Why is everyone building Crypto Game platforms?
Recently, DeGame released the GameFi track analysis report for Q1 2023. VeDAO Research Institute observed some interesting data in the report, reflecting the current development status of the GameFi industry and also making certain forward-looking predictions for the track's future. Therefore, in this article, VeDAO Research Institute will explore the development context and future trends of the GameFi track with DeGame's report as a starting point.
To start with the conclusion, overall, the development of the GameFi track still appears to be sluggish, in stark contrast to the heat of 2022. On the other hand, there is currently an interesting phenomenon, where a considerable number of Crypto Game projects have chosen to platformize themselves...
Current Development of the Crypto Game Track
Despite the market warming up, the concept of Crypto Game seems to be less than satisfactory. According to DeGame data, in Q1 of this year, the total transaction volume of the entire GameFi track was 420 billion US dollars, with a total number of players around 700,000, most of which are distributed on the traditional GameFi public chain WAX. The rest, such as BNB Chain and Polygon, which carry a large number of GameFi, have absorbed very few players and funds.
This is closely related to the outdated concept of GameFi, low product quality, and the short lifespan of the economic flywheel. Given the poor quality of GameFi products, investment institutions are gradually beginning to take a rational view of this track.
According to DeGame data, in Q2 of 2022, the GameFi track raised a total of 1 billion US dollars for the entire quarter, with independent game financing accounting for 40.06% (403 million US dollars) and game studio financing accounting for 30.64% (308 million US dollars). It is speculated that platform financing is about 30%, around 300 million US dollars.
In the first quarter of this year, with a significant reduction in the overall financing amount to only 481 million US dollars, platform projects' financing amount ranked second, accounting for 20.23%, close to 100 million US dollars, while game studio financing accounted for 45.62%, at 219.5 million US dollars, and independent game financing fell to below 25%.
In terms of the number of financing transactions, in Q1 of this year, the number of independent game financing transactions accounted for 22.22% (14 transactions). This is in stark contrast to Q1 and Q2 of 2022, when the most favored financing type was independent games, accounting for 61.17% (63 transactions) and 52% (52 transactions) of the financing transactions at that time, indicating that independent games are gradually losing favor with capital. In contrast, there has been a significant increase in the number of game studio and platform financing transactions.
The game studio's financing transaction ratio in Q1 of 2022 was 26.21% and 11% in Q2, and 31.74% in Q1 of this year; the platform's financing transaction ratio in Q1 of 2022 was 4.85% and 13% in Q2, and 20.63% in Q1 of this year.
Note: In the context of games, a studio is generally a development team supported by Web2/Web3 giants; the latter is not just a single game but an aggregated product.
From the above data, we can clearly see that with the development of the GameFi concept, the capital market's interest in single GameFi products with poor quality, simple gameplay, and high risk is declining, while the interest in traditional giants entering the game as a studio is gradually increasing.
Moreover, the current development of GameFi also reflects a phenomenon: most Web3 teams have begun to transition to game platforms.
The most obvious example is Axie Infinity, a previously popular GameFi product, which chose to develop its own public chain and provide infrastructure services for third-party game releases. In addition, Mirror World has also developed a mobile SDK toolkit dedicated to optimizing user experience, attracting more Web2 and Web3 users. The earlier metaverse public chain project Cocos-BCX also announced its GameFi platform plan at this year's Hong Kong Web3 Conference and renamed itself COMBO, embarking on the construction of the next-generation decentralized game infrastructure with a new name and image.
Even many traditional giants have also chosen to enter as platforms. For example, Giant Network, which owns the classic IP "ZT Online," has launched the ZTimes platform, dedicated to building a game ecosystem while also focusing on GameFi distribution; one of the "Three Giants of Kingsoft," Wang Feng, has also launched his own Web3 game service platform, NAGA.
Why is everyone enthusiastic about building game platforms?
In summary, there are three reasons: natural demand for incremental growth, the need to lower the entry barriers for off-chain players/developers/funds, and the need for a larger narrative/consensus game.
First of all, whether for the entire Web3 industry or specific major players in the industry, there is a natural motivation to continuously introduce external traffic/capital based on their own development needs.
Since the historical high point of the total market value of cryptocurrencies reached 28 trillion US dollars in November 2021, until now, despite the market warming up, it is still only about 30% of the high point, around 11 trillion US dollars. The long trough has led to a mass exodus of funds from the market, and only with more money and people coming in, can crypto make great again. DeFi is too cold, and doing this in the name of games can achieve twice the result with half the effort.
Furthermore, there is a common problem in Web3 (and a difficult problem to break through), the lack of universal application scenarios.
For example, BTC, a BTC with no application, has absorbed half of the cryptocurrency market value, while the diverse ecosystem with many applications can only capture a small part. As shown in the figure below, despite occasional fluctuations, the gap between the market value of BTC and other ecosystems is narrowing. This is also one of the reasons why Ordinals are valued and the BRC-20 protocol appears.
For companies represented by exchanges, the landing of application scenarios can not only complete the industry's external-to-internal traffic suction (this external traffic often directly falls to specific companies); it can also realize the import of internal traffic to the company.
For startup teams, entering from the GameFi perspective can bring a higher success rate for entrepreneurship. After all, in an ecosystem, a DEX with the same functionality may only survive one in the end. However, GameFi with similar gameplay but different content can survive at the same time. This also gives startup teams more possibilities for success. Therefore, in the past two years, we have seen a continuous increase in the number of GameFi projects and financing information.
