Guilds will replace early-stage VCs
Capital is abundant in blockchain gaming and is increasingly becoming a commodity. Funds/initiatives solely investing in blockchain gaming raised large amounts of capital; Game7 raised $500m, Solana/FTX/LVP $100m, Sfermion $100m, KuCoin $100m, Patron $90m, Bitkraft $75m.
Guilds will have a significant influence in blockchain games over the next 5–10 years as they are able to secure preferential private investment terms as an early source of a)player, b)NFT, c)token liquidity for games looking to bootstrap. I believe guilds will replace early-stage VCs and traditional game publishers as the primary capital source for blockchain games.
Here’s a snapshot from YGG’s SAFT investments:
Bootstrapping P2E Games
A guild invests in a game’s seed round at a relatively low valuation, the game is then promoted to the community through Discord and social media. As the game issues NFTs, guilds buy and breed NFTs, creating more demand for token/NFTs, resulting in higher token/NFT prices -> more hype around the game -> higher user growth -> higher protocol earnings -> higher valuation and thus, token price.
Guilds can earn from a)token price increase and b)early token incentives from NFT yield farming. This is effectively a self-fulfilling prophecy that enables guilds to double down on their bets. On the flip side, there is a risk that the game might not get any non-guild driven organic traction, resulting in guild investment dying out.
Guilds are not a winner-takes-all-market as there will be multiple large guilds that will co-exist, co-invest together. Yield Guild Games and Merit Circle cumulatively have more than $2bn in AUM. This figure is the dry powder that will be allocated to purchase blockchain game NFTs and tokens. The guild AUMs are primarily consisted of native governance tokens, although both guilds are discussing having more diversified treasuries.
Unlike traditional closed-end funds, guild DAOs are structured as evergreen structures with no termination date. Returns from investments can be recycled into new NFT/token investments and the guilds can opt to raise stablecoins through token swaps (similar to PIPE investments) by selling some of the governance tokens held in the treasury.
YGG is trading at $9bn, MC is trading at $10bn fully diluted market cap. Avocado Guild raised $18m, GuildFi raised $6m, Polemos raised $2m Good Games Guild raised $1.7m. Non-listed guilds are also expected to issue their native tokens, creating more capital demand to meet the growing in-game NFT supply.
Scholars & Scholar Candidates
There are 8bn people in the world; 6bn+ live in developing or non-developed countries. Earning $1–2 side income per day by playing video games from home for 2 hours a day is a no-brainer for most of them. Axie has 2.5m DAUs; YGG has 5k scholars, Ready Player DAO 1.8k, Merit Circle 1.5k, GuildFi 1.5k.
SLP is now accepted by some merchants and renters in the Philippines. Blockchain gaming has the potential to onboard 6bn+ people into crypto and provide the unbanked access to financial infrastructure through DeFi. The majority of the Axie scholars are located in the Philippines and Venezuela. The majority of the residents living in India, Pakistan, Ethiopia, Nigeria aren’t aware of the side income earning potential of blockchain games. We’re still very early and the potential for scholar candidate growth is massive.
Managing guild operations is complex; a)sourcing, interviewing, hiring, onboarding scholars & scholar candidates, b)monitoring scholar performance, c)making regular payments to scholars, d)sourcing, diligencing, monitoring NFT/token investments. As guilds grow in size, they require tools to manage them more efficiently. Some freelance developers have been developing Axie automation scripts for guilds. BlockchainSpace recently raised $3.75m to build the ultimate ERP software for guilds. They are already working with 2k+ guilds and can provide guild benchmarking data.
Guilds should be thinking about how to differentiate themselves from the competition and add more value to their audience and gaming partners. Here are some of the potential features that can be implemented:
- Scholar Marketplace: There is no scholar marketplace for Axie managers and scholars. Running an Axie scholarship program (sourcing, selecting, onboarding, monitoring scholars, sending QR codes, making payments) is almost a part-time job. Independent managers might rather have someone else manage the operations. More than 60% of the Axie players are estimated to be scholars and more than 80% of Axie scholars are estimated to be managed by independent managers or small guilds. That adds up to 1.2m scholars. Many upcoming blockchain games are planning to enable scholarships and there will be a need for a marketplace that vets, scores, filters scholars. Some scholars are competitive gamers that can provide higher returns with their in-game skills but managers might also need scholars who can provide other skills such as community management, leadership, marketing, PR, design, data entry, research, etc. As the blockchain gaming ecosystem grows, there will be a need for scholars with different skill sets.
- Scholar Scoring: Having a scoring algorithm to score scholars and scholar candidates, can provide a data-driven, quantitative, objective method to hire, monitor performance and sack scholars. The algorithm can take in-game and off-game performance. Off-game performance is more challenging to measure and most scholar candidates won’t have any in-game data. Scoring can be used as an additional incentive mechanism to incentivize scholar candidates to perform certain actions such as sending one Discord message a day, setting up a Metamask wallet, completing a Serum swap, bridging funds to Avalanche, playing a specific game, answering some survey questions. This can enable hardworking scholars to stand out from the crowd and allow guilds to make more merit-based scholar hiring decisions.
- Unsecured DeFi Lending: Scholars and scholar candidates with high scores can be eligible for unsecured microloans. This could be a great audience to experiment with unsecured DeFi lending.
- Fixed Income Vaults: Even though there might be interest from retail/institutional investors in investing in a specific game’s yield-generating NFTs, they might not have the time or know-how to set up wallets or pick NFTs. Having a vault product can enable users to invest any amount and start earning yields through NFTs and scholarships managed by the guild.
- NFT Mortgages: An alternative scholarship model can be offering NFT mortgages to scholars. An Axie scholar could own a team of Axies that he’s been playing with throughout the scholarship period in exchange for not receiving any SLP payments during that period.
- Game Discovery Platform: Largest guilds can be the web3 Steam by enabling players to discover various blockchain games.
- Fee Share Structure: There can be different structures around sharing scholar earnings such as having a dynamic fee share rather than a fixed one or reserving some % of the scholar earnings in a bonus pool to distribute to top-performing scholars.
Blockchain games are willing to give investment allocation to guilds as they provide the necessary player, NFT, token liquidity to bootstrap. Guilds will eventually replace early-stage blockchain gaming VCs and start leading fundraising rounds. Competition from upcoming guilds and guild tool providers pushing boundaries is critical for the entire space as it pushes the largest guilds to be more innovative and productive.
If you want to learn more about blockchain games and guilds, you can follow me on Twitter. I’m planning to record some podcast episodes regarding guilds, feel free to DM me if you’re interested in participating.
Disclosure: I hold a small portion of YGG tokens.