Recently, many have reported that VC funding is flowing to more and more games.

In episode 216 of the Blockcrunch Podcast, host Jason Choi welcomes on Gabby Dizon, Co-founder of Yield Guild Games, to discuss the current state of Web3 gaming, how VCs are investing, and what to expect going forward.

Read our notes below to learn more.

Thoughts on Play to Earn

• Many games copied 2 token model that Axie Infinity (the most popular play to earn game) used: a governance token, and an inflationary rewards token.
• Axie’s popularity encouraged people to trade their tokens.
• When markets fell, SLP (the rewards token) fell along with it.
• The 2 token model was proven to be flawed as it doesn’t give teams the ability to act quickly enough.
• To combat this, many games today are implementing ‘soft currencies’, that can’t be completely owned or sold by a user the way a token or NFT could.
• Games are delaying the point at which players begin earning actual tokens or NFTs.

On-chain Games

• Putting assets on-chain forces a data standard, and forces interoperability with other games assets.
• There typically isn’t a lot of interoperability in legacy gaming.
• It is difficult to have all assets on-chain.
• Game developers are implementing entry and exit taxes into their game ecosystem.
• On-chain games promote asset trading, which only applies to multiplayer games, not single player games.
• Multi-player games also create different jobs for players to take on to get involved.
• These games need to be 0-sum in some gameplay aspects, not everyone can win in a sustainable economy.
• A well-designed game will encourage people to buy assets just to flex, rather than to make money.

Play to Earn Games in Web3

• Gabe Leydon, CEO of game studio Limit Break, plans to create free-to-own economy in their upcoming game DigiDaigaku after having raised $200m.
• This will work by original NFT holders being airdropped new assets.
• One issue could be that original holders end up holding too much of the game’s value, discouraging new players.
• Web3 gaming is similar to the rise of free-to-play games, in the sense that developers had to experiment with their structures early on.
• It is more important to be careful when implementing new changes in Web3 games, as players usually have more money invested.

Web3 Competitive Gaming

• Games should charge fees for competitive matches and use this to create a prize pool for winners.
• An ideal competitive Web3 game should be structured similarly to F1 racing.
• Sponsors can also get involved.
• This is different from gambling, as the winners will be decided by skill rather than luck.

How to Create an Optimal Game

• Developers should think about the game as an economy.
• Games should be free to play, developers shouldn’t make a lot of money from direct sales.
• Developers should leave the economy in the hands of the players to produce assets and trade.
• The game would make money via a secondary market fee.
• This makes the free-to-own model very powerful.
• Developers need to limit the amount of assets the game releases, to avoid inflation.
• Important to have experience in game development, especially in building in-game economies for Web2 games.
• Good games often have a development cycle of 2-3 years.
• The game needs to be fun; there are many ways games achieve this.
• Gabby looks for founder-market-fit, experience or skillset that provides an edge which sets them apart.

Gaming Guilds

• Gaming guilds have been a concept since the late 90s, most common in World of Warcraft, Runescape.
• Web3 guilds handle real value with their treasury balance sheets.
• Axie Infinity saw more money being taken out of their economy by guilds than coming in.
• Guilds are specializing in certain areas, such as Esports, creating content, building products to manage in-game assets.
• There are even guilds working for other guilds.
• Guilds are similar in structure to DAOs.
• Guilds are pivoting to a prize-pool model before having access to earning rewards.
• Strider DAO provides a way for a community to create IP together, and distribute potential proceeds to the community.

Investing in Games

• A16z created their first games fund recently.
• It is difficult for VCs to invest in games, until recently, you had to have a lot of experience playing games to invest successfully.
• Today, VCs can look at the financial aspects of games and make decisions.
• It is very difficult to bet on games.
• Building an open economy game will naturally turn into infrastructure for other games e.g., Roblox

Yield Guild Games

• Yield Guild Games (YGG) launched sub-DAOs across the world that onboard new people to Web3.
• YGG and other guilds can build lending, benefits for players.
• As games are evolving into economies, there are many opportunities to build new products and services.

This summary was originally posted on The Daily Bolt, which is a 100% free no-nonsense daily crypto newsletter by Revelo Intel.