Joining the GameFi craze! Play-to-earn game guild Yield Guild Games (YGG), how to create profits using DAO?

This article is authorized and reproduced from ChainNews, with the original title "The Beautiful Business Model of 'Play-to-Earn' Guild YGG, What Value Does It Actually Have?" For more information about YGG, please visit the link.

• Author: Marc Weinstein, Mechanism Capital
• Translator: Perry Wang

Yield Guild Games (YGG) is a decentralized autonomous organization (DAO) composed of tens of thousands and growing numbers of gamers who utilize non-fungible tokens (NFTs) in "Play-to-Earn" games to generate real cash flow.

The DAO aims to earn game assets and in-game assets by investing in "Play-to-Earn" games, sponsoring millions of "Play-to-Earn" gamers, and creating tools that will enhance the future of the Metaverse game to establish the world's largest virtual economy. YGG optimizes the assets owned by its community for maximum utility and shares the profits of these assets with its token holders. Participants in this DAO will be the owners and managers of the entire YGG Network ecosystem.

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The DAO was co-founded in 2020 by Gabby Dizon (CEO), Beryl Li (CFO), and "anon, Owl of Moistness" (CTO).

Great Teams are the Core!

During the ICO boom from 2017 to 2018, I met Gabby Dizon, the current CEO of YGG, for the first time on a trip to Asia.

Gabby is a veteran in the gaming industry with nearly 18 years of experience in mobile game development studios. He founded the mobile game studio Altitude Games, focusing on building a bridge between the gaming industry and the blockchain world through games like Battle Racers.

Gabby has become my go-to contact for all blockchain gaming-related investments, and he provided significant help when I was researching and writing research articles on NFTs in the metaverse.

While many founders gave up during the long bear market, Gabby remained committed to his mission of building and exploring blockchain-based games.

After realizing the transformative potential of "play-to-earn" games in changing people's lives, Gabby decided to establish YGG (more details will be provided later).

Through our due diligence on YGG, I began to understand the huge potential of the "play-to-earn" game model and why I believe it will be the future of gaming and work in the metaverse.

So, what is "play-to-earn"? Why will YGG benefit the most from this phenomenal opportunity?

To understand "play-to-earn," we first need to understand NFTs and the future of the gaming industry in the metaverse.

NFT: Digital Property in the Metaverse

Articles about the metaverse are abundant. If you haven't seen them yet, I recommend checking out works by Matthew Ball and Piers Kicks on this topic (I borrowed many of their ideas here).

Today, most of our waking hours as ordinary people are spent in the digital world—whether it's chatting on apps like Telegram or Discord, watching videos on YouTube or Twitch, video conferencing on Zoom, or playing games on platforms like Fortnite and Roblox. Our attention is undeniably shifting from the physical world to the virtual world. Although it may not look and feel exactly like the futuristic world portrayed in movies like "Ready Player One," we are on our way there.

People spend nearly 7 hours online each day, and money tends to flow to where people's attention is focused. This is why the virtual goods market grew to about $50 billion in 2021 and is expected to continue this momentum, reaching a massive $190 billion by 2025.

It is well known that cryptocurrencies introduced a digital property open standard called NFTs. By introducing provable scarcity and provenance to digital goods, NFTs power the engine of digital property and are reshaping the internet. NFT sales in the first half of 2021 surpassed $2.5 billion.

Today, most of the attention on NFTs is focused on digital collectibles like NBA Top Shots, digital art like Beeple's "The First 5,000 Days," or even the first NFT music album sold by American DJ 3LAU for $11.5 million. These represent significant markets, but they are just the tip of the iceberg.

Personally, I believe the killer use case for NFTs will be generating in-game assets with real cash flow in the virtual world; these virtual goods have genuine utility and profit potential that can easily transfer throughout the metaverse.

While the phenomenon of owning and trading in-game items existed even before NFTs, most transactions were limited to isolated markets by game developers or conducted in grey markets. The key distinction with NFTs is their interoperability across many virtual worlds and their ability to introduce new game mechanics.

For example, in the game Axie Infinity, NFT holders can buy and breed creatures called Axies (similar to cute characters in the Pokemon series) to compete for rewards that can be used in the game or exchanged for money outside the game. In Zed Run, you can buy and breed virtual horses and then race them for money. The list of such games is continuously expanding.

Ownership of digital assets with cash flow in the virtual world is an empowering use case that is beginning to redefine "work" and make high-paying "jobs" in the virtual world more accessible; these jobs are becoming more and more like games. In a world where capital has greater profit potential due to free cross-border flow, while labor has higher returns in the virtual world because "work" there is more fluid and has a much lower barrier to entry.

