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The Future of Gaming DAO or FOGDAO is a decentralized, tokenized community exploring the future of the gaming industry.
Nico Vereecke:
GM friends and welcome to the Future of Gaming podcast. I'm your host Nico and today I'm joined with a bunch of people that I spent a lot of time with. We have three colleagues of mine, all three of them. We have Jamie Wallace, Ben Naylor and Justin Swartz, part of the Bitcraft crypto team. As you might have seen, we recently put out a State of the Web3 Game Developer Tooling where we go over all the tooling that's out there. If you want to build a game using Web3 Tech and the lads on the show here did a lot of work on this specifically Jamie and Ben. And the goal of today is to go through the reports, discuss our findings and hopefully you can take away a few interesting things that you didn't know before. Before we get started, I think a round of intros for these gentlemen make sense. So I'll go, I'll follow the people on my screen from top to bottom. So Jamie, you wanna? Give us a brief background about yourself.
Jamie Wallace:
Yeah, definitely. Um, Hey guys, Jamie, been at BitCraft for just almost two years now. Um, primarily focusing on the crypto team. Um, background study, finance fell down the crypto rabbit hole, decided to start a research company with friend, did that for about 18 months throughout the bull market, did a bunch of reports on various protocols, um, blockchains built up a pretty good following and network through that, and then use that to pivot into the investment side and been at BitCraft ever since.
Nico Vereecke:
Awesome.
Ben:
Hey everyone, I'm Ben. TechnoR on Twitter and Discord. My background is in software engineering and prior to that was actually sound engineering. Being at BitCraft for just over a year now, got into Web3 in 2020, fell deep down the rabbit hole and spent a bunch of time doing Web3 developer boot counselor on the technical side, as well as leading research teams in the Neo Tokyo DAO, which is where I bumped into. Carlos, who's another member of the crypto team not present today. And then since then, I've been working full time on the crypto team at BitCraft primarily in a research based role.
Nico Vereecke:
Okay Ben, what is the story behind the lamp over your right shoulder?
Ben:
Damn, you guys can see that.
Nico Vereecke:
Yeah, yeah,
Ben:
I
Nico Vereecke:
we
Ben:
like
Nico Vereecke:
can.
Ben:
to say that's like a hipster lamp, but in reality it comes from my gran's house.
Nico Vereecke:
OK, fantastic.
Ben:
It's a good talking point.
Nico Vereecke:
Exactly. Justin.
Justin Swart:
Hey guys, background in finance. I started off in investment banking in mergers and acquisitions where I got all my gray hairs. At that time was a bit crypto curious and got into the space around 2015. Sounded like a madman trying to preach that investment banks or banks should be custodial providers sort of way before that was a thing. then jumped into traditional venture capital and invested across a whole load of sectors at a firm down here in South Africa. Did that for about three years. I was a lifelong gamer, an avid gamer ever since, and that led me to Bitcraft. We have been with you fellows for about a year now.
Nico Vereecke:
Amazing. Good. Let's dive in. Um, maybe the first question to, to answer is why did we, we did you decide to work on a state of the, what three game developer, um, landscape? Ben.
Ben:
Sure, I guess there's two main reasons. Firstly, we wanted to provide a good overview and resource for founders building in the space. And there's a lot of things being built. And sometimes when you're deep in the trenches, it's hard to get that bird's eye view of everything that's being built. So it was really just raising awareness of the different options available. But also it was an opportunity for us as a... and investment team to put our thoughts down on paper, clarify views and refine them in each sector to support our investment process basically.
Nico Vereecke:
You know, something I've observed in this space is that there's a lot of teams that, you know, decide to go a certain direction. You know, people that saw the massive amount of fundraising happening within the Web3 gaming space and decide, Hey, and if these are my game actually make a lot of sense that then go heads down and build, um, and kind of not really follow the evolution in the space and this space is, is like moving super fast. And so I think, um, it makes a ton of sense to once in a while, just pop your head out. and see what changed because one of my observations is that a lot of team follow a playbook that's been outdated. And so it's always good to see what others are up to and what cool stuff people are using these new technologies for.
Ben:
Absolutely and part of the research process we looked at a report commissioned by Game 7 DAO only a year ago And this report lists a bunch of things that's missing from the space including good unity and unreal SDKs and a host of other things fast forward a year and all this stuff has been built and by multiple teams So in a way you have analysis paralysis is that much stuff actually available now, so Just
Nico Vereecke:
Awesome.
Ben:
a little observation there
Nico Vereecke:
Let's start diving in. First part's end-to-end solution versus modular approach. Ben, what can you tell us about that?
Ben:
So as part of the research report, we created a market map which divides the infrastructure up into different sectors. However, we thought that it was useful to frame it in a more broader sense. So we decided a good way to do that would be have been kind of the vertically integrated platforms, fully end-to-end solutions at one end. point solutions at another end and most infrastructure companies will lay somewhere on this scale. So at the end to end side, you've got platforms like Immutable or Ready Games that provide a holistic set of tools for game developers including underlying blockchain, player wallets, account management, asset minting, marketplaces, analytics, all that kind of stuff, everything the game developer needs. So They can just focus then on building out engaging core gameplay mechanics. And for this reason, we feel this option is well suited to traditional game developers coming into the space. Teams that don't have full-time blockchain engineers are necessarily have the expertise in-house. Aside from what I've already mentioned, the other advantages to this are that cost saving from bundling products together. You get things like Dev support as well. And the platform, or the vendor is incentivized to keep their offerings up to date in order to stay competitive with others in the market. So developers get all the latest updates by proxy. On the flip side though, there are some potential drawbacks depending on the platform. Teams may see reduced flexibility in workflows because it's largely dictated by the workflows the platform has decided to follow. And teams could also see dependency on the underlying platform. So it's just something to bear in mind when building out the stack. And then going to the other side, the fully point, like the point solutions, like a rainbow wallet, for example, which is purely for connecting your wallet. to the blockchain or the Chainsafe SDK. These are specialized solutions and it gives teams the option to compose their stack and cherry pick solutions that are highly specialized at different things. An advantage to this is you get a lot of flexibility and you're not dependent on a single underlying vendor. But on the flip side... It's expensive and time consuming to research, stand up all these different infrastructure, connect them all together and then maintain it going forward as well. So this is best suited to experience where three developer teams, we believe, that wants to do something kind of lean into the unique affordances of blockchain beyond simple asset ownership. So things like bespoke interoperability or moving more game logic on chain, for example.
Nico Vereecke:
Good. So I'm going to try to summarize it very briefly, right? If I'm a web three game developer, I want to start from scratch. I'd have to path paths. Either I go for an end to end solution, which makes my life easier. I can focus on pure game building and they provide an SDK or APIs to handle all of the blockchain stuff that comes with significant like vendor buy-in, which limits my flexibility. Um, and. could potentially cause for some issues later down the road, but it makes my life easier, faster. I don't need to think about the fast moving blockchain space because that's the end-to-end provider's job. If I want more flexibility, I go for a modular system where I plug and play point solutions and put them together to fit my needs. Generally, that's recommended if I have more blockchain experience or I want to do some cool new shit that doesn't really exist and might not. be possible with the packaged solutions that the end-to-end providers give me.
