VCs and private investors have poured over $10 billion into blockchain-based game projects.
This report was originally published by Bibyt .
Blockchain-based games have become one of the most promising sectors of web3. Game decentralized applications (dApps) currently account for 52% of the entire blockchain industry activity measured by the number of unique active wallets (UAW) interacting with their native contracts.
Moreover, VCs and private investors have poured over $10 billion into blockchain-based game projects since the start of 2021, while the convergence with other relevant web3 markets such as NFTs and DeFi reminds everyone of the potential of GameFi.
Even though blockchain games have existed since the early days of Huntercoin, or most recently with CryptoKitties, the play-to-earn (P2E) revolution spearheaded by Axie Infinite put blockchain games on the map. P2E games allowed millions of players around the globe to monetize their playing time.
This trend started to gain social significance in emerging markets such as The Philippines and Venezuela, nations struggling economically post-pandemic. Game economies based on cryptocurrencies, NFTs, and DeFi principles paved the way for the current state of blockchain gaming.
However, due to market and economic conditions, blockchain games were not easily accessible for some individuals.
Enter game guilds
This report discusses the emergence of guilds and their internal organization and economic models. Following this, we dive deep into the guild industry, providing industry insights and trends. Finally, we assess whether game guilds are sustainably built for the future.
The Emergence of Game Guilds
With the popularity of some P2E dApps growing exponentially, the entry barrier for some of these games became too steep too quickly for millions of players. While blockchain games offer lucrative rewards, some of these platforms require an initial investment in crypto or NFTs to start playing, which in some cases, became a barrier to entry for new players.
Taking the case of Axie Infinity as an example, during the NFT hype of the second half of 2021, a person would require at least $600 on average to invest in three Axie pets to be able to begin playing the game.
People trying to become part of the popular gaming community were priced out, a scenario that was commonly seen in emerging economies where people struggle to reach the required startup capital.
In 2018, Gabby Dizon began renting out his Axie monsters so fellow Filipinos could access the new game. He started monetizing his NFTs while giving other people a chance to be part of a rewarding videogame trend. This is the essence of crypto game guilds. These organizations provide opportunities to people who seek to monetize their playing time.
How Do Game Guilds Work and What Values Are Brought by Game Guilds to Games
During the 1990s and 2000s, online gaming experiences like World of Warcraft, Age of Empires, and most recently, League of Legends and Fortnite, placed social elements in the spotlight. As such, players formed self-organized groups, or guilds, that joined forces to complete missions and attain loot rewards in these free-to-play games. However, the needs of guild groups are different in the blockchain era. Guilds within GameFi ecosystems such as Axie Infinity, The Sandbox, and many more, aim to democratize access to the game itself. In turn, lowering the barriers of entry to earning lucrative rewards from the games.
Crypto game guilds have become vital players in the web3 industry. A game guild is a group of individuals managing decentralized GameFi assets while enabling an economic model. The NFTs or other assets owned by the guild or any other investor are lent to other players, giving them exposure to some of the leading game dApps in the industry.
The predominant economic stream of guilds is scholarships — a program that offers a more accessible entry point for play-to-earn games. Guild scholarships allow people who hold gaming assets to distribute them securely to gamers who may be priced out. By doing so, the asset holder can accrue benefits and earn rewards without having to play the game, while gamers can enjoy the platform and earn benefits without having to make an initial investment. Guilds act as a secure middleman, coordinating the NFT holder or game manager and the scholar who plays with the NFT to earn rewards. This system tries to create a win-win situation for all parties involved.
Most blockchain guilds have scholars’ systems with unique characteristics and requirements, although the process is mostly the same. Gamers around the globe can apply for scholars to begin playing any of the myriad play-to-earn games available with each guild.
In 2020, Dizon and Beryl Li co-founded Yield Guild Games (YGG), one of the leading guilds in the space that kickstarted the Axie scholar’s euphoria. As of April 2022, YGG has onboarded almost 30,000 scholars worldwide, 86% through Axie. Moreover, the scholarship program popularized by YGG and the Sky Mavis game can be replicated in any NFT game, including Splinterlands, Thetan Arena, The Sandbox, Gods Unchained, and almost every web3 game available, expanding the playing supply immensely. As of now, YGG has partnered with more than 40 games to be part of their program.
