NFTs Make the Internet Ownable, Games Make NFTs Usable

13 min readAug 20, 2021

Auther: WhiteForest, Partner of Foresight Ventures

NFTs Make the Internet Ownable

Almost anything can be minted as an NFT. This can be significant because it enables the permanent ownership rights of such items to be confirmed on the blockchain, which, as a public peer-to-peer ledger, allows people to store assets with value. Now with NFT that can represent real-world items, people can store various types of assets. As Jesse Walden (former partner of A16Z) said, “NFTs make the internet ownable”. NFT makes it possible for creators to retain the ownership of their works without limiting the distribution on the internet. Creators now can get incentives throughout the whole life cycle of selling and reselling, while customers who have bought the NFT can own an asset that is truly traceable and irrevocable. NFTs can also be traded in various marketplaces or through person-to-person transactions without asking for permission. That’s why I think NFT could disrupt the current ownership model of media products creators, audiences, and their developers, becoming a viable alternative for platform-based monetization.

Ownership right is the driver of creation. Private enterprises used to be dominated by a handful of people, putting employees and users in a less important position. Later, with the increasingly intensified market competition and the development of modern corporate systems, companies began to tie up the interests of employees with them through equity distribution. However, small shareholders still didn’t have a say in company governance, and the conflict of interests between users and the companies remained unsolved. Some monopolies even exploit the interest of users with the help of advanced technology of big data and Artificial Intelligence. To some extent, the emergence of DAO has disrupted the cumbersome structures of traditional companies, allowing each member to become a manager and contributor of the organization and further releasing their creativity.

Token is at the core of all ownership rights. Blockchain protocols endow users with governance rights through the distribution of tokens, turning users into owners. Such alignment of interest between founders and users brings about a strong chemical reaction.

Token Incentives Should not Take the Blame

Token issuance has mitigated the cold start-up problems of platform games. Many people doubt if the “Play to Earn” model can sustain because the token incentives have attracted users that are more interested in making money than playing games, which seems to be a deviation from the aspiration of game development. This has aroused concerns regarding whether players will stay active when revenues decline. But I think there is nothing wrong with mechanism of incentivizing users with tokens, as it is natural to pay people for their work. From blockchain platforms like Bitcoin, Ethereum to implementation protocols like SushiSwap and Rarible, the approach of token incentives, though greeted with skepticism, have fueled significant growth in users base and become popular due to their attractive products. It is especially useful for small game companies who have excellent ideas but lack sufficient marketing funds and channels to compete against dominant industry giants. In a market with Sony, Tencent, Blizzard, EA and others remaining on the top for ten years, token incentives enable these long-tail developers to attract users, solve the difficulty of financing at early stages and reveal their talents. This is precisely the goal pursued by blockchain.

Source: duneanalytics.com

Pure profit-oriented players of gold farming studios may harm the gaming experience. Yet, a successful game will ultimately choose and retain its preferred players to achieve a balance between gameplay and profitability.

Possession of Virtual Assets Becomes a Symbol of Identity

Human beings are extremely social creatures who have an innate desire to belong to a particular community. In tribal civilization, it was difficult for a person to hunt and live alone. One good way to be admitted into a group is to show your valuable assets as a symbol of identity. This tendency remains though thousands of years have passed. Just like the two cars in the following picture, though the one on the left is more fuel-efficient, more spacious, and cheaper (availability), people still prefer to buy the car on the right whenever possible to show their social status. This is because such items are rarer or simply more expensive.

Let’s take a look at the following data：

On June 28, 2021, the research institute Strategy Analytics released a report stating that half of the world’s population owns a smartphone, which is about 4 billion people.
According to IDC data, global wearable device shipments reached 400 million units in 2020.
statista estimates that global shipments of AR/VR devices in 2020 will be 5.5 million units.
The total number of users of opensea, the world’s largest NFT trading platform, exceeds 200,000.

We can see that this is in line with a pyramid-shaped social structure based on scarcity.

Source: duneanalytics.com

In the past month, opensea has become the most profitable protocol that has burnt the largest amounts of ETH on the eth chain. NTFs represented by CryptoPunks continue to set new pricing records, with rich people willing to spend $4 million on an avatar. Even back in June 18, An NFT of a set of land in virtual world Decentraland has sold for a record-breaking $913,808 worth of MANA, the game’s native token. Collecting is a habit established when we were hunter-gatherers (people who gather the most nuts will have higher chances to survive). According to some psychologists, the behavior can help us connect with something bigger than us. NFT is the only type of digital assets that one can truly own and it allows people across the globe to asset their identity through acquiring rare and expensive assets.

Therefore, we have reason to believe that virtual assets will replace luxuries to become a symbol of power and identity for players.