Ben:
Exactly. And teams might also choose to have most of the stuff handled by one of these end to end solutions, but then just, you know, the composability of blockchain allows you to just bolt on point solutions in areas where the end to end solution might be lacking, for example.
Nico Vereecke:
Awesome. Good. So if I'm considering building a game, so what we're going to do is we're going to link the reports in the description below. And so if you want to see some names, if you want to see the market map, just have a look there. We don't have to go over all of the names and all the different companies that are tackling this, which allows us to move on to our next part, which is different blockchains. Jamie, what can you tell us about that?
Jamie Wallace:
Yeah, I mean, this is probably the most common question we get asked from our portfolio companies and prospective companies is which game or like, where should I deploy my game? Where should I build my game on? Um, I think our answer is it depends. There's not a right solution for everyone. I think we're still in the early days. We've seen companies like immutable X do a really good job of building early network effects and early ecosystem of games. I think they're by far the leaders in terms of games on their platform and they've been doing really good stuff on the infrastructure side. building out a toolkit of developer tools around it to be able to, like Ben mentioned, have a more end-to-end solution. We've also seen stuff like Polygon and Arbitrum do really well at just getting broader liquidity and just more users, which is obviously good for user acquisition. I think right now in the current state of it, we're seeing Immutable, Polygon, and Avalanche being the three main ones we see games typically go towards. people building on Avalanche because they've got the subnets. They really want this, their own blockchain to be able to have more flexibility, use their native token as a gas token, be able to customize parameters of the chain. And then we're also seeing some really interesting stuff happen in the Arbitrum ecosystem as well. They've done really well acquiring the whole treasury ecosystem. There's a whole slew of games being built on there, which are picking up some nice steam. I know the Arbitrum team's putting a big emphasis this year, particularly. on acquiring games, they've got their Nova infrastructure to be able to support games a bit easier. We're also seeing the emergence of this OP stack as well, and a bunch of companies building, you know, individualized app-specific chains on that infrastructure as well. So I think it really depends, like there's so many options. I think developers can often get lost and confused with all the different options. I think the biggest things from our perspective is we definitely have a bias towards EVM. We think in terms of developer tooling, network effects, in terms of builders and users, it's definitely the biggest. And we've seen sort of the emergence of all these layer two and layer three solutions being built on top of the Ethereum virtual machine. So I think we are biased towards sticking sort of in that ecosystem as well. And then I think it's really important to assess the developer tools because that's gonna be probably the biggest factor as you're building your game. If you choose a chain that there's no developer tooling built for, then you're going to have a really tough time and you're going to incur a bunch of technical debt having to build all that stuff up. So I think before going and thinking about blockchains, I think it's honestly better to go think about what tools do I need to build my game and then what chains are compatible with that and work from there.
Nico Vereecke:
Yeah, it makes a ton of sense. I think if you, if you look, and we've talked about this on this podcast before, if you look at the evolution of standards in the, the web one and two era, specifically the web one era, you'll see that there's a bunch of things that evolved, um, that are suboptimal, but that just had this, um, network effects and that past, you know, the, um, the, the point of no return where it's, it started compounding. And so, because everyone started using certain like in certain tool or certain way of doing things, that became the dominant way and the dominant solution. And so similarly, specifically in the blockchain, there's a, like everything is open source and even open States. And so I think network effects and the critical mass of developers are really important. And so for that reason, I think you need a very, very good reason to not stay within the EVM ecosystem. I would say, if anyone asks that. Good. Yeah, okay. Let's move on to the next part, Wallace and player accounts. Penny, you want to briefly introduce this part?
Ben:
I'll try and be brief because it's obviously a big area in Web3 right now. It's the user's main touch point with the blockchain and hence where most of the friction happens. Because of this there are a lot of people, a lot of startups trying to build solutions to address these pain points. First off I think for the vast majority of games in Web3. while it should be invisible to the user. I believe that they shouldn't even know that they're playing a blockchain game when they first connect. That should be completely abstracted away and introduced at a point when it makes sense during the game and when it makes sense to the player. And players may never choose to actually interact with the blockchain elements of a game. The game should be fun without having to lean on web3. But kind of design choices aside, I guess the first one of the first options to look at is whether you want to be custodial or non-custodial. A custodial solution providing custodial wallets for users like Stardust for example can give like quite a familiar web 2 like feel. Think of a centralized exchange when you log in with the username and password and you can recover passwords if you've lost it, you have customer support etc. But you also have to KYC because these regulatory compliance dictates that to reduce the risk of money laundering and things like that, users have to do KYC. And if you're using this service within a game, that KYC can sometimes get passed on to the gamer, which can frustrate the onboarding process potentially. So that's something to be aware of. On the other side, there's non-custodial, where users have complete control and ownership over their digital assets, and there's no counterparty risk. But however, because they have control and full ownership, they also have full responsibility over these securing their accounts. Up until now, this was a pretty big issue to the mainstream adoption. because players, there was basically a single point of failure. If you lost your private key, then you lost access to everything and there was no kind of recovery mechanism. Thankfully recently, I'm sure most people listening to this will have heard of the term account abstraction, sometimes referred to as smart contract wallets or more recently, just smart wallets. This basically, It creates a web 2 type experience for players and users whilst remaining non-custodial. I'll try not to get too much into the weeds here but just to explain a little bit about account abstraction because this is a hot topic at ETHCC as well. The Ethereum ecosystem basically has two types of accounts. You have the externally owned account which most people will be familiar with. That's like your Metamask account. That's basically just a key pair, a private key and a public key. are used to create what's called a signer, which signs transaction data and that's submitted to the blockchain to commit some kind of on-chain action. The problem with this though is that the account itself, which holds the digital assets and the key or the signer are very tightly coupled so if you lose access to the signer you lose access to the account. What account abstraction does is the account part of it is represented by a smart contract on chain and separate from the signer so if the signer gets lost It's no big deal, the accounts still exists and there can be recovery mechanisms set up. And because this account is a contract on chain, it's programmable and customizable. So you can do things like social recovery using multiple keys. which gets rid of seed phrases, which is like a big win for the space. You can also batch transactions. So think about a traditional e-commerce type experience where you go into an in-game marketplace, you can select multiple NFTs, they go into your cart, and then you can purchase them all with a single transaction, pay gas fees once. It can also use alternative encryption methods, so which without going into any details really, it allows a transaction to be signed from this secure enclave on a mobile device, turning everyone's phone into a hardware wallet, for instance, which could be really interesting to see how that develops going forward. But perhaps the most relevant to gaming is the use of session keys. So imagine connecting to a game for the first time you log in with a social account or username and password and in the background are keys generated by that game, which you as the user give permission to act on your behalf. and this key can have parameters defined by the developer such as a spending limit or a time to expire it, maybe only live for 20 minutes for example. And then what happens is you can play the game and this key just signs everything in the background for you then you get no Metamask pop-ups so it's a much better user experience.
