Tag: DeFi

  • Yuga Labs vs Bungie – finding the Web3 delta

    Yuga Labs vs Bungie – finding the Web3 delta

    If the endgame for Yuga Labs (creators of the notorious Bored Ape Yacht Club) is essentially a Web3 videogame, and that does appear to be what signs point towards, it seems like an opportunity to examine the closest Web2 equivalent and see what can be learned.

    Bungie, who were acquired by Sony at a $3.6B valuation in February, seem like a reasonable comparison; not too far off Yuga’s $4B valuation from their Andreessen Horowitz-led raise in March.

    Bungie are responsible for building a few monster IPs. The most well known is Halo, established in 2001 and owned until 2010.

    Halo: Reach, their last title in the series – and not even their best seller, sold roughly 10 million units. However, while Halo helps illustrate the great legacy of Bungie, and the depth of their portfolio, it’s not that title that provides the interesting comparison. 

    Their more recent IP, Destiny, is a better example – as a ‘virtual world’ online role-playing game.

    Destiny 1 had around 30 million account holders. Destiny 2 has around 38 million, and the annual revenue from that title alone is estimated at $100-500 million.

    Yuga Labs has…

    • BAYC: 10,000
    • MAYC: 20,000
    • BAKC: 10,000
    • Otherland: 200,000

    That’s a theoretical maximum of 240 thousand account holders (people who own NFTs, though some may own multiple) producing a gross revenue of $138 million in 2021.

    You have to be incredibly bullish about Web3 to believe that Yuga Labs has earned a higher valuation than Bungie – based on those numbers. Or perhaps that Yuga is capable of doing something, thanks to NFTs, which Bungie is not?

    Where can we look for an answer to this? 

    Is it the fact that Yuga Labs is able to ‘leverage their Web3 brand’ to build a ‘transmedia IP’ spanning games, TV series and movies, etc?

    Unlikely. Bungie is also doing that with the Destiny IP.

    So what is it that drives the Yuga Labs valuation to such lofty heights, in such short a time? They have certainly yet to prove that they can provide value beyond their core audience of NFT holders. In fact, most of that value is stored in the theoretical value of those NFTs. 

    Beyond that, what is Yuga Labs offering? A wealth-gated community of crypto bros?

    I鈥檓 sure it鈥檚 a valuable network, and the events they host are wild, but does it indicate a scalable business model? Not so much.

    So is Otherside a virtual world designed exclusively for Yuga Lab’s community of NFT holders? Or is it for everyone? 

    If it鈥檚 for everyone they are competing on Bungie鈥檚 terms as a more traditional video game experience, and it seems like might struggle to be competitive there – even with the vast treasury.

    If it鈥檚 just for NFT holders, even if that pool grows in future, it isn鈥檛 clear how well that idea scales or what kind of further monetisation it will allow.

    Puzzling. 

  • Making the case for Web3

    The Web3 market seems to move in waves of enthusiasm. A surge of ideas and optimism, followed by a slowdown, and then the cynics and skeptics beat it back.

    This happened first in fintech, where blockchain cut its teeth on DLT and cryptocurrencies. Decentralisation would sink the banks, smart contracts would make regulation irrelevant, and crypto would displace fiat.

    Except it didn’t, it isn’t, and it wont.

    Fintech moved on from decentralised finance to embedded finance. The new unicorns on the block were utterly dull consumer lending propositions. Life returned to normal.

    Left in the sand, as the water washed back out, were a few companies who had figured out how to apply this technology to a real problem: cross-border transactions in low-infrastructure environments like Africa. Eversend, Kotani Pay, Chipper Cash, and AZA Finance are a few examples.

    To this day, those companies are my go-to example when someone asks that all-too-easy question: “So, what’s a real world application of blockchain technology which actually makes sense?”

    Fortunately, not many people ask me for a second example, because that seems tricky.

    Those companies were left on the retreating edge of the fintech wave, and we’re now deep in yet another wave with NFTs.

    Again the sand is starting to slip out beneath our feet.

    The question is, which way is the tide heading? Which companies will survive the cycle? What’s left when it’s over?

    the tide is coming in

    Provided more progress is made than is lost, as long as the surviving companies have more impact than the lost capital, we can say that the tide still appears to be coming in. The momentum will sustain, and there will be another wave – even if it’s a little slower, and goes a little less far.

    Anh-Tho Chuong Degroote thinks that the next place to look is infrastructure. The ‘AWS and Microsofts’ of Web3, the Polygons and Alechemys. These are, theoritically, the platforms which may make Web3 a more accessible and fruitful environment for future entrepreneurs.

    I suspect she’s right, but it’s a bit of a ‘double or nothing’ bet.

    Do we pump capital into infrastructure in the hope that it solves the issues holding Web3 back? Or do we just discover that there were no problems to be solved in the first place?

    Is Web3 a land of solutions in search of problems?

    Let’s presume that the next wave for Web3 is infrastructure. It would unfortunate timing for NFTs, which would have benefitted from the infrastructure existing, but also they’ve helped to spur a significant amount innovation and new capital.

    In the most likely scenario, we end this wave with a few well-funded technology companies who have made building and operating on blockchain technology much easier. That’s not a bad outcome, but I don’t think it’s going to drive much energy back into the market either.

    There’s still the sword of Damoclese hanging over Web 3.

    the tide goes out again

    The more you pay attention to this ecosystem through the lens of value for end users, the clearer the problem seems: It is the macrocosm of a startup which has neglected product-market fit in favour of building exciting technology. The pursuit of traction through features and performance, with the blind-refusal of nay-sayers and false prophets.

    Each new major advance produces that dopamine hit. Companies are born, funded, and die. Millions are made and lost. But each time, the water goes back out, and takes all but a few with it.

    The truth is simple: Web3 needs to make sure that the tide keeps rising, and the only way to do that is to look at the lasting success stories – and produce more of them. The companies with sustainable, growing revenue, who are building their audience outside of the Web3 tent.

    Those companies all have one thing in common: they have adequetely identified and addressed a real-world customer need. The promotion and sale of their solution had everything to do with the outcome for the user, and nothing to do with the underlying technology.

    Something to consider, when evaluating Web3 projects: if you strip out all mentions of the technology, does it still seem attractive? Does it solve a problem?

    Through answering this question more often, with better answers, the case can start to be made for Web3.

    Eliminate the hype.

    Lucrative ideas are not always good ideas.