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P2E is not sustainable, how to find the next Axie Infinity?

“Even if the blockchain is not invented, I still think the game market will have breakthrough growth in the next ten years.”

Speaking from Maslow’s demand hierarchy theory

In the Maslow Human Needs Model Pyramid (Maslow’s Hierarchy of Needs Theory), at the bottom are human physiological needs and safety needs. The upper-level needs are the needs of emotion and belonging, the needs of respect, the needs of knowledge, the needs of aesthetics, and the needs of self-realization. And the game industry is essentially about the consumption of the superstructure, which has its presence in different stages of upper-level demand.

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In the game, these upper-level needs are constantly being met. For example, the first guild that appeared in “World of Warcraft” fully embodies the player’s strong desire for emotion and belonging. “Glory of the King” consumes billions of skin every year, which also reflects the need for respect and aesthetics. And the “suffering” games like “Dark Soul” and “Sekiro” satisfy the need for knowledge and self-realization to the utmost.

Looking at the development of human civilization, we are now at a very special turning point.

If you randomly select a few historical years, and then cut a cross-section of the entire population structure, we will see that the vast majority of the population is running for physiological and safety needs, and a very small number of powerful elites are at the upper level of the pyramid. Get more spiritual needs . And this ratio has remained unchanged. Yuval Noah Harari, the author of “A Brief History of Mankind,” mentioned that we are moving from a society with scarce productivity to a society with excess productivity. With the rapid development of industrial civilization, the subversion of production relations by the information revolution and the blockchain revolution, and the overflow of human productivity, we believe that this cross-sectional ratio will undergo a major adjustment for the first time. In the entire population ratio, more and more people will truly escape poverty and begin to move to the top of the pyramid. More and more people will no longer be trapped in the problem of food and clothing every day, but will seek spiritual consumption. Where will they go? Culture, art, all fields are great, there is a place to comfort the soul. But the most efficient and fast destination that satisfies the soul must be the game.

Why are we optimistic about chain games?

Chain gaming is essentially a bottom-up revolution in production relations.

As we all know, today’s Web 2.0 world is increasingly inefficient and monopolistic. In particular, the natural economies of scale of the Internet are destined to become infinitely monopolistic. This is true for social media, and so is the gaming industry. Under the monopoly, the average customer acquisition cost of a game has soared from one or two yuan to one or two hundred yuan within a few years. Both game producers and game consumers are being mercilessly exploited. High-quality independent game developers have no hope of breaking the circle, and countless players have also been fed an unnutritious “game experience.” The only beneficiaries are those staking platforms. a16z also once said, “Your success is my chance.” The success of the Web3.0 game Axie Infinity is the prologue for the people at the bottom to kick off the Web2.0 giants.

In traditional games, developers and players have a mutually dependent but mutually antagonistic relationship. Interdependence is because developers need players, and players also need developers; and mutual opposition is because developers want to cut leeks (continuously sell stronger equipment and dilute the player’s wealth), and players want white prostitution. In chain games, NFT ownership and token economy have largely solved this problem. Players have become the owners of the game in the true sense. For the first time, players and developers are in the same camp. This alignment of bilateral interests may be able to unleash the true potential of chain games.

What is the current stage of the chain gaming industry?

Although we are extremely optimistic about the future of chain games, the current development of chain games has just started, chaotic, and a long way to go. We believe that the development of chain games will go through three stages.

The first stage: carnival

We are now in the first stage.

In addition to the natural anti-monopoly attributes of blockchain games, the super-high topicality and liquidity also make it itself an object of capital pursuit. When high liquidity first appeared, speculators and speculators quickly became the first revelers. Just like the Chinese stock market in the early 1990s, speculators boiled early before value investors entered the market. According to unofficial statistics, there are currently about 700,000 real active players in Web3 (data source: MixMarval), and the number of speculators can be imagined. There are actually not as many real players (the real demand side) as we think. However, the demand-side profile determines what kind of producers will be selected by the market. Therefore, simple and rude Ponzi mine tours like CryptoMines and BinaryX ran ahead and attracted everyone’s attention. The essence of pledge income in DeFi is to provide liquidity for DEX, and a large number of chain games start to provide amazing pledge income when even DEX is absent, which is obviously illogical.

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The second stage: Shattered

Mining tourism will still be sought after by capital, and the bubble will get bigger and bigger, and then it will eventually burst one day. Perhaps the slp income will fall below the average salary of the Philippines (as of press time, there have been reports that the daily income of ordinary Axie Infinity players has fallen below the Philippine minimum wage), maybe a billion-dollar mining tour will be cleared in a few days zero. The market will fall into panic, and speculators will flee in embarrassment, leaving behind a piece of rubble.

At this stage, the mining tour will die violently, and the liquidity escape may be faster than imagined. On the contrary, those teams that stick to themselves, uphold principles, and work hard in the carnival phase will experience minimal losses. For example, free to play games like Sky Weaver and EdenBrawl will continue to absorb real users (players) and grow steadily.

The third stage: Nirvana

In fact, only when the bubble bursts can real value investors, creators, and users really participate. To some extent, we expect a retracement. Because this will be the best baptism and training for revolutionaries. The Axie Infinity team started to establish the project in 18 years. They have experienced countless failures and blows, and they have risen step by step from the ruins of the bear market. Sky Mavis is also a team that can withstand risks, can withstand loneliness, and truly have ideals. On the other hand, many projects nowadays can earn huge profits with countless fans through a single white paper. We are highly skeptical that such a team can still survive after the big waves. The bear market will wash away the mediocrities and liars who lack determination, and will also leave behind the persevering revolutionaries.

