The Guild Landscape: Leveling Up GameFi

Inception Capital

Published in

Inception Capital

19 min readFeb 8, 2023

(originally posted 15 Apr, 2022)

The Big Picture

2021 saw the rise of NFTs, GameFi, and DAOs, with the 3 innovations spawning entirely new and valuable sectors. NFTs redefined concepts of ownership and provenance, elevating it all with the endless potential composability of Web3. GameFi reinvented game economies and their incentives, rewarding players for their time and sharing ownership. DAOs reimagined governance in more open and trustless forms of organization and decision-making.

Guilds identified the greatest points of value at the intersection of these 3 innovations, and built business models around compounding them. In-game assets, monetization of the player’s time/skills, and a decentralized model of governance and ownership via tokenization have come together in expansive guild ecosystems. These aspects are then accentuated by considerable amounts of deal-flow from its members and the network effects of such a community, creating a very compelling case for the future of guild economies.

Another aspect to consider is how exactly we define video games — at what point could a game such as Fortnite, for instance, or the eagerly anticipated StarAtlas, go from being a simple computer game to a social networking hub? The possible network effects that gaming could benefit from, especially with the advent of VR and AR and Metaverse economies, mean that the opportunities for expansion and advancement of the industry are enormous.

5 Major Guilds To Be Aware Of

Yield Guild Games

The biggest guild yet. Their token, $YGG, is traded on Binance, Huobi, Kucoin, OKEx, Crypto.com etc. Current market cap is ~$230m, fully diluted $2.5bn. It currently acts as a governance token, but once the DAO is fully integrated, a portion of revenue will eventually go to token holders (although when exactly this will take place is not clear).

They are the kingpins of the guild space, boasting an active community of over 175k Twitter followers and a venture round led by Andreesen Horowitz.

One of the core components of YGG, and many other gaming guilds, is their ‘scholarship’ program. With over 4,700 scholars, members of the guild who ‘rent’ game access/NFTs from YGG and earn revenue for both themselves and the DAO, this program is in high demand. A network of Community Managers across the guild recruit and train new ‘scholars’ within their local communities, yet there continues to be out-sized demand for scholarships. A couple factors may perpetuate this issue, including a lack of infrastructure and support teams within the guilds, difficulty finding community manager talent and scaling these networks, and constraints created by treasury and NFT collection size. Additionally, as these guilds grow they onboard increasing numbers of P2E games, potentially diluting focus and resources across numerous areas (something that is addressed through sub-DAOs, as described below). While the exact cause of this issue is not clear, these are all significant factors that must be addressed for long-term guild success.

(Note also: YGG SEA)

YGG SEA is the first sub-DAO of YGG: their focus is on South East Asia and they are testament to the growth that YGG has already seen. As described in their medium page, “there will be a sub-DAO dedicated to players of Axie Infinity, a subDAO dedicated to players of League of Kingdoms, and so on. SubDAOs have their own rules and conditions but still contribute earnings to the DAO itself. They can also borrow NFTs and other assets from the YGG Treasury in order to increase their level of contributions from gameplay.” If successful, these sub-DAO’s native tokens should increase in value whilst also benefiting their central DAO and making it easier to govern.

Merit Circle (Backed by OP)

Their token, MC, is traded on Binance, Uniswap, & Gate.io and has a market cap of $102, fully diluted $2.4bn. They have an active community, with 100k Twitter followers and more than 1000 scholars.

Overall, they seem similar to YGG and it will be interesting to see how they differentiate themselves in future and increase their market share, as well as possibly create new markets that did not previously exist.

They outline how their treasury works via this Medium article :

The initial liquidity the DAO possesses will be used to acquire tokens (seed investments) and productive NFTs (mostly on a discounted basis)
These acquired tokens and productive NFTs will generate a certain operating revenue flowing back into the DAO
This revenue will then be used to purchase MC tokens on the open market to send back to the treasury, essentially refilling the native token position in the treasury
We will diversify the treasury by selling MC tokens to strategic investors with a discount to current spot price while including a longer lockup to ensure the inclusion of the right partners

Avocado

Avocado DAO is also worthy of mention. Valued at less than the aforementioned, with a current market cap of $12m (fully diluted $578mm), it is available on Uniswap, MEXC and AEX and boasts more than 10,700 scholars (see Twitter).