It seems that the blockchain gaming field is attracting talents and funds from all aspects as never before. For example, former Riot Asia-Pacific CEO and former TikTok game department head have successively founded blockchain game companies. However, it cannot be denied that there is a natural gap in the views and pursuits of traditional players and on-chain players towards games.
Traditional game companies rudely implant tokens and NFTs into games; traditional game publishers believe that on-chain game assets are a predatory behavior; traditional game players believe that the implantation of NFT elements destroys the game experience...
How to further eliminate differences and provide blockchain reform services for games may be a good idea. From the perspective of web2 game developers, entering web3 is quite difficult, as putting data on the chain, distributing airdrops, managing tokens, and NFTs are all tasks that require a certain understanding of the industry and are cumbersome for developers.
The role of platforms is reflected here, integrating solutions for Gamefi-related technologies, NFT/blind box issuance, management and sales; token airdrop management, token lock-up, team token ownership lock-up, and other related tools, which can help developers quickly get started with some web3 functions and achieve one-stop deployment of on-chain game management tools in a convenient way and interface. These functions effectively break down the barriers from web2 to web3, making it easy and quick to achieve on-chain games, providing the possibility for the rapid transformation of traditional games.
Moreover, with the entry of traditional game giants, Crypto Game has also provided a new role: Web3 game publishers, important promoters for game promotion and market entry. This task can often only be undertaken by platforms that aggregate multiple functions. For example, Gala, YGG, and others.
In addition to the above objective factors, from the perspective of game platforms rather than single game products, there is another factor that is most attractive to the market and capital, which is that compared to a single game, the platform itself has multiple game relationships and a rich enough narrative to bring about a long-tail expectation.
The Intrinsic Drive from Game to Platform
First of all, we cannot deny the deep financial attributes behind GameFi, and behind finance is the game.
Participating in the market behavior means participating in the game. After evaluating the average consensus of all participants in the market, the winner must act below the average consensus to win. If a participant's behavior is higher than the average consensus, they will fail.
Here, we need to first talk about a small number game.
In "Misbehaving" by Nobel laureate in economics Richard Thaler, an interesting game is proposed: guessing 2/3 of the average.
Each participant is asked to choose an integer from 0 to 100. The participant who chooses a number closest to 2/3 of the average of all users wins. For example, if three participants guess 20, 30, and 40, the average is 30, and 2/3 is 20. Then the person who guessed 20 is the winner.
In this game, if there are only two players, there is an absolute dominant strategy (a strategy that is unique for each participant regardless of the strategy chosen by other participants). Choosing 0 has a higher chance of winning than choosing any number greater than 0.
For example, if both players choose 0 and 100, then 2/3 of the average is 50*2/3=33.3. 0 is closer to 33.3, so the player who chose 0 wins. When the number of game participants is greater than 2, we face a more complex situation, as the presence of new players forces all players to re-evaluate the psychology and behavior of other players. The winning strategy changes from an absolute dominant strategy to a relative dominant strategy.
In contrast to the essence of the two-player game, which is to guess the smaller number, the freedom of the players' game in a multiplayer game is higher. The essence of the game is for each player to estimate the average number of others. Therefore, choosing 0 directly will not help you win. Therefore, in a multiplayer game, the key issue is not the arrival of the game's Nash equilibrium. The key issue is how far the current system is from reaching the Nash equilibrium after considering all participants in the game.
For example, the first group of users playing this game will have the following choice distribution: over 6% of users choose 33, close to 6% of users choose 22, and the final winning number is 19. If these users participate in the game again, it can be foreseen that the winning number will be close to 0. And when all participants realize that the integer "0" is the final solution, no one will be a loser in the game. Ironically, the game also ends and there are no real winners.
As a classic game in the field of finance, the game paradigm of "guessing 2/3 of the average" is reflected in the cognitive understanding of project information, token price expectations, and the game of future business operations by blockchain players.
The result of the game, whether win or lose, the Nash equilibrium will always come, and the equilibrium of GameFi often comes too quickly: a game, a lifespan of 3 months, basically falls into a death spiral.
This is the drawback of a single game, a story that is quickly told, and if other stories are introduced when one story is about to end, or if a complex story is told from the beginning, the expectation will be exponentially magnified.
There are two ways to make a simple story complex. One is to give more practical value to game behavior, which is not currently mainstream. For example, SpartaDEX.
The more mainstream approach is platformization, creating more possibilities. Taking Axie as an example again. For the Axie development team and other participants with more complex identities in the community, they have a clearer understanding of the project's direction and outcome when they engage in a game with other participants. At the same time, they have a panoramic view of the average consensus of players, providing convenience for their consensus management: continuous introduction of external funds, creation of new game modes, transformation of speculators into value investors, and finding new use cases for tokens.
Axie Infinity is actively exploring new identities. The launch of the Ronin sidechain and its native infrastructure, as well as the development of multiple new projects, have transformed Sky Mavis (the parent company of Axie Infinity) from an application developer to an infrastructure provider. In other words, the "game" players of the current game can seamlessly participate in the next round of new consensus games.
Every consensus game will have an outcome, but at the same time, new consensus games will continue to emerge. This also provides many GameFi projects with a convenient approach: to transfer value to the platform, rather than the game. After all, the narrative of a game is short-lived, but if the platform is diversified with more games and becomes prosperous, then this story can be told for a long time.
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