economies?
  • In this article, Eric Seufert proposes that Ultima Online provides a helpful framework to use in considering the use of NFTs to bolster a truly player-led game economy. 
  • Eric uses his own anecdotal history with the game to depict its state in the early years post-launch.

Blockchain Gaming with Piers Kicks (Tomorrow with Rovio): Link

  • Crypto has everyone’s attention, but its opportunities across the gaming industry are substantial. 
  • Piers Kicks is an expert in the ever-evolving crypto landscape, with a focus on opportunities across gaming, NFTs, and interactive media. 
  • He joins the Tomorrow with Rovio podcast and shares his perspective on the crypto space, thoughts on centralized versus decentralized markets, and the opportunities for players, creators and developers.

Discussing Decentralization’s Core Purpose, Trade-Offs, Declining Marginal Utility and DAO Decision-Making (Delphi Podcast): Link

  • Tom Shaughnessy, Delphi Digital Podcast Host and GP of Delphi Ventures, sits down with Haseeb Querishi, managing partner at Dragonfly Capital, a cross-border crypto venture fund. 
  • The two have a philosophical discussion on the topic of decentralization, covering its core purpose, the costly trade-offs, the declining marginal utility of pursuing decentralization, and much more.
  • Several of their insights are applicable to those wanting to build blockchain games.

Animoca Brands Spotlight (Master the Meta): Link

  • Animoca Brands has a variety of NFT projects under development and has also made minority strategic investments in blockchain games and gaming companies, like Star Atlas, Sky Mavis, Dapper Labs.
  • In some ways, Animoca Brands is a more active investor in web3 than many of the largest VC funds.

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