People playing Axie Infinity on their mobile phones in a neighborhood alley in Malabon, suburban Manila. Photo: AFP

There are over 3 billion gamers worldwide. That’s more than the population of North America, Europe, and Africa combined!

These gamers (and their fans) make up the multibillion-dollar gaming industry. Since most video games have operated via pay-to-play and free-to-play business models, most of the profits go to the game publishing companies and their shareholders. Now, wouldn’t it be cool if the players had a chance to profit too?

Enter: GameFi

What is GameFi

GameFi is a portmanteau of the words “game” and “finance.” It combines cryptocurrency, blockchain, NFTs, and game mechanics to create a virtual environment where players participate and earn money in the process.

Blockchain-based games operate on a Play-to-earn (P2E) model, which allows users to earn real money by playing more. This comes to replace the traditional gaming model, in which users with more resources simply sink more money into the game to get ahead. By allowing users to commit resources to liquidity pools and by creating valuable, interchangeable in-game items through NFTs and competitions, P2E games make it worthwhile for players to spend time on their platforms.

Gaming Business Models Compared

Many experts believe the GameFi segment has a promising future. Developers get new tools for distributing and monetizing games, while millions of players worldwide receive the opportunity to play and earn. The financial success of Axie Infinity has inspired hundreds of teams worldwide to release NFT games in various genres, so I expect numerous exciting releases in 2022.

Most Valuable Video Game Companies by Market Capitalization

From One Chain to Many

The games created in 2020 and earlier were mainly built on the Ethereum blockchain. However, high fees forced the developers to switch to cheaper and faster blockchains. At the same time, the increasing number of users on the Ethereum network skyrocketed, leading to slow confirmation times of transactions and a poorer user experience. Now, many games built on Polygon, Avalanche, Flow, TRON, and Solana are gaining momentum in the game industry.

This makes me believe that the future of crypto is multi-chain. That is, many Layer 1 blockchains will focus on specific use cases out of necessity. Even further, Layer 2 solutions will play a critical role in the success of GameFi due to scalability issues. These solutions benefit from the security of the Layer 1 chain but optimize for speed and cost.

Quarter over Quarter Growth in the Number of Games by Protocol

At Axie Infinity’s peak popularity in November, Ronin, a Layer 2 product (devoted solely to the game) from Axie Infinity developer Sky Mavis, processed 560% more total transactions than the Ethereum blockchain. While that figure has since retreated, the sidechain is still processing more than other Layer 1 networks like Avalanche.

When in doubt, I follow the builders, or in this case, the video game developers. Blockchain technology is accelerating as a go-to foundation for these developers, with the play-to-earn model growing in popularity. According to a November 2021 report, 58% of 197 video-game developers surveyed in the US and UK were beginning to use blockchain technology.

NFTs and Crypto Adoption

”GameFi is going to be the next big thing that makes the DeFi, NFT and the larger crypto space easy to understand and be involved in.” — Justin Sun, Founder of TRON

We are still in the phase where only innovators and early adopters are engaged in Web3, but GameFi has a much higher potential to attract non-crypto users into the crypto market. Looking at Rogers Adoption Curve, I believe 2022 will be the year we cross “The Chasm”

Rogers Adoption Curve

MetaMask, the most popular wallet used by traders in the DeFi (i.e. decentralized finance) ecosystem, offers a sufficient proxy for the rate of crypto adoption. Li Jin, Co-Founder and General Partner of Variant Fund highlighted where web3 is in the technology adoption lifecycle.

Even since Metmask reported 21 Million Monthly Active Users (MAUs) in November, the browser extension now boasts 32 million MAUs, up 52% in only 3 months.

Looking at the usage statistics of other popular crypto products underscores the fact that this growth is not unique to MetaMask.

Coinbase, the largest cryptocurrency exchange in the US, reported 8.8 million MAUs in 2021, up 214% from 2.8 million users in 2020.

NBA Top Shot, the project that initially got me interested in NFTs, is also still on the rise. Geared towards people who are not necessarily crypto natives, NBA Top Shot allows users to buy NFTs easily with dollars rather than with cryptocurrency. Despite sliding cryptocurrency prices, the platform grew impressively throughout January, with sales up 72% according to CryptoSlam data.

Cryptocurrencies appear to be near a hyper-adoption phase, similar to that of the internet during the mid-to-late 1990s.

A Global Phenomenon

Many of the early adopters of play-to-earn opportunities are gamers in developing regions of the world, whose normal incomes have been badly hit by the effects of two years of lockdowns. GameFi and play-to-earn are seen as a way to make an income in the virtual world, free from the problems that plague the real world.

“Right now, there is a largely untapped economic opportunity in emerging markets to provide jobs by building a virtual economy in the digital world…The way we define a ‘job’ is quickly evolving because of crypto and gaming, and we think we’re just starting to glimpse what’s possible in this realm.” — Arianna Simpson, General Partner at Andreessen Horowitz

At the end of Q2 2020, following a period of little growth, total global adoption stood at 2.5 based on Chainalysis’ summed-up country index scores. At the end of Q2 2021, that total score stood at 24, suggesting that global adoption has grown by over 2300% since Q3 2019 and over 881% in the last year.

Chainalysis’ 2021 Global Crypto Adoption Index

Research by Chainalysis suggests that reasons for this increased adoption differ around the world — in emerging markets, many turn to cryptocurrency to preserve their savings in the face of currency devaluation and carry out business transactions, while adoption in North America, Western Europe, and Eastern Asia over the last year has been powered largely by institutional investment. The variation in the countries contributing to the dramatic increase in cryptocurrency adoption demonstrates that Web3 is a truly global phenomenon.

