Business model and its sub Dao in-depth study

Summary:

This article is based on Axie Infinity As an example, this paper discusses the significance and operation mode of guilds. From the stories of participants, we can see the impact of low threshold guilds on the lives of ordinary people. Secondly, it discusses how different guilds compete with each other. Taking YGG as an example, it discusses the operation mode of guilds, why there is a guild that still needs subdao, and how the holding company obtains income from subdao.

After a few months of silence, the game guild began to bustle again.In the last quarter of 2021, I spent most of my time observing gamefi and game guild projects, so I decided to talk more about the field of game guild.

Therefore, this paper strives to explore in depth:

  • What is a game guild? How does it work?

  • Game guild competition pattern and business model evaluation

  • Case study: YGG and YGG subdiao ecology

Participating in Web3 games requires players to hold in-game assets. For example, in axie infinity, players need to use three AxieS forms a "team" to participate in daily tasks and obtain p2e rewards ($slp). Considering that the target audience of Web3 games is mostly players in emerging markets, we find that for players who want to play axie infinity, these in-game assets are usually out of reach. At its most expensive, an axie costs $200, while the cost of the entire team is as high as $600.

This is where the game guild comes into play. Before Web3, the "game guild" consisted of a group of players who often played computer games together - provided that the game allowed players to form organized groups. In Web3, the game guild is also an organized group of players (i.e., "helpers";Translation note: YGG Chinese community translates it as "student")-- they use the in-game assets owned by the guild to play games that support the assets. In exchange for renting these in-game assets from the guild, helper members will give a certain share of the daily p2e reward to the guild to help them pay for the initial purchase of these assets.

From YGG 2022 Q1 community news: help play members talk about how YGG can improve their lives 

This is why the game guild has that typical marketing script, saying that they supplement the guild players' income through daily p2e rewards to help them "live a better life on their own". During the peak period of covid-19 in 2020, the unemployment rate in emerging markets such as the Philippines was high. Considering this situation, we began to understand the importance of game guilds - games such as axie infinity have become the only source of income for players; With the help of the guild, they can rent in-game assets to participate in the game.

Fundamentally, we find that the game guild is a relatively asset heavy business because it must purchase in-game assets; In order to pay operating expenses, they need to rely on the future cash flow generated from the revenue sharing of the help play members. Interestingly, however, we found that unlike other cryptocurrency projects, game guilds have both internal book value (the value of assets in the game) and cash flow (the revenue sharing of gamers), which makes them valued in a more traditional web2 way.

Some indicators I use to evaluate the operation of the game guild:

  • Number of playing members:

    Playing members are the lifeline of all game guilds, and they contribute community vitality and income share to guilds.

  • Number of play aid schemes:

    There is a difference between the number of assisted play members and the number of assisted play gold schemes, because some guilds have provided assisted play members with asset leases of more than one game to supplement their daily income. (Translated note: the "play aid scheme", originally translated as "Scholarship Scheme" by YGG Chinese community

  • Number of discord members:

    Discord is the main channel for the guild community to communicate with each other. Some community members are not real gamers (that is, they do not use guild assets to play games), but they are very active on discord for social purposes. Therefore, a larger discord community means a more dynamic guild community.

  • Income sharing ratio / cash flow:

    Revenue sharing defines how to distribute income between guild and guild members. At present, the standard in the market seems to be 80% to guild members and 20% to guild members. Although it seems beneficial for the guild to get a higher revenue share, we must take into account the dynamics of the market. If the revenue share of the game aid members is too low, they may choose to leave. The proportion of income sharing is highly related to cash flow. Logically, a higher cash flow is more beneficial to the Treasury.

  • Vault value:

    Broadly speaking, a guild's Treasury assets can come from the value of its in-game assets, circulating tokens, venture capital and stable coins. The high value of the vault means a larger balance sheet - that is, the guild can last longer before the cash runs out, or has more ammunition to buy in-game assets or invest in new game projects. By checking the monthly or quarterly financial statements of a guild, you can easily interpret its Treasury value. Some sample examples are available in the "resources" section at the end of the article.