A core tenet of the DAO’s mission is #PlayToEducate crypto literacy. In pursuing this ideal, they have crafted a successful outreach program — they utilise User Generated Content to market their guild and have a very easy-to-navigate website geared towards two main objectives: attracting new scholars and increasing the value of their token. In a market where there is no differentiator that makes any of the top guilds an order of magnitude more impressive than the others, this savviness in scholar acquisition (in a growing and largely untapped pool) could prove very valuable in future.

Astra Guild Ventures

The most transparent of all of the other guilds, it is also interesting in that it differentiates itself by its emphasis on the venture arm. It is effectively a collaborative way to allocate venture funds within a DAO structure, with well-thought-out incentivisation structures. Since the vast majority of participants in this process will also be seasoned gamers with insider insights that other firms are less likely to have, it has potential to capture extreme value from its community/network effects and obtain an edge over other gamefi-focused funds.

Not to mention that an active, engaged community could further bolster the projects that they invest in.

Snack Club (Backed by OP)

Snack Club is the blockchain gaming guild of Brazil-based LOUD, one of the largest esports organizations in the world by viewership and reach, with a massive Youtube and Instagram presence. Snack Club’s primary focus is fairly standard, concerned with the accumulation and lending of GameFi assets to a network of scholars. The guild also invests in new game titles themselves via a venture arm. Where Snack Club finds its edge is its connection to LOUD and its region-basis, being one of the first established LATAM guilds. By leveraging opportunities and users from the LOUD parent organization, the guild is also closely affiliated to e-sports communities and can look to leverage these audiences to grow and scale the organization. OP invested in the project recently, and has strong conviction that the guild has the potential to be a dominant player in the LATAM blockchain gaming space.

Up and Coming Guilds

Ancient 8 — Targeting the Vietnamese economy, they have taken what works from the existing guild model and brought it to one of the most fertile countries in Asia, a region that has already developed into one of the world’s most crypto-native markets. After raising a seed round from funds like Dragonfly Capital and Pantera, the guild is scaling rapidly and quickly becoming a dominant player in Vietnam, with active communities around top games such as Nyan Heroes, Axie Infinity, and Cyball.

Japan Gaming Guild — Based out of Japan, this guild is building a gamefi and scholarship community within the heavily siloed Japanese market. They are very active in posting articles regarding new games entering the pay to earn market, with guides on stalking and participating in various gameplay loops. This education cycle has helped them onboard various scholars to their platform, with over 3500 followers across Twitter and Medium.

IndiGG — While a subDAO of YGG, this guild seemed worth mentioning as one of the sole guilds targeting the Indian market, bringing YGG’s partners and infrastructure to India through the subDAO vehicle, alongside direct association with Polygon (whose team is originally from India). The project has gained significant traction thus far, with over 60k+ members on the Discord and over 50,000 IndiGG Badge (membership pass) holders.

The Investment Thesis

Guilds Are Evolving

If we take Accenture’s estimate that direct revenue from gaming now exceeds $300bn globally, with 2.7bn people classed as gamers worldwide, then the full potential of P2E remains far from realized. This is not to mention the likelihood of increased unemployment in the coming decade as a result of automation. Guilds could play an important role in scaling the industry.

Guilds are becoming pure infrastructure for GameFi and the Metaverse. There is a symbiotic relationship between guild development and the growth of GameFi and Metaverse economies. Guilds lower the barriers to entry to Play2Earn games, which helps both the games in question and the players, and they also increase crypto adoption amongst previously off-chain participants.

They have a unique position within the ecosystem, sitting at the crossroads between communities of gamers, game developers, investors and new projects. This could confer a key strategic value in future.

Via their tokens, they also provide more liquid exposure to in-game assets with their yield-generating treasuries.

Guilds are the best example of the future of Web3 composability, compounding multiple points of value creation together on a massive scale. If effectively organized and coordinated, the combination of skill sets and expertise within guilds, as well as the creative energy and mutual incentivisation that this implies, could have considerable implications for the entire space and future web3 business models.

This leads us to believe that, provided that the current challenges that they face can be overcome, and that the Play-To-Earn model further accelerates in the gaming industry, guilds can be a huge component of gamefi infrastructure, and provide massive value to both investors and gaming communities. We will next cover the venture arm aspect of guilds, and their ability to uncover ‘new gems’ and dictate the crypto gaming ecosystem.

