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Token Valuation/analysis
07 Sep 2023

Crypto Gaming - The Future of Gaming or Forced Narrative?

David Zimmerman looks closer at the prospects and investment opportunities in crypto gaming. Crypto gaming tokens provided opportunity for astronomic profits in the last bull run, but you had to sell in time! Will it be different now?
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DISCLOSURE: The author owns $DMT.
TLDR
  • The gaming industry is massive and will continue to grow
  • Crypto gaming has been riddled with GameFi garbage that was destined to fail in the long run
  • The 2 broad issues are that (i) crypto games have not been fun enough and (ii) crypto has no crossover with traditional gaming and AAA games
  • Projects like Sanko Dream Machine and Dubbz are trying to address this, but it remains to be seen if they will succeed and have staying power
  • Even if you are cynical about crypto in gaming, don’t let that cynicism stop you from taking good trades as they present themselves in another cycle - “Do you want to be right, or do you want to make money?”

Gaming Is Big… REALLY Big

The gaming industry has grown into an absolute behemoth and at a blistering rate. Despite this, most people outside of gaming consistently fail to realize just how big it has become. In 2022, the industry saw $183 billion in revenue, which is roughly 7 times more than global movie box office revenue. To put the rate of growth into perspective, the gaming industry was valued at only $8 billion in 2006 - that is a near 23x gain.
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Source: Newzoo’s Global Gaming Market Report 2023
Crypto gaming has also seen its share of growth in recent years, but it was in the form of dramatic booms and busts. The last major play of 2021/2022 for me was Crabada, as it became the biggest game in crypto. It became so big that it dominated the Avalanche network causing congestion issues. But alas, this traffic was not a result of a majorly popular game drawing in tonnes of players - it was the gentlemen over at Cynical Hate DAO botting the game to death (allegedly) and running the unsustainable tokenomics model into the ground. This all too common story is told concisely in the charts, such as Crabada’s token $CRA:
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$CRA holders are underwater - deep sea diving territory
The Problems With Crypto Gaming
So what have we learned? Broadly speaking, crypto games were unsustainable because to survive or thrive, these inflationary play-to-earn games need:
  • Continuous inflows of new players willing to pay and/or
  • To be fun enough that people are willing to pay more than they are earning
The other glaring problem in crypto gaming is that the traditional gaming industry is dominated by high-budget highly-refined AAA games series such as PUBG, The Witcher, and GTA. Such games have the most players and see the most revenue, but have not embraced the crypto world. In contrast, play-to-earn crypto games are fragmented across chains, marketplaces, and audiences with no cohesive community. It’s difficult for play-to-earn games to thrive together, especially when projects are essentially vying for fleeting liquidity - one game pumping because liquidity is fleeing another. What are the two core issues in all of the above?
  1. Crypto games have not been fun enough. People are not willing to pay for them and play-to-earn has essentially been yield farming with extra steps
  2. Crypto has failed to bridge the gap between web3 and traditional gaming
But things are changing. These issues have been acknowledged and some projects are developing to address them. The Web3 gaming market has recently seen a significant spike in investment, with a massive rebound in July seeing ~$300m invested into the sector. While 37% of that sum went to individual games and metaverse concepts, 63% went to infrastructure projects.
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Source: DappRadar Blockchain Games Report
A New Era For Crypto Gaming?
With some lessons learned from the previous cycle, I want to take a closer look at two projects that are addressing the 2 major problems we have outlined:
  • Sanko Dream Machine - a project that will enable users to play games that are legitimately fun
  • Dubbz - a gaming infrastructure play that is trying to merge web2 and web3 gaming through AAA game wagering
¡SANKO!
I mentioned Sanko Dream Machine (SDM) and its native token $DMT in a previous article and briefly touched on the fact that this project covers both GambleFi and GameFi. In contrast to play-to-earn games such as Crabada, Sanko is building something much closer to the Web3 vision. SDM is a crypto gaming console on which people can play fun games for a nominal fee. Users can play games such as Milady-themed Tekken, Pinball, and Uno. The poker side of the platform continues to draw players, with 46 registrants for Sanko’s most recent WSOP tournament.SDM will be migrating to its own L3 where $DMT is used for all transaction fees and even more $DMT will be burned (in addition to token burns each time a game is played currently). 33% of transaction fees will be burned and the remaining 67% will be paid to stakers. The more games that are played, the more tokens that are burned. While this is early days, the team continues to develop more exciting things such as their own iteration of Runescape, and Sanko TV - a streaming service with donations enabled, something akin to Twitch.
Dubbz
Dubbz is a PvP platform that seeks to merge the worlds of crypto and Web2 gaming. Dubbz enables users to put their money where their mouth is and place wagers on their gameplay vs others in AAA games such as Fortnite, CS: GO, and FIFA. Dubbz acts as a mediator/referee as two users put their skills to the test with money on the line. As the gaming industry grows to a gargantuan size, so too does the industry for professional gamers. This platform is an opportunity for aspiring gamers to monetize their skills. This meshes crypto with big-time gaming and introduces crypto to a much wider audience as games can be streamed and watched by excited viewers. What's more, blockchain games can launch on the platform and even choose to use $DUBBZ as their native token.Following the theme of crypto projects placing revenue share at the core of their tokenomics (as well as fully diluted supply and no VC investment), Dubbz holders earn 1% of all wagers placed in the form of USDC. There are also benefits for large holders including exclusive tournaments and reduced fees. To further bridge the gap between Web2 and Web3, users can choose to fund their Dubbz wallet with a Web3 wallet, Circle account or through PayPal. It seems highly likely that PayPal’s recently launched stablecoin PYUSD will be integrated in the future. 
The Future of Gaming or Forced Narrative?
I am confident that crypto gaming will have another big run. While things will likely get overheated and crazy as they have in the past, the question remains whether or not these new projects focusing on sustainable models and value accrual have staying power. While I think we will see more play-to-earn cash grabs, I am focusing more on projects such as SDM and Dubbz for longs when the market heats up. I do acknowledge, however, that some unsustainable game will likely take center stage again, in which case I will submit to the narrative. Sometimes you just have to ask yourself - “Do you want to be right, or do you want to make money?”Even if you are an avid gamer and hyper-cynical about crypto having any impact on the industry, you should recognize that we will see another cycle with huge trading opportunities (if nothing else).
Addendum: Don’t Ape
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The screenshot above comes from my friend.tech article two weeks ago. Unfortunately, it seems to have been an accurate forecast as many alts have taken a significant hit. This is not to toot my own horn, I get things wrong frequently, but only to stress that even tokens with the strongest fundamentals take huge hits. Alts are essentially highly levered ETH, so it is important to recognize this and prepare for the volatility they will face. My personal bias is downwards/sideways until next year, so I am playing things cautiously, but you must be ready and know what you want to buy when the time comes!
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