4 Things to Consider When Investing in the Metaverse and NFT Gaming Projects
2021 has seen an unprecedented shift towards the metaverse and NFT gaming projects. Even Facebook has jumped on board by rebranding their business to ‘Meta’ (short for Metaverse), after seeing the potential in this new online universe. Blockchain gaming projects like Splinterlands (originally Steemmonsters) have seen early players become millionaires through earned in game assets that they can sell on the blockchain through NFT marketplaces. We have seen the gaming industry come on board investing in projects like Sandbox, buying up land in the Sand metaverse with plans on developing games on top of them. And now we are seeing projects like Illuvium and Big Time to name a few, starting the journey of developing AAA title games on blockchain.
This new push towards creating metaverses, is in my opinion the biggest thing the crypto market has seen since the introduction of altcoins. It has the ability to demonstrate the use cases of the blockchain in a way that is easily understood. We are now able to own our in game items and rewards. With this ownership we can then trade our in game items easily through blockchain marketplaces. Our high scores within a game have now become tokenised like Dark Energy Crystals (DEC Splinterlands) and we can now trade these tokens for other cryptos. Our in game items are now NFT’s that can be sold or traded amongst other players or investors, who can see the potential for gains, like has been seen for many other crypto gaming projects.
So, what should we be looking out for as investors?
I am going to highlight some key points, so that you don’t get wrecked. This happened to many investors at the end of 2017, with the crash and subsequent crypto winter that followed the Bitcoin and Altcoin bull run. This saw many new projects tagging blockchain onto any use case they could find for a quick cash grab, as was seen with the thousands of ICO’s that sprung up in 2017.
With this in mind, blockchain development is still maturing and the gaming sector and the metaverse are new to scene and this leads me on to my first point.
- Do the development team have the skills to deliver?
Crypto software development is very difficult. A team may have experience in developing games, but do they know how to combine the game development with cryptography?
I have been listening to the weekly AMA’s from the team at Splinterlands. They were one of the first blockchain games on the scene. They mentioned in the past the difficulty of incorporating crypto coding to their gameplay. Splinterlands is one of the most developed, if not; the most developed blockchain game on the market and it still takes them time to develop updates within the game. You may be the most unreal game developer in the world, but game development has not required blockchain coding up until now. It will be interesting which projects we see rise to the top.
The teams who have the most adaptability will be the ones who succeed. The games and metaverses that are the most enjoyable to play, will do the best in this new ecosystem.
2. The blockchain that the games are developed on matters.
Blockchain games and metaverses will have an incredible amount of transactions carried out on them every minute. If the blockchain has slow transaction speeds or high gas fees it will make it difficult and costly for unhindered gameplay. To highlight a perfect example of this Ethereum based NFT’s are not able to be easily traded due to the insanely high gas fee’s, some users have purchased $30 NFT’s only to be hit with a $200 gas fee. And you may be thinking that Ethereum will eventually implement better scaling solutions in the future, but that may be too late?
Sandbox is a good example of difficulty with the Ethereum network. They have recently partnered with Polygon to run Sandbox on Polygon due to the massive cost of gas fee’s and congestion that Ethereum is facing at the moment. This is why the Sandbox project still has not launched yet, 6 months after their roadmap suggested.
My personal investment strategy is to ignore most Ethereum based projects in the short term and many development teams are doing just that, opting to develop on the Binance Smart Chain and Solana. Ethereum will hopefully make up ground in the near future as Eth 2.0 development continues. But I would consider some diversification in different blockchains, if you are investing in this space.
3. Is the project fun?
You may be aware of the many push and collect blockchain games out there. First one that comes to mind is Alien Worlds. Currently all the gameplay involves, is you purchase some mining equipment NFT’s and click the mine button over and over again to receive a small increments of TLM. This is incredibly boring and the only incentive is to mine crypto, but that wont attract the masses. And you want to spend your valued time and attention on something you enjoy and pays you for your time. The project that has the most enjoyable ecosystem and gameplay will be the one that comes out on top. But, this is also mutually exclusive with good economic principles for all in-game assets.
4. Does the team understand economics?
You may be asking, what does economics have to do with the metaverse or gaming. Well these metaverses and games need to have a well developed economy for them to thrive.
You need to understand economic principles to make the in game assets a rewarding experience. Some examples of this are understanding supply and demand, creating utility for the tokens and NFT items. Are the NFT items inflationary or deflationary? How do we create new items that don’t take away from the value of earlier items. How do we reward users without destroying the value of in game assets by oversupply and inflation?
Economics has a big role to play in blockchain game and metaverse development, nobody wants to move to a metaverse that has an economic system similar to Zimbabwe. Nobody wants to invest into a game that rewards you in a token that goes down in value, because of its increased supply. When creating in game reward systems, algorithms are required for token allocation to users. The algorithms need to be constructed with economic principles in mind otherwise the game may not be as rewarding to play as others.
A great example of this was Cryptoblades. Cryptoblades saw a massive rise in value for its in game reward token SKILL. SKILL was selling for around $2 when the game was first introduced to market. The team thought it would be a great idea to hand out free SKILL to players who were new to the game. This would allow them to mint in game items, such as swords and characters for free to help them play and earn. The maximum token supply for SKILL was 1,000,000 tokens. This limited supply compared to the unprecedented demand and difficulties in finding exchanges to purchase, pushed the price of SKILL to an all time high of $184 within a couple of months of releasing the game.
Now this would of been great if the economic system could keep up with the rise in new players. The problem with giving away free crypto to incentivise people to play is you over inflate the value of SKILL. This has been seen recently with the government stimulus during Covid, when you give out free money it devalues the existing money in the system, as there is now more of it to spend. It also created an oversupply of in game assets which devalued the assets, this also added to the number of players making the rewards smaller and smaller, as the algorithm for token supply could not adjust for an increased player demand.
In the end, it became pointless to play Cryptoblades, because the BNB gas fees were higher than the in game SKILL rewards. The NFT’s lost their value as they could not generate any income and the game has struggled to garner any interest since.
As you can see, it is very important to understand economics when developing blockchain games and the Metaverse.
I hope this helps you on your journey.
Please reply if you think I may have missed anything?
And good luck with your investment journey!