How did Filipino-led blockchain startup Yield Guild Games sell $12.5M of its public crypto in just 30 seconds?
AUG 2021 — As we approach almost 2 years in what is seemingly a never ending fight against COVID-19, Filipinos are still feeling the strain. According to country-based projections by the International Monetary Fund (IMF), the Philippines has seen nearly a 10% GDP plunge as a result of lockdowns in the country, entering the worst recession on record. This has caused a 17% national unemployment rate, with youth unemployment being nearly a third of all young people out of work. As many look to find extra sources of income, the blockchain gaming market has taken the Philippines by storm.
(Source: Yield Guild Games and Emfarsis NFT/Crypto Consulting)
One of the companies leading the race is Yield Guild Games (YGG), a global gaming guild founded by Filipino game developer Gabby Dizon, Filipina fintech entrepreneur Beryl Li, and the pseudonymous smart contract developer, Owl of Moistness. YGG represents the players of non-fungible token (NFT) games and invests in in-game assets found in blockchain games. Axie Infinity, one of the games within YGG’s portfolio, is a Vietnamese gaming company that sells NFTs called “Axies” inspired by Pokémon and CryptoKitties. Filipinos have been able to make an income by creating secondary markets for these NFTs, putting food on the table across rural communities.
YGG founders Gabby Dizon, Beryl Li, and the pseudo-anonymous ‘Owl of Moistness‘ (Source: https://twitter.com/berylchavezli)
In late July 2021, YGG launched their own crypto token that raised USD$12.5M within 31 seconds. In August 2021, YGG announced it has raised USD$4.6M investment led by Silicon Valley VC firm Andreessen Horowitz (a16z) in addition to a USD$4M series A led by Gaming and Esports Fund, BITKRAFT in June 2021. With Filipino co-founders Gabby Dizon and Beryl Li, this is the first time a16z has invested in a Filipino-led startup. Dizon brings over two decades experience in the gaming industry, while fintech entrepreneur Li was on the founding team at Philippine crypto exchange Coins.ph, acquired by GoJek in 2018. A third co-founder, Owl of Moistness, is a smart contract developer with experience building Axie Infinity breeding algorithms and bots to integrate NFTs in Discord.
Is it too good to be true? How is this even possible? To all blockchain newbies such as myself, I am sure you are reading this and wondering why and how people are obsessing over these digital assets? And more importantly: what does this mean for our economy moving forward? Do we want to live in a future where everyone is glued to their devices playing games? What will happen after the pandemic? Let’s take a closer look.
Blockchain Basics
While the current gaming industry continues to grow, it remains structured in a way that benefits game developers and perpetuates a one-way road where players spend money to unlock access to in-game assets and gameplay configurations. In contrast, blockchain-built games and decentralized applications enable players to capture the utility and value of in-game purchases and asset acquisitions more effectively.
Blockchain technology in gaming is driven by NFTs, digital assets that represent in-game content. These tokens are unique while the blockchain networks that underlyingly hold the NFTs facilitate player ownership, provable scarcity, and permanence. Together, these advantages drive a far more equitable value model between developers and players.
(Source: Emfarsis NFT/Crypto Consulting)
In August 2020, Leah Callon-Butler, a Coindesk columnist, wrote an opinion piece for the cryptocurrency news website about a family in the countryside of the Philippines that managed to put food on the table by playing a blockchain based video game.
In June 2021, we interviewed Leah who explained that “when you buy an Axie, you own them. It is not the property of the game or publisher. When people trade these assets on secondary markets, as demand increases, it increases the price of the NFT. There are other factors that effect price over time such as scalability, resulting in the increased value of these digital assets. With Axie, people had so much more time than money, they were willing to play this game for hours and hours to win potions and sell them to other people on a secondary market and thats how the economy was born.”
Caution, terms and conditions may apply
Blockchain gaming only brings money to the table based on NFT value and NFT value hinges on the idea that the digital asset is genuinely owned by the buyer. When I Googled NFT ownership, many articles popped up with the large amounts of money people are spending, but I found very little details on what actual "rights" come with ownership of these assets. And who would be responsible for even enforcing such rights?
Taking an example from Superrare.com, one of the Internet's most popular and active NFT marketplace, their terms of service seem to describe ownership in a much more ambiguous way: “Collectors do not have any legal ownership, right, or title to any copyrights, trademarks, or other intellectual property rights to the underlying Artwork, excepting the limited license granted by these Terms to Underlying Artwork. The Artist reserves all exclusive copyrights to Artworks underlying SuperRare Items Minted by the Artist on the Platform, including but not limited to the right to reproduce, to prepare derivative works, to display, to perform, and to distribute the Artworks.“
There are many more examples where this type of language is used within their Terms of Service and SuperRare is definitely not representative of the entire NFT community. But the bottom line is that asset owners need to be vigilant in understanding the caveats behind their purchases.
Evolving into the Philippine market
Traditionally, the practice of buying and selling digital assets for real currency is not new, but this economic activity has become more universal as online communities grow and become big business. Most game companies ban this practice in order to assert control on in-game economics. By prohibiting exchange, players can’t resell assets they’ve already purchased, illustrating the fact they don’t really own anything they buy. But with the rising popularity of blockchain tech, new gaming economic models have started to emerge.