Source: nonfungible.com

Blockchain Can Extend the Life Cycle of Games

According to informal statistics, the average life cycle lasts 3–5 years for terminal, 6 months-3 years for mobile games, and 3–5 months for web games. Compared with other formats of the Internet, the life cycle of games is known to be short. This is due to the high competitiveness, quick updates and the players’ demand for freshness. The high turnover of blockchain-based game projects makes people worried that the life of the chain game will be more fragile. The DAU of CryptoKitties, the originator of blockchain games, remains around 100 all year round, while the DAU of the famous sandbox game The Sandbox remains around 50. In stark contrast to the bleak number of players, the land sales in The Sandbox game are hot and continue to hit new sales highs. On July 4, a piece of virtual land in The Sandbox was sold for US$874,000.

Source: dappradar.com

In my view, the stronger vitality of blockchain-based games can be attributed to the following factors:

Assets are hosted on the blockchain and are owned by users.
The creation of assets is efficient, low-carbon and cost-saving.
The smart contracts will operate permanently. Users don’t have to worry about unexpected shutdowns of game publishers, and the value of their assets could be maintained.
Self-governance. Users who hold tokens can participate in the governance of the games and share their profits. The Sandbox encourages creators to create voxel assets and sell them as NFTs. They could also profit by creating games in metaverse, or buying virtual real estate and building anything they like on the land to accrue value.
Developers can benefit from tokens. With funds raised through token issuance, they can focus on long-term creation instead of making compromises just for revenues.
Self-sufficient economy. As the blockchain can be used for token issuance, settlement and value storage, games can use it to build a world almost identical to metaverse, providing an economic circulation system that is more self-sufficient than traditional games.

Players have become accustomed to spending dozens of dollars on a piece of equipment or skin to enhance the gaming experience. If these assets are permanently stored on the chain, and the game will never shut down the service, players will be happy to pay more to buy this “permanent” ownership.

Most games now only use blockchain for settlement due to its limited throughput, but larger game projects already operate on Dfinity. With the improvement of blockchain performance, I believe more and more games will be deployed on the blockchain.

Metaverse Cannot Do Without Blockchain

Because of the above characteristics of blockchain-based games, I believe blockchain is a vital infrastructure for Metaverse. Even with powerful image AI technology, NVIDIA can only provide tools rather than a host platform. On the one hand, users do not want the Metaverse, where they build their entire virtual worlds, to be in the hands of private companies. On the other hand, it is difficult for private companies to outlive blockchain.

Source: NVIDIA

Games Make NFTs Usable

In the article 《Play-to-Earn is the next Liquidity Mining, is Axie Infinity overrated? | by Foresight Ventures | Jul, 2021 | Medium 》, We introduced how Axie Infinity has made Play to Earn popular, allowing Philippine users to earn $500 a month through gaming. This model also inspired a brand new industry — Game Farming. Many gold farmers including Yield Guild flocked to this farm. We often joked that NFTs are jpg because most NFTs have no utility value at all. However, NFTs could play a functional role in games.

let’s look at the five categories of the NFTs:

Collectibles: Story oriented or collectible NFTs with little to no utility, such as NBA Top Shot
Game assets: assets that can be used in games, such as AXIEs
Virtual land: virtual platforms that can be developed in the meta universe, such as Decentraland, Sandbox.
Crypto arts: artworks marked and confirmed of its ownership rights on the Chain, such as Beeple — EVERYDAY: THE FIRST 5000 DAYS
Others: domain names, property titles, insurance, etc.

The characteristics of NFTs are story-oriented (meme), collectability, rarity, usability, sociability.

We can see that game assets have increased usability compared to collectibles and crypto art.

I have always believed that the mainstream of NFTs should not be limited to collectibles. What kind of assets will facilitate the massive adoption of NFTs? I thought about on-chain physical assets, ownership right confirmation, but I never found the real catalyst for the industry. The success of Axie Infinity and other similar game models came earlier than I expected, and it is a remarkable transformation.

Games make NFTs usable by turning them into mining machines and landlords. In a sound gaming world, NTF holders can not only enjoy the value increase within the ecosystem but also get token incentives by playing games.

The “play-to-earn” model has opened a new chapter. By mining NFTs, it could create a huge amount of assets and values. In the next few years, we will witness a NFT farming operation comparable to Bitcoin mining in terms of size and potential revenues. NFT mining will be powered by people in lower-income countries, changing their income structures. It is also foreseeable that “play-to-earn” will develop from small-scale farming to intensive farming.

Phase I: Proof of Work

Most players are individual gold farmers. Small-size guilds begin to emerge, and the gold farming mainly relies on manpower.

Phase II: Proof of Team Work

Guilds would make higher profits, narrowing the space for individuals, because they can utilize more funds and come up with more effective strategies based on collective wisdom and professional experience. With a large volume of NTFs and accounts, they can establish the best battle teams with advanced players to rank higher in the ladder competition by manipulating results. Take Axie Infinity as an example, the champion can get a reward of approximately $400,000.

