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Exploring the Thriving Crypto Gaming Ecosystem: From Traditional Giants to Fully On-Chain Worlds

Although gaming currently isn't in the spotlight, it remains the fastest-growing entertainment industry when compared to music and film, boasting a global compound annual growth rate (CAGR) of 13.4%. Notably, prominent studios like Rockstar Games and EA have shown an interest in incorporating blockchain technology into their new releases. If GTA6 were to embrace blockchain technology, given the sales figures of its predecessor, this could potentially attract around 185 million players tapping into the on-chain world. 

Additionally, the Echelon Prime Foundation has already demonstrated with their inaugural title, Parallel TCG, that studios rooted in Web3 can produce impressive games. While Parallel TCG is still relatively new, it has generated considerable excitement among players. Many gamers are also eagerly anticipating the launch of Iluvium, among other titles. 


The crypto gaming ecosystem encompasses a broad spectrum, roughly categorized into three types of games: 


1. Web 2.0 Games: These games have their game logic entirely off-chain and rather seek to incorporate NFTs and cryptocurrencies as well as stablecoins for in-game items, but without making them interoperable with other on-chain ecosystems. This category often includes speculations around traditional gaming studios such as EA or Rockstar which are toying with the step of bringing assets on-chain.

2. Web 2.5 Games: These games feature a hybrid off-chain/on-chain logic and on-chain infrastructure. They typically have an on-chain economic infrastructure mostly for their in-game assets which can interact with the wider crypto environment, while the game logic itself remains off-chain. Examples of such games include Illuvium and Parallel TCG.

3. Web 3.0 Games: Games in this category are fully on-chain Autonomous Worlds (AWs) where the entire game logic, state, and economy are on-chain. They also allow other developers to construct ecosystems for their games from the ground up. 


While we recognize Product-Market Fit in the realm of 2.0 and 2.5 games within the crypto space, our current focus is primarily on bottom-up 3.0 solutions. We see the present moment as pivotal for the advancement of Fully On-Chain Games (FOGs) following their initial experimental phases. Notable among these is Dark Forest, a pioneer in the space, offering an "incomplete information" strategy game that leverages zkSNARKs to secure information and hosts its game logic on-chain.  

Another noteworthy example is Loot, initiated by Dhof, also the founder of Vine. Loot NFTs were conceived as the foundational IP upon which developers could build and expand. This initiative has given rise to various derivatives, an ecosystem currency, and games like HyperLoot and the Loot Chain.

Emerging players in the market, such as Lattice with Mud, Dojo, Argus, Arc, or Playmint, provide engine frameworks for composable games. Their primary challenge lies in enhancing their tick rates, as this dictates the frequency with which the game's state can be updated and consequently the types of games that can be developed within these ecosystems. The finality of the underlying chain and the capacity to include information in a single transaction are among the most critical attributes, as they determine the pace of game updates. Similar to what we've seen in state machine infrastructure, different technical approaches will enable diverse new applications. 

Each game engine operates atop its own or an external settlement layer in the form of an L1/2/3 where the game engine is deployed. Additionally, there are niche tooling services and FOGs/AWs, which can originate from within the ecosystem or be developed by third parties. FOGs and AWs align closely with the overarching trend of increased user-generated content (UGC), akin to games like Fortnite, Roblox, or Minecraft, as well as platforms like YouTube. In this context, FOGs have the potential to foster a greater sense of ownership and belonging through user-generated worlds while mitigating platform risk through their permissionless deployment and censorship resistance inherent in the underlying architecture. 


A glimpse of what we are most excited about: 


Games/AWs Utilizing MUD, Dojo, Arc, Playmint, or Argus: 

Several engine frameworks are currently in development, yet the availability of FOGs or AWs compatible with these frameworks remains scarce. We hold a keen interest in innovative games that skillfully leverage the unique technical trade-offs presented by each engine, while also aligning seamlessly with the ethos of the ecosystem. 


Marketplaces for FOG Items: 

Marketplaces possess robust network effects, but we maintain the belief that current incumbents of NFT marketplaces’ (such as OpenSea) user experience fall short of meeting the gaming sector's needs. We envision a marketplace specifically dedicated to FOG stacks, catering to the distinctive requirements of this niche. 


Prediction Markets for Esports: 

While the previous two topics centered on FOGs, prediction markets for esports cast a broader net. We recognize the potential in prediction markets for gaming, which exhibit a level of PMF comparable to that of conventional sports markets. Consequently, we express keen interest in prediction markets that revolve around esports events, at least for the time being. 


The reading above provides just a taste of what currently excites us the most. But that doesn't mean we're not open to other sectors and venture ideas. If you're building something in this particular sector that you are extremely passionate about, don't hesitate to apply. We can’t wait to hear from you! 

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