Cabanatuan City is located in Nueva Ecija, a rural province approximately four hours drive north of Metro Manila. Known as the “Tricycle Capital of the Philippines,” it has the most trike drivers (tuktuk taxis) anywhere in the Philippines. It is also an agricultural region with many rice fields. (Source: Yield Guild Games and Emfarsis NFT/Crypto Consulting)
Art Art was one of the first Filipinos in the rural city of Cabanatuan City to discover play-to-earn with Axie Infinity. At the time, he bought a team of Axies (virtual pets) for $4-$5. In June 2021, Axies were worth up to $350 each. After a cash out, Art Art was amazed at the money he could make by earning an in-game token that he swapped for a cryptocurrency such as Ethereum and then cashed out to Philippine pesos through Coins.ph, a crypto-based mobile wallet.
John Emmanuel was one of those who lost their job due to the pandemic and began to play Axie to earn an income. Teaming up with his friends, the three saw an opportunity to help their co-Filipinos and co-founded Axie University (AxU). AxU provides scholarships; a profit-sharing model where owners of Axie teams rent their in-game assets to people who can’t afford to buy their own. To date, this eco-system has evolved to 4,700 scholars that have earned over 43M SLP (US $8.6M equiv).
Playing at scale: The good, the bad, the ugly
On the global level, blockchain gaming still hasn’t necessarily taken off in any meaningful sense. In February 2021, Axie Infinity moved away from Ethereum due to scalability woes and high transaction fees. Additionally, the majority of popular MMOs such as World of Warcraft are still developed as walled games, heavily guarded by centralized companies that build them with no opportunity to allow players to include their own twist. In other words, gaming in general is not open-source enough today. Developing game logic on smart contracts, lines of code stored on blockchain that automatically execute when predetermined conditions are met, isn’t sustainable for complex games yet, especially given Ethereum’s high transaction costs.
Economical Impact
As mentioned before, creator based economies are not new, but blockchain technology has the potential to open these economic models up and drive growth to new levels. Gaming in a global industry can be difficult with transferring or buying digital assets across the world. This process can take multiple days, putting huge obstacles between players in various countries. Using the blockchain, instantaneous payments can be made across the globe, lifting these restrictions. However, these instantaneous transactions can also introduce risky volatility in crypto markets. A little over a month ago, Axie Infinity’s AXS token went down 40% and this past week, it rose again 40%. Traders seem unconvinced by Axie’s hype: “Trading data from crypto exchanges shows futures traders have been aggressively taking short positions on AXS, betting the token’s price bull run will face downward pressure soon, as the perpetual futures market for AXS has consistently seen negative funding rates”.
Environmental Impact
In general, crypto has seen massive growth in price and users, but there are still concerns at scale. Bitcoin and Ethereum require large amounts of energy, due to the computations needed for mining. According to University of Cambridge, around 65% of mining takes place in China, a country that relies on mostly coal for its power.
Crypto’s opportunity to be a leader for change
After Beijing decided to expel its miners in May, more than 50% of the collective computing power of miners worldwide dropped off the network. Today, bitcoin draws roughly 0.33% of the world’s total electricity production. That is almost half of what it was in May and is about equal to the annual energy used by countries like Bangladesh and Chile. Georgia, a country at the intersection of Eastern Europe and Western Asia, was the second most sourced bitcoin mine in the world. Their entire country runs on hydropower and had enough extra energy supply to use towards bitcoin mining. Case studies like this prove that if you factor sustainability into your business, you can create a system that can work well for the environment. In a sense, crypto can lead the conversation in terms of sustainability.
Societal Impact
Out of all places, why would the Philippines be frontrunner in these play-to-earn games? Aside from a community pillar aspect, similar trends are popping up in countries like Indonesia, Venezuela, and Peru. These are all places where jobs are lacking, the average wage is extremely low, there can be little government relief, and digital literacy/mobile penetration is high.
Regardless of what you think about people spending endless hours on their phones, earning income through crypto and cashing out via multiple currencies does require a degree of open mindedness and wit. Many who do this are committed to bettering their lives when their government has failed to provide alternative opportunities.
Will blockchain gaming propel the Philippines forward?
The short answer is that it is too early to tell. As video games evolved from packaged goods to continuous online services, some aspects of game design changed with them. Blockchain is definitely here to stay, and we are living through an evolving phase for the gaming industry.
On one hand, it is questionable to comprehend how blockchain gaming companies could market themselves to be “lifting people out of poverty” when they at the same time are profiting off of gamer playtime and the community itself. The irony of earning business through the most vulnerable in society is definitely worth a ponder. But for now, it seems that Filipinos are happy with their extra income and I hope that once the world gets back to normal, players continue to enjoy in moderation. There is extreme uplifting potential to use this new blockchain based virtual economy for good, but we know that in the wrong hands some could also choose to “game the system” (no pun intended).
YGG says that they are not a social responsibility company and that the societal benefits are baked into the business model as a side effect. While that can be true, companies like YGG have the unique positioning to be able to choose how to shape the industry moving forward and they should bear responsibility to uphold the promotion of healthy gaming outside of purely capitalist interest. With so much to look forward to, it is no wonder why YGG’s crypto token sale was so popular. Filipinos don’t want handouts, they want jobs. Jobs are more empowering than bank accounts and right now, YGG’s Axie Infinity is the job that is providing a way for Filipinos to be more financially secure for the time-being.
“People always brag about financial inclusion, but even if everyone had a bank account tomorrow, that doesn’t change economic status. These games, on the other hand, can.”
The world is definitely watching the current crypto and NFT hype and wondering what will happen in the next couple years. The make or break period for this technology is being tested today and I hope that Filipino gamers are fully aware of the fact that their commitment to this new type of virtual economy goes much farther than buying the next meal.
Entrepreneur Stats
NAME Gabby Dizon/Beryl Li
COMPANY Yield Guild Games
LOCATION The Metaverse
EDUCATION Ateneo De Manila University/Stanford University
