Digital Economies, Gaming, and IP Legos

Web3, Composability, and Community-Driven Universes

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Hey Everyone đź‘‹ ,

In December, I’ll be doing a “State of the Union” for the creator economy, including a retrospective of how we got to this point and where we’re going in 2022. It’s an adapted and updated version of a teach-in I did at Index over the summer, and the format will be an hour-long video presentation. Let me know of any specific questions or topics you’d like me to include, and I’ll do my best to incorporate them!

Also, last week I launched the Digital Native Discord community. If you want to come hang out with ~400 internet friends, come join us!

With that, let’s dive into today’s piece on gaming, crypto, and the social web…

Digital Economies, Gaming, and IP Legos

Here’s a fact that might surprise you: Nintendo was founded the same year that Vincent Van Gogh painted Starry Night. Nintendo started out in 1889 making playing cards, and it was almost a century before the company launched into video games.

Nintendo’s move into gaming was mostly a reaction to the success of companies like Atari, a pioneer of arcade games and breakthrough titles like Pong. (Atari was also one of the first venture-backed companies in Silicon Valley.) Starting around 1980, Nintendo began rolling out iconic IP: Mario, Donkey Kong, Zelda, Pokémon. By 1990, a national survey had found that Mario was even more recognizable among American kids than Mickey Mouse (!).

The virtual worlds many of us occupied growing up looked something like this:

Nintendo continues to find success—last year, during the pandemic, Animal Crossing broke Nintendo’s first-year sales record with 31 million copies sold. Today, Nintendo is the 3rd-largest gaming company in the world, behind Sony and Tencent, with $12 billion in revenue.

An interesting question to ask is: what does the 21st-century Nintendo look like? And how does the next era of iconic IP take shape?

As games get more immersive, the lines blur between social and gaming. This isn’t new: as long as sandbox games have been around (games that give players lots of creative freedom), gaming has trended toward socialization, sometimes even losing gameplay altogether. Is it still gaming if you’re hanging out and trading fish in Animal Crossing? Is it gaming if you’re attending an Ariana Grande concert in Fortnite?

Even though 3.4 billion people play video games—and even though the industry is larger than the music, box office, and sports industries combined—gaming still gets a lot of eye-rolls. For many people, gaming conjures the image of a teenage boy isolated in his mom’s basement. The reality is that the average age of a U.S. gamer is 35; that close to half (45%) of gamers are women; and that gaming is deeply social.

As gaming becomes the on-ramp to digital worlds and crypto economies, this stigma will fade. We’ll stop thinking of gaming as games with an overt objective, and start thinking of gaming companies as 1) social networks, and 2) economies.

I’m going to tackle the present and future of gaming by looking at three major, interrelated shifts happening right now:

  1. Blockchain-Based Economies

  2. Modding and UGC

  3. IP Legos

As usual, I’ll try to blend Web2 and Web3—there are important elements of both here.

Let’s jump in.

Blockchain-Based Economies đź’°

Many of us grew up with Neopets. Neopets introduced us to internet forums, gave us our first digital currency (neopoints), and taught us to build in HTML. Over the summer, I argued that Neopets even paved the way for the metaverse.

You can think of Genopets as Neopets for Web3.

Genopets is a blockchain-based gaming project built on Solana and centered around digital pets called—you guessed it—Genopets. It’s one of the most fascinating projects out there.

Genopets is pioneering what’s called “move-to-earn” gaming, essentially integrating how active you are in the real world with play-to-earn economics so you can earn crypto in the game. Your activity—captured through a wearable device like a Fitbit or Oura—earns you QI, the in-game currency. You can then use QI to buy food and clothes for your Genopet. In probably the most out-there element to the game (and the most controversial), your health data is anonymized and sent to medical researchers to aid in their research.

Like many blockchain gaming projects, Genopets has a robust digital economy. You can read the full whitepaper here. Essentially, Genopets uses its utility token (QI) to underpin commerce and gameplay, and its governance token (GENE) to underpin voting on in-game decisions and access to premium features. Genopets also has NFTs, both consumable (e.g., food) and non-consumable (e.g., houses, clothes).