With the above understanding of the model of game guilds, we can theoretically draw such a conclusion: there is basically no difference in this field, and the threshold for entry is very low - because operators can create their own guilds only by purchasing in-game assets. However, we see that guilds have found ways to differentiate themselves - and build on certain niches and expertise. The following are some key areas selected by the game guild.

a. The number of full play members

Given that the number and revenue sharing proportion of the game guild's business form the foundation of the game guild business, the guild model of version 1.0 is bound to need to establish a large number of game aid schemes to create maximum revenue sharing and cash flow for the guild vault. In order to promote this, the game guild with the largest number of members to help play obtains in-game assets through purchase or reproduction, so it has to expose 100% of these assets in its vault to risk. You know, in the past, the transaction price of each axie was more than $200, but the current base price is $5. We see that the guild that used to adopt this method is now suffering, and the value of in-game assets has shrunk significantly. Most of the game guilds that used to be in this way have begun to pay attention to the following other niche areas on the basis of still having a large number of helper members.

b. Conduct venture capital transactions

Skrice studio's heroes of mavia: raised $2.5 million from venture capital companies and some top guilds 

Most game guild directors regard the venture capital transaction of Web3 games as a means to diversify the Treasury and a way to return idle funds. We also found that there are strategic and multiplier effects in these game venture capital transactions - such venture capital transactions sometimes have structural terms to sell in-game assets to the guild at a discount price for them to provide to assisted members to participate in the game. In this way, the guild will provide them with stable player traffic on the first day of the game's launch.

c. Construction of infrastructure

Running a guild is originally a complex operation task, which will become more complex with the increase of the number of helper members. Some aspects of guild management have always been painful in implementation, such as tracking in-game assets and personal performance rented to helper members, and paying for each helper member every week. Some guilds have begun to establish infrastructure to solve these pain points, such as asset Kanban, weekly automatic settlement of guild members' remuneration, guild tasks, and increasing the daily income of guild members through access to educational content.

The establishment of infrastructure has a dual effect: 1) higher participation and retention rate of play aid members, and 2) higher profits due to the reduction of community managers who need to pay attention to these human tasks.

d. Focus on building subdao

This is probably one of the more interesting models. It seems that only YGG focuses on this. In general, it involves setting up a geographical subdao to better reach a geographically restricted audience. This point will be further elaborated below.

I decided to conduct a case study on YGG - because they are the first game guild in the market, and also because I want to further study the subdao mode. Future articles may discuss other guilds with different concerns.

Disclaimer:

My employer crypto Com capital has established positions in two sub Daos of YGG: yggsea and ola.gg.

YGG Logo

a. History of YGG

Yield guild games (YGG) was founded in November 2020 by Gabby dizon, beryl Li and another anonymous third person with the pseudonym of owl of moistness.

In its multiple rounds of financing, YGG obtained Delphi digital, blocktower capital, animoca brandsPolygon, sfermion, bitkraft ventures, fabric ventures, mechanism, parafi, a16z, and infinity ventures crypto.

Using the above framework, we can see that YGG chose to focus on the following niche areas:

  • Number of playing members:

    At its peak, YGG had more than 10000 helper members - mainly distributed in Southeast Asia (mostly in the Philippines and Indonesia) and Latin America (mostly in Colombia and Argentina), which were their core markets.

  • Venture capital transactions:

    The well-known venture capital transactions that have been officially announced include iluvium, cyball, mavia, League of kings, star atlas and genopets. Most of these transactions usually reach an official partnership, that is, YGG purchases some in-game assets and leases them to their student members.

  • SubDAO:

    So far, YGG has launched three geographical subdaos to cover major regions: Southeast Asia (yggsea), Latin America (ola.gg) and India (indi.gg).

Overview of subdio in YGG's community update in the first quarter of 2022

b. Concise carding

March 2021:

YGG received $1.3 million in seed round financing, led by Delphi digital.

June 2021:

YGG received a round a financing of US $4million, led by bitkraft ventures.

July 2021:

YGG established a liquidity guidance pool (LBP) on sushiswap's miso platform - attracting $12.5 million in liquidity in 30 seconds.

August 2021:

Andreessen Horowitz announced that he would lead YGG to invest US $4.6 million.

January 2022: 

YGG's India subdao indi GG received US $6million financing from Sequoia India and Lightspeed ventures.