Like YGG, Merit Circle is another leading guild in the industry. The MC token is the second-largest guild token after YGG, while the guild is home to 3,750 scholars from Southeast Asia (SEA), Africa, South America, and many developing regions.
Ready Player DAO, GuildFi, Unix, and Avocado DAO are other examples of guilds with thousands of scholars worldwide. Overall, the guild market is growing with tens of exciting guild concepts.
The social impact of the scholarship model became massive after the start of the pandemic. Players from regions with struggling economies that were being priced out from the entry point of popular blockchain games benefitted largely from rewards. In some cases, these rewards accumulated by players would even surpass their region’s GDPs.
At the same time, guilds catalyze a new economy where investment from VCs and the burgeoning conditions for releasing new projects constantly attract and generate value into and from the space.
While scholarships are the predominant revenue model for guilds, investments play a significant role in the guild’s functioning. On one side, the incoming capital from recognized VCs provides guilds with additional opportunities to expand further in this web3 sector.
Since 2021, $1.8 billion has been invested by VCs and private investors in blockchain game guilds or incubators. This number represents 20% of the total value raised by blockchain game-related projects.
Funds like Animoca Brands, a16z, Pantera Capital, Dragonfly Capital, Hashed, and many more are backing the most prominent guilds in the industry. As such, we look forward to seeing how guilds can also become more trusted from the retail investor perspective.
As the industry quickly matures, guilds begin to play a more active investor role. Most guilds will use a part of the capital and the earnings made by NFTs leases to invest in web3 games to boost their outlook. A guild’s active investment strategy would benefit tens of game dApps to bootstrap their projects by providing liquidity in critical stages, either by seed investing or by becoming launchpads or incubators that will help game dapps to reach the next level.
In addition, the value of their assets should keep increasing as most guilds have access to premier assets in top projects like The Sandbox, Start Atlas, and Immutable X games, including Illuvium.
To maintain the internal organization and provide transparency of all the guild’s operations and treasury’s asset management, these organizations usually operate as DAOs —decentralized autonomous organizations governed by their community members and their voting power granted by governance tokens. The treasury performs different financial functions but, most importantly, maximizes the yields from any type of investment.
The transparency, trust, and financial flexibility offered by DAOs to adapt based on community needs and preferences are ideal for guilds. One example is YGG’s Sub-DAOs, independent and specialized DAOs that focus on a niche within the ecosystem, for example, the breeding of Axies, renting land, or cards.
In October 2021, when Merit Circle reached out to YGG asking to lease 1,000 Axie teams (3,000 Axies) to double its scholar base, YGG was open to this request, but the DAO did not proceed with the agreement.
In addition, sub-DAOs are a perfect fit to manage vaults, offering DeFi products directly to YGG token holders with distribution coming from one of the guild’s revenue streams.
With all that has been said, it is safe to say that game guilds play a vital role in the GameFi industry. The existence of guilds creates a positive impact on our society by democratizing participation in GameFi ecosystems. Furthermore, as the industry continues to mature, guilds would aid web3 games in onboarding a new wave of gamers, potentially keeping game economies sustainable while attracting new capital from institutional and retail investors.
In this section, we will dive deep into the key players in the industry, their supported games, and token price movements.
The combined circulating market capitalization of game guilds is $263 million from the graph above. The industry takes up only 0.02% of the total cryptocurrency market capitalization.
The most prominent players that actively offer scholarship programs include Yield Guild Game (YGG), Merit Circle, GuildFi, BlackPool, and UniX. Check out DappRadar’s detailed report for more information on the aforementioned game guilds.
Note: arranged by descending values of the NFT investments, if disclosed. The list is not inclusive and is for illustrative purposes.
We compiled a list of popular games each top guild partnered with. It is no surprise that looking at games that are supported by scholarships, Axie Infinity is the best-supported game in the ecosystem, followed by Big Time and CyBall.