One of the coolest aspects of Genopets is that it’s designed to be accessible to everyone: you don’t need knowledge of blockchain or wallets or fungibility to participate. Anyone can enjoy the game. Abstracting complexity is how crypto goes mainstream.

Another company building for everyone is Faraway, the maker of Mini Royale Nations (whitepaper here). Faraway’s first iteration is Mini Royale, a first-person shooter game designed around competitive PvP (player vs. player) gameplay. You can play it here. Like many blockchain games, Mini Royale lives in the browser, which helps it avoid platform risk stemming from its crypto elements. (Steam, for instance, has already banned NFTs.)

Mini Royale has no crypto elements (yet), but will layer on a complex digital economy that lives both on-chain and off-chain. The game will have a utility token (CHEDDAR) and a governance token (ROYALE) but importantly, many digital assets will live off-chain. This makes it easier to onboard users who don’t have a Web3 wallet.

One of the key gameplay pillars is “Access for All”, ensuring that the game is playable and fun with or without crypto:

Last month, I wrote about Axie Infinity’s economy and how the complexity of digital economies is deeply underrated. We’re seeing that now: Axie’s economy has an inflation problem (much like our real-world economy!), as more players are cashing out than are putting money into the game. With such nuanced economies, it’s easy for things to quickly fall out of whack.

Many blockchain games have advanced economies and weak gameplay, or go crypto ➡️ gameplay rather than in the other direction. What’s unique about Faraway is that it focuses as much on its gameplay as on its economy. Faraway’s team, made up of gaming veterans, is being thoughtful about layering on both. Mythical Games, also led by experienced gaming operators, is following a similar track: Mythical’s Blankos Block Party has a non-crypto in-game currency and is accessible to all users.

Gaming will onboard millions of people to vibrant, cryptonative economies, with tokens orchestrating robust virtual worlds and incentivizing shared value creation. The breakthrough moment hasn’t happened yet, but it’s coming. That breakthrough will rely deeply on user-generated content and a community of creators, which brings us to…

Modding and UGC 🔨

“Modding” in gaming stands for modification: modding is when a player of a game changes some aspect of the game. A player could change something small, like tweaking their avatar, or a player could overhaul the game completely.

Modding has been around since the 1980s, with the first-ever mod widely considered to be Castle Smurfenstein in 1983. Castle Smurfenstein was a mod of the hit game Castle Wolfenstein that integrated, well, Smurfs into the World War II adventure game. You can’t say modders don’t have a sense of humor: modders have also turned the zombies in Left 4 Dead 2 into Zombie Teletubbies, transformed the villain in Resident Evil into Thomas the Train Engine, and introduced Homer Simpson into Grand Theft Auto.

But beyond being funny, modding is big business: Counter-Strike, one of the best-selling games in history, was originally released as a mod of Half-Life in 2000.

In the early days of gaming, modding was the original form of user-generated content; modding was the only way that an amateur creator could make something. Then, modding took a backseat with the rise of mobile gaming and Unity, which made game creation easy—instead of modding, many modders instead launched their own games.

Now, modding is back in full force, buoyed by better discovery and monetization. Platforms like Overwolf and make it easy for modders to earn income and for studios to manage their modding community.

Overwolf, which also facilitates in-game app creation, will pay out $29 million to its creator community this year. The best mods can make north of $1M a year. As Overwolf’s co-founder and CEO Uri Marchand puts it, “Modder” is becoming a sought-after and economically-viable job title, similar to what “YouTuber” has become to younger generations.

Overwolf also recently launched the first-ever creator fund dedicated to UGC in gaming—a $50 million fund to incentivize in-game creation.

In the past, modders have had to rely on patronage. The mod behind the hugely-popular Deadly Boss Mods on World of Warcraft, for instance, has a Patreon page where he asks for fans to support his work. Platforms like Overwolf formalize his work, allowing income-sharing from ads and subscriptions and offering top-of-funnel discovery to 20 million monthly active users.

