My Q1-Q2 2022 NFT Gaming Strategy

Since this Twitter post I’ve become the “go to guy” in my alpha channels for analysis of gaming projects. Which is great — I’m dumb when it comes to the overall NFT market dynamics before I got here (and crypto TA), so I’m happy to make a contribution where I can :)

That thread was a top-level look at the market dynamics. Beyond that, I wanted to share detailed specifics of what I look at in a gaming project to determine whether or not I’ll buy into it.

Keep in mind this is just my opinion and in no way financial or investment advice. As always, only invest what you can afford to lose. Also this space changes very rapidly, so these bullet points I check off today can easily change in a few months or even weeks. I’ll try to make updates in this space or on Twitter as the market dynamics change with time.

Strategy + Simplicity > Movement + Complexity

Aiming Too High

We are very, very early in NFT gaming. It is remarkably difficult to build a good, enjoyable game that provides a fun experience when designed around movement skills. It requires the kind of pinpoint responsiveness that is very hard to deliver.

Think Smash Brothers, League of Legends, Mario Kart or Overwatch. These are all great games based on that kind of movement to the point that gamers play them for a living. They’re produced by giant publicly traded companies with a massive staff. And if they were the least big buggy or had lag response, you’d be done with them. Think of how irritated you get when your internet connection has lag for a second in a heated moment of any competitive AAA title, then imagine dealing with that for a whole game. That’s what you’re potentially getting yourself into when a NFT game is looking to produce a release with those kinds of mechanics.

(An exception to this rule is if the game is being produced by an established studio, has investors and/or is keeping movements simple. Panzerdogs and Nest Arcade check off all three boxes here)

Movement based skill games for money also make it far more difficult for holders to have an enjoyable experience. Unless there’s tiered matchmaking you’re not going to be able to earn adequate money from the game, as you’ll consistently lose to the top percentage of players dedicated to putting hours into mastering it. This will also make the secondary market sales less appealing.

Any NFT game should have a passive income staking mechanism, but it’s especially important for games setting this kind of high bar.

Keeping it Simple

My favorite games to invest in right now are ones that have easily programmable graphics, animations and sounds on the front end user experience, with solid algorithm based strategy on the backend. Examples of this are Knife Fork Spoon and Axie Infinity. These games have graphics, animations and outcomes that aren’t influenced by direct real-time gameplay response. Instead, the strategy comes from player decisions, and then a RNG decides winners based on the programmable backend game design factors. What you see on screen is just the result of those calculations.

For example, in Knife Fork Spoon Food Fight, the teams are constructed in advance, and that’s where the strategy takes place. Once the teams are locked, the game plays out its results based on the odds/percentages in the game design. Players then watch on Twitch, hang out in Discord and cheer on their teams.

Axie Infinity is the current undisputed king of NFT P2E games. It uses a similar gameplay system: animations and sounds are nothing crazy, gameplay and strategy is based on how you construct your teams based on strengths and weaknesses. Then in battle you choose from each Axie’s combat options in the proper strategic order. The backend code tales care of the rest.

One of the great things about having the outcomes in an algorithm is that adjustments can easily be made when one strategy or element in the game needs to be nerfed or buffed. It’s just in the coding of equations and odds, not the front end. Also, as frustrating as it is to lose to RNG, it’s helpful for the long term health of a game when less experienced players with weaker collections have a chance to win. Otherwise the entry experience is going to be negative and they’ll be done with it.

Note: These two comparative factors of simple vs. complicated are relevant for Q1 and likely Q2 of 2022. This will become less relevant in time as better games are designed.

The Dopamine Hit Effect

I think a 5/10 game in terms of fun and replay can still provide value if it has a dopamine hit. This is why we’ve all had moments minting too much of a new project: one is common and you want to get some higher end rarities, so you mint again. It’s the same rush you get opening baseball card packs looking for a rare insert. Degen Coin Flip is literally all dopamine hit and no gameplay, but it works well enough.

Like most other people who want to see Solana thrive, I’m absolutely not advocating for the growth of gambling projects. Just making the point that getting a randomized asset with potential for higher value can make up for a lot.

