What is the best NFT gaming investment?
That was the question the Passive community set out to answer in Q1 2022. We gave 15 discord members .5 Ethereum to play the top 15 NFT games.
The results are in! Here is the final leaderboard:
In total the community turned the 7.5 ETH they started with into 10 ETH for a 33% gain. This is a good return amidst a backdrop of Axie Infinity’s continued decline relative to ETH over the past two quarters:
Axie is seen as the original Play to Earn game and many of these new games aim to be “the next Axie”, so we see its performance having a ripple effect on the rest of the market.
Overall the competition was a great success! Many of the learnings are trivial, but it was great to get into the weeds and gather some real data to back up our intuitions.
Learning #1: The smaller the economy, the more volatile
Here is a look at the leaderboard halfway through the competition:
The top three games got off to a hot start, then each lost about 50% of their value. Even after the dip they managed to finish as the best NFT gaming investments of Q1. They are all games that launched in Q4, built up some momentum, but then had growth slow near the end of the quarter.
Because their economies aren’t as robust as something like Axie, you see reflexive swings in a shorter time span. This is comparable to traditional NFT markets where newer projects can experience high volatility.
We saw this on the downside too with Thetan Arena and Heroes & Empires losing over 70% of value in Q1 because they were closer to the end of their hype cycle.
Learning #2: Beware of the “this is the next Axie!” hype cycle
Hype and narrative are everything in web3. It’s a land grab for attention that leads to a repeatable cycle that we have seen across a number of the games in the competition. Pegaxy and Thetan Arena have been the clearest examples in Q4 and Q1:
They did a great job of angling themselves as the next evolution of Axie, but have yet to deliver a sustainable economy.
Beware does not mean avoid. These games can be very lucrative, but it’s important to know what investment game you are playing. One tip is to watch the growth numbers very closely. If you were following the Axie growth data on November 22nd, you would have seen the downturn in daily active users when $AXS was still trading at $140.
Learning #3: Early mints of top projects have provided the best returns
This extends beyond the 15 competition games into some unreleased NFT games such as Parallel, Frontier, and Treeverse, but some of the best investments in NFT gaming have been minting scarce NFTs at the beginning of the hype cycle.
When hype > mint size, you win.
n8dog12, who runs the Crypto Gaming Podcast and is great at identifying promising games early, was able to grab Cyball NFTs at mint and finish 2nd in the competition with a 150% gain.
Learning #4: The minting process has a large impact on NFT gaming economies
Projects such as Sorare and Decentral Games have a unique ability to control scarcity in their economies. Here is a comparison:
It’s important to know the minting process and scarcity for any game economy you are getting into. It is the starting point to how the economy works just like scarce resource management is the starting point of real world economies.
Decentral Games dominated the competition with a 480% return. Their ICE Poker play to earn game requires metaverse “wearable” NFTs to play. Scott was able to secure two of these scarce NFTs early in the competition, then take advantage of ICE pokers growing popularity and controlled economy.
Learning #5: Play to earn may not be sustainable, but it doesn’t mean NFT gaming can’t be
The competition proved that there are NFT gaming economies which will provide a safe enough risk/reward to be attractive to a wider potential user base. Zed Run, Star Atlas, Aavegotchi, and Sorare are all mature enough to provide an experience for gamers that doesn’t feel like they are apeing into a shitcoin.
A trend to watch is the split of the industry into two separate industries: play to earn and play AND earn. One side will be focused on sustainability and “sinks”, the other will work to appeal to a wider audience and market the benefits of ownership over investment return.
Takeaways for NFT gaming investors and gamers:
Do you want to gamble? Then focus on targeting scarce early project mints and tracking the growth of the games.
Are you more of a safe investor that wants to play games or get a feel for the industry? Pick one of the more OG games and dive in.
Are you more of a traditional AAA gamer? You‘ll have to wait until AAA NFT games are developed.
Are you good at winning games? There will be many play and earn games where the top 3–10% of players are very profitable. This is an area Passive is focusing on as NFT games allow anyone to become a professional gamer.
To learn more about NFT gaming, the competition, and get access to all the alpha, hop in the Passive discord.
