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Crypto x Gaming Installment 1

1 minute summary – The vision for how crypto can disrupt the gaming industry is laid out and broken down. The groundwork for this disruption has been accelerated by the impact of the pandemic and Axie Infinity is the first project to bring the merging of crypto and gaming successfully to fruition. The question now becomes, which projects are next?

Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.

It is important to have a general view of the crypto landscape. We can’t just focus on one aspect or sector of DeFi exclusively. You will have heard the phrase “mass adoption” mentioned many times in the context of crypto. Indeed, during research into the projects being developed in this sector, “mass adoption” was repeated across all the whitepapers and project information reviewed.

Mass adoption refers to rapidly increasing the crypto user base. Specifically introducing people who have no previous experience with crypto to the ecosystem. The most effective way to do this is to have a user interface which is already familiar to users and doesn’t require any specialised crypto knowledge. Another effective method has been to link the crypto aspect to something the user can physically see, as opposed to simply a token. This is the primary reason NFTs have seen such significant growth. It’s much easier for someone to understand that NBA TopShots are ‘internet’ baseball cards, and their implied value, as they’re already familiar with something similar from the real world.

Let us refer back to the first method, a new user has the most seamless experience when they do not even realise they are interacting with a cryptocurrency protocol. To date this has usually only been able to occur with the projects in question giving up some degree of decentralisation. Once again, refer to TopShot, which required users to wait in an online queue with limited places to be able to buy their NFTs. The recent launch of stonercats which was accompanied with massive hype, led to a lot of failed transactions, high gas fees and ultimately frustration for people looking to mint an NFT. You can see how someone new to crypto would be soured by such an experience. Decentralised yes, but not streamlined or user friendly. Let us press pause here for a minute.

COVID-19 has caused many industries to enter accelerated development. Remote work and digitalisation has been accelerated by around 5 years, with more companies having pivoted to remote work due to the pandemic, observing better results, and ultimately deciding to stick with it. But the pandemic has also had a significant impact in how we use our time. During the long periods of isolation, many people found gaming comforting and a way to connect with other people.

“As the gaming community continues to grow, the social aspect is an increasingly key aspect to gamers’ overall experiences. 84% of respondents say video games help them connect with others with similar interests, while three-quarters of them recognize that more of their social interactions now happen on gaming platforms.” –

The gaming sector has experienced phenomenal growth since the start of 2020. People are playing games more, with a lot of social interaction now having moved online. Another important factor, is that time spent gaming, is usually actively focused on playing the game, and thus requires the players full attention. Focused sessions gaming are equivalent to a focused work session, in terms of concentration. With this perspective, even casual gamers, who only devote around 15 hours a week to gaming, are still spending 15 hours of high-quality focused time on something digital that for the majority of gamers will not have an impact on their ‘real’ life.

This in turn leads to the intersection of real life and ‘digitial’ or ‘online’ life, which is commonly referred to as the metaverse. As technology is advancing, a larger amount of our identities and dealings are moving online. I could illustrate this with statistics and surveys, but the phenomenon is so common that most people will be familiar with it. Some everyday examples are that you now shop for clothes, groceries and most other items online. If you really think about it, banks themselves are the ones who enabled DeFi, by making internet banking high speed and accessible to the masses. This led to users already feeling comfortable managing their finances online, and for millennials, online banking is the norm. We’re seeing digital assets achieve valuations comparable to real life items; one bitcoin is enough for a luxury car; valuable TopShot moments are worth around the same as rare baseball cards; Cryptopunks are worth enormous amounts of money and have been recognised by well respected art auctioneers.

So what happens when the lines between someone’s ‘real’ and ‘digital’ life become blurred? What would happen if all that in game gold or legendary item was worth actual money? The honest answer is we still haven’t seen something like this occur. EVE online is the game which has come the closest to answering the above questions, with a robust in game economy, and some players living from the income generated by their in-game actions. Operations selling in game currency for fiat currency are not included here, as this is effectively outsourcing, and is present across any industry. The question of course brings us to the project most people currently think off when hearing the words gaming and cryptocurrency together, Axie Infinity.