Don’t get me wrong: the game still has to be solid and hopefully not just straight up degen gambling. But the psychology behind dopamine hits is very real, just the same as Likes on Facebook and Instagram, Retweets on Twitter and so on. Having something with randomized value on a regular basis can make up for some clunky game design.

Proof of Work

No, not that one. The one that makes sense and provides a real store of value.

(Get used to the Bitcoin bashing. I own none of it for a handful of reasons linked to value prop. Much more detail and ranting to come.)

Showing your work is more important to me than a doxxed team. I’m willing to give an anonymous team the benefit of the doubt if they have a demo, are consistently providing new game footage in their Discord along with updated Whitepapers, partnerships and so on. If they’re showing the ability to deliver what they’ve promised, I’m probably in.

Investors and Team Size

For a helpful comparison, I view NFT games produced by larger teams with investor backing as the equivalent of a Top 15 crypto coin, and smaller team projects as a mid-to-micro cap. The projects with more employees and funds are rarely going to fall flat on their face. It would take some serious stumbles to not release something.

Smaller community projects have the benefit of a handful of devs, so there’s very little overhead compared to large projects. The “investors” are buyers who provide funding through mint + royalties from secondary market sales. They’re bootstrapping it, so with a few missteps they can get to a point where they never release the game, or maybe put out something that just isn’t high quality.

Just like the large-mid-low cap coins in crypto, you’re going to get a sturdier floor at the higher levels of NFT games, but that may come at the expense of a lower ceiling. A large production team with investors behind them has a lot to repay, and those expenses to keep the lights on are going to have higher priority than the players. By comparison, the smaller projects are able to reinvest more of the revenue back into the game and set up a player controlled DAO with a significant amount of funds.

To be fair, sales volume can make up the difference. Let’s say Small Project is able to reinvest 60% of its profit into the player base. Awesome! But it’s entirely possible for Large Project to have higher volume, pay their overhead and investors, reinvest 30% of their profit into the player base and still provide a better per player reward pool. Even though Small Project is providing double the rewards, they might not be able to keep up with the number of sales Large Project brings in.

Intangible Community Advantages of Small Projects

It’s worth noting that despite potential differences in payouts, smaller projects are far more likely to provide a better experience than those with a big budget. Knife Fork Spoon (yes, I’m a big fan) is a gaming project that falls under the small budget category. Yet it still provides a great experience far beyond the game development itself.

The devs of the project will often hang out in the Discord even when not discussing the project. We have weekly poker games or Twitch streams for video games and they’ll play/talk random stuff with us for those two hours. There are only 1,212 NFTs available to participate in these activities, so the core group becomes very tight. By comparison, a large project’s Discord chats will usually be about asking and resolving issues within that project’s development with nowhere near the same vibe.

In a small project’s Discord, the game is usually a secondary discussion point to the general NFT space (just like other non-gaming community driven projects like DeGods). This often means everyone sharing ideas, insider info, whitelist opportunities and upcoming mints. It’s not a community talking about the game, but rather a tight group of knowledgeable people focusing together on their shared success within the overall NFT space. Getting tipped off to good upcoming projects has a massive value all its own that you can’t quantify properly. You’re not going to get that experience in a larger community of gamers who are not as invested or connected within the overall NFT space.

Dex Listing of Tokens

As I mentioned in this thread, in my opinion the NFT oriented economy of crypto gaming will be far more stable and equitable than last year’s model based on tokens.

However, the native coins earned in game still need to be listed on dex’s so they can be redeemable for USD (a dex is a market that allows for the exchange of various cryptos). If the tokens only circulate within the community’s ecosystem, they have no real world value, and that affects the value of the NFTs as well.

Most of the time there isn’t an immediate plan to get the token onto a dex, which is understandable given that’s a secondary milestone to more critical roadmap steps. Still, I want to at least see a dex listing mentioned in the whitepaper so I know it’s in their plan. I’ve passed on a few games that checked all my boxes for a green light to buy, but their whitepaper mentioned nothing about dex listings and I got no answers about it in their Discord.

