This article presents a thesis on the future megatrend of metaverse, NFTs and crypto gaming: In simple terms, the most successful projects will become behemoths – the new titans of industry. This article aims to fully contextualize the magnitude of opportunity this new paradigm offers.
How is the metaverse possible?
To understand the metaverse, you must first understand the journey that made it possible.
The internet as we know it today had achieved widespread use by 1999. If ‘Web 1.0’ was all about us asking Jeeves and interacting with static pages, ‘Web 2.0’ was the next step: users interacting with the content itself, becoming creators as well as consumers.
Web 2.0 saw a free internet, in which everything was transacted for free (with downloads and uploads) and no way to securely exchange value. Solutions to exchange value were given in the form of e-commerce sites, streaming services such as YouTube, Spotify, and Netflix, but this did not provide us with digital ownership rights. True digital ownership rights were sacrificed, as there was simply no technology available to secure them at the time.
Fast forward to today, and two major technological advances have opened new possibilities.
First, computing power increased exponentially. Then came blockchain technology.
Blockchain technology has allowed us to create a secure economic underpinning to the internet with a digital ledger of transactions, that is duplicated and distributed across the entire network.
Rendering capabilities have grown enormously with the increase of processing power as depicted in the illustration below. Networks like ‘Render’ now offer decentralized solutions to anyone who wants to build something that has a huge demand for graphical processing power.
What is the metaverse?
With these two major advances, we now can move into a new ‘Web 3.0’ vision of the internet, at the heart of which is the metaverse.
The metaverse can be described as a universe of self-consistent virtual worlds, characterized by the individual games and experiences that occupy the space. This is a shared virtual
representation of a physical space that you inhabit as a 3D representation of yourself (this is not a requirement, but part of the possibility).
The metaverse can be compared to the physical world; it has the endless potential to be everything our living world is today, and more. Consider how much time we spend navigating social media platforms, and engaging with people. The metaverse will be an extension of this but will give us the ability to spend time in more immersive environments like 3D worlds. In these virtual worlds, we can even be paid for our digital activity as a result of the data created.
NFTs the true digital ownership in the metaverse
The metaverse only becomes truly meaningful to an experiencer once they can have a stake in it. With the decentralized financial system created thanks to blockchain technology, this is now possible.
Imagine tokens in different virtual cities as being the equivalent to the currencies we use in the physical world. The birth of Non-Fungible Tokens (NFTs) has been the missing piece of the jigsaw. An NFT is defined as a digital asset that is verifiably owned by someone. The authenticity of you owning that item is confirmed on the blockchain and the digital asset is securely kept via a digital wallet for you to trade or use within the scope of its utility.
The Evolution of NFTs
NFTs represent true digital ownership of a digital asset. Their first form came as digital art collectibles, and this took off thanks to the broadness of reach they had compared to physical art. Consider the difference between art confined to one gallery and a digital art piece being able to reach communities anywhere over the world. These types of NFTs can be classed as stores of culture or an embodiment of a moment in history. NFT sales over the last 7 days hit $926m.
With crazy prices being paid for some items in these scarce collections, highlighted by Justin Bieber paying $1.3 million for a Bored Ape this week, this ‘flexing’ of this digital art can be compared to the ownership of a Rolex or expensive designer bag.
People are behaving in the same way they do in the physical world by transferring this mentality into the virtual realm. Where does the real value of a Rolex or designer bag come from? Yes, the materials to make them have a certain level of value but the greatest percentage comes from the perceived virtual value created via the story of the brand. This is exactly what is happening with NFT art. With people’s lives migrating online, and soon into the metaverse, these digital items are a way for people to showcase themselves: it’s the ultimate digital flex.
NFTs with utility
The next type of NFTs to emerge has been those with utility. These NFTs will form the backbone of the metaverse. Any item within a metaverse can be turned into an NFT; a few current examples are land, apartments, cars, pets, avatars and boats. This new wave of NFTs hold varying forms of utility, and a good example to run through would be land ownership.
Ownership of a land plot in one of these early virtual cities holds all the utility one would have in the physical world. Imagine building a crazy-golf course, a shop for your digital business, a gaming experience, charging for advertisements on your land, or creating an art gallery to showcase your digital art. You can even look to rent your land or do profit sharing with third parties running their businesses there. Projects such as OpenDao are already offering people the opportunity to rent their land to brands looking to get marketing exposure in these early worlds.
