Delphi: The Metaverse Pioneer Gaming Guild is on the brink of explosion

Written by: Piers Kicks, Jayden Andrew, both working at Delphi Digital

Compiled by: Perry Wang

Blockchain games led by Axie Infinity will continue to be a significant driver of global NFT trading volume.

Gaming guilds are beginning to drive economic activity across multiple virtual economies by implementing revenue-generating strategies such as providing scholarships.

Yield Guild, as a pioneer in the blockchain gaming gold mining movement, has achieved "escape velocity" ahead of all its competitors, and is now actively investing in other gold mining guilds, in-game assets (NFTs), and other tokens (such as governance tokens). Although YGG is more well-known, another gaming guild, BlackPool, holds slightly more NFT assets (despite having a much smaller AUM) than Yield Guild ($17.8 million vs. $17.6 million). Both guilds place great importance on the Axie Infinity ecosystem, but the project with the highest weight in BlackPool's portfolio is Sorare—almost 70% of its revenue comes from this game. For reference, Yield Guild still derives 100% of its revenue from Axie.

As investor interest in these exciting new virtual economies continues to grow, the depth, breadth, and actively managed nature of projects like Yield Guild have effectively become a strong index for the sector. With the robust momentum in the blockchain gaming space, the prospects for emerging guild structures are bright.

Axie Infinity, as a practical pioneer of the Play-to-Earn (P2E) concept in blockchain gaming, has rapidly risen in the third quarter of this year. In terms of revenue generated, it now ranks second only to Ethereum in the crypto space. It has garnered significant attention for the blockchain gaming industry and has become a strong indicator of the overall health of the blockchain gaming market. Its astonishing growth in economy and user base has led many to compare it to the hockey stick growth seen in games like Candy Crush with the emergence of the mobile F2P model. Axie is actively bringing millions of blockchain gamers into the blockchain space, validating the argument that gaming could very well be the Trojan horse for global blockchain adoption. To gain deeper insights into Axie's rise, please check out our report series on Axie Infinity, which explains some of the core mechanisms behind this fascinating virtual economy.

We are also seeing many gold mining guilds adopting various revenue strategies in these economies, seeking to profit handsomely in this new realm of blockchain gaming. Generally, guild activities manifest in providing scholarships, investing in core game assets (NFTs + the game tokens themselves), and even allocating resources to new guilds, as Yield Guild Games (YGG) has pioneered.

Yield Guild established the concept of a P2E blockchain gaming DAO and has benefited from its first-mover advantage. Supported early on by strong investment institutions through multiple funding rounds led by Delphi, BITKRAFT, and a16z, it has become a powerful index in this emerging industry, which we will explore in detail below.

Yield Guild has not only successfully become the largest scholarship provider in Axie Infinity gaming but its investment arm has also acquired a substantial amount of assets from many leading blockchain games and made seed investments in promising new projects. As the most well-known P2E DAO, Yield Guild is able to secure favorable investment terms and serves as a source of liquidity for early players in the emerging blockchain gaming space.

Since its inception, Yield Guild has aimed to operate various subDAOs covering numerous games or regions to accommodate rapid growth and provide its users with fine-grained participation, rather than being limited to a single broader guild. As shown in the image above, you can think of YGG as a multicellular organism, with its subunits responsible for maintaining the whole. The image below further illustrates the concept of subDAOs.

Yield Guild achieved escape velocity ahead of other projects, enabling it to provide early financial and operational support to new third-party guilds, creating strong synergies within its ever-evolving ecosystem. BlackPool is another guild that has begun exploring synergies similar to those of Yield Guild (founder Julien Bouteloup is an advisor to YGG). Established in September 2020, it claims to have richer quantitative methods. It differs from YGG in strategy, gaming focus, and overall revenue composition. We present high-level data for both guilds in the table below.

Axie Infinity and Sorare together account for the majority of the assets held by Yield Guild Games and BlackPool, as shown in the image below. Considering that most of the P2E revenue generated by the guilds comes from these two games, this composition makes sense, and we will explore this further in the latter part of this report. Over time, as more economies launch through robust P2E economies, we expect this market to further diversify.

