Welcome to the metaverse. In this play-to-earn virtual world, Yield Guild Games (YGG) brings gamers together, inviting them to participate in their new type of reality that uses non-fungible tokens (NFTs) to generate real cash flow.
The company sits atop an evolved online juncture, one that sees NFTs, decentralised finance (DeFi), crypto and blockchain, all intersect.
Under YGG’s “scholarship programme”, scholars - as the players are known - borrow assets that can be used to earn tokens within a game. In the case of the popular blockchain game, Axie Infinity, YGG provides “Axies” upfront, so that the gaming community can get stuck in immediately.
Axies are the going currency in this digital domain. ‘Bred’ through the purchase of a Smooth Love Potion (SLP), the monster-like avatars can be earned by scholars when they outmanoeuvre an opponent. And while the cute caricatures might look simply saccharin, the game is anything but a walk in the park. It is all about tactical moves to support tangible gain, a bit like poker or chess.
Play-to-earn: Redefining the future of work
The tokens earned in YGG’s gaming universe can be sold as cryptocurrency and consequently cashed in. It is in such games that Gabby Dizon, who co-founded the firm with two others in September last year, sees potential for the future of work.
“The gaming universe has the possibility to be a new, digital version of the gig economy. Gamers can come online to work and effectively, they can play to earn. They might be hoping for tokens, like SLP, or NFTs like Axies, or Land. Regardless, the virtual world is a new realm in which they’re able to obtain capital for use in the real world, to spend on whatever they might need,” he said.
Dizon estimates that on average, an Axie scholar earns between $300 to $500 per month.
Itself an indication of what a Web 3.0 company might look like, YGG is a decentralised autonomous organisation (DAO), with close to 90,000 members who contribute to and benefit from the network. While the DAO has members located all around the world, its user-base is largely concentrated in the Philippines.
Growing the gaming empire
YGG closed its first round of seed funding in April 2021, raising $1.33 million, led by Delphi Digital. In June, it completed an additional Series A round, raising $4 million led by BITKRAFT Ventures, but its most significant endorsement to date came in July. With a capital injection from Andreesen Horowitz’s venture capital firm, a16z, the round raised a total of $4.6 million. The funding rounds themselves have transcended the analog – with investments in the form of USDC cryptocurrency, a USD fiat-backed stablecoin.
The a16z-led fundraise finalised just prior to a token sale by YGG on July 27, which saw the firm make 25 million tokens available to the public. Full token allocation was sold in 31 seconds, raising near to $12.5 million in USDC – reaffirmation that the firm’s business model might be built to real world value, but is founded on metaverse economics.
Dizon explained: “it's similar to a country club, where the YGG token buys you membership to the club, and in YGG's case, members get access to NFT rentals. Membership fees are paid either by purchasing tokens, or by contributing time and skill to operate an asset that is owned by the club (i.e. the rentals). Members also have the opportunity to exercise votes, and to earn club-rewards based on everyone's shared efforts to grow the value of the club."
When it comes to the revenue generated by Axies, the split is as follows – 70 per cent goes to the scholar, 20 per cent to the community manager and 10 per cent to YGG. From the company’s perspective, the money earned goes back into investments, so that YGG can buy up assets in different games for its player base.
Its other popular gaming partnerships and investments include League of Kingdoms and Splinterlands. What all these games have in common, is their focus on NFTs and a strong yield component to generate income.
YGG’s ultimate goal is bold: to create the biggest virtual economy in the world.
“By onboarding player communities and allowing people to have jobs in the metaverse, whether it's by Axie Infinity or others, we want to give people access to the metaverse economy, no matter where they are in the world,” said Dizon.
Venturing into the metaverse
The metaverse is what Connecticut-based technology research and consulting company, Gartner, describes as, “the next stage in evolution of the internet as we know it today”. In October, Facebook announced its name change to Meta, as the social media giant refocusses its brand on bringing the metaverse to life. Other companies like Microsoft, Disney and Nike have also announced their intention to venture into Web 3.0 in coming months and years.
Gartner sees three phases in the metaverse’s evolution. From now until 2024, it believes that the emergent metaverse is where distinct technologies like virtual reality (VR), augmented reality (AR) and mixed reality will further develop. It predicts that 2024-2029 will mark the development of the advanced metaverse, where we will start seeing further aggregation of these technologies. And finally, the complete metaverse will take shape by the mid-2030s.
“The best kind of microcosm of that right now, can be found in the gaming world. The gaming industry is one of the heaviest users of AR and VR technologies. They're also pushing the combinative use of devices - be it your PCs, laptops, or head-mounted devices, you know, to start driving its emergence,” said Adrian Lee, senior director analyst at the firm.
Lee added that gaming companies are crucial to the structured development of the metaverse.
However, it is still a case of being early days. He suggests that governance and a solidified framework for management of the metaverse will only come into play in the ‘advanced metaverse’ phase, that is still some three to five years away.
According to Strategy Analytics, revenue derived from the international metaverse is forecast to top $41.6 billion by 2026 – demonstrative of sixfold growth compared to its $6.2 billion achievement currently.
The company defines metaverse generated revenue as any spending put towards VR hardware, AR hardware and content applicable for metaverse-housing devices. Currently, VR is the largest proportion of this at over 80 per cent, but by 2026, AR will contribute to over 75 per cent. The main distinction between AR and VR is the type of device used to enable the digital realm. AR can be accessed through use of smartphone cameras, adding digital elements to a real-world view, as is the case with games such as Pokemon Go. With VR, a specific headset such as the Oculus Rift, or HTC Vive, is required to enter the alternate world.
And this is the billion-dollar driver behind the metaverse’s evolution from here on now.
“I don't think we have sufficiently addressed user concerns about privacy, security or the degree of control. Right now, we are used to the world where there are algorithmically-controlled feeds. You really don't have much user control over that. The same is true of the future metaverse as well. Are users able to switch off from the metaverse? And if so, what can they select what they switch off and search on?” Lee pondered.
When it comes to investment opportunity, the metaverse universe has something to offer for everyone, from big tech players to start-ups. While the big tech incumbents might have the advantage of scale, Anastasia Amoroso, chief investment strategist at New York's iCapital Network thinks that the smaller players have a lot to offer. “What is attracting investor interest to smaller, private firms is their potential to re-design the internet ecosystem.”
They might be small – for now – but start-ups certainly have the smarts to shape the future of the metaverse.