Imagine being one of the first procurers of land and property in Manhattan before it evolved to its current state. Metaverse real estate sales have topped $500m to date, and the projected forecast is set to double this year. When you consider this has been generated predominantly from just four projects that aren’t even fully live yet, it is even more impressive.
Interoperable NFTs are the Holy Grail
Those that become interoperable between multiple virtual worlds will be the Holy Grail of NFTs. Once this is achieved, the NFT asset becomes much more valuable, as new builders in the space will target groups who own specific NFTs and develop utilities and experiences that are linked to them. Imagine owning an NFT car that you have pimped out with a custom paint job, new wheels, you name it – and then imagine being able to drive it in multiple virtual worlds.
Open v closed metaverse – the threat of Meta and the fight to come
When Facebook announced it was changing its name to Meta, everything changed.
Ever since, there has been a clamour from all the biggest corporations in the world to begin making moves to target their stake in this new Web 3 reality.
People must understand the different experiences between a closed metaverse offered by the traditional Web 2 giants as Meta, and the open metaverses offered by the current and future wave of decentralized builders in the space.
Open decentralized metaverse
An open metaverse will be owned by the majority of people who participate in that world. The economic value created in this model will be shared amongst these people. Decentralized Autonomous Organizations (DAO) will be integrated so that the people can decide on the future evolution of these worlds, rather than the creators.
In open-source and open-code worlds, third parties will be free to come, create, and consistently build value on top of value for all users. Creators will be able to innovate freely and there will be no barriers to entrepreneurs building new experiences that increase the value for these worlds as a whole.
The developers of these worlds will take a smaller margin from the economy, as exemplified by Sky Mavis, the developers of Axie Infinity. The decentralized business model for Axie Infinity is based around a 4.5% fee taken from all transactions – Axie’s economy hit $2.5 billion in monthly transaction volume in November 2021.
A closed (Meta-ruled) metaverse.
Facebook’s previous business model has been built on gatekeeping access to its users and collecting customer information. With the growth of blockchain technology now allowing consumers to monetize their identities and data, and use that data for their benefit, Meta will be reluctant to relinquish its (hugely profitable) power.
The existence of NFTs is a threat to its kingdom as they can transform data ownership. And this paradigm shift is a threat to all the top Web 2 corporations employing similar models.
Facebook made its move. Now it’s called Meta. This strategy is most likely an attempt to control the narrative, making their Metaverse the only metaverse that matters, with a view to bringing the majority market share of traffic to their world.
Consider the fact that Meta began as Facebook, an open-source platform that allowed third parties to build on top of it. Once it had taken what it needed from these third-party builders and gained a critical mass of users, it then closed the door to these builders. A good example is shutting out Zynga, the makers of hugely successful Farmville.
Would you be happy to trust buying digital assets within a Meta-based metaverse with the belief it will prioritize the value and utility of these assets over profit and control of its metaverse? The company is centralized and unlikely to settle with a 4.5% fee for its cut!
It is paramount that people understand that they have been giving away their data for free, and that data ownership is a right and property that holds value. Only then will they start thinking about where it is stored, who owns it, and who controls it.
Once this penny drops, do you think people will want to have assets in Mark Zuckerberg’s Metaverse, or a fully decentralized open-source one?
A Decentralized, open metaverse
Several projects are deep in the build-out of their own decentralized metaverse worlds.
The Sandbox and Decentraland are the furthest along in terms of development. The Sandbox is a user-generated content platform where people can build out their own experiences on land owned or rented. This environment has a simple graphic style akin to the much-loved Minecraft. Decentraland has recently had music festivals held in their metaverses to showcase their world.
The next wave of virtual worlds releasing alpha versions this year are those with a more photorealistic theme, such as Wilder World and Netvrk. These worlds are harnessing the power of the best graphic engines available with current technology. The experiences in these worlds will be targeting augmented and virtual reality applications in the future with super realistic experiences.
At present, the NFT assets such as land and several others are being sold out to early investors who see the fantastic opportunity.
Crypto NFT gaming: The first leg of the metaverse megatrend
In the metaverse, what experiences and activities will form the first industries within these worlds? The industries that will not only bring people in numbers to them but also get people to spend sustained lengths of time in them.
The most natural product-market fit for the metaverse is gaming. Not any old gaming, but NFT-based play-to-earn Gaming (P2E).