We have already seen divergences in the gaming and asset focus between these two guilds. Over time, as the investable and "farmable" areas of the virtual economy continue to expand, we are likely to see different guilds focusing on certain gaming ecosystems and geographical regions. This aligns with the "Guild of Guilds" strategy we see in Yield Guild, which is precisely how they are widely absorbing assets from different blockchain gaming communities globally.

The image above shows the total assets managed by Yield Guild, including NFTs and ERC-20 tokens. As you can see, from June to July, its total assets under management increased significantly. The YGG governance token launched on July 27 is a good explanation for this. After the release of the YGG token, 133,333,334 YGG tokens were added to the treasury of Yield Guild Games for future fundraising and long-term DAO management. The YGG price experienced a slight decline at the end of September, a result of the broader market sell-off affecting the overall trend of governance tokens—13.3% of the total YGG token supply is currently held by the guild's treasury.

The table above highlights the investments made by Yield Guild Games in the P2E system in 2021. Their recent $175,000 investment in Merit Circle demonstrates their collaborative attitude towards other guilds entering the space. The crypto gaming ecosystem is evolving rapidly, making it meaningful to support small projects at their inception. By making early investments in promising new projects, Yield Guild Games is solidifying its position as the largest index in this emerging field while maximizing the success prospects of these early projects.

As shown above, since November 2020, the number of members in Yield Guild Games' Discord has significantly increased, but the real growth began when the YGG token was launched in July 2021, becoming another clear example of how the token has united the community. From June to October 2021, the number of Discord members in Yield Guild Games grew from 19,546 to over 62,545, an increase of 220%.

Earlier this year, Axie Infinity restricted certain behaviors in the game due to abuse, which affected the growth of scholarship players, as shown in the image above. Despite this temporary bottleneck, a solution for everyone is expected to be implemented in the near future. We anticipate this will stimulate the activity of many gold mining guilds and scholarship programs operating within the Axie economy.

The absolute growth in the number of Yield Guild scholarship players, Discord members, and community members further solidifies the guild's important position as a source of player liquidity. Thus, Yield Guild has become a very useful resource for new projects in the blockchain gaming space, providing not just pure financial and operational support.

Since the beginning of 2021, the scholarship player community of BlackPool has rapidly grown, as shown in the image above. From 21 scholarship players on January 1 to 482 on October 3, an increase of 2,195%. Following BlackPool's dominance in Sorare, it is encouraging to see favorable progress in their second strong revenue source.

Guild Revenue. Source: Axie Infinity & Sorare

The image above illustrates the weekly and cumulative Small Love Potion (SLP) revenue for the two guilds. The SLP earned from Axie Infinity currently accounts for 100% and 30.5% of the total revenue for Yield Guild Games and BlackPool Finance, respectively. As new crypto gaming economies mature, we expect their revenue sources to diversify in the future. A clear trend is that the SLP price has a major impact on guild profitability, which we will explore further below.

The image above shows that the SLP price has been on a downward trend since late July. This aligns with the increase in the net supply of SLP during the same period. From this, we can conclude that the SLP minted by players (winning matches) is in excess supply, while the SLP being burned (breeding Axies) is insufficient.

As shown in the image above, the net outflow of SLP from the Ronin blockchain seems to correlate with the downward trend in SLP prices. Conversely, the previous net inflow of SLP into Ronin had driven up SLP prices. While we need more data to determine the strength of this relationship, it is certainly worth pondering. The recent net inflow of SLP into Ronin may suggest that SLP prices could reverse trends in the near future, further enhancing the appeal of scholarship programs in gaming. If the dynamic relationship between SLP prices and net inflows of SLP into the Ronin bridge proves valid, it will serve as a powerful leading indicator for those heavily reliant on Axie for revenue, helping to gauge SLP price trends and guild income.

Sorare's P2E system differs from Axie Infinity in that there are no native tokens like AXS or SLP in Sorare. Instead, players earn Sorare NFTs (the player cards themselves). The NFTs players earn depend on their ranking and the type of tournament. Additionally, players can earn ETH based on their performance.

The image above shows the changes in the assets managed by BlackPool in Sorare over time, with assets under management (AUM) steadily increasing. It is worth noting that Sorare is a fantasy football game, meaning it has different seasonal distinctions each month, sometimes featuring matches involving national teams (without league matches), and there are few matches in the summer.