From the graph, it is noted that the token prices of MC, YGG, and GF have plunged significantly YTD, which seems to be in line with the performance of the Metaverse Index (MVI), yet it is pale in comparison to the general crypto market.
Health of the Game Guilds Ecosystem
When referring to the health of the ecosystem, we narrow our focus on the strength of its financial position, the scholarship programs, and the investment programs for game guilds.
Strength of Financial Position
Treasury and Market Capitalization Summary
|Metrics (In $ million)||Merit Circle (MC)||Yield Guild Games (YGG)||GuildFi (GF)|
|Circulating Market Capitalization (Jul 11, 2022)||99.0||125.9||16.6|
|Circulating Market Capitalization (Mar 31, 2022)||197.7||272.1||74.7|
|Token Investments (Mar 31, 2022)||27.4||37.8||42.2|
|NFT Investments (Mar 31, 2022)||9.6||19.8||10.0|
|Guilds and Other Investments (Mar 31, 2022)||NA||31.4||NA|
|Liquid Assets (Mar 31, 2022)||89.3||Not disclosed||93.3|
|Total Treasury Balance (Mar 31, 2022)||126.3||Not disclosed||145.5|
Data pulled from the latest treasury reports still proves that there is ample treasury, including liquid assets (cash or highly liquid tokens), from the most prominent players, as shown above. The robust treasury was noted for smaller players as well (note that these data reflect what was pulled in the month of March).
Other highlights from the table include a small percentage of illiquid investments and no debts. Large reserves provide them an edge in weathering the bear market and possibly snapping up less expensive assets.
Lastly, the treasury balances are higher than the circulating market capitalization. From the traditional finance perspective, game guilds are reasonably valued and cash-rich. Despite lagging treasury balances, the downward adjustments should be minor due to outsized cash balances.
Merit Circle releases treasury reports every month. From its June 2022 report, we can gauge the healthiness of its financial position, using it as a proxy for the overall strength of the industry, especially after the volatile May and June.
As the month of June ends, Merit Circle’s total NFT portfolio amounted to $6.4 million, a 28% drop from April’s $8.9 million. Despite this, the guild’s general treasury remained resilient throughout May and June as a result of high cash reserves.
It is worth noting, however, that a portion of NFT and other investments were not being actively traded, thus failing to reflect the impact of existing challenging environments.
In particular, among the top 3 players, YGG has the most significant illiquid balance from its investments in P2E infrastructure and huge game portfolio, whose valuation may not adjust to the current risk-off sentiment.
Despite the current bear market, the treasury balances of most game guilds prove to have a sufficient balance to survive and thrive. Thus it is safe to conclude that the financial position of the largest game guilds has been strong even after the recent market sell-off.
Scholarship Program — Weak Revenue and Waning Activities
Number of Scholars
Bringing YGG into focus, it is observed that the number of scholars surged in 22Q1 as the subDAOs structure effectively onboarded more scholars during the quarter. The overall growth was on a steep curve. However, P2E activities took a significant tumble in 22Q2, signaling that the growth trajectory might be weaker than expected.
Based on the data from NFTBank, YGG’s Axie Infinity scholarships have plateaued since March 2022. Since Axie Infinity hosts up to 86% of the total scholars and user exodus from other P2E games, we can estimate that the total number of scholars may in turn falter for YGG.
Over-Reliance on Axie Infinity
We have noted above that almost all game guilds support Axie Infinity, possibly yielding the majority of their revenue.
As of March 31, 2022, 86% of YGG scholars played Axie Infinity, with over 60% of new scholars being onboarded in 22Q1. Meanwhile, over 92% of scholars from UniX were from Axie Infinity in January 2022.
With a significant number of scholars stemming from Axie Infinity, it is no wonder that almost all game guilds support the P2E game. Moreover, this significant number possibly suggests that revenue generated from these scholarships would yield a majority of their revenue as well.
As Axie Infinity struggles to retain its users and has begun to lose ground to other new games, the over-reliance on Axie Infinity serves as a red flag for the development of game guilds. It is good to know, however, that there has been a growing diversification of NFT investments across the board, which could potentially aid the further development of the game guild industry.
