# Game guild business model case study: How does SubDAO differentiate itself?

By [FFFL](https://paragraph.com/@superu) · 2022-08-05

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**01 What is a game guild? How does it work?**

Participation in Web3 games requires players to hold in-game assets. For example, in Axie Infinity, players need to form a "team" with 3 Axies to participate in daily missions and earn P2E rewards ($SLP). Considering the target audience of Web3 games is mostly players from emerging markets, we found that these in-game assets are often out of reach for players who want to play Axie Infinity. At its most expensive, an Axie can cost up to $200 and an entire team can cost up to $600.

That's where gaming guilds come in. Before Web3, a "gaming guild" consisted of a group of players who played computer games together on a regular basis - provided the game allowed players to form organized groups. In Web3, guilds are also organized groups of players (i.e., "helper members") who use in-game assets owned by the guild to play the games that support those assets. In exchange for renting these in-game assets from the guild, Play Assistants give the guild a share of their daily P2E rewards to help pay for their initial purchase of these assets.

This is why gaming guilds have gotten that typical marketing spiel that says they: supplement the income of guild players with daily P2E rewards to help them "earn their own way to a better life". 2020 saw high unemployment in emerging markets like the Philippines at the height of the Covid-19 ravages. Given this situation, we are only beginning to understand the importance of gaming guilds - games like Axie Infinity became the only source of income for players; with the help of guilds, they were able to rent in-game assets to participate in the game.

Fundamentally, we found that guilds are a relatively asset-heavy business due to the necessity of purchasing in-game assets; in order to cover their operating expenses, they are dependent on future cash flow generated from the revenue share of helper members. Interestingly, however, we find that unlike other cryptocurrency projects, gaming guilds have both an intrinsic book value (the value of in-game assets) and a cash flow (revenue share from playable members), which allows them to be valued in a more traditional Web2 fashion.

**Some of the operational metrics I personally use to value gaming guilds are**

Number of booster members: booster members are the lifeblood of all gaming guilds, they contribute community vitality and revenue share to the guild. Number of Boosters: There is a difference between the number of Boosters and the number of Boosters, as some guilds already provide Boosters with assets to lease for more than one game to supplement their daily income. (Note: The "Scholarship Program" is translated as "Scholarship Program" by the YGG Chinese community) Number of Discord members: Discord is the main channel for the guild community to communicate with each other. Some community members are not really booster members (i.e., do not use guild assets to play the game), but are active on Discord for social purposes. Thus, a larger Discord community means a more vibrant guild community. Revenue Share / Cash Flow: Revenue share defines how the revenue is divided between the guild and the booster members, and the current market standard seems to be 80% to the booster members and 20% to the guild. While it may seem advantageous for guilds to receive a higher revenue share, the dynamics of the market must be taken into account, and if the revenue share for booster members is too low, they may choose to leave. The percentage of revenue share is highly correlated with cash flow, and logically, a higher cash flow is more beneficial to the vault. Vault value: Broadly speaking, a guild's vault assets can come from the value of its in-game assets, circulating tokens, venture capital, and stablecoins. A high vault value means a larger balance sheet - that is, the guild will be able to last longer before running out of cash or have more ammunition available to buy in-game assets or invest in new in-game projects. The value of a guild's vault can be easily deciphered by looking at its monthly or quarterly financial reports. Some sample examples are available for viewing in the "References" section at the end of this article.

**02 Assessment of the competitive landscape of game guilds**

With the above understanding of the game guild model, one would theoretically conclude that the space is largely lacking in differentiation and has a low barrier to entry - as operators can create their own guilds by simply purchasing in-game assets. However, we have seen that guilds have found ways to differentiate themselves from each other - and build on certain niches and expertise. Here are some of the areas of focus chosen by gaming guilds

**a. Enriching the number of booster members** Given that the number of booster programs and revenue sharing ratios form the foundation of the guild business, the 1.0 version of the guild model necessarily requires the creation of a large number of booster programs to generate maximum revenue sharing and cash flow for the guild vault. To facilitate this, guilds that focus on the number of booster members acquire in-game assets by buying or breeding them, thus having to expose 100% of those assets in their vaults to risk. Knowing that Axie used to trade for over $200 each, and currently have a base price of $5, we have seen guilds that have taken this approach in the past suffer and see the value of their in-game assets shrink significantly. Most of the guilds that have been in this path, and still have a large number of playable members, are now focusing on some of the following other niches.