Nico Vereecke:
It sounds like these smart contract wallets are kind of the way to go and will likely be the way we actually do wallets moving forward. Do you agree with that?
Ben:
I would say so yes, because it just adds so many more features to the wallet other than just signing transactions and it puts up sufficient guardrails as well. So people can remain, because if this infrastructure isn't built out properly, people will probably just turn to centralised alternatives, because most people are not going to maintain seed phrases and private keys. It's too much responsibility.
Nico Vereecke:
Yes. And I think an important note here, if you look at the market map that we made, we have, we've put a bunch of names under non-custodial, custodial wallets and smart wallets. Um, but I think that, you know, especially the people that are working at these companies, they realize that everyone's moving towards smart contracts, uh, wallets and these types of solutions. And so, um, you know, there's a good chance that within a couple of years, all of them will have migrated to that kind of solution that basically is the, is the best of both worlds.
Ben:
I would say that's likely, yeah.
Nico Vereecke:
Good. Yeah. Let's quickly, Ben, you talked a lot about transactions and wallets. Could you continue and talk about meta transactions as well?
Ben:
Yeah, I mean, this is very closely linked to the whole wallet experience. And I'll just do this one quickly, but basically like providers like of this like OpenGSN or ByCoin, there's a whole host of other ones, but what a meta transaction is, it's just a transaction wrapped in another transaction. So a user will create and sign a transaction to do something in a game or on adapt and then the transaction will be wrapped and sent to a third party, which is often called a relay. All that happens basically is the relay will then execute the transaction on behalf of the user if it meets certain criteria and then they can pay the gas fees for the user which obviously has to be economical at scale or gas fees can be abstracted which means allowing the user to pay gas fees in any token not just the native network token.
Nico Vereecke:
Cool. OK, Jamie, what can you tell us about FIATS on enough ramps?
Jamie Wallace:
Yeah, I mean, I mean pretty self-explanatory yet fiat on and off ramps basically allow you to take money you know, from your Fiat bank account into sort of the Web 3 ecosystem. I think a lot of people when they first touch, particularly blockchain games, they're not going to have crypto wallets already for anyone in the crypto space. You know how difficult it is to actually get money in. It's only getting more difficult with all this regulatory stuff with exchanges shutting down, all the KYC. So basically the Fiat and Fiat off and on ramp solutions just basically provide you with easy to use solutions to be able to pay. with traditional payment methods like a credit card, a bank transfer, et cetera. We think this is gonna be a, there's sort of two. Versions the point solutions the moon pays coinbase pay transact which can plug in sort of at the point So when you go to pay and buy for example an FD or tokens for a game, it'll pop up You can enter your credit card. Typically you do have to KYC with those solutions. So that's one area Then you've got these end-to-end solutions. I know start us block It's they're all going after getting their money transmitter licenses so they can actually facilitate Payments, so that's another option as well again sort of goes back to what Ben mentioned earlier of the end-to-end versus modular solutions. Yeah, I think our view on this is that it's gonna be critical to have ways for users to onboard and access crypto, purchase cryptocurrencies without actually owning crypto and having a wallet set up. So having these fiat on and off ramp solutions are critical to a good user experience.
Nico Vereecke:
Does it make sense? Do companies need the modular approach here or do you think it makes most sense in almost all the cases to go for more end to end approach?
Jamie Wallace:
Yeah, I mean, I mean, um, the end to end approach would probably be easier if you're using other tools, um, that the end to end solution offers. But I think if, you know, if you're building your own tech stack for whatever reason, you've got a bunch of different solutions and none of them really have that Fiat on off ramp, you know, the fees might be higher because they might be smaller, then it might make more sense to go with a moon pay. I think Stripe also has a solution. Correct me if I'm wrong, Ben, but, um, sort of bigger providers where your margins might be a bit better.
Nico Vereecke:
Make sense. Do we have data on the percentage of players and maybe the amounts of the amount of money that came through these fiat on and off ramps or directly through crypto for games? Is there data around that?
Jamie Wallace:
I don't have it off the top of my head. I'm sure it's somewhere out there and wouldn't be too hard to find, but yeah, I wouldn't be able to give you an accurate answer to that.
Nico Vereecke:
Okay. Got it. Good. I think closely related to the KYC and payments is bot prevention. I'm going a bit off track here, but I think this is a relevant part of the discussion. Justin, what can you tell us about that part of the stack?
Justin Swart:
Yeah, I mean, it's relevant it relates to sort of understanding who your users are. It's quite interesting. I think this is one of the underappreciated problems in web three gaming that's going to kind of rear its ugly head as a space develops as games mature as they come, you know, online and users start playing these games. You've seen the issues come about in games like Crabada. I don't know if you guys remember that old chestnut. I think
Nico Vereecke:
Hehehe
Justin Swart:
one of the early kind of games that was hailed as just one of the early games in web three that users were playing and it just got absolutely bought into pieces at a stage that was industrial farming, industrial bot networks. Some from both kind of users and funds alike that just destroyed this game to pieces. And... you know, if I on this part, I'm sure you know, you guys, Nico, you've been a big proponent of on chain games, and we're doing some work on autonomous worlds. And, you know, that's going to be something where you have sort of smart contract like players, or just, you know, non human players, perhaps that are able to play within these games, you know, whether that's allowed or not, or banned at sort of points of entry. It just needs sort of some type of solution where anti-botting... software comes into play. And, you know, in the web three space, we haven't seen that many solutions. I just want to caveat that you know that our report and your while the team has done some great work is perhaps not exhaustive. So I don't want to sort of step on anyone's toes here that there may be great other companies out there in the space that we just haven't discovered. So please do reach out. We've just seen very saw as a company that we think is doing great work in the space, trying to identify and combat bots. The dirty little secret, which is interesting in our research in the space, the dirty little secret in traditional gaming is that, you know, botsing to some degree, studios don't really care about it that much. If it doesn't impact the like core fabric of the game, if you want to define it in that way, you know, you see this in, if you ever played like World of Warcraft, you see the little characters, you know, running to the gold pits all in a line, like sort of doing the cocoa samba or whatever, you know, the line towards the gold pits and all just sort of farming it and going wrong. And, you know, if you use this, if you've ever played, I don't know, you've ever, I don't know, just got absolutely nerfed in some sort of first person shooter, this was all kind of like, shooting bots or that anti cheat, sort of cheating bots that help you aim and stuff like that. And to some degree, care about that because gamers keep coming back. It doesn't really impact the game really detrimentally. But in Web3 gaming, this is completely different because at times there's financial incentives in some of the games because of the financial primitives that are enabled by crypto. There's tends to be a lot more at stake. Sometimes you know, you get stuff for free, you know, general terms, airdrops, perhaps NFTs, as sort of NFT factories and what have you. And so it becomes a lot more important to institute any kind of antibiotic software. And yeah, there's a few others in the space that we looked at fingerprint JS as well as another way to institute a kind of cookie like experience or just try understand if users are who they say they are. But I think it is just definitely a problem to be solved. So it perhaps not a good answer, but it seems to be something to focus on more requests for more companies to look at this as the space develops.
