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19 Nov 2021 - Crypto Revolution in Gaming
By: Frazis Capital Partners

Crypto Revolution in Gaming

Michael Frazis, Frazis Capital Partners

02 November 2021

Part 2 of a series on Web31 exploring the impact on highly disparate aspects of the human experience: art, music, science, crime, capital, business, payments and, of course, investment opportunities.

Crypto Revolution in Gaming

As with art and music, crypto is formalising and dramatically enhancing nascent human behaviour in gaming. 

Long before Web3, there were people with plenty of time but no money, building characters in games for people with money but no time. 

Countless hours were sunk into games like Runescape, where characters wander around a richly developed world doing quests, mining for ores, smelting that ore into metal, then forging that into weapons to be sold for in game currency, or used in battle in the wild regions. 

Those that died in battle lost everything they held, and characters with any kind of credibility represented years of play time. 

A Runescape village, where you might smelt some ore, deposit goods in the bank, or shop.

World of Warcraft had an even richer world and a wealthier audience. Players in poorer countries spent huge amounts of time building valuable characters and selling them: on an hourly rate, it was competitive with whatever else was on offer.

The problem with all this is that these worlds are under the firm control of companies who made this activity illegal. Interestingly, the centralised control of traditional gaming was a key motivator for the then-teenage Vitalik Buterin to create Ethereum, after Blizzard disabled hard-earned abilities on his World of Warcraft character.

And there was plenty of fraud and skullduggery that made transacting a minefield for all involved. 

Most importantly, in all these traditional games, players have no actual ownership over anything.

Crypto, of course, welcomes this kind of peer-to-peer behaviour (the transactions, not the skullduggery, but more on that in a later post!), through clear, programmable rules, backed by a distributed computer and open ledger that everyone on the planet can trust and inspect.

People who accrue value in one game can immediately exchange it on extremely liquid marketplaces.

Axie Infinity

The largest NFT2 game right now is Axie Infinity. Similar to Pokemon, you can buy, trade and fight with Axies.

Axies can breed, replete with dominant and recessive characteristics, to create new and more valuable characters. Each funny little creature is unique and apparently the game is quite fun.

This cutesy looking game has changed the lives of tens and perhaps hundreds of thousands of people in the Philippines, of whom many earn more playing Axie than the average wage.

Players can earn (relatively) hard currency by developing, fighting, and trading their Axies, and then safely transfer and store that value in crypto wallets - an aspect that was absent from all games prior.

This has taken the Philippines by storm, is something of a gateway drug into crypto. 50% of Axie players had never used crypto before, and 25% didn't have a bank account (according to a founder). 

More info and a better explanation of the game here

Can't you have games like this without crypto?

As with the examples of art and music: yes, but no. 

Yes, because earlier games did indeed develop vibrant economies. 

But no - you could not easily transfer value in and out, and there was no way for players to capture the value of the community they were building. There was no way to set new players up with secure wallets that could transact in a trusted way with people both in and out of the game. 

Companies could and often would squash out the nascent economies that developed.

World of Warcraft's creator, Blizzard, made even the simplest kinds of transactions illegal. Human nature being what it is, a black economy developed anyway, albeit in a strained, risky, and hacky kind of way.

All the value created by those endless years of gameplay was ultimately captured by the companies, not the players. The chance to change this is the real revolution. 

So how big is this use case, really?

One of the beautiful things about crypto is that you can see every transaction. Every dollar of revenue is on chain and searchable

Imagine if you could do that in public markets, see day-by-day revenue of every company, and invest accordingly. We certainly wouldn't have to stress about reporting seasons in the same way.

That is exactly what happens in crypto, which may partly explain why things move so fast.

We can say with some certainty that Ethereum generated over $1 billion over the last 30 days in transaction fees, paid directly to the validator nodes.

Axie Infinity generated $190 million, a greater than $2 billion run rate. 



Which means there is a veritable monthly fortune on offer for players in the Philippines and countries like Nigeria, Venezuela, and Ghana.

Unsurprisingly, Blizzard, Steam, Apple, all the game publishers and developers aren't so keen on these kinds of value transfers to players, and have all actively banned games that incorporate NFTs and crypto, missing an extraordinary opportunity.

They are stuck in one of those innovation dilemmas, too concerned about their existing business model to redirect their talent.

Well-designed economies in Web3 ensure that communities receive much of the value they create, and outsiders can participate.

And on top of an explosive growth in price, the whimsically glorious $SLP token (Secret Love Potion) pays a 126% APR, which if reinvested at the current rates, equates to a 252% annual yield.

Early users and adopters become hyper-engaged financial stakeholders in a way that conventional corporations never allowed, which is one reason why people in Web3 are so obsessed with their chosen communities.


 Sandbox (left) and Minecraft (right)

One of the more surprisingly successful traditional games is Minecraft, which was bought by Microsoft for $2.5 billion in 2014, an absolute steal. 

415 million monthly active gamers (2020) have control over a Legoblock world, building increasingly complex structures and environments. Of course, they don't actually own what they build. 

Sandbox takes this concept into the crypto Metaverse.

In Sandbox creators can make their own in-game assets and sell them on secure marketplaces. Without that incentive people were already making crazy things like block-by-block replicas of Minas Tirith and castles in Westeros. 

Block-by-block creations in Minecraft - imagine what people would make with an economic incentive?

VoxEdit allows players to make and animate (with sounds) their own NFTs in the Sandbox.

Assets are bought and sold using SAND tokens, and if you don't want to create, or buy, but believe in the concept, you can buy the tokens outright.


Sandbox tokens have been on a bit of a run late

And Sandbox has sold real estate on their world for increasingly spectacular sums:

A map of The Sandbox

While the full game is yet to launch (expected early next year), this is a tantalising application of Web3. 

And a far better take on the Metaverse than Zuckerberg's depressing virtual corporate offices!

Facebook's Metaverse, as if meetings weren't bad enough already. You're on mute!

Star Atlas

In Star Atlas, also under development, players buy Starcraft NFTs and explore a rich universe with real monetary value up for grabs. Players can discover planets, mine asteroids and accrue real cryptocurrency while playing.

The trailer is worth watching here.

A picture containing indoor, black, weaponDescription automatically generated

A US$30,000 starship for sale

As with games like Runescape, players can form alliances and leave safe parts of the map, to commit violence on whoever they find in the uncharted wilder regions, again an intensification of existent gaming behaviour. 

Only, in the crypto Web3 version, where entry level capital starships are priced in the tens of thousands, the stakes are much higher.

Gaming is about to become a lot more serious, and a lot more fun. 

1 Web1, Web2, Web3: three stages of internet growth. Web 1.0 - connecting information and getting on the net. Web 2.0 - connecting people / social participation. Web 3.0 - use of machine learning and artificial intelligence to create more open, connected, and intelligent websites or web applications; includes decentralised apps that run on blockchain. 

2 A non-fungible token is a unique and non-interchangeable datum stored on a digital ledger. NFTs can be used to represent easily reproducible items such as photos, videos, audio, and other types of digital files as unique items, and use blockchain technology to establish a verified and public proof of ownership.

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