Recently, we have seen Sorare introduce new dynamic rewards, where podium positions can earn more ETH rewards. A few months ago, we also saw the launch of a new Unique division, where only Unique cards are allowed, and the winners receive all rewards from that division, up to 4 ETH. Therefore, over time, we may expect players' earnings in Sorare to gradually consist more of ETH rather than Sorare NFTs.

As shown in the image above, since the YGG token was listed on the MISO platform at Sushiswap on July 27, its market performance has outperformed BPT. The strong institutional support behind YGG seems to provide a broad support base for the token. Yield Guild Games has significantly higher media exposure, and as the first guild to go public in this field, it clearly has strong brand appeal. Notably, BPT has not been fully listed yet; it was airdropped to the early community before it began trading on SushiSwap (initial price of $1.50). A larger-scale sale of BPT tokens may occur at some point in the future.

Summary

Crypto gaming experienced explosive growth in 2021, with particular interest sparked by Axie Infinity, surprising everyone. As the world slowly begins to pay attention to this fascinating new paradigm of virtual economy, investors are actively seeking new ways to diversify their participation in the industry. The rapid pace of blockchain gaming's development means that new projects face significant challenges in catching up to or surpassing the leaders, making passive indices an attractive reference for many. Among these gold mining guilds acting as agents for blockchain gaming, there remains considerable competition (and passivity) at the forefront of these emerging "P2E" economies.

For instance, more traditional private market investors may not be able or may not want to gain direct token exposure but might choose to invest in projects like Animoca Brands (cross-platform application publisher). Just this year, the company raised $203 million at a $2 billion valuation based on its portfolio of investments in blockchain games and infrastructure such as Axie Infinity, Immutable, and Dapper Labs NFTs. Notably, we are also beginning to see traditional public market products offering portfolios of investments in metaverse-related companies, such as the $META ETF supported by Matthew Ball and Roundhill (AUM of $123 million). If we move further towards direct token exposure, we see products like IndexCoop's "Metaverse Index" (market cap of $23.62 million) or PieDAO's "$PLAY Index" (market cap of $2.5 million). While both are indirect exposure tools for liquid tokens, they appear weak compared to the depth, breadth, and actively managed nature of projects like Yield Guild (with $875 million in assets under management).

Part of our theory behind Delphi's investment in Yield Guild is that Yield Guild not only invests in more early-stage blockchain gaming projects but its gaming treasury mechanism can actually provide asset agency for investors in the metaverse economy. Do you have more confidence in one game or region over another? You can specifically invest in that particular subDAO (or micro-index). If you are more optimistic about specific revenue strategies within the overall guild, you can provide liquidity in the YGG liquidity pool to earn rewards for that specific activity. For those who prefer not to be too closely involved, there is also a liquidity pool that earns token rewards from all of YGG's strategies, akin to a super index.

In addition to providing a higher granularity of participation than other indices, Yield Guild is also able to engage in the most attractive (often off-market) trades at the earliest stages through future token simple agreements for future tokens (SAFT), public sales, and other types of in-game assets that generate revenue. Many promising new gaming projects are flocking to Yield Guild for support, as Yield Guild offers a unique combination of capital, player liquidity, and operational support. Being at the center of the P2E blockchain gaming storm, Yield Guild can invest in its own subDAOs as well as third-party guilds that may be running unique strategies—this is a product that cannot be found elsewhere. Undeniably, this is a very compelling value proposition for many, and their community, managed assets, and rapid growth in market capitalization attest to this.

Given the strong momentum in the blockchain gaming industry, emerging guilds executing differentiated strategies undoubtedly have broad prospects. As more guilds emerge to meet the growing demand for structured opportunities to participate in new virtual economies, we are likely to see a continued evolution of this model. With the blockchain gaming market rapidly expanding, there is currently room for collaboration among guilds—harmony outweighs conflict. However, in the next decade, as the largest gaming and guild economies in the world begin to mature, we are likely to witness epic battles across hundreds of virtual worlds, with millions of players belonging to numerous factions. The pioneers of the metaverse have arrived.