"Playing Games to Make a Living" Becomes a Trend

The absolute number of global gamers and the percentage of the global population who are gamers are rapidly increasing, with nearly 5 billion gamers worldwide. If you use the internet, you are likely a gamer.

This has led to the professionalization of esports in the gaming industry, which has seen explosive growth in recent years. The esports industry generated nearly $10 billion in revenue in 2020 (despite the cancellation of major tournaments due to the COVID-19 pandemic), and it is expected to grow to $16 billion in the next five years. The world's most valuable esports team, TSM, is valued at nearly $410 million. This seems promising for a group of gamers.

However, most of the revenue for esports teams is related to tournament prize money, sponsorships, and advertising revenue from user-generated content. The industry suffered significant losses last year due to the pandemic-related cancellation of major tournaments. For large esports teams, there isn't much revenue to be made from the games themselves.

While existing free-to-play games generate significant revenue, that income does not flow back to the players. For players to earn money, most revenue opportunities come from grey or unauthorized markets. The majority of revenue-generating opportunities in games are limited to professionals.

In the future metaverse, most jobs will look like playing games. "Play-to-earn" games built on NFTs are the beginning of this transformation, where all gamers can make a living in the virtual world.

"Play-to-Earn" Games Enter the Scene

The "play-to-earn" model disrupts the free-to-play game ecosystem. While players usually need to invest money to start playing "play-to-earn" games, they earn rewards in the game that can be sold for real-world value, including ownership and governance of the game itself. "Play-to-earn" games do not require large IRL tournaments to earn prizes; they allow all players in the virtual world to earn substantial rewards.

Earning money through "play-to-earn" games differs from existing game models. Previously, in-game assets were isolated, and game companies tried their best to minimize unofficial sales in the "grey market." One example is the gold farming in World of Warcraft, an early form of money-making in games, but this type of activity benefits neither players nor the game—it is antisocial. The "play-to-earn" game mechanism aims to make this type of arbitrage activity pro-social and enhance the gaming experience.

Even the cryptocurrency market has not yet responded to the "play-to-earn" phenomenon. People are just starting to realize the power of playing games to earn money, as Axie Infinity recently surpassed 600,000 daily active users (DAU), even surpassing the peak DAU of World of Warcraft. The average revenue per user (ARPU) has exceeded $100, even several orders of magnitude higher than leading free-to-play games ARPU.

This ARPU data is calculated based on the token prices of Love Potions (SLP) and Axie Infinity Shards (AXS) as of today (July 26, 2021). The beauty of "play-to-earn" is that as the game performance improves, the value of these rewards can continue to increase. This creates a virtuous cycle where players benefit from the growth of the game they play.

"Play-to-Earn" Can Change Lives

Personally, I believe "play-to-earn" is an alternative way to earn basic income: in the future, people from all walks of life can make a living by playing video games.

Gabby is the person who showed me this possibility. After realizing the potential to change people's lives, he founded the gaming guild YGG.

When the COVID-19 pandemic devastated the Philippines, with an unemployment rate exceeding 40%, Gabby taught many of his friends and family how to play Axie Infinity at home. As a result, they were able to earn substantial income just by playing games.

All of this is highlighted in a recent documentary commissioned by YGG, which explains the "play-to-earn" phenomenon, with contributions from the Delphi Digital team.

How Gaming Guilds Benefit from "Play-to-Earn"?

Imagine a DAO made up of tens of thousands of "play-to-earn" gamers, where each user earns ten times the income of regular players in every game they play. With the increasing number of "play-to-earn" games, this guild can bring in tens of millions of dollars in revenue solely from in-game earnings.

When I first learned about YGG, the guild had about 500 players. In less than half a year, the guild has grown to over 30,000 members. More importantly, over 10% of these players (about 3,600) are Axie Infinity scholarship players, increasing 20 times in the last 6 months.

Each YGG scholarship player receives NFTs loaned by YGG and is trained by community managers. In exchange for the loans and training, YGG takes 10% of the player's future game earnings (community managers receive 20% of the earnings, and players retain 70%). YGG scholarship players can earn 150–200 SLP per day (about $45 per day at current prices).

If scholarship players take weekends off, each player's potential annual income is $11,700, or $1,170 per year for YGG's treasury. At this rate, assuming the SLP price does not rise and the number of scholarship players does not increase, this could mean $3.8 million in annual revenue just in 2020.

If YGG continues to maintain this rapid growth of scholarship players, the guild can generate cash flow several times greater than its current revenue from the Axie scholarship program in the next 2 to 3 years.

Platform Risks – Tied to the Rise and Fall of Axie?