Nico Vereecke:
100% agree. Um, and then I guess a final point here is that we recently saw reports about RuneScape having like a new revival because using the current generation of, of
Justin Swart:
Yeah.
Nico Vereecke:
LLMs, um, you know, there's actually now players in the game that's really feel human that you can interact with that are just, you know, talking to JadGPT or connecting to JadGPT on the backend and are,
Justin Swart:
Yeah.
Nico Vereecke:
you know, it feels like this is a new world again, where there's a bunch of new players. trying to figure out dying at level 15 because they're trying to fight enemies that are way too strong. And so I think these technologies can be used for good, which
Justin Swart:
Yeah.
Nico Vereecke:
I think RuneScape is one example of in this case. But obviously it can also be used for bad in games like you discussed, where there's actual financial or money at stake and you can actually make money by playing.
Justin Swart:
Yeah, yeah, exactly.
Nico Vereecke:
Good. Next marketplace infrastructure, very important. Web3 seems to be all about trading, so we need marketplaces for that. What can you tell us about that, Ben?
Ben:
I actually think if you don't mind Nico, I'd like to do software development kits first because
Nico Vereecke:
Let's
Ben:
it kind
Nico Vereecke:
do
Ben:
of,
Nico Vereecke:
it.
Ben:
it'll help the discussion of marketplaces. So SDKs, yes, software development kits, basically it's just a way to simplify and abstract domain specific knowledge into familiar constructs for developers. So maybe the best way to describe it is through an example. If I want to have an NFT in a game. in the code rather than having to make the RPC call to a node, send the message with all the parameters, get the message back, process it and then put it into a variable. And SDK would just give you an ERC721 object and then using normal kind of object oriented programming type language features like dot notation you can just access. methods on that object and passing parameters. So it ends up looking much more like a programming language that traditional developers are familiar with. And this just allows developers to follow best practices more easily and reduce complexity, which in turn expedites development cycles, which leads to higher quality and maintainable code. And if you just look at what's available today on the Unity Asset Store. It's a sign of how far we've come. They have a decentralization category where there's a whole bunch of unity approved SDKs from various blockchains, various providers. So yeah, go check that out if you've not seen it. But this leads nicely into marketplaces because this is how a lot of these marketplaces are built in-game. Well first of all, most marketplaces that people will have probably used today in the space are external marketplaces or standalone marketplaces, think OpenSea, Magic Eden, LuxRare, etc. But this is not the case in traditional video games. If users were frequently required to leave the game to trade items with someone else and then come back, that's just not a good immersive experience and you're probably going to see a lot more Chern doing it that way. We believe the future of game related trading volume is going to happen in in-game marketplaces. And SDKs, because it simplifies a lot of the blockchain primitives and blockchain logic, enables more complex experiences to be built, which tightly integrate with the gameplay itself. So we do see... deeply integrated and embedded marketplaces as the future of this space. So like imagine Niko like I have two characters in World of Warcraft we meet in a tavern and rather than go into like some sort of marketplace I can just pass you a sword across the table and the action of me doing that in game will actually submit a transaction on chain in the background and transfer the entity ownership from me to you. And companies like Ready Games are already building this stuff. Check out their Twitter, they put some demos up recently of this happening in a demo game, which is really cool. So it will be interesting to see how this particular space plays out.
Nico Vereecke:
Yeah, we, um, a couple of weeks ago actually had a episode with David from ready games on he's been on a couple of times actually, and, um, he, he gave us some, uh, he showed us a video of, of these things working, which was very impressive. And for the, those of you who are listening, he also did an amazing job on talking over it and describing what happened in, uh, in, in the video he showed, which is a reason by itself to listen because he did such a good job. Um,
Justin Swart:
Well, they would push is liquidity going to get pushed to external marketplaces? Though, you know, if that makes sense, like, is there still gonna be a role for external marketplaces?
Nico Vereecke:
Hmm. I
Ben:
I
Nico Vereecke:
have to open it up.
Ben:
think for regular NFT trading that makes a lot of sense. You know, non-game related trading. It's still going to be, you know, like trading your PIP projects or your art, on-chain artwork and music NFTs for example, there's probably still going to be a place for external marketplaces there.
Nico Vereecke:
Yeah, I feel like it will depend. I think, you know, what Ben said, embedded marketplaces that live inside the game make more sense just from a user experience point of view. But I also think that context specific marketplaces will always be better than generalized ones. A gaming specific marketplace will always do a better job at being a marketplace for gaming items than an open sea can be because an open sea is so general. And so that being said, I think that's. depending on the types of assets that are used within a game, most of them, I think, will make all of the liquidity or vast majority of the liquidity will happen within the game itself. That being said, there is a world where there will like... I can see a world emerge where you have interoperable ecosystems of games with assets that you can start using across different games. And at that point, I can see more of a... a very role to play for more generalized marketplaces that's, you know, or not inside of one of these games.
Justin Swart:
Yeah, okay. So like, it depends on the fungibility of the stuff that you're sort of selling to a degree because you know, the infrastructure of just look at the in the development of infintech infrastructure over time, embedded lending or embedded wallets or whatever it is, always push out their liquidity. More often than not, just some kind of generalized marketplace to some degree, just get more liquidity and sort of Yeah, that's the fungibility of a dollar is a bit different to the fungibility of a sword in one game and the sort of shield and another.
Nico Vereecke:
Hehe.
Justin Swart:
And that's sort of it. I think, you know, Ben, you did some work on that. And like, just the interoperability of assets is a bit tricky to get around.
Nico Vereecke:
And I would say one thing that complex makes this discussion more complex is that you can have, you can actually steal liquidity or just copy liquidity because it's all on chain anyway. And so, you know, these in embedded marketplaces are still open, right? They're still blockchain enabled. And so theoretically you could copy an, an order from, um, or use a liquidity from that amount of marketplace and put it on, on your marketplace, which is something that we've seen within the wider NFT space as well. Um,
Justin Swart:
Yeah.
Nico Vereecke:
And so it's always going to be tough, but I think, you know, the most reasonable outcome for this is that the vast majority of the liquidity will be inside of the game itself, because that's where all of the trading will happen.
Justin Swart:
Yeah, it'll be cool like, you know, how Brooks talks about the different methods and like the financialization outside the core game loop. If that starts developing, you know, around some sort or whatever, what have you is being traded at high levels for some kind of reason how that kind of meta develops outside the core game loop be really
Nico Vereecke:
Yeah.
Justin Swart:
cool to see.
Nico Vereecke:
You could see like a, the most, more, the most expensive CS go skins. If they were NFTs, you could see that happening on the more generalized, um, marketplace because it, because of their value, they become separate from the game almost.
Ben:
and the collector's items
Nico Vereecke:
Exactly.
Ben:
as well.
Justin Swart:
Yep.