However, even with more partnerships being added to their portfolios, no partnerships can rival the once almighty Axie Infinity. As mentioned previously, with most scholarships and guild revenue being stemmed from Axie Infinity, it is safe to conclude that the total guild revenue from scholarship programs has fallen in tandem with that of the popular P2E game.
The number of scholars has experienced significant growth in Q1 as new game guilds sprung up. However, this development may have reached a bottleneck as P2E industries reel from the broader sell-off. With no new games being able to compensate for the decline in revenue after Axie’s fallout, the total scholarship revenue plunged.
Investments Arm — Guilds’ Role as Investment Vehicles for Web3 Games
From the graph above, NFT investments take up only 6-7% of the total treasury balances. It is surprisingly low as NFT investments drive the growth of scholarship programs.
In contrast, investments other than NFT are a bigger part of the treasury, pointing to the fact that guilds are indeed more investment vehicles than pure-play guilds that focus on scholarships. In reality, scholarship programs look ancillary to the guilds, supporting invested games only. We will return to this in the below sections.
In a short, regarding guilds as investment vehicles, we measure their healthiness by investment returns.
|In $million||Merit Circle (May 31, 2022)||YGG (Mar 31, 2022)||GuildFi (Mar 31, 2022) *|
|Cost of non-cash balance||59.3||13.1||42.2|
|Value of non-cash balance||65.8||89.0||52.2|
|Value to Cost Ratio (VCR)||1.11||6.79||1.24|
Game investments comprise in-game tokens, governance tokens, or early-stage investments without public access. As shown in the above table, game guilds somehow manage to profit from their game investment, with VCR above water.
Despite NFT investments with negative returns, token investments and early-stage investments are rarely in the red. Access to early-stage investments locks in envious profits upon initial exchange offerings.
YGG somehow managed to sit on outsized gains due to its long-established operation than its competitors. Its recent feud with Merit Circle showcased how profitable YGG’s investments in Merit Circle were, bringing home 10x return after their settlements.
The overarching value proposition for guilds has probably shifted from flourishing scholar communities to profitable investment vehicles. The investment arm is thriving and healthier than scholarship programs somehow. It is also worth noting that a lack of recent financing may understate some illiquid assets held.
Are Guilds Truly Supportive to GameFi Developments?
The game guild is an essential part of GameFi in onboarding new users. However, after diving into their ecosystem, it has come to light that their support is limited to their invested games.
Except for Axie Infinity, the top games supported by guilds’ scholarship programs include Big Time, Cyball, Metalcore, Wonderhero, Monkeyball, and Sidus. However, none of these reflect the list of top web3 games, as shown above.
Building a scholarship community on top-playing games sounds like a reasonable maneuver for guilds, as it expands the scholarship’s reach to more users.
However, It seems that the top-playing games are not invested by game guilds and thus lack the support of scholarship programs. The nuances suggest that user acquisition is not a determining factor to offer scholarship support, underscoring the fact that scholarship programs are ancillary to the investment arm.
That said, we can not rule out the possibility that running on those top-playing games may not meet the ROI of guilds, and thus they are not supported.
Financially, game guilds are in a strong financial position, with outsized reserves of liquid assets.
While the number of scholars are dwindling, and their revenue from games, especially Axie Infinity, has dropped significantly, guilds are addressing over-reliance on Axie Infinity with new games. However, this replacement would be a challenge to find.
The question of whether the ecosystem of game guilds is healthy or not lies in their value proposition. If the guilds’ value proposition is to generate game revenue from scholarships, guilds are in difficulties now due to sluggish game income.
On the other hand, guilds are healthy and profitable as investment vehicles, adding value to investors with their access to early-stage investments. With our analysis in the above sections, we intend to regard guilds as investment vehicles, and they have been thriving in that sense.
Are Game Guilds Sustainable?
We have analyzed above that the scholarship program is not in good condition, but game guilds are still playing a healthy role as investment vehicles. In this section, we dive into factors that determine if scholarship and investment arms will be sustainable in the long term.