**b. Venture capital trading**

Most game guild owners see Web3 game venture deals as a means of diversifying their vaults and as a way to generate returns on idle funds. We have also found that there are strategic and multiplier considerations in making these game venture deals - such venture deals sometimes come with structured terms to sell in-game assets to guilds at a discount for them to offer to booster members to participate in the game. In this way, guilds provide them with a steady flow of players on the first day of the game's launch.

**c. Building Infrastructure** Running a guild is an inherently complex operational task that becomes even more complicated as the number of booster members grows. Some aspects of guild management have historically been painful to implement, such as tracking in-game assets and individual performance of rented booster members, and weekly payments for each booster member. Some guilds have begun to build infrastructure to address these pain points, such as: asset watch boards, automatic weekly billing of booster member payments, in-guild tasks, and access to educational content to increase booster members' daily income.

Building the infrastructure has the dual effect of 1) higher Helper member engagement and retention, and 2) higher profits due to fewer community managers needing to focus on these manual tasks.

**d. Focus on building SubDAO** This is probably one of the more interesting models that only YGG seems to specialize in. By and large, it involves opening geographically based SubDAOs to be able to better reach a geographically constrained audience. This will be further elaborated below.

**03 Case Study: YGG and the YGG SubDAO Ecosystem**

I decided to do a case study on YGG - based on the fact that they were the first gaming guild on the market, and because I wanted to delve further into the SubDAO model. Other guilds may be explored with a different focus in future articles.

Disclaimer: My employer, [Crypto.com](http://Crypto.com) Capital, has taken positions in two of YGG's SubDAOs: YGGSEA and [Ola.gg](http://Ola.gg).

![](https://storage.googleapis.com/papyrus_images/f7d1eaa18c6bf7b250cde0143b9ca024214915b5ba4dd78e64caa88a914673b5.png)

a. History of YGG Yield Guild Games (YGG) was founded in November 2020 - by Gabby Dizon, Beryl Li, and an anonymous third person under the pseudonym Owl of Moistness.

In its multiple funding rounds, YGG has received support from Delphi Digital, Blocktower Capital, Animoca Brands, Polygon, Sfermion, Bitkraft Ventures, Fabric Ventures, Mechanism, ParaFi, a16z and Infinity Ventures Crypto.

Using the above framework, we see that YGG has chosen to focus on the following niche areas.

Helper Membership: In its heyday YGG had over 10,000 Helper members - primarily in Southeast Asia (mostly in the Philippines and Indonesia) and Latin America (mostly in Colombia and Argentina), which are their core markets. Venture Capital Deals: Notable VC deals that have been officially announced include Iluvium, Cyball, Mavia, League of Kingdoms, Star Atlas, and Genopets. most of these deals typically involve official partnerships where YGG purchases some of the in-game assets and leases them to their booster members. SubDAO: To date, YGG has launched 3 geographic SubDAOs to cover key regions: Southeast Asia (YGGSEA), Latin America ([Ola.gg](http://Ola.gg)), and India ([Indi.gg](http://Indi.gg)).

**b. Concise Compendium** March 2021: YGG raises $1.3M seed round led by Delphi Digital. June 2021: YGG raises $4M Series A led by Bitkraft Ventures. July 2021: YGG establishes a Liquidity Boot Pool (LBP) on SushiSwap's MISO platform - attracts $12.5M in liquidity in 30 seconds. August 2021: Andreessen Horowitz announces $4.6 million lead investment in YGG. January 2022: YGG's Indian SubDAO [Indi.gg](http://Indi.gg) receives $6 million in funding from Sequoia India and Lightspeed Ventures. March 2022: [Indi.gg](http://Indi.gg) closes IEO on FTX platform - raises $6.8M. April 2022: Southeast Asia SubDAO YGGSEA secures $15M in funding from [Crypto.com](http://Crypto.com) Capital, Animoca and others. April 2022: YGG Latin America SubDAO [Ola.gg](http://Ola.gg) raises $8 million from Galaxy Interactive, Bitkraft and Arca.