Modding is important because it’s a way that creators can directly participate in digital worlds, unlocking the creativity of millions of individuals. It’s a critical piece of gaming, and it’s about to intersect with blockchain economies.

IP Legos 🧱

Digital economies and modding come together to form the future of gaming and virtual worlds: building with tokenized atomic units to create new community-driven universes.

What does that mean? Let’s start by talking about copyright law.

When Walt Disney created Mickey Mouse, copyright law allowed a maximum of 56 years of protection. This meant that Mickey would fall into the public domain in 1984, 56 years after the character’s creation in 1928. As the deadline approached, Disney lobbied and copyright law was extended to 75 years. As 2003 approached (the 75-year deadline), Disney again lobbied and got Mickey’s copyright extended to 95 years. Right now, Mickey is set to enter the public domain in 2024.

Corporations have been fastidious when it comes to their intellectual property; after all, their IP is the lifeblood of the business. What’s fascinating about many of the crypto projects popping up is that they sacrifice copyright rights, granting everyone the opportunity to build with IP.

Over the past week, Chain Runners took the crypto world by storm. Chain Runners are 10,000 NFT pixel images of cyberpunk-inspired characters, generated completely on-chain. (For more detail, Sarah Guo has a great overview here.) Crucially, Chain Runners is a CC0 project—a project that uses Creative Commons to easily grant copyright permissions.

What CC0 means is that anyone can build on top of Chain Runners; the project encourages it. This is like George Lucas coming up with the basic building blocks of Star Wars—Jedi, lightsabers, the Millennium Falcon—and then asking everyone to go out and build storylines and characters. It’s like next-generation fan fiction with built-in economic incentives.

Two other, lesser-known CC0 crypto projects are Nouns and CrypToads.

One noun (an avatar) is generated on-chain every day, forever. That noun is trustlessly auctioned every 24 hours, forever, and the settlement of one auction kicks off the next. Auction proceeds flow to the Noun DAO treasury, where 1 noun = 1 vote.

CrypToads are “small amphibious creatures that roam the swampy basin of what was formerly known as Uniswamp.” (Clever!) There are 6,969 total CrypToads. What CC0 means is that you can make new things with your CrypToad—you can design your own storyline, universe, game. It’s a lego meant to be built with. This is Web3’s most powerful feature: composability. Chris Dixon has written, “Composability is to software as compounding interest is to finance.” Packy McCormick had a great piece where he framed composability as “idea legos”. In the content of CC0, composability also grants the community IP legos.

People are already coming up with cool things. For Chain Runners, for instance, Runners can be frozen in a cryonics lab or illustrated in water color. For Nouns, people have built 3D Nouns. Bored Ape Yacht Club, which gives owners IP rights to their purchased ape, has all sorts of derivatives—four apes have even formed a band called Kingship, a sort of Web3 version of Gorillaz (remember them?).

In Web2, modding has been a key unlock for tapping the community’s creativity—crowdsourcing creativity always results in more innovation than a studio or publisher or initial creator could dream up alone. Web3 layers in the economics.

Are Genopets the next Pokemon? Is a CrypToad or a Punk or a Chain Runner the next Mario? Nintendo has the most valuable IP in the gaming world, collectively worth billions of dollars; the next iconic IP might be community-owned.

This isn’t to say everything is figured out—The Verge had a good piece this week on some of the challenges around crypto projects and copyrights. (Copyrights, unsurprisingly, are very complex.) But the kinks will be worked out. The fundamental idea is revolutionary: communities have always created the best stuff; now, they can finally capture the value, which will crowd in more creation. And we’ll all be better for it.

Sources & Additional Reading

  • Sarah Guo has a great piece on Chain Runners here

  • A good interview on modding with founder Scott Reismanis

  • Whitepapers for Genopets here and Mini Royale Nations here

  • Packy McCormick writes about Idea Legos

  • Here is Overwolf’s founder Uri Marchand on The Metacast podcast

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