At this stage, the economic model of chain games will also undergo structural changes, and its liquidity will also transition from a model that relies on the Ponzi mechanism to attract speculators (such as Cryptomines) to a gambling mechanism that attracts “gamblers” (such as BinaryX Card gambling, Fantasy Westward Journey, a favorite), and finally settled on attracting players from the game mechanics (such as a series of non-investment paid content such as the King of Glory skin).

Is Play to Earn sustainable?

It is impossible not to talk about P2E (Play to Earn) in chat. The core of P2E is similar to Didi’s early strategy of trading profits for market share, but its ingenuity lies in the introduction of financial and even Ponzi elements, so that companies do not need to burn their own money to buy volume, but to burn speculation. To buy the amount of the person’s money. P2E is a great marketing tool, but it is definitely not the core driving force for the rapid development of chain games.

There is such a fable:

An old man living alone enjoys his peaceful pastoral life very much. But one day, a group of children came to the old man’s backyard to play football. The noise of the children made the old man very unpleasant. So the old man came up with an idea. He ran to the children and said: I especially like you playing in my backyard. If you play for one hour every day, I will reward you with one dollar. The children were very excited and happily ran over to continue playing football every day. A week later, the old man told the children again, “Go ahead and play football, but I don’t want to pay you again.” The children left dejectedly, and never appeared in the old man’s backyard again.

Behind this story there is a psychological theory called over-justification effect (Over-Justification Effect), everyone is trying to make ourselves and other people’s behavior seems reasonable, therefore always looking for reasons for the behavior. Once enough reasons are found, people seldom continue to look for them, and when looking for reasons, they always look for obvious external reasons first. Therefore, if external reasons are sufficient to explain the behavior, people generally stop looking for internal reasons. This is how the old man cleverly used the effect of excessive reason.

Back to P2E, when players play games for financial gains, but one day their earnings will diminish (Axie’s earnings have been withdrawn significantly), even if the game itself is very interesting, will they be like those who originally loved to play football? Like his children, are leaving the field day by day?

Gameplay is incompatible with P2E to a certain extent, and P2E will greatly reduce the marginal effect of gameplay. Therefore, those projects that excessively fantasize about gameplay and play and earn money, are likely to face the dilemma that the transaction volume can’t exceed the mining game, and the user volume can’t compare with the traditional game.

From an economic point of view, P2E is clearly unsustainable. Axie’s P2E is based on the premise that new capital will enter the market quickly this summer and Axie is the only one. Looking forward to 2022, when the originally inadequate traffic is divided by thousands of chain games, and when the liquidity injection starts to slow down, most games will face Ponzi playing and unable to rise again, and the profit of thug mining will even reach Less than the infinite loop of average wages in the third world. In fact, many bubbles have disappeared unknowingly. For example, ArmzLegend, which became popular with the U-standard oracle, quickly failed to withstand the pressure after reaching its peak and quickly collapsed.

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It is worth mentioning that although Axie Infinity relies on Ponzi’s reproduction gameplay to take off quickly, after A16Z is reintroduced into the field, perhaps we will soon see a non-continuous qualitative change breakthrough. In the early days, Axie relied on subsidies from large households to attract users and establish IP. With the support of capital, perhaps soon, Axie will be able to break away from the logic of the barbaric growth of Ponzi, but truly capture the value created by the game itself through high-quality content and developer ecology.

What is our investment logic?

We believe that the three main contradictions in the current chain game industry are:

  1. It is difficult for real players to enter
  2. Gaming and Blockchain dual talents are scarce
  3. Lack of high-quality game content

According to incomplete statistics, the amount of purchases from the Web2 community is diverted to chain games, and the loss is extremely high. Registering a wallet, replacing legal currency, downloading games…Each step shuts out a large number of players. The funnel rate ultimately does not exceed 1 in 10,000. Such data can no longer be described as failing in the framework of Internet products, and it can be said to be a blank paper.

How to let Web2 players enter more chain games is our first investment theme/logic. At present, the guild with the theme of community and e-sports is a very good link. The guild provides players with assets and accounts, which greatly reduces the barriers to entry. At the same time, in the near future, DAO-based guilds may also develop into the largest traffic portal in the Web3 game industry.

The second thing we value is the developer ecology. The most imaginative part of Web3 is to transform more people into content exporters. How to empower developers and form a healthy and lasting creator economy is also a huge direction.

We need platforms and engines like Enjin, Ultra, Forte, MixMarvel to empower traditional game developers, help them understand blockchain technology, understand the design of the token system, and understand the architecture and rules of Web3. On the other hand, Sandbox and Decentraland also bring greater imagination. Those heavy game enthusiasts who do not understand programming may also become key builders of the game ecology in the future.

We believe that those teams who really love games and understand the historical significance of blockchain games will stay. The games they make will be epic. Liquidity entrance will also shift from Ponzi chase to gambling and game content consumption. Maybe the market is not mature enough now, but we will also support high-quality works like Illuvium that are somewhat ahead of the times.

Although chaos is raging right now, we are sure that the chain game market in 2025 will be a trillion-level market.

What do you think?

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