Nico Vereecke:
Yeah. Good. Um, marketplace infrastructure. Um, and is the case done? Jamie. Um, economies are important for with three games and if not done well, especially if blood prevention is not done well, you can have and see your game and it's economy completely crash. Okay. Tell us about tooling around that.
Jamie Wallace:
Yeah, I mean, I think this is not a unique problem to Web3. You see in Web2, specifically in like free to play, the amount of people, data scientists that go in on the backend to a game like Candy Crush, just to ensure everything's balanced, syncs and faucets are all managed well is enormous. Probably one of the biggest areas. And I think as Justin mentioned with the bot prevention, this new era of Web3 gaming, there's going to be inherently a bit more financialization involved. So, you know, that's going to alter player behaviors. alter a bunch of other aspects as well. And it's going to be super crucial that games are super on top of this, whether it be building their own in-house teams. There's a variety of tools, which we mentioned in the report, like machinations, telescope labs, which allow you to sort of simulate player behaviors and how their actions might impact, you know, game economy. We've seen sort of in games like EVE Online, how fun the economic aspect of a game can be. And, you know, just being able to work with that team over the past few months, the amount of thought and resources they put into actually building and managing that is insane, and it's no small feat as well. So I think our view on the economic design is, you know, you can use these tools to give you a good baseline, a good framework. But the best way is just by being able to actually see player behaviors, modeling stuff out, having people in your team internally who are able to assess data, make good recommendations and inferences of that data. I think what we're gonna see in Web3, which will be interesting and something I don't quite have a strong opinion on yet, but is how people do their go-to markets. Are they gonna try and do it a lot more phased and start with a smaller cohort? where the stakes aren't as high, if you have one area of the game that's being exploited economically because there's only 500-600 people playing, it's not gonna be huge, whereas if you go straight into mass market, 100,000 people all exploiting the same thing at once. it sort of drains that aspect and ruins the game. So it's gonna be interesting to see how people and games and developers balance their go-to-market and their economy designs. I think the toughest part in Web3 is we don't have a sort of tried and tested solution like free-to-play or traditional gaming might have. So everyone's sort of in the dark. So it's not until we start to build some solutions where, you know, It might get a bit easier, but right now that's probably one of the toughest challenges facing Web3 gaming.
Nico Vereecke:
Yeah, I 100% agree. Part of our thesis is that we'll see the rise of virtual economies that will rival in size existing countries. And if you know how many economists are trying to manage the economy of a country, um, you'll understand why tooling can be very helpful here and becomes very important the moment, um, you know, these economies are essentially open, which happens once, once you put them on the blockchain.
Jamie Wallace:
Yeah, definitely.
Ben:
We can see hyperinflation play out in just a couple of days if it's not designed properly which is an interesting experiment but not necessarily good for the team behind the game.
Nico Vereecke:
Yep, 100%. Good. Jamie, can you tell us about gaming launchers?
Jamie Wallace:
Yeah, I think this is one area where we're particularly super excited about in the Web3 space. Obviously, we've seen how successful Steam and Valve have been. and just how much value they've been able to create for themselves in enterprise by having sort of the go-to game launcher from a UX perspective as a player. You don't want to be dealing with a million apps on your computer or you want to have everything aggregated into place, and then from there you're able to add on social elements, discovery elements for game developers, makes it really easy to publish games when you know you're publishing to a platform that has hundreds of millions of users. So I think for us, obviously, yet. Epic Games has been spending a ton of money and resources trying to disrupt them with their Epic Games store, but have proven to be relatively ineffective so far. So I think this is an area where we haven't seen a lot of Web2 competitors emerge, and we were quite cautious initially looking at this space. I think what... differentiates Web3 and Web2 launchers is just sort of the Web3 feature set, which we think is going to be essential to being able to play these games. Valve has come out and said, you know, they're banning NFTs and crypto on Steam. So not an avenue they're likely to pursue in the near future. Epic Games Store is welcoming blockchain games, but I think from a regulatory perspective, it doesn't make sense for them to really lean into some of the core. Web3 features. And we've seen with wallets like MetaMask, Rabi, all that stuff where because you sit so close to the user, like a launcher sits like right, it's the closest you can get to the consumer, you're able to have a bunch of interesting monetization opportunities. Like if you can include swaps trading within the launcher and be able to package that in a super convenient use case and just charge a convenience fee. You know, we've seen with MetaMask did a couple hundred million dollars in revenue over the past few years, just by having a swap feature directly integrated in this wallet. So for us, we think it's a super important UX, UX step. I think the web three gaming space is super fragmented still, like even as us is it's our full-time job to stay on top of the space. I have a trouble staying on top of all the games and where stuff's launching. So using, um, a launcher like hyper play, it's really nice just to be able to like open that up, see all the games sort of. on that launcher, be able to flip through them, easily play them. My wallet's connected, it's super easy, UX and overlay, and I think that the UX with stuff like account abstractions only gonna get better. I think for games, thankfully these sort of gen two games, building in web three, they're able to tap into launchers like Hyperplay, Fractal. One can Elixir and be able to use that as sort of their main distribution method and not need to go build out their own launchers, build out their own clients. And I think will be a huge step for UX. And, you know, hopefully people start to use this stuff and, you know, as web three gaming grows, the, the go-to launchers are web three native ones, just because they've got a more comprehensive tool set.
Nico Vereecke:
I think the looking at how much money steam makes and it's not public, but I think everyone realizes that it's, it's a shit ton. I've seen dozens of steam for what three companies starts. What do you think Jamie will differentiate the winners from the losers here?
Jamie Wallace:
Yeah, I mean, I think so we've obviously looked at a bunch of these. I think it's going to be part of it is just going to be timing and being in the right spot at the right time. If you're able to land an exclusive sort of what steam did with a game that blows up, you build that distribution mode and then you can start to lean into the fly wheels of games want to come onto your platform because there's tens of millions of users potentially because of this one game. And then you build sort of that distribution edge. You build that which gives you sort of an edge on supply, which then sort of leads to more demand and users on the platform. So I think that's one element. I think also just being super product and developer focused. I think right now we're in a stage where, you know, we're having a decently healthy ecosystem of supply and games being built. And the users are sort of not there yet, but that's fine. time with game development. And I think, you know, teams that really focus on building the best developer experience and building a product that, you know, maybe it's not as clean on the user side yet, but as a developer when you're like, okay, what launcher I'm going to use? Oh, I'm going to use this one just because... It's the easiest for me to plug into. The dev docs are super clean. I think taking that approach is sort of superior. But again, it's still early. I think we're excited about companies like Hyperplay. Obviously Disclosure, BitCraft is investors. Just what they're doing, having a super developer, heavy focused. Jacob, the founder, previously ran product at Metamask. So has a lot of experience, has success being able to, at the time when he joined, it was Metamask versus Argent. actually leading in users, I believe. And he was able to, obviously, turn MetaMask into what it is today. So we think he's in a good spot to potentially do that again on the launcher side.