Venture Arms

One evolution that we have observed in the guild ecosystem is the birth of venture arms. Venture capital flowing into crypto shows no sign of slowing down, with $3bn+ flowing into deals in November of 2021 alone. There are already some signs of venture DAOs, which may or may not succeed, but what is interesting about venture arms of gaming guilds is that they could have greater influence than any other VC in the P2E / Crypto Gaming space, if their strategy is executed correctly. As well as being able to develop and launch their own games, they could provide the funds, industry awareness and network effects of already having countless existing community members to boost any games that they invest in. As well as the possibility of outsized returns further down the line, depending on the nature of the tokens invested in and the respective ticket sizes, as well as the capital allocation strategy, such venture arms could give the guilds considerable influence in the governance of a whole roster of different games and metaverse environments, leading to a virtuous cycle of growth and expansion.

Depending on the economics of these venture arms, they could prove attractive prospects to outside capital, since they could provide expertly-curated portfolios giving direct exposure to GameFi and P2E projects. It is difficult even for experts in this sector to pick the winner, so for many investors it might make sense to diversify via a Guild Venture Arm. In turn, this could also drastically lower the barriers to entry in venture capital funds more broadly (what many venture DAOs are looking to do — though guilds may prove a better entry point).

The future logistics of such an endeavor remain unclear, with the governance structure of guilds having to answer key questions such as who will make decisions on the allocation of guild capital, how will these decisions be made, how the guild treasury will be managed, and more. The role of the guild’s own token in this process will likely be pivotal, of course, but to what extent will its value be tied to the success of the ventures? Will all profits be converted into the guild’s token and locked away? Will there be a separate venture token, creating a subDAO, as it were, for the original guild? Will there be a dual-token system? The best innovations do not answer questions, but rather they ask them — there is no perfect approach, but these considerations should be at the forefront of any investigation into the long-term guild ecosystem.

These observations and questions regarding the possibilities for the venture arm model suggest that guilds could also play a key role in the finance and ‘Metanomics’ of GameFi and more. It is a much more speculative bet, but if venture arms in these guilds do establish themselves as centrally important players, then exposure to their tokens (depending on tokenomics and structures, etc) could be considerably more lucrative than originally expected.

Other Considerations

Esports

The global esports market is forecasted to grow at a CAGR of ~25% from its current valuation of 1.1 billion in 2019, between the years of 2020 and 2027.

Guilds may also have a significant role to play here. They could coordinate / compete in tournaments with other guilds and individuals, and of course reap the benefits of winning said tournaments. They could also innovate the current model of Esports and create opportunities for the esports community via direct participation and fan interaction with tournaments/players.

These tournaments could also be used as a conduit to increase publicity for a guild’s own games / investments. This would likely increase the number of players of the game, scholars playing the game, attention that the game receives, and liquidity for its token. In short, guilds that can capitalize on audience attention and organize exciting tournaments could provide a considerable value add to new games looking to gain traction, particularly in the current market of speculation and short-lived hype cycles.

Intra-Guild Tooling

We have seen exponential growth that we have seen in the guild space, but it remains in its infancy and there are significant (but not insurmountable) issues for them to carefully consider. They can be split into three categories, all linked in some way to scaling: how to reach larger audiences; how to filter and select new scholars; and how to structure incentivisation programs (i.e. lending assets).

Firstly, in order to grow, guilds will need to focus on outreach. The main infrastructure used for this is Discord, and to an extent Twitter. As is often the case in crypto more generally, most guild activities are coordinated via Discord. It is accessible to most and easy to use, but guilds hoping to capture more talent should also focus on improving their dashboards and making it straightforward to express interest in joining their community, thereby maximizing conversion rate. Onboarding new scholars will be a high priority: doing this in a crypto-neutral way (i.e. reducing the amount of heavy lifting with wallets etc that scholars have to do) is likely to be effective — the same can be said for GameFi and Web3 projects more generally. There is no good reason why we should see any fundamental changes on the front-end for users, since almost all of Web3 is back-end centric, so a flawless UX/UI will be key.

This leads us onto the next question: how to filter out and select new scholars. It is unlikely that there will be one uniform approach to this — some guilds will probably choose a ‘spray and pray’ approach, whereas others are likely to favor the marksman method. Either way, assessing new and existing scholars will be important for purposes of efficiency and refining business models. Finding a way to simplify and automate the majority of this process would also be very useful for scaling: the guild could process the data of scholars on a ‘trial period’ and quantify not only their current skills at playing certain video games, but also less obvious things such as their general aptitude for videogames and ability to adapt and improve. Currently, selection is often limited to experienced community managers, but as guild datasets grow and more and more patterns emerge, they should be able to incrementally refine their process to maximize efficiency. Depending on scale, it may eventually make sense for guilds to pivot away from large community manager networks towards sourcing scholars through publicly available data/metrics, such as via a global scoreboard. Another issue that may arise is how to ensure that the overwhelming majority of players are who they say they are — what is stopping one excellent gamer from doing these trials on behalf of his friends for a fee, for example?