Without a dex listing for the coin, a game’s P2E is only as good as the number of players willing to spend money for upgrades within that game. That’s not good enough at this early stage of the market.

Avoiding Native Tokens

Specifically I mean buying a game’s native tokens on dex. Most projects offer whitelist/advance purchase of the game’s tokens to holders before they hit the general market, but typically the NFTs themselves are going to generate those tokens (either from in-game play or staking). You’ll also be trying to navigate the market vs. institutional investors who got those tokens at a lower price.

I’m sure there will be exceptions based on a game’s economic model, or if a token launches before the NFT sale to offer whitelist spots for holders. But like I mention here, NFTs don’t have the same high risk, cutthroat dynamics as the token investment model. There’s no selloffs or liquidations to worry about, TA to watch and so on. Barring some major change in the game’s structure, it’s unlikely you’ll go to bed with your gaming NFTs worth a certain value, then wake up to see a massive drop in price.

Rarity Scheme

Make sure you understand the value prop of a game’s rarity scheme; specifically, you’re looking for in-game power and value of future airdrops. If you’re not sure, ask in the Discord. Some games like Panzerdogs and Knife Fork Spoon offer significant bonuses based on rarity, while it doesn’t matter for projects like Nest Arcade and Anybodies (not a game but one of my favorite projects). If rarity doesn’t matter, sweeping the floor prices is usually a better use of your funds than looking for high rarities (though players will still value rare traits if the game takes off, so I’ll usually look for a ranking upgrade if the price difference from the floor is small).

The Usual Metaverse/Cartoon Series Promises

Whatever. These rarely pan out and are red flags to me. Unless the team is doxxed and has experience in these industries, I doubt it’s going to happen. Don’t tell me you’re going to be a huge global brand with all the extras before you’re able to put out an excellent game players flock to.

Price, Floor and even Discord Engagement are Not Top Priority

I’ll keep it brief here since I addressed this with more depth in my Twitter post but to reiterate: NFT gaming is not flipping JPGs. The value comes from substance, building and delivering. If those are in place, current market perception is irrelevant. You’re buying for value at game launch, along with any bonus airdrops along the way. Until that comes, ignore the price.

Granted, if the price moons before then it’s at least worth considering taking profits. But overall, in my opinion investing in a great project that’s moving forward but still has a low floor is where you’ll make the most money in this new space. And we’ve all seen Discords for NFT projects have huge engagement + numbers yet the project flops. Yes, projects should show some competence with their Discord for the sake of displaying professionalism, but people will eventually come for a good product. And they’ll stick around too vs. waiting for whitelist/mint and then leaving forever.

Accumulation, Not Hype

I’m being redundant but it’s important and the #1 true alpha strategy.

Lots of buyers are not going to adjust to the dynamic of NFT gaming. This isn’t quick flipping JPGs after mint. I’ve seen lots of great games hitting all their milestones, and yet the floor drops below mint within 24–48 hours when it doesn’t instantly moon.

This is a reason to rejoice, not to despair. This is where you scale in and keep accumulating while the market hasn’t recognized the value of the project. “Buying the dip” on a crypto coin sucks because you have to analyze TA and figure out if you’re catching a falling knife. The same applies to coins in the gaming space. But it’s much easier to sleep at night when you’re buying the dip on an NFT gaming project because you’re putting money into a tangible product. Not speculation or market psychology.

Minimize Your Risk and Plan Ahead

Again, please do your own research and tweak these guidelines based on your own goals. Or ignore them, that’s cool too :) NFTs are a new space, crypto gaming is a new space, and placing the game’s value into NFT’s instead of tokens creates a completely different economic model of its own.

As of this post most of the major games have yet to release, and we’re still at the start of the wave of users migrating from Ethereum to Solana. This is all theory and may not play out as I expect. As always, regardless of which crypto category you’re studying, being able to make quick adjustments based on market shifts is critical for success. I expect most of the advice above to be outdated by the end of this year.