Currently, the growth of YGG's talent pool and scholarship players is highly correlated with the growth of Axie Infinity DAU. What would happen if Axie loses its current momentum? This is one of the most valuable elements of YGG and the fundamental reason we are so excited to invest in this project.

Gaming is a hit-driven industry, and the "power law" applies, making it a challenging task to pick winners. By investing in YGG, we can have early exposure to various games with a higher than average probability of success.

YGG is effectively building a robust social network of early gamers in "play-to-earn" games. With time and the right incentives, YGG can start guiding these players to new games in the metaverse.

Through collaborations and investments in ten "play-to-earn" games, YGG has already begun to see this logic in action.

YGG's selection criteria require that "play-to-earn" games have the following elements to be suitable for the DAO's choice:

1. Acquirable virtual land economy
2. Native token-based virtual economy
3. "Play-to-earn" functionality, where players earn native token rewards through in-game activities

The DAO can identify these games early based on the attractiveness and feedback from its player guild, allowing it to invest in the underlying network valuations. Assuming YGG invests an average of $50,000 in each game, with an average valuation of $15 million per game: even if nine out of ten games completely fail, as long as one reaches the level of success Axie has achieved, it represents an eight to nine-figure revenue opportunity for the guild, including investment returns and holding early "play-to-earn" game rewards in the game's subDAO.

YGG can not only discover games early but once discovered, the DAO becomes a highly targeted marketing engine for the new game, guiding players there and incentivizing them to play the game by offering $YGG token rewards. This "player liquidity" helps deploy new games in these virtual worlds, making the games more entertaining and increasing the likelihood of success.

Through this approach, YGG becomes one of the earliest strategic investors in the "play-to-earn" game industry. While games are hit-driven, we expect YGG's investment performance to surpass any industry fund, as the DAO can find winners early and then leverage its player base to "achieve" future winners.

Other Revenue Channels

As YGG has direct relationships with thousands of "play-to-earn" gamers, there are plenty of possibilities to test and activate incremental revenue streams.

For example, YGG already has elite teams for two games: Axie Infinity and F1 Delta Time, and will soon showcase their skills in more games' esports arenas. The guild is looking for an esports project manager in the market.

These esports teams have produced content that can generate advertising revenue for the guild. Sponsorships are also not far behind (someone has already called out SBF!), and user subscription information products are not lagging, explaining how to enhance your game-earning skills (different levels of $YGG token holders can access for free).

We can also foresee that in the future, YGG will become the core social layer built on the "play-to-earn" game ecosystem or create value-added products that enhance gameplay in other games.

As YGG continues to develop its core business in multiple games, new revenue sources and opportunities will undoubtedly emerge, and with mechanisms governed by YGG tokens, these revenues will flow back to the players.

$YGG Token

The YGG token acts as the glue that binds the YGG DAO together. It provides players with the right to participate in and steer the guild's direction. Anyone holding a YGG token can participate in DAO governance proportionally to their share in the token supply.

Additionally, the YGG token can currently be used for the following purposes:

• Staking YGG to earn token rewards related to guild-wide activities
• Staking YGG to earn rewards related to specific activities
• Staking YGG to access exclusive content
• Staking YGG to participate in DAO voting and other activities
• Staking YGG to purchase exclusive merchandise
• Using YGG tokens to pay for services in the network

New use cases will inevitably follow. For example, as mentioned above, YGG token holders can stake in different vaults related to specific DAO activities. For instance, if YGG token holders are bullish on Axie breeding, they can allocate most of their tokens to a vault entirely derived from that activity. There will also be a super-vault that aggregates liquidity, holding passive positions for the entire DAO's activities.

The YGG token will also serve as an index for in-game NFTs and their earnings. The DAO has created an innovative subDAO model to give scalability to DAO activities. Each game has its subDAO (e.g., their existing YGGLOK subDAO). Each new game will come with a community lead from the primary DAO who is highly optimistic about the game and their holdings of the tokens and subDAO tokens. SubDAO token holders can vote on specific issues in the game. They can vote on development needs or raids, vote on land purchases within the game, and earn rewards for leveling up.

The revenue from subDAOs will flow back to the main YGG DAO. For YGG's current YGGLOK subDAO, the main DAO holds 56% of the subDAO token supply. With YGG expanding to dozens of games, this structure will bring a level of flexibility and scalability. The creators of subDAOs hope to participate through a YGG subDAO because they will have access to broader community resources and rewards that the main DAO must provide.

The YGG token will represent the optimal state of ownership economics. If a player community in a "play-to-earn" game participates in a new game, every participant in the new game will be valuable, and by segmenting into subDAOs specific to each game, the guild can expand into new virtual worlds and incentivize pro-social behavior among all players.