Concerning the business model, it is essential to keep in mind the way that payouts and lending will be structured in the future. This structure will probably be flexible, but it is interesting to conjecture. It would be reasonable to expect that the most satisfied scholars will be those who have, amongst other things, the most choice with regards to how they are reimbursed. Some may prefer to have a more stable salary, others may want a solely performance-based pay model. Some guilds may also choose to take only a tiny fraction of the overall cut in a bid to attract as many scholars as possible for long-term growth; others may introduce loyalty schemes and in-guild hierarchies. The infrastructure for all of this will be of pivotal importance — two companies to look out for in this regard are Stardust (for the integration of in-game NFTs) and Circle (many participants and scholars will want seamless access to fiat).

Future Infrastructure Issues

While it is difficult to say what the main issues will be for P2E, guilds and GameFi that are exclusive to these verticals, it is likely that they will face similar infrastructure problems as other parts of the blockchain ecosystem:

1) Volatility — In crypto markets this already causes all sorts of problems, and if gamers become workers with exposure to the markets then they often won’t be able to / want to financially plan according to estimates that are unlikely to be accurate enough. They will also be less likely to have the same tolerance for volatility than typical crypto participants. For infrastructure that can help to mitigate volatility, there are some interesting concepts involving using DeFi lending solutions to allow users to lock the value of their crypto assets at any given time. This could be a great contribution to underlying GameFi and crypto infrastructure, and potentially help.

2) Security — again, everyone faces these issues, although they may be more difficult to face in the case of gaming, both because there could be more users than ever before and because most gamers will have lower risk tolerance than DeFi participants and therefore a hack or serious security compromise could be disastrous for reputation and trust.

3) UX/UI — ibid.

4) Regulation — ibid.

Intra-Guild Tooling (Cont.)

Tooling that will be required at an inter-guild level is also worthy of discussion, and might be considered the infrastructure behind the GameFi infrastructure. Some issues that deserve greater attention include decentralized player identity, ‘mercenary’ scholars and platforms that enable scholar recruitment / ‘job hunts’.

Firstly, decentralized player identity could become a useful tool for guilds to be able to better evaluate and recruit players, especially if it is on-chain and transparent. Initiatives such as Microsoft’s DDID (decentralized digital ID) are perhaps a sign that this is likely to be a trend in many non-tech industries, therefore one might expect guilds and players to find value in this. It could also be directly linked to digital identity more broadly, but developments in this space (at least on-chain) are likely to face significant obstacles along the way.

This idea of player identification connects directly to mercenary scholars, who are gamers of a certain skill level who will play for the highest bidder. This would depend on guild remuneration models but provided that it was symbiotic and sustainable, correlation between game skill and returns via a mercenary system would incentivise gamers to improve over time and increase expertise across various games. In a similar vein, as demand and supply for ‘jobs’ in play-to-earn economies increases, we may also see a rise in gamefi recruiting platforms and recruitment companies who advertise for job openings/roles in guilds and P2E games.

This is to say that, although there may be many shortfalls and issues both on the user and on the institutional side, there are several possible solutions that could be both profitable and impactful.

‘DAOification’

Another possible scenario is that gamers unionize and demand higher wages, possibly via DAOs. This could take the form of some groups of high-level gamers banding together to offer their collective services at a premium to guilds, almost like a mercenaryDAO.

We might also see an opportunity for individual gamers to rent out their in-game assets both to guilds and to other individuals. If guilds are merely the middle-men in this respect, then it might make sense in the world of crypto for solutions to this to come in the form of NFT lending platforms, such as renft.io, or the eagerly anticipated Ethernity Chain. The exact logistics of how Metaverse economies could function and whether in-game assets will be so seamlessly transferable remains in question, but it is a bullish sign for NFT lending platforms who are preparing infrastructure for a time when NFTs may have many more use cases than digital art and collectibles.

