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Crypto x Gaming Installment 2

It has been quite a while since the first crypto x gaming installment. In the first installment we covered Axie Infinity, the first play to earn blockchain game that at that point in time seemed to be gaining an established foothold in the industry. That journal laid out the thesis for why the intersection of crypto and gaming will be a key driving factor in the widespread adoption of crypto, and before reading this we highly recommend revisiting it!

With Axie being the first blockchain game reaching a wider audience than just the existing crypto community it made sense to be our primary focus. The journal was published on the 8th of August 2021, and below you will find a key excerpt from it:

“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.

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.”

Axie Cumulative Revenue

AXS price action

Gaming Company Market Cap

AXS has continued to increase in price since the publication of the first instalment, and is currently nearly half our projected fair price, trading in the 120 USD range. Revenue has also continued to rapidly increase with Axie Infinity having just surpassed 800million USD in protocol revenue. Axie Infinity now has a market cap that ranks in the top 5 of global gaming companies. Such a presence indicates that our crypto x gaming macro thesis is seeing market agreement. In turn this leads us to try and identify other blockchain games with a play to earn element.

One important aspect to mention here is that we will not be looking for games on the Ethereum blockchain. Axie saw its initial meteoric rise in price and valuation, and most importantly users, upon porting over to the Ronin sidechain. As we are sure you are all familiar with, ETH gas fees are prohibitive for most users/transactions. The Ronin sidechain allowed for transactions to be conducted with negligible fees, in turn spurring user growth and activity, leading to the rise in revenue witnessed since early July. The projects covered below are all blockchain based, but either make use of their own custom solution or utilise the Solana blockchain. Let us start with one of the better-known gaming projects!


Illuvium is a collectible NFT RPG game with a battle system. It aims to offer an open-world RPG experience in its world, where you mine, harvest, capture, and fight Illuvials. Illuvials are the native creatures to their world, and are NFTs as well. It is very similar in game design to Pokemon, if each Pokemon was to be tokenised.

Once you have assembled your team of Illuvials you can then participate in battle. There is a strategic element to the battle feature. The Illuvials possess unique stats, classes, and affinities. The synergy of your team, based on how you match their strengths and compensate for weaknesses, are intended to determine the outcome of battles. They have opted to follow an interesting approach making the first part of the game free to play, with further progression requiring the purchasing of your own Illuvial. This is an intriguing aspect as it allows anyone to try the game for free with no up front fees, and should hopefully be reflected in their user growth and acquisition.

As mentioned Illuvium is a play to earn game, and its’ primary currency will be Ethereum. To avoid the pitfall of gas fees on the Ethereum network they are making use of the Layer 2 protocol Immutable X. This Layer 2 is designed specifically for NFTs, and allows for gas free trading between players. There is also the option to use an alternative in game currency (sILV) for transactions that do not involve other players. Think upgrading items, travelling, crafting etc..The revenue from all in-game activity, purchases and fees is completely distributed to stakers of the Illuvium token ILV. sILV stands for Staked Illuvium and is obtained by staking ILV. Staking ILV also provides yield via the above mechanism, also allowing the staker to participate in the projects’ direction via governance with their ILV representing their voting power.

The game is also characterised by a top tier art team, and the visuals are simply stunning. It appears that Illuvium might be the rare game that utilises blockchain to enhance the gaming experience, unlike most games that use the blockchain to make a game. Regardless Illuvium is no secret. Most people present in the crypto space have hear of Illuvium and that is reflected in its current price. It also only has a total supply of 10million tokens, which has contributed to the high price per token. The team is planning to release an alpha version of the game in Q1 2022, and if that release goes well, it will be reflected in the games market cap and token price.

As stated, Illuvium is a play to earn game. For anyone looking to have exposure to the gaming sector, similarly to the NFT sector, it is necessary to actively participate. As it stands at the moment, the entry point is too far into development to carry any the type of upside we look for. This is due to the reward asymmetry for early adopters. By this we refer to people who play the game since its early stages and thus can significantly capitalise from the play to earn aspect. Or alternatively seed investors who were able to position themselves at preferential entry points.

Axie has a market cap of 27billion fully diluted, with Illuvium currently having a market cap of 5.5billion fully diluted. Assuming that illuvium reached the current market cap of Axie, that would imply a price of approximately 2,500 USD per ILV. Currently, we cannot estimate the revenue expected from Illuvium, and that will play a critical role in determining the value of the ILV token. On the other hand an unsuccessful launch or multiple delays could significantly harm the project especially if competitors arise. This makes the current risk/reward ratio unappealing unless someone aims to increase their accumulation off ILV by investing their time. Illuvium has structured its staking rewards to generate the most yield close to their inception, and it is reasonable they will assume a similar strategy with the play to earn features. A comparable parallel would be someone who was an early player of Axie.