Nico Vereecke:
Awesome. Good. I think kind of related to launchers is tokenized gaming ecosystems. An ecosystem of games around one token or multiple tokens or NFTs. What do you see in that space today, Jamie?
Jamie Wallace:
Yeah, I think this is a super exciting space and really taps into. some of the core premises and ethos of web three in a way of interoperability. I think, so basically like for high level, for those that don't know these tokenized gaming ecosystems are basically a collection of games that share a common token standard together. So this can be, you can sort of look at it as a spectrum. You've got blockchains as well, which can be seen as a tokenized gaming ecosystem. So in the context of immutable X, they've built this ecosystem, people can use the network with the token and through that they've been able to build a lot of network value for their token and then you get into some flywheels where Amidwell has been able to use their token to offer grants to acquire new games and sort of grow the ecosystem that way. There's also the more grassroots movements like Treasure which sort of have this magic token and have basically the idea is games build on this token and incorporate this token into their ecosystem. and then you build sort of network effects that way. I think, you know, still super early, there's a few like Treasures obviously gotten quite big, Immutable Gala have gotten quite big as well. but we haven't seen any of them sort of take off in terms of really being able to tap into good synergies between games, I think, with these ecosystems, and you see this on every platform, you see this on YouTube, you see this everywhere. The breakout success cases typically go out on their own. So I think the biggest challenge for these gaming ecosystems are going to be, how do I maintain breakout success cases? How do I incentivize sort of my winners to stay on my platform, stay in my ecosystem? versus going off and starting their own, for example. I don't know, I think the whole team spent a lot of time in this space, so I think Ben, Justin, Niko, you would have some more opinions on this.
Nico Vereecke:
You can see how little I helped in this because if I was a part of this report and this part specifically you would have seen loot in there as well and I'm slightly offended that it's not in there.
Jamie Wallace:
Ha ha.
Justin Swart:
Shalde bags.
Ben:
the ball there clearly.
Nico Vereecke:
Yeah. And absent,
Ben:
Follow
Nico Vereecke:
um,
Ben:
up.
Nico Vereecke:
follow up where, uh, in, in exactly one month from now, Lute will be two years old. Um, but I think, uh, yeah, looking at where it is today, I would say that, you know, the ones that we've put up there are probably slightly ahead in terms of actually user, um, adoption and games that are coming out. Um, but yeah, this is one that's if you've listened to this for a bunch, um, or if you've listened to this before this podcast before, you know, that I think there's some true value in here.
Jamie Wallace:
Yeah, I think it sort of ties into the launchers a bit. You know, like the main thing is being able to emulate sort of that arcade-like experience of discovery, cross promotion, you know, you win tickets in one game. You win tickets in one game and then you can go to a different game, win tickets, and then sort of redeem it for a common prize as well. And then like we're seeing some really interesting innovations in this. One thing, um, is what Bazooka Tango is doing with Shardbound. We're basically gamifying this common token, um, in the form of these crystals, which are inherently exist and applicable to every single game. And you can earn crystals by playing games in an ecosystem and then that be able to use that to enhance items specifically when he, with any game so I can be playing sort of my TCG game earning a bunch of crystals there and then going into my you know role-playing game, forge my or fuse my crystals to one of my characters and you know get item buffs and stuff like that. So that's sort of a super indirect interesting view of interoperability that we're super excited to see play out as they as they begin to build out their ecosystem.
Nico Vereecke:
Hmm
Justin Swart:
introduces economy design choice issues, again, you know, that you already previously spoke about. I mean, this isn't, this is a problem that's fraught, you know, man, woman, child, you know, human beings since the dawn of civilization, whatever you see this and like the fracturing of the European Union, you have countries lifting up other or some countries viewing that they're lifting up other countries, other countries putting down splits of the UK from the EU what have you. But it's just, it's difficult to manage this kind of grouping of games that way. Perhaps, as Jamie said, you have one breakout success, or you have even if it's not a breakout success, you have one game diluting the impact of its crystals or what have you, or its items on another game. So it becomes increasingly trickier, you know, once you suffer from a success problem, to a degree, but it does become tricky to manage all this at play.
Nico Vereecke:
Mm-hmm.
Jamie Wallace:
That's a good comparison there, the
Ben:
Yeah,
Jamie Wallace:
European
Ben:
I like that.
Jamie Wallace:
Union.
Nico Vereecke:
Good. You weigh, Justin.
Justin Swart:
Yeah, this is this one probably deserves a longer post and discussion. So I'll just kind of glance over it. It's always quite interesting, you know, to the question that's asked is where the users in crypto, but I think the purpose of this report is maybe just to ask back where's the tooling and so we've where the tools and so you always try to cover. as much as we can to some degree in a very short space on the report in terms of where we see the user acquisition space. So just to be clear, when we're talking about user acquisition, we're talking about performance marketing. So the more quantitative side of user acquisition, as well as brand marketing, the more qualitative side. And we had a guest post on the BitCraft Insights page from Matt. He's sort of a great he's got a storied history in the game. gaming space and wrote a great post for how builders should think about user acquisition in web three. And he's got a great way to kind of simplify it in that to think about user acquisition, you have to think about the simple parameters of your custom acquisition costs in gaming CPI cost per install is probably the more used proxy for that. And compare that to the lifetime value of your users. So with that in mind, we just we try to dumb it down a little bit because I've by no means I'm an expert in the space and still learning from you know, the great portfolio companies that we have, and the research that we've done, try to dumb it down in terms of sort of subsections that how do you discover and find users? How do you attract and monetize users? How do you understand how you allocate your ad spend? And then how do you retain users? So we'll go through that, but I think it's important to just set a bit of context. In traditional gaming, we've seen CACS, custom acquisition costs, increased. Substantially, I mean, just even if we look at e-commerce, I think there was a study done that they've gone up, CAX have gone up, you know, three X over the past five years or something like that, which says a lot of things. On one, to some degree, it says that UA user acquisition is working well, it's getting more competitive to find users, that the tooling is improving, which is sort of increasing competition. On the gaming side, it's getting it indicates that it's getting more competitive to build games. I mean, we know this firsthand. It's just very expensive. There's a lot of games out there. And it's cost a lot to build great games. And it's very hard to do. You then have the added complexity of Apple's removal of ifda. It's just removed ad tracking to preserve privacy for its users. And that's had sort of, to some degree, pretty bad consequences for the gaming industry. I think it's working through that at the moment. But we've seen the impact of that. Now you look at web three gaming, which is all of the above, plus it has its own idiosyncratic issues. There's a pseudonymity afford by wallets, decentralized ID infrastructure that we sort of know pretty well. There's a smaller player base of early adopters that you have to try attract to play your games. Plus you have now the cost of attracting non crypto native users to kind of cross that chasm. You know, we've spoken been touched on. a concept extraction and make it easier for users to jump into games. But you know, these are added costs. And then you have the immaturity of the tooling. So what we've seen in I guess, version one, if we could call it that of user acquisition, typically, you know, you had airdrops that were dropped to wallets of games that or just general wallets of users that interacted with the protocol or game to some degree or bought NFTs or would have you. The problem is that those these metrics and these this these kind of methods were just really cost inefficient. They just haven't proven themselves out to some degree. I think some of the interesting stats is that for some airdrops you get something like a 0.05% click through rate, just because some users just don't even see a drops in their wallets. And so it's just like an ineffective ad targeting mechanism. Other stats, I think it was like a thousand, 1,400 or something, there was some calculation, 1,400 dollars per user for the optimism airdrop. It's still sort of working its way through as people see it, but it's just, that's a hell of a lot of money to expect people to pay to use that protocol. And I think, Jamie, you guys did some. It was a long time. It was a while ago, but you guys also did some work on just the inefficiency of a drop space. Do you remember that stat?