Looking Ahead

Blockchain gaming is poised to disrupt the $175 billion global video games market. GameFi has already gained significant traction, with the collective market capitalization of top games breaking $14 billion.

Interest in the space isn’t dying down anytime soon. In fact, competition is heating up! Up from only $88 million in 2020, the sector saw investments worth $4 billion in 2021. In January 2022 alone, blockchain-based games and their infrastructure received over $1 billion in funding! Notably, the Blockchain Games report reveals that the gaming sector accounts for 52% of the blockchain’s activity in 2022 so far. As such, I expect investment in the space to easily exceed $15 billion this year.

Solana Ventures recently launched their second fund to support games being built on Solana. The first, a $100 million fund co-led by FTX and Lightspeed, and the second, a $150 million fund in partnership with Forte and Griffin Gaming Partners. That said, they’re not the only protocol involved. On the heels of hiring former YouTube executive Ryan Wyatt as head of its game studio, Polygon closed a $450 million investment round led by Sequoia Capital.

I believe the focus for investors should be more on the infrastructure of blockchain games rather than the game itself. A single game’s lifetime could be short, but the infrastructure surrounding these games will last much longer. Crypto startups and gaming companies are already racing to capitalize on this explosive trend, so here are some key stakeholders that I’ll be watching:

• Metaverse: Decentraland, Sandbox, and NFT Worlds

• Infrastructure: Forte, OpenSea, Sky Mavis, Dapper Labs, Animoca Brands, and Mythical Games

• Gaming Guilds: Yield Guild Games and BAYZ

• Games: Axie Infinity, DeFi Kingdoms, Pegaxy, Sorare, and Rumble Kong League

My VC Journey is far from over, and I’ll continue to share my learnings. If you’re interested in staying updated, follow me here on medium and on Twitter @darrensvision

References

• Global Crypto Adoption Index

• Wells Fargo

• GameFi Explained

• Coindesk

• Hackernoon

Disclaimers: NOT investment advice. Do your own research. Make your own decisions. Darrensvision is a holder of Rumble Kong League NFTs and a co-founder of the BAYZ KONG DAO. The BKD is not affiliated with the Rumble Kong League.

Image credit — Singularity Hub

“People don’t care about what you know until they know that you care”

I come into VC with a unique perspective. One that’s been shaped from my experiences as a Black man, as a coder, as a startup operator, and as an athlete. It’s important for me to start with my identity because that has helped shape my vision for the future. That future is diverse, decentralized, and community-driven.

The nation is diversifying faster than predicted. People of color will become the majority in the U.S. by 2045 and the biggest opportunity for outsized returns is in backing this emerging majority. Notably, the fastest-growing group of entrepreneurs is Black women. These founders are building products and services that are poised to disrupt industries where they have been excluded or ignored.

Underestimated Founders

I recognize my vision may evolve over the years, but I know my commitment to underrepresented founders will only grow. Having worked in Philadelphia for a few years, I got to see firsthand how the external perception of a city may not align with the excitement of the hustlers actually building in the city. Philadelphia’s population is majority Black, and I saw founders building for people who look like me. Still, as a Venture for America fellow, I also witnessed how their fundraising struggles were stark in contrast to founders who came from more traditional backgrounds. Instead of raising money from friends and family, they had to be more capital efficient, sometimes even bootstrapping their way to growth. While Silicon Valley has remained the global epicenter of technology and entrepreneurship, I look forward to a future where access to resources and capital is as distributed as hustle.

Blockchain Technology

We are also living in a time of extreme technological progress. With lower startup costs, entrepreneurs are using technology, especially blockchain technology, to empower the individual and disrupt markets. I was first introduced to cryptocurrency in 2015 by a classmate using Bitcoin on the Silk Road. That’s a story for a different time, but I was immediately intrigued by the endless possibilities this new technology could bring. I recognize that certain ideas take an extra step of imagination to fully grasp, but I’ve never been one to shy away from a new opportunity (see image below).

My first experience with the Oculus VR Headset c. 2015

As I see it, the main benefit of blockchain technology is that it cuts out the middleman. It uses smart contracts to allow the non-brokered exchange of information and digital goods. I firmly believe that technology platforms can build a better world, advance economic opportunity, and lower the barriers to entrepreneurship. Less than a decade later, the implications of both blockchain technology and smart contracts reach far beyond their original use in financial transactions. Crypto networks are now serving the unbanked, providing an income for the unemployed, and providing infrastructure for creators to sidestep extractive networks, management firms, and centralized social media platforms. I look forward to supporting blockchain-based businesses around NFTs, DAOs, The Metaverse, and more! A few superstars in this space include NBA Top Shot, Open Sea, and Axie Infinity.

Creator Economy

Platforms like Spotify and Instagram have generated billions of dollars while creators only receive a small fraction of the revenues. Now, blockchain technology and creator-first business models are opening up new ways for creators of all kinds to monetize their Intellectual Property. Companies like Patreon, OnlyFans, Audius, and Metaplex are already capitalizing on the $100B+ market opportunity, and I look forward to supporting founders building in this space. Not only are they allowing individuals to build deeper connections with their audiences, but they are also making it easier for creators to make a living while doing what they love.

TL;DR

Don’t blink. You might miss something.

If the last 18 months have taught me anything, it’s that you have to lean into the future. It feels like the world is accelerating faster now than ever before. While I am focused on early-stage opportunities, I want to make clear that I’m honing in on 3 paradigm shifts that have the power to reduce wealth inequality. That is the diversification of our nation and of founders, the mass adoption of blockchain technology, and the future where everyone is a creator.

*My VC Journey is far from over, and I’ll continue to share my learnings. If you’re interested in staying updated, follow me here on medium and on Twitter *@darrensvision