Overall Illuvium is a solid game with enormous potential. Development will be key, but we have seen a token and tokenomics released prior to any sort of gameplay which is not ideal. Combined with the current entry point available it does not have a good risk/reward ratio. To be clear, if the game releases and meets its roadmap, we expect it to perform admirably, however we believe there are better opportunities out there.

Mines of Dalarnia

Mines of Dalarnia (MoD) is a browser based rpg game, where the player literally mines (yes with a pickaxe) to obtain in game items which are then used to upgrade their equipment and skills and to be able to unlock higher levels of mines. It is reminiscent of the Motherlode game which was extremely popular on Miniclip.

The in-game mechanics and play to earn feature can be outlined by the below diagram. The rare items discovered whilst mining are also NFTs that can be sold, mirroring real life mining. MoD issues a native token, DAR, as the governance token as well as the necessary currency for upgrading tools and trading on in game marketplaces.

The game system is quite straightforward. New characters can access only basic levels of mines. The rewards here are inconsequential and hold no value. Players can subsequently level up unlocking access to higher level mines which contain valuable items which can then be sold. The interesting aspect is that players can also buy mines and then tax the rewards which have been mined in their mine. Land can also be rented out by the owner as they see fit. However active ownership of land comes with incentives, with the activities in that mine being measured, and active mines being rewarded. For inactive mines, there is some loose terminology that ‘actions will be taken’. What that will be remains to be seen.

The game has its own native token DAR. It will be used as the default in game currency, so as mentioned it will be used for repairs/upgrades and trades on the in-game marketplace. The proceeds from this will go to the community reserve, and the community will decide what to do with them. The tokens will also be able to be staked. As mentioned above items will be able to be bought/sold with the DAR token, so a new player could acquire high level equipment simply by paying. It will be interesting to see the market dynamics of this develop once the system goes live. However, the game is skill based, so simply having good equipment won’t suffice for new players to be able to immediately successfully mine for high level rewards. Making sure that a game does not become pay to win (i.e. someone being able to spend money to win) is imperative for a healthy ecosystem and economy.

For anyone wishing to experience the game first hand there is an open alpha access available here The experience is seamless, and you would not realise you are playing a crypto game. MoD has recently closed a seed funding round raising 2.6million from a variety of venture capital firms. Notable investors in this round include, Animoca Brands, Coin 98, Jump Capital and others.

The tester testnet token airdrop is sadly over (here) but you can still set up a permanent wallet for the game. We do not know if the testnet airdrop and any other testnet airdrops/items will be ported over to the main net and become real tokens. With the projects view towards rewarding active players as per its plans for land, if looking to take advantage of a potential airdrop or find the project interesting you should look to schedule regular play and be active in the discord. This circles back to the aforementioned outline that for someone to extract the most value from a play to earn game and its associated token is to be an early adopter. There are over 20,000 unique players and over 800,000 on-chain transactions generated by the game. MoD aims to continue with incentivized testing programs so further airdrop opportunities are extremely likely.

Conclusion & Honourable Mentions

We revisited the current state of Axie as it is the largest crypto x gaming project and looked into some potential competitors on Ethereum affiliated chains. In the next instalment we will be looking into some Solana based games which are being developed. Our readers might be familiar with Star Atlas the major Solana based gaming project which we have mentioned multiple times in our podcast. Star Atlas is a project that has extreme ambitions and has had a successful token launch and multiple NFT collection sales.

Regarding the token launch, the project chose to release 0.5% of the total supply of their two tokens (one governance, one in game currency) via Raydium lottery ticket allocation. The allocation was only 69USDC, if you won the lottery. To even gain entry you were required to own and stake Raydium for certain period of time. Such a requirement is extremely preventative, as it is not worthwhile to purchase Raydium and stake it (along with the exposure of having allocated funds to it) for the tiny chance at a very small allocation of tokens. You would additionally be required to provide the USD in advance, so there is an opportunity cost (you would have to convert crypto to USD and back again if you don’t want to deposit new funds) as well as the aforementioned staked Raydium requirement.

Effectively Star Atlas structured its token allocation to favour long term stakers of Raydium, and even then the odds of receiving an allocation were extremely slim as the lottery was 3500% overfilled. On top of this, at that time all we had seen from the project was a whitepaper, extremely beautiful NFT artwork and an astounding cinematic trailer.

But there was no gameplay, and the next step on their roadmap is a minigame. You can expect the actual game to be multiple years away as that is how long MMORPG game development cycles take. Add in of course the additional difficulties and complexities with incorporating the Solana blockchain. So far their development has been excellent but the upcoming week will be critical for them. We will have the release of their long awaited minigame, which we highly suggest everyone try out for themselves along with a full-length game trailer in the first week of October 2021. These should ultimately allow us to better form an opinion on the project. It is important to remember that the project has received millions in funding, and a product equivalent of that should be expected. The next instalment of crypto x gaming will be focusing on Solana projects, starting off with Star Atlas.

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