Lower NFT Entrance Barrier
NFT Floor Prices for Top Games Supported by Game Guilds
|NFTs of Top Games||Floor Prices of NFTs|
|Axies (Axie Infinity)||$7|
|Weapons; Armors (BigTime)||$3 each (Weapons); $20-$200 each (Armors)|
|Hero skin; Weapons; Equipment (WonderHero)||$5 each|
|Heroes (Sidus Heroes)||$320|
A fundamental proposition for the scholarship program is to lower the entrance barrier for web3 players. However, as shown above, the NFT floor prices for the top games are not necessarily high.
At its peak, each Axie’s floor price was up to $400 in Axie Infinity. Since it took three Axies to be able to start the game, it raised the entrance barrier to an average of $1,000. However, following the drop in ETH and oversupply of Axies due to breeding activities, these initial investments to buy NFTs dropped significantly.
Excluding the fact that Axie Infinity is at a low ebb, new games do not request a high NFT price to start with, thus weakening their demand for scholarships.
On the other hand, game guilds still help users reduce capital risks and form a close-circuit community for training and experience sharing.
All in all, games may aim to lower the entry barrier to attract more users, taking a toll on the demand for scholarships.
ERC-4907 Standard Creates a Headwind
ERC-4907 is poised to become the latest standard in Ethereum. Double Protocol, an NFT rental protocol for games, submitted the standard for Etherpad’s approval on June 28 and was approved.
ERC-4907 broke by separating NFT ownership and utility, creating a unified standard for games and metaverse to develop in-game lease functions. Simply speaking, users can lease NFT and return their NFT to owners in web3 games with just one on-chain transaction.
In the future, web3 games may natively support lease functions, and leasing protocols like Double Protocols may be another platform for users to start the games without initial costs, posing competition to scholarships offered by game guilds.
Sustainability P2E Games Are Key to Game Guilds
We mentioned that games supported are usually invested by game guilds. With a tumbling P2E industry, their investment return may hurt in the long run.
The sustainability of P2E is harmed by its short game lifecycle. This cyclical nature is present within the NFT ecosystems of most P2E systems, where users are often encouraged to mint more NFTs to sell or rent to new players — who will then attempt to do the same. In time, if no external capital is injected into the game economies, the “musical chairs” is likely to end, initiating a plunge in token prices as well as unattractive profitability. This pain point has not yet been addressed well by existing players.
StepN has stolen much limelight from the media since March this year, inspiring a new wave of X2E games. It learned from Axie Infinity’s lesson and has implemented agile management in tokenomics and user acquisition to protect the game’s lifecycle. The industry placed high expectations on StepN to lead the P2E games out of the woods.
We have covered this in detail in our previous report on the sustainability of the P2E industry. Since our updates, unfortunately, StepN has not managed to fend off the death spiral of user exodus and plunging token prices.
As China’s ban on the application and industry-wide de-risking unfolded, StepN reeled from user exodus, which then stemmed in over-supply of tokens. The recent decline of StepN demonstrates that P2E is still problematic and in dire need of reforms.
All in all, if the P2E industry remains unable to sustain itself, game guilds, as a part of the GameFi ecosystem, would have little hope to stand on their own.
Game guilds, part of the GameFi ecosystem, manage to lower the entry barrier for scholars and play a role in bootstrapping games with new users and capital support.
At this juncture of the teetering P2E industry, the scholarship program has failed to earn stable cash flow, as no other new games compensate for the declining revenue from Axie Infinity.
As an investment vehicle, early players such as YGG have earned remarkable profits due to their early access to seed funding.
With robust treasury, game guilds look healthy in the short term, and their investment arm bodes well for a profitable business, in contrast to a faltering scholar community.
However, the big assumption behind this must be a sustainable P2E ecosystem, with a stable user base retained by enhanced in-game playability.
Disclosure: Members of Bybit may be invested in some or all of the tokens and projects mentioned within the following article. This statement discloses any conflict of interest and is not a recommendation to purchase any token or participate in any of the mentioned ecosystems. This content is purely for educational purposes only, and should not in any way be construed as investment advice. Please exercise caution and practice your own due diligence if you are planning to partake in any of these projects in any way.