The current estimated value of the gaming industry is $160 billion – more than the music, film and TV industries combined. Here’s why this number will be dwarfed once the new gaming paradigm comes to fruition.
Current Gaming Model
There are a couple of ways the Gaming industry currently models its monetisation. You can sell your game for a one-off cost and then sell in-game digital assets with utility to the players (these assets are not owned by the gamer) or offer a free to play game where you have the choice to buy items within the game or just participate for free. This model relies on the 2% of players spending money, with the 98% just playing for fun.
A new Play to Earn model
With new play-to-earn gaming models, current ones will become obsolete once gamers fully understand this new paradigm. Decentralized Finance (DeFi) has been the supercharger for these games and their economies.
Let’s dive into a couple of ideas:
Getting paid for your time
As online gaming is now based around multiplayer experiences, these games require players in numbers to make the ecosystems fun and valuable. As a player, you are giving that game value by participating, and you have been giving your time for free when playing. What P2E does is deliver the value that was already inherent to the system, and unlock it. The billions of hours gamers spend playing have been the equivalent of free labor. This new model can fairly distribute the value to the players with the success of the game economy determining the level of earnings.
NFT game asset ownership rights
The second game-changing factor for these new P2E games is the digital ownership rights that NFTs are bringing. Previously when you bought a skin on Fortnite for example you had no real ownership on that asset and its only value was linked to that game. With the added dimension of NFTs, all new crypto games can give the players true ownership of all their in-game assets, and they can be traded for monetary returns.
The rental of (and profit-sharing from) NFT Assets
There is a third element that gives NFT Crypto Gaming a new angle to swallow up more users than currently play games. The world has an estimated 2.7 billion gamers but there are around 5 billion people with access to the internet. These are people who do not have the time or are not skilled enough to put the effort into playing games. With the new P2E Gaming model these individuals have a way to be involved, to be excited about the outcome of these games, but without needing to put in hours playing them. With the opportunity to buy an NFT asset in one of the gaming ecosystems and with either renting or agreeing on a profit share with a person to play your asset, you can benefit financially and enjoy a passive experience of being involved in the game. This new model opens the possibility of markets for new customers who were not previously gamers.
The growth of guilds
Axie Infinity and Yield Guild Games were the sparks that ignited the P2E lift off in 2021.
Axie Infinity is a Pokémon style game where people battle creatures called ‘Axies’. Axie Infinity lets people monetize their time and lets them sell the creatures they breed as NFTs.
At the height of the pandemic lockdown in 2021, an entrepreneur in the Philippines was looking for ways to help his local villagers generate income. Gabby Dizon wanted to find a way his compatriots could access Axie Infinity and its game ecosystem, so they could benefit from the in-game earnings on offer. As the cost to purchase an Axie to play the game was prohibitive to these people he set about creating software that gave the owners of the Axie NFT asset the ability to rent them out to players and to share in the earning pool. This was the birth of Yield Guild Games.
Yield Guild Games cut down the barrier to entry for millions of people in developing countries and the time at which this platform went live can be directly linked to the sudden growth in price action on the Axie Infinity ecosystem and price charts. The creation of this gaming guild was only made possible through an open-source environment which allowed Gabby Dizon to build on top of Axie Infinity as a third party. This approach of adding more value through building on an already successful product has created a symbiotic relationship between the two. This is the future of open and decentralized metaverses.
More gaming guilds have now been created and are facilitating the onboarding of millions of gamers across the world. The guild system created here has now spread and will continue to harness the power of players to fuel the gaming engines for current games and ones arriving in the future.
Gamers waking up to the new reality
Gamers game, and they do it for free (because it’s fun). Once they realize they can be paid for their time and hold ownership of their assets (which can appreciate in value) the old model could be in jeopardy.
With all the above factors taken into consideration, the top industry analysts and thought leaders are predicting growth to a $1 trillion industry within a decade.
Animoca Brands, pioneers of the space
There is one company that is driving the growth of the metaverse and gaming sector of crypto like no other.
Animoca Brands pivoted from developing mobile games in 2017 to focus on blockchain gaming. Its visionary founder, Yat Siu, describes its goal as wanting to construct the decentralised open metaverse as quickly as possible whilst giving true digital ownership rights to all people.