Jamie Wallace:
There's pretty back of the napkin math, but basically
Justin Swart:
Sure.
Jamie Wallace:
we were, you know, we were determining that, you know, companies are spending between 40 and 60% of sort of their total cumulative enterprise value on user acquisition. And that in some cases, you know, people are spending thousands of dollars to acquire a user that would, you know, basically their LTV would be like minus a thousand. So it was just like no one was really thinking about it in those terms.
Justin Swart:
Yeah, yeah, gotta love the sort of incredible stats that crypto has at times.
Jamie Wallace:
I think two
Justin Swart:
And so
Jamie Wallace:
negatives make a positive, right?
Justin Swart:
exactly, you know,
Nico Vereecke:
Guys,
Justin Swart:
it's only up then.
Nico Vereecke:
we're printing money anyway, so it's free. Magic internet money.
Justin Swart:
You go backwards when you go negative, so negative. No, so like, and then so it was just the V one, if I could call it that very ineffective, just cost inefficient, and lo and behold, struggle to find users. So We get the tooling space away we've divided it is firstly, how do you discover and find users, we've spoken about the V one a drops that was kind of crude a drops that were based on your holdings, you know, if you had a picture of a monkey in your wallet, you maybe like to picture of a
Ben:
Yeah, careful.
Justin Swart:
airdrop them stuff, lo and behold, it turned out to be an exchange hot wallet, you know, so it's just difficult ways to kind of attract users that didn't really work. What we're seeing now, there's some super interesting companies looking at I want to say de-anonymizing wallets. I just want to use my words carefully here, not doxing wallets and sort of identifying the identities of particular wallets, but really trying to understand what are the demographic identifiers attached to said wallets? So, you know, looking at wallet activity, looking at alongside social activity on whatever platform it may be. Can you try, guess or at least estimate, a female, you know, age 35 with perhaps in a certain income brackets, perhaps from some sort of geography. And if we have that data, can we better find that user so that we can target them more effectively? And so companies like addressable and God mode, I think are doing really good work in the space to try, you know, get to some sort of level of demographic identifiers that we can better target users, you then have other approaches, like companies such as Forge and a few others that are building game-centric user profiles. You know, so if you have this If you sort of flip the traditional ad tech model in its head, if you said sort of build your profile of I am a gamer that likes FPS shooters set in war settings and I have an income bracket of X and Y and you know, various other identifiers that you sort of provide yourself open to add targeting in some sort of way. And that's, I guess, the beauty of the primitives that we have here in crypto that allows for the sort of the sort of infrastructure to be built. think Jamie will touch on it. We will touch a bit about that in terms of decentralized identities, but later on. But generally, what's our view here? We think discovery is still going to happen on traditional or incumbent platforms, you know, the Google's metals of the world. It's also newer channels, TikTok, Instagram, Twitter, etc, etc.
Nico Vereecke:
Do you, do you consider X or Twitter an incumbent platform?
Justin Swart:
Well, what do you consider it?
Nico Vereecke:
I would say yes.
Justin Swart:
Yes, I would just look, it's an incumbent platform definitely. I like newer in terms of I say new as a distribution channel because the ad advertising machinery just kind of sucks at times. It's a little bit broken now.
Nico Vereecke:
Hmm
Justin Swart:
So you need a newer way to navigate it. And they, I'll speak about it a bit later on, but they're changing the model to kind of a more earned media model. So it's like a slightly different advertising channel, but look, it's an incumbent by any means. And there was just some stats on just incumbent platforms. They control like 70% of the eyeballs or just something ridiculous. So you have to go to where the users are, but you need... Infrastructure to be able to target them more effectively, but that infrastructure needs to be a mix of kind of crypto native targeting Right understand wallets spending power of wallets as well as being able to reach users in traditional and incumbent platforms Good so that's how you discover users How do you attract and monetize users now and what have we seen in the space? So it's too interesting. I think infrastructural tooling tools being built at the moment. The first is questing. We want to term it, it's not perhaps the best term, but questing as a service platforms we've seen develop. In the traditional ad tech sort of nomenclature, these are similar to offer walls or just generally incentivized acquisition. You pay users to do something in your game. Like how do you pay them to complete kind of key actions? And... traditionally questings or service platforms have struggled from botting we've really mentioned, you know, if you sort of offer money to someone, you're going to get these just massive industrial botting farms and whatever sort of place with a person pinging a million kind of phones at the same time to try complete level five of whatever game that you're trying to offer $5 for something like that. So they've traditionally struggled from bad and low quality users that they they've attracted. And they've in they've struggled for intention issues. So intention issues is, you know, an ad for a normal game. The intention of a user seeing that game is quite clear. So what I mean by that you see an ad for a first person shooter set in a war setting. If someone clicks that ad, their intention is quite clear because they know the value proposition of that game. It's like, oh, well, you know, that's a first person shooter. It's kind of like Call of Duty. Let me click on that. I feel like playing it. And so the value proposition is right up front in normal games. Now in crypto, the value proposition is much further down the line. So let's take the extreme example on chain games to acquire using an on chain game. that value proposition. First, you have to sort of explain what on chain games are, and then you have to take them down the pipe, you know, of like coding a smart contract, like you're sort of achieving some getting into the core game loop, which is like quite far along, maybe it's a little bit kind of clunky, it's getting better and on chain games. But the value proposition is much further down the pipe. So in crypto, perhaps you don't sort of quest exit service or offer walls. Makes a bit more sense because that value proposition is not right up front. You know, the user doesn't understand what they're getting into. You've got to push them a little bit down your funnel, down the pipe. The issue, though, is that what we've seen is game studios, traditional game studios typically only spend about five to 10 percent on incentivized ad spend. And so at this point, we're not sure how that evolves in Web3. You know, will Web3 Gaming studios spend more on incentivize ad spend to sort of push users further down the pipe We're not sure it remains to be seen but it's an interesting kind of development that perhaps there's more at play for questing as a service or incentivize acquisition Secondly Affiliates or I guess ref link infrastructure if you guys recall the heydays of exchange centralized exchanges and ref links and people sort of paying off their holidays and what have you with exchange ref links This is actually quite interesting in crypto because I think earned media generally, you know, I mentioned the previous is becoming more commonplace In just traditional social media platforms It's related to the create economy. It's a bit overused of a hype term, I think at this point, but you have this tribalism of online communities forming where curation is kind of sought from, I would say leaders of these tribal communities, but you know, influences or what have you people kind of trust this goes back to that 1000 true fans to the your thesis, I think that has been pushed a few times that like It makes a lot of sense where you see suddenly presidential candidates kind of campaigning on traditional social media platforms or like small little isolated communities and whatever podcast host, you know, is, will have