Phase III: Proof of AI

AI algorithm will replace human players at this stage. Guilds will eventually become a large-scale computer cluster. There will be professional mining rigs similar to our current BTC mining pools. The entry investment for game guilds would reach millions of dollars.

You may be worried by such evolution: if AI algorithms dominate most game players, will it still be the game we want? Well, we have already seen a large-scale competition between man and machines in the real world — Millions of textile workers have lost their jobs to production lines and drivers are soon to be replaced by autonomous cars. The advancement of our world is unstoppable. We can not push a pause button just because we are at the weak side. When a game evolves into a metaverse, it will no longer be a game in the traditional sense. The vast number of participants and the value they created will be sufficient enough to support its normal economic circulation.

Mainstream mode of Play to Earn

Breeding

This is the typical mode used by Axie Infinity.

Cost: 1. Consume ETH to buy Axie; 2. Consume AXS and SLP to reproduce Axie.
Revenue: Sell Axie eggs or mature Axie to get income.

Source: Axie Infinity

Battle

Players can obtain ERC20 token rewards through battle. Take Axie Infinity for example:

Battle rewards can be earned in two ways: 1. get SLP rewards for completing daily tasks; 2. Top300 players in the quarterly rankings will receive AXS rewards.

Source: Axie Infinity

Tradable Cards

Players can obtain tradable card NFTs and sell them for profits.

Take skyweaver as an example:

Rankings: Top players on the quarterly rankings can receive cards as rewards.

Battle: In the PVP mode, players can get one tradable silver card for each win and a tradable gold card for three wins.

Source: Skyweaver

Guild profit sharing

Players who own a venue or guild can share the commissions fees for using the venue or share the profits of guild players.

In Derace, for example, racecourse owners can share the profits of racing fees and bets.

In Guild of Guardians, players owning different levels of guilds can get proportionate shares of sales profits.

Source: Guild of Guardians

Resources Mining

Land owners can get part of the resources mined on the land.

In League of kingdoms, for example, players can purchase land NFTs. Each land owner can then get a proportionate output of resources, which could be sold as NFTs in the market. The higher the level of land development, the higher the return for the owner.

Source: League of kingdoms

Gamble

By betting against the counterparty, the winner will get all the assets of the other player or the betting rewards.

Take Derace as an example. Horse racing players need to pay for the ticket and betting, which will eventually go to the winner.

Source: DeRace

The Lego World of NFT Has Just Begun

The programmability of tokens and the composability of smart contracts, have allowed the DeFi world to build a large Lego world with huge liquidity and benefits. As a programmable token, NFT has a potential that goes far beyond its current transaction size.

The famous NFTs artwork Hashmasks has already had a partnership with Terra Virtua for some exclusive NFTs. Now they have acquired or will acquire virtual land in four different digital worlds: The Sandbox, Cryptovoxels, Somnium Space and Decentraland. On these lands, they will create community events, expositions, and museums. The Hashmasks team will also commission the development of a video game based on the Hashmasks network.

Source: Hashmasks

Fluf World sold on August 8 is designed for more usability. Players who bid successfully for a FLUF will get a 3D Bunny animation with background music. More upcoming interesting features of NFTs include:

Players will be able to design background stories;
Create voxel FLUF in metaverse;
Add reproductive function;
Introduce FLUF into different games;
Invite artists to create theme songs;
Add the stake function;
Create physical FLUF etc.

These designs have enhanced the usability of NFT and created a “promise effect.” More functional NFTs will accrue value faster because they expect more from the assets, while artwork NFTs with little to no functionality will accrue value slower because people usually have no expectations other than its artistic value.

(Conversely, because art does not have a “promise effect”, its price could increase faster)

Source: Fluf World

The New Era of GamFi

The global sales of artworks are basically stable at around 60 billion U.S. dollars with a slow growth rate, while the total value of global games has reached 180 billion U.S. dollars, much larger than the former. This is because the value of artwork mainly increases in the resale process, with only a small portion going to the platform. In contrast, the cost of creating game assets on game development platforms is very low, with much value captured by the platform.

The market capitalization of the AXS now stands at $4.1 billion, much larger than the total market capitalization of TOP2-TOP5 projects combined (less than $1.5 billion), showing a lack of big projects. If we look at the traditional game market, we may find it can accommodate hundreds of different games, and they can iterate quickly without any Matthew effect. There is also less competition over users between different games because users can play several games and pay for each of them. Therefore, the market structure of GameFi will be very different from that of DeFi in that it will have a much higher capacity for absorbing investment.

As an institution that has invested more than a dozen traditional game companies, Foresight Ventures will definitely hold heavy positions on GameFi!