March 2022:

Indi. GG completed IEO on the FTX platform - raising $6.8 million.

April 2022:

Southeast Asia sub Dao yggsea won crypto US $15million financing from com capital, animoca and other companies.

April 2022:

YGG Latin America subdao ola GG received $8million financing from galaxy interactive, bitkraft and Arca.

c. Why subdao?

The idea of using subdao to accumulate value for $ygg tokens was first proposed in YGG's white paper in June 2021, although the example in the white paper is to establish subdao for different games, rather than based on geographical location.

Cover of the 2021 YGG white paper

Since communities are the focus of game guilds, fundamentally speaking, these guilds are destined to be very localized. For example, the guild in the market has set up localized discord channels for people who speak a specific language, and these channels are also managed by community managers who use that language. This degree of localization will also help to build a stronger community, thereby promoting the participation and retention rate of play aid members.

Taking a step back, we find that the idea of setting up subdao based on geographical location is reasonable - because Southeast Asia is fundamentally different from Latin America and even India in terms of language and culture. The subdao mode based on geographical location enables operators who are familiar with the region and its customs to effectively accept and retain game aid members on their subdao platform.

The subdao model also creates a network effect - subdao can use YGG's strong reputation to recruit gamers, and even allocate funds for venture capital transactions. It is understood that YGG's subdiao has also jointly participated in the cooperation of some external projects.

d. How does YGG accumulate value with subdao?

We know from tradfi that due to the legal ownership of its branches by the holding company (HoldCo), the value will accumulate from the branches to the holding company. In terms of accounting treatment, the balance sheets of branches will also be incorporated into the holding company - which means that the accumulation of value is natural. The situation is slightly different for YGG sub Dao, because each sub Dao is an independent legal entity and has no legal relationship with YGG Dao itself.

The following excerpt from the YGG white paper explains this to a certain extent - the ownership of the YGG Treasury to the subdao token creates a "book value", in which the holder of the YGG token has governance rights over it.

Excerpt from YGG white paper on value accumulation

Taking yggsea as an example, we know that YGG and infinity ventures crypto are both seed round investors - the two entities jointly decided to launch yggsea. The follow-up investors shown in the following financing announcement are private round investors. After the establishment of the liquidity guidance pool (LBP), since the token value of yggsea can be calculated at market price, the vault value of YGG may also increase.

Financing announcement of yggsea in April 2022

e. The response of one of YGG subdiao

Yggsea LBP announcement

Considering the above situation, yggsea launched LBP at copperlaunch from May 9 to 14 - just two weeks after breederdao ($breed) raised $2007 million through LBP sales. because LUNA /Due to the sharp market fluctuations caused by the UST collapse, yggsea team had to withdraw the liquidity in the copperlaunch LBP pool on May 10, and postponed Ido.

Although this is a difficult decision, I understand that yggsea team would rather have a better trading performance and a stronger Treasury in the future than continue LBP under such market conditions. After all, the market was in decline at that time. At least, we see yggsea team working hard to refund gas fee to users participating in $sea LBP.

Personally, although I am optimistic about the subdao model - however, I am not sure whether the performance of $sea LBP shows the market's view of the model, or just the effect of extreme market volatility during LBP.

Through the understanding of the business model of the game guild, we can see that the business of the game guild is lack of differentiation to a large extent, and the entry threshold is also very low. In trying to create competitive advantages and seek industry differentiation - as mentioned above, the principals of the guild have found professional methods.

Although the subdao model has been severely criticized recently, the reason why it is intended to become one of the many pillars of YGG's Treasury value and influence growth is still obvious. Only time can prove whether this model can succeed - but before it is completed, I believe that YGG and its sub Dao management team are still in a favorable position to escort its business until it succeeds.

YGG 2021 Whitepaper

YGG white paper 2021

YGG Q12022 Community Update

YGG community update in the first quarter of 2022

YGG Seed Round Announcement

YGG seed round announcement

YGG Series A Announcement

YGG series a announcement

YGGSEA Private Round Announcement

Yggsea private placement round announcement

YGGSEA IDO Sale Announcement

Yggsea Ido launch announcement

YGGSEA CopperLaunch LBP Statistics

Yggsea copperlaunch liquidity guidance pool statistics