them on to spread their message and target certain demographics. And now it's becoming like, well, if this is happening, how do we kind of create an earned media formalized financial infrastructure around this? So what's great in crypto is that, you know, with data and analytics about wallets and wallet infrastructure and understanding how much, you know, tokens users have, what sort of communities they belong to according to their wallet. And just the openness of this, you can now really understand the relative user value is the relative value of users more effectively. So, you know, what does that mean? It means, well, look at a user. Got certain tokens, they got certain NFTs that belong to certain communities. They're part of my game. We sort of have this sort of stratification of users. What users are similar to that, maybe not based on demographic identifiers, maybe just based on sort of whatever kind of correlations of data you could look at. I mean, this is it. This is what Facebook did. when they built look alike audiences back in the heyday of mobile ad tech, sort of said, well, these audiences kind of look similar. And it wasn't just your females of over 35. Playing these games, it was like, they belong to I don't know, like the gun club in like some Random little town and they also knit and you know, they also drive cars of Only four by four cars, you know, like these weird kind of correlations of look-alike audiences that you can now build when you have this open wallet infrastructure So what's our view here in conclusion is that there's pretty? interesting stuff happening when you layer on you know the context of crypto being having financial probatives being open as and you layer that into sort of What does it mean for user data for gaming? You know, how can we understand users and their user value better? Cool. So in we've discovered users, we're now attracted them. How do we know how much to allocate our ad spend? So this goes back to attribution. It's a term in traditional ad tech where you need to understand how much you spend on your advertising and what sort of key. especially where the marketing touch points in your... advertising funnel have occurred for what a user has done. Attribution in Web3 just simply doesn't really exist in the traditional sense, given the bridge between on-chain and off-chain data. And so if you don't have it at the moment, you can't really understand how much of your ad budget you spend and more importantly, what has been effective in terms of where a user has converted in your funnel. So without knowing where users come from best convert is difficult to allocate your ad spin. There's great, there's a few companies doing this. spindle and Safari are I think some of the ones that are sort of more well known. And it's just a very difficult problem to solve, which is perhaps why you don't see too many trying to tackle it. But we think that, you know, if you don't know the levers of your customer acquisition cost, as well as like how much they're going to spend in your game, you can't really understand you know, how best to allocate your budget towards us. So once that's built, you know, we know how to allocate our ad spend. And then lastly, how do you retain your users? So something we didn't perhaps cover in the report, but it's worth just touching on. Some of the interesting stats is that, you know, retention stats in crypto gaming is just more generally unheard of. They're just incredibly, incredibly high, sometimes two times higher than traditional gaming. Reasons for this. most likely to the inherent just financial, financialization of what these users have, how these users have entered the game. There's perhaps a sunk cost to some degree. I think there's also elements of just digital ownership and perhaps an emotional sunk cost. You know, you suddenly have something of ownership. So it keeps you within a game, you know, in a community of hopefully like-minded players. So it's just interesting that... the retention stats in crypto gaming are so high. And it's worth mentioning that, you know, it's much cheaper to retain users than it is to acquire them. And so what we view on this is, with all of the stuff that I've mentioned above, open wallet data, better analytics, the core unlock in the retention layer of crypto is that you generally distributed rewards in the form of status and utility, you can now distribute rewards in the form of status, utility and financial rewards. Right. So what does that mean? Is that well, if you understand that a user and you sort of have these analytics that a wallet or a certain user is has an LTV of $100, perhaps you could sort of retain them with just $10. It's it's or what have you and sort of arbitrage that LTV to keep them in online or keep them within your game. So what's the conclusion? Yeah. We think the space is maturing. We spoke to a lot of great companies in the space. A lot of them mentioned the port, some of course not. So again, please reach out. We keep investigating the space if we haven't touched on your company. And it's good to see your studios have gone from cobbling together Frankenstein monster of UA tooling, you know, like a mix of apps flyer apps loving with Google Analytics kind of stitching between with some sort of attribution, plus like maybe doing their on chain analytics in house. Uh, and then like sort of looking at active wallets and then sort of smashing it together in a dashboard on, on first cell or, you know, whatever BI tool that they're using costing 200, $300,000 a year. like, just incredibly expensive, clunky stuff to now actually starting to use some of the companies that we've mentioned and looked at in space. And that's, you know, it's still early, it's been maybe like a year, if that at most. But I think we're sort of getting a lot closer to having the levers of, you know, customer acquisition cost and LTV that Game studios can play with you. So we're getting closer to ROAS accuracy So return on your ad spend accuracy and I think that's a good sign for the games we see coming down the pipe, you know I don't know Preach our portfolio too much But we've got some great games coming down there the pipe that I think you know, given that this tooling is now being built out It it bodes well So that's rant over guys But it is a big section to cover just because it is like so important for it's the top of the funnel for gaming.
Ben:
Yeah,
Nico Vereecke:
Ciao.
Ben:
Justin wrote the UAS section in the report, which is, he did a great job of going over it, which is why we wanted him here, so thank you for that, Justin.
Justin Swart:
That's the only thing I actually did. You guys did the heavy lifting.
Nico Vereecke:
I like how you preface it with, I'll go over it at a glance and then proceed to talk for 18 minutes.
Justin Swart:
It's a big section. I mean, there's
Nico Vereecke:
It is.
Justin Swart:
billion dollar companies that have been built out of just this section alone. You talk about modularity and like end-to-end solutions like, this is a big one.
Nico Vereecke:
Fully agree, man. I think if we're ever going to get to that 100 million player base in Web3, this is how we do it. So good with that. I think we're already a bit over our time. The final two parts are, I would say, they're important, but not as interesting as some of the others we covered. It's decentralized identity and data analytics. We'll leave those aside. You can find those in the reports at the bottom. If you want to dig deeper into any of these, They're written more at length in the reports. Otherwise feel free to reach out. The go-to man here is Ben. So ben at bitcraft.vc. That's where you can reach him. Technoir on Twitter as well in Discord. Um, or OX Technoir. What is it?
Ben:
0xnailer is my handle on twitter.
Nico Vereecke:
0x nailer. Okay. Good. Fantastic. So yeah, reach out to him. If you want to dig deeper into the whole UA space, you have Justin at bitcraft.vc. Send him an email. And if you want to do a full episode on that, or you want to have a full episode on that, feel free to ask and we can provide. So that's Jamie, Ben, Justin. Thank you so much for one, working on this, making this report. I think it's useful. I think it was highly needed and I look forward to getting a yearly update of this. If you guys are down because next year this will look very different And then listener, thank you if you made it till here really appreciate it Hope you learned a lot and we look forward to speaking to you in the next episode. Bye. Bye