**c. Why do I need SubDAO?** The idea of using SubDAO to accumulate value for $YGG tokens was first proposed in YGG's June 2021 whitepaper, although the example in the whitepaper refers to building SubDAO for different games, not building SubDAO based on geography.

![](https://storage.googleapis.com/papyrus_images/5002b5a3da1e2fb55900d802e3816f372cfbf8fa77cffd629948ce0ac9ec0ebf.png)

Given that the community is the focus of gaming guilds, fundamentally these guilds are destined to be very localized. A similar example is the case of commercially available guilds that have localized Discord channels for speakers of a particular language, and these channels are also managed by community managers who speak that language. This level of localization also helps build a stronger community, which drives engagement and retention of Help to Play members.

Taking a step back, we find that the idea of setting up SubDAO based on geography makes sense - as Southeast Asia is fundamentally different from Latin America and even India in terms of language and culture. The location-based SubDAO model allows operators who are familiar with the region and its customs to effectively accept and retain Play Assist members on their SubDAO platform.

The SubDAO model also creates a network effect - SubDAO is able to leverage YGG's strong reputation to recruit Players and even implement funding allocations for venture capital deals. YGG's SubDAO is also known to have co-opted a number of external projects.

**d. How does YGG leverage SubDAO to build value?** As we know from TradFi, due to the legal ownership of the holding company (HoldCo) over its branches, value is accumulated from the branches to the holding company. For accounting purposes, the balance sheets of the branches will also be consolidated into the holding company - meaning that the accumulation of value is natural. The situation is slightly different for YGG SubDAOs, as each SubDAO is a separate legal entity with no legal relationship to the YGG DAO itself.

This is explained to some extent in the following excerpt from the YGG white paper - the YGG Vault's ownership of the SubDAO tokens creates a "book value" over which the holders of the YGG token holders have governance rights.

In the case of YGGSEA, we know that YGG was a seed round investor along with Infinity Ventures Crypto - both entities jointly finalized the launch of YGGSEA, and the follow-on investors shown in the funding announcement below are all investors in the private placement round. Once the Liquidity Boot Pool (LBP) is established, the value of YGG's vault may also increase as the token value of YGGSEA can be marked-to-market.

![](https://storage.googleapis.com/papyrus_images/f6f10998ccf1f8fc60b03c1136392a35022a3cee56a91e92ffa420105596c09d.png)

e. **The repercussions of one of the YGG SubDAOs**

![](https://storage.googleapis.com/papyrus_images/7202498cf338abeb756ee7d173ab91033839549edf01572c42ed2eee86ebb58c.png)

With the above in mind, YGGSEA launched the LBP at CopperLaunch from May 9-14 - just two weeks after BreederDAO ($BREED) had raised $20.7 million through LBP sales. The YGGSEA team had to withdraw liquidity from the CopperLaunch LBP pool on May 10 and postpone the IDO due to the dramatic market volatility caused by the LUNA / UST collapse.

While this was a difficult decision, I understand that the YGGSEA team would rather have better trading performance and a stronger vault thereafter than continue the LBP in these market conditions, which were, after all, in the midst of a downturn. At the very least, we see the YGGSEA team working to refund gas fees to those who participated in the $SEA LBP.

Personally, while bullish on the SubDAO model - I am not sure if the performance of the $SEA LBP is indicative of the market's perception of the model or just an effect of extreme market volatility during the LBP.

**04 Summary of views**

Through our understanding of the gaming guild business model, we have seen that the business of gaming guilds is largely lacking in differentiation and has a low barrier to entry. In trying to create a competitive advantage and seeking to differentiate themselves from their peers - as mentioned above - guild owners people have found ways to specialize.

While the SubDAO model has come under heavy criticism recently, the rationale for intending for the model to be one of the many pillars of growth in the value and influence of the YGG vault remains clear. Only time will tell if the model will succeed - but until it does, I believe that YGG and its SubDAO management team are still well positioned to protect its business until it does.

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*Originally published on [FFFL](https://paragraph.com/@superu/game-guild-business-model-case-study-how-does-subdao-differentiate-itself)*