If you lead a games studio into an angel or VC funding round in 2021 (like I do), out of every 10 meetings you land, you will be asked to present your crypto-thesis in 8 of them, of which 2 will ask you to consider doing a token sale instead of an equity round, and at least 1 will tell you that they can’t move forward if your game is not NFT-centered, DAO-governed or otherwise blockchain-enabled.

It’s beginning to look like Christmas out there (literally and figuratively) for crypto-gaming startups: Gaming VCs are closing one crypto-focused fund after another, the same goes for generalist and even corporate funds. By conservative estimates, there should be around 650-700M€ in capital waiting to be deployed into web3-related entertainment startups – which is a huge opportunity for FinTech startup founders (existing and future) – think of all the services waiting to be created – wallets, exchanges, crypto-credit institutions, custodians, aggregators, P2P platforms, NFT issuers… all of which can emerge as B2C, B2B, or white label solutions.  

(In case your FinTech startup is considering to service the gaming industry or wondering what can you offer them, the analysis below will be a useful insight, after which you should sign up for Yana’s workshop; How to Launch White Label Solutions in FinTech! Do it right away (seriously!) because otherwise, you are just leaving money on the table!)

On paper, this is a romantic encounter of two industries (FinTech and Gaming) on the verge of making their wildest, business-erotic dreams come true:

1. The video-games industry is historically at the forefront of spreading innovative business models: 
   
   – Games have convinced millions of ordinary people to pay monthly subscription fees for essentially software products as early as 2004
   – Video games have familiarized players with the notion of an intangible, virtual asset well before the BTC whitepaper was published (in centralized form, though)
   – Gaming has popularized in-app purchases and provided a prime use case for cloud- and edge-computing
   – And now, the long-unattainable holy grail for game studios and publishers – the possibility of helping ordinary players (not just e-athletes) earn money based on their dedication and skill, without them illegally selling their accounts on black markets.
   
2. As I write this, about half of the Earth’s population are consumers of video games. This means that the web3 business community may have finally found a reliable partner to propel crypto from a comparative niche of 100M users to over a billion – or more.
   – Like games, the crypto sphere is a decentralized, yet highly community- and reputation-driven environment.
   – Games are designed to be good at onboarding, hooking players, and keeping them engaged for a long-time. Game studios have gone as far as soliciting behavioral psychologists to help them improve their UX design and player retention. Think about that next time you are structuring a customer onboarding flow for your FinTech startup.
   – Finally – games provide a diverse, deep, and ever-expanding pool of possible user stories (and use cases!).

Ironically, just like in the movie “When Harry met Sally”, it has taken about 12 years for this couple to come to terms with the idea that they can be friends – and more – in public. But what they never show you in the cinema is the tough part that starts after the wedding and the “happily ever after” kiss. 

The story of Axie Infinity NFT story is a beautiful case study: Booking around 342M$ monthly revenue in August 2021 sounds awesome…until you lose 40% of it in September. If you dive deeper, you find out about depressing user retention figures because Axie attracted swathes of middle-to-low income players for whom it was more attractive to farm, breed, and sell virtual beasts for Ether was more attractive on a $ / hour ratio compared to their countries’ median wage. But because of Axie’s (poor) game tokenomics design, when the userbase exploded – the expected average player earnings fell. And when that happened, players started leaving – which is not the network effect you want when scaling a massively multiplayer game. The ultimate promise is still very appealing: Reversing the dynamic of from both “pay to play” or “pay to win” to “play to earn”. It’s just a question of time who will try it next and do it better.

Some technical difficulties persist, too: Game studios frequently want to be in charge of content, or at least the rules based on which user-generated content can be created – which might not sit well with crypto communities (will we see the emergence of DAO around game creation, soon?). And, blockchains are a technologically inferior and cost-ineffective way of storing game user data, or game algorithms, compared to cloud-based systems.

For blockchain games to truly work, there is an urgent need for a true arbitrage between the in-game use of tokens (say, NFTs of beasts in Axie Infinity) and their purely speculative, play-for-a-living use. If the brightest minds of the gaming industry don’t figure a way to solve that issue, they are likely to find regulators knocking on their doors, asking uncomfortable compliance questions around uncertain outcomes in games involving financial assets (=gambling!) or user addiction. A non-crypto precedent already exists around the sweeping ban of loot boxes in games in 4 jurisdictions (Belgium, Netherlands, Japan, China), with similar US and UK legislation making its way through parliamentary procedures. Many studios might simply not be equipped to handle such regulatory pressure, as of today. 

In the movie, Harry’s (misguided) problem with friendships between men and women was the sex part that got in the way. In the crypto-gaming relationship, the problem (or the opportunity?) between the two industries (FinTech and gaming) is that one is regulated and can therefore handle customer’s funds, but loss-making, and another one is hugely profitable and desperately needs rails for new user acquisition and monetization strategies, crypto being one of them.

My guesstimate is that we are still Day 0 for the sub-industry, and talented game designers will inevitably come up with excellent crypto use cases moving forward, making a compelling argument for a gameplay-first, not a FinTech-first approach.

Again, in case your FinTech startup is about to support the gaming industry or unsure what can you offer them safely, you should definitely sign up for Yana’s workshop on How to Launch White Label Solutions in FinTech. Do it!