If GameFi assets transitioned into full-on productive assets, skill-based lending could be integrated into existing game models. Under this lending system, users would not need to put down collateral to borrow game-focused NFTs, but rather meet a certain proficiency or skill level in order to ‘unlock’ certain NFTs. This would be mutually beneficial, as the NFT’s owner gets access to high-skill players who will generate out-size returns, and the player gets access to high-end NFTs which offer access to exclusive games and higher yield (which they then take a cut of).

Regions

Guilds have had great success in regions such as the Philippines and other less developed economies, but one key factor to consider is how these guilds might become truly global by creating franchises of their guilds. It seems that, at least for now, the largest supply of gamers for P2E games, especially those that might not be as enjoyable as more traditional video games, is likely to come from less developed economies where the amount that can be earned from playing video games is comparable to the area’s average salary.

Games and guilds with a niche in Latin America, then, could prove lucrative, as could Africa. ‘Hard’ infrastructure in some parts of the world may be challenging, when we consider that around 37% of the world’s population doesn’t even have access to internet, but, thinking quite long term, if they were to reach a certain level of dominance and profits, guilds may be incentivized to increase internet accessibility across these areas. This would both be a charitable and profitable endeavor/investment, as the guild would enable internet access for those who could not afford it, and in return the guild would gain access to/onboard a portion of these communities as members and scholars.

What about those on the outside?

There are several incumbents in the gaming industry that may also seek to change their business models and make them more tokenisation-centric. However, the extent to which they are invested, or even aware enough, of crypto and GameFi, may suggest that this will be either very long term, or not at all. This may lead us to ask the question: will the Play-To-Earn model have a symbiotic relationship with current giants, or do they pose a threat? The history of the gaming industry (think Atari, for example), as well as the history of software/technology more generally suggest that those that don’t innovate and remain set in their ways will be replaced or humbled by new enterprises.

This being said, it is still worth thinking about not only cross-chain, but also cross-console. Consoles such as PlayStation and Xbox have social interaction as one of the cornerstones of their product, and many of the most popular games share this: showcasing vanity to other players during gameplay is critical and is a key driver for Fortnite’s monetisation engine, for example.

Here are just a handful of the many ways that existing video games could integrate NFTs / Play-To-Earn models:

1) Ubisoft and Tezos

We are not entirely sure what this will entail in the long run, but they seem quite committed to some market share in this space. It will be interesting to see how they approach the market, especially since they contributed towards Animoca Brands. They should have the resources to integrate P2E models into their existing games and bring it mainstream — Assassin’s Creed, Far Cry, Watch Dogs etc, possibly restructuring aspects of the game for this very purpose.

2) FIFA

Ownership of assets (e.g., FIFA Ultimate Team player cards as NFTs) could be a worthwhile endeavor for FIFA, since they could be transferred from every game, they could possibly charge a small fee on every transaction? Much of the audience in these games are also collectors and enjoy loot box opening, which aligns closely with pre-existing NFT use-cases within gaming. Further monetisation of FUT marketplaces could be very lucrative.

3) Fortnite

Similar to FIFA. Ownership of Skins and possible metaverse avatars would be important here, they already have the infrastructure in place with regards to users and ownership of in-game assets, they would simply have to take it a step further. Important to assess who exactly this would benefit, though.

Conclusion

It is clear that there is lots of room for growth in GameFi and the infrastructure that supports it. One of the most interesting aspects of this infrastructure is undoubtedly guilds, and the potential avenues that they could exploit in both GameFi and the crypto space more broadly make them a very promising investment. At OP Crypto we are committed to advancing GameFi and its associated projects, both as a way to make profit directly, and also because we recognise the pivotal role that GameFi could play in onboarding hundreds of millions of new users into crypto, bolstering the ecosystem and providing indirect profit for many other protocols and holdings.

ABOUT OP CRYPTO

OP Crypto is a leading high conviction, early-stage venture capital firm in the crypto and blockchain industry, specializing in pre-seed and seed stage investments. The fund successfully raised $50M in September 2021 and has since invested in over 30 projects, including companies such as Scroll Tech, Snackclub, Merit Circle, Omni, and Fyde.

With the support of prominent investors like Bill Ackman and Alan Howard, as well as institutions like Galaxy Digital, Huobi, and DCG, OP Crypto has access to a global network of venture funds, scouts, and ecosystem partners to source the most competitive deals in the market.

With a core team based in the United States and strong ties to the APAC region, the fund serves as a bridge between East and West. Additionally, a dedicated portfolio team provides post-investment support to founders in areas such as marketing, tokenomics, and networking.

Learn more about OP Crypto at: Website