Its strategy is one of collaboration, and Animoca does not consider anyone in the space a competitor. This has been displayed by its rampant strategic investing in over 100 gaming/metaverse and infrastructure projects in the space. It also has studios all over the world making games. Last month, it announced a further $360m of investment, bringing Animoca’s valuation to $5.4 billion.
2022 is set to be a big year
2022 looks set to be a pivotal year, with Yat Siu seeing the potential to bring up to 100m new players into the crypto gaming space. How is this possible? Up until this point, crypto games have been very basic in terms of gameplay and graphics, but this year will see the release of many AAA game experiences that the non-crypto gaming world players are more accustomed to.
Follow the brains (and money)
Having laid out a thesis on where the future is going and where the best investment opportunities of our lifetime sit, is there evidence the smartest money and smartest people are thinking the same?
Morgan Stanley has just announced to their investors they see the Metaverse becoming an $8 trillion market (this does not include NFTs)
Who else is making moves?
• Blockchain Gaming investment in 2020 was $80m, in 2021 it rose to over $4 billion (numbers tracked by blockchaingamer.biz)
Announcements in January 2022
- Animoca Brands announced $360m of new funding
- Microsoft announced the purchase of gaming company Activision for $75 billion as a confirmed metaverse play.
- Take-Two bought gaming company Zynga for $12.7 billion.
- Sony announced it is buying gaming company Bungie for $2.7 billion.
- Meta confirms it has raised $18 billion over the last 2 years to develop its Metaverse.
- Mechanism Capital announced a $100m Play to Earn gaming fund.
- Gamestop announces partnership with Immutable X and launches a $100m gaming fund.
- Saudi Arabia announced a plan to invest billions into building their metaverse, with a twin digital version of their NEOM city being planned.
Other Blue-chip brands entering the race
- Nike finalized a deal with Virtual NFT shoe creators RTFKT.
- Adidas made $22m selling their first NFT collection.
- Disney announced it is head hunting NFT experts.
- Computer giant Dell partnered with metaverse project Victoria VR.
- McDonald’s introduced their first NFT, the McRib NFT!
It is clear the titans of gaming and the major corporations across the world are making moves to jostle for position!
What can an investor do now?
The evolution from Web 2 to a metaverse-based Web 3 reality is the foundation of the changing investment landscape. It could be the single biggest opportunity of our lifetime, and the first leg of this trend will be NFT crypto gaming.
With a thesis-based investment approach, you can now make firm decisions on where you wish to get exposure in the market.
The technology for the metaverse is still early, so your time horizon needs to take this into account. Investing in these first metaverses can now be the equivalent of early investors purchasing a Bitcoin at $200. Crypto gaming will be the first sector to see the biggest growth within these metaverse worlds, as it is the most natural onboarding of users for mainstream adoption. This adoption will bring network effect and create incredible value in the right projects.
A multi-faceted approach to investing could be the best strategy. A decentralized metaverse will need the infrastructure to make it possible, so investing in projects that cover data storage (Arweave), graphical-processing-power (GPU), like Render (RNDR), and decentralized money (algorithmic stable coin projects like Terra) could be a good place to start.
You can then move on to buying the token currencies of the metaverse worlds that are being developed with themes that resonate with you. The Sandbox and Decentraland already hold large multi-billion dollar market valuations,
so looking at buying into the next wave coming up could give better returns.
The next wave of projects offers a more realistic metaverse experience, with notable examples being Wilder World, Netvrk and Victoria VR. These projects are sitting at much more of an attractive size in terms of market cap.
With crypto gaming, many potential blue-chip games are launching this year, so grabbing tokens or NFT assets in them at floor prices would be a smart move. A couple of examples of games to check out would be Syn City, Heroes of Mavia and Colony Online.
A final area to add exposure to could be the actual NFT assets within these games and worlds. Land assets (or any genesis NFT sets) in the games and worlds that rise to the top have the potential to end up being hugely sought after.
One significant disclaimer to finish with.
Although there will be opportunities of a lifetime to make life-changing wealth, most games and metaverse projects will not survive. You must look to build a powerful research system to find those with the best chances of success, and then monitor them as they grow.
When it comes to the metaverse, we are still incredibly early. It represents a seismic shift with earth-shattering investment potential! Even today, we’re seeing metaverse projects bouncing hard. Every portfolio should have exposure to metaverse and gaming tokens, but crucially, the right ones. Which is why we’ll be coming to you later with an article from our main man, Hustlepedia, outlining the six top projects he’s keeping an eye on.