Axie Infinity looks to be a perfect example of the first mover advantage. For anyone who is not familiar with the game, it can be summarised as similar to Pokemon, with the user being able to build up a collection of Axies. Axies are cute collectible creatures, which can be used in game to perform functions, battle and are the core focus of the gameplay. What makes Axies Infinity unique, and what was referred to by the ‘first mover advantage’, is their integration of blockchain technology. They are the first operational game with a substantial user base to implement the ‘play to earn’ model effectively on blockchain infrastructure. The play to earn element is enforced by the use of blockchain which allows the player to know they own the items and tokens that they earn by playing the game. With these items being tokenised on the blockchain this allows for any in game tokenised asset to be traded. To make it simple, imagine that every Pokemon you ever caught, and items acquired when playing the games was an NFT that could be sold to any other player for real money.

To date, applying the play to earn model on a blockchain was not possible as the cost of executing transactions on the ETH blockchain was too high for the number of transactions such a project would require. Axie Infinity has seen a surge in users and popularity, since it migrated from the ETH blockchain to their Ronin sidechain. The Ronin sidechain allows for cheap and quick transactions, making the games’ business model work, increasing every player’s profit margins due to the significantly cheaper fees, whilst also broadening their potential player base. Cheap and quick transactions benefit everyone participating in the games’ ecosystem, inducing a massive revenue spike for the month of July, ultimately leading to the rapid appreciation of Axie Infinity and their associated token, AXS. In low-income countries, good players can leverage their skills playing the game and the items they collect in game to then sell them to make a living.

Most people are familiar with Axie Infinity, not due to having interacted with the game but due to the meteoric appreciation in token price since the start of July. Axie has been trading between the 40-45 USD range since the 23rd of July 2021. With a circulating supply of approximately 55million tokens, this leads to a market cap of approximately 2.3billion USD with an active user base of 800K. This market cap is comparable to Razer and Corsair Gaming. Comparing it directly to other game studios as you can see below and sourced from statista. Axie infinity is approaching major game publisher status. They reported 160million USD in revenue in the month of July. Stakers of the token receive some of the revenue.

But let us compare Axie against the companies listed here. All of them have released multiple titles across platforms, with major titles which are internationally known. Their sales reflect their valuation, and games released by them are generally high quality with up to date and modern graphics. Looking at Axie simply as a ‘game’, effectively disregarding all the blockchain and metaverse elements, it is a polished mobile game. Without the blockchain aspect it is similar to any mobile game both in terms of graphics and gameplay. This is no knock on the mobile games markets, with Tencents’ Honor of Kings seeing 277million USD in player spending. It’s a market which Tencent has capitalised upon to become a massively successful company, by releasing multiple market leading titles.


Going into further detail about Axie goes outside the scope of this article. To summarise Axie is a near finished product, reporting extremely impressive revenue numbers and a growing player base. Possessing a first mover advantage as the first functioning blockchain game, the move to the Ronin sidechain unleashed their scalability, as has been reflected in every metric. On the other hand, as a nearly finished product, there appears to be limited scope for the game to grow. As mentioned, the game is effectively a mobile game in both graphics and gameplay. Will it be able to sustain and increase its regular user base and revenue numbers? The play to earn aspect and current monopoly on the crypto gaming market make this a unique case. How much the game will utilise its head start to fend off competitors will ultimately decide its’ fate.

Another oxymoron regarding Axie, is that under traditional valuation methods (i.e projecting stock price dependent on revenue and dividends paid) Axie at its’ current 40-50 USD range remains undervalued. A back of the napkin calculation for evaluating growing tech companies in the gaming centre is that their market caps’ true value is 40x their annual revenue. With a July revenue of 150million, this leads to a yearly estimate of 1,800 million USD in annual revenue. Revenue was significantly less in the previous months this year, but with the current rapid growth rate, revenue should even out till the end of the year. With a max supply of 270million tokens, 40x the annual revenue estimate, gives rise to a true valuation of 72,000 million USD and a fair price per token of 266USD. This projection is of course sensitive to the revenue numbers and their growth rate, but the analysis is objective, and the resulting projection goes against the authors gut feeling and evaluation of the project. Additionally at the current price range, the risk reward ratio is unattractive, especially after the rapid appreciation in price that was observed.

Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.

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