Tencent invests in the NFT sector for the first time, detailing Immutable's solutions and product layout

Author: Vincent, Gu Yu, Chain Catcher

On March 7, NFT/game developer Immutable completed a $200 million Series C funding round at a valuation of $2.5 billion, led by Temasek, with participation from Mirae Asset, ParaFi Capital, Declaration Partners, Tencent Holdings, and others.

Among the list of investment institutions, Tencent's name stands out. As an internet giant, Tencent has been entering the blockchain industry for many years, having developed the Trust Chain and implemented it in various application scenarios. Previously, it launched the digital collectibles (NFT) platform "Huanhe," providing institutions with digital collectible issuance and users with digital collectible purchasing services, issuing at least dozens of series of digital collectibles.

Unlike NFT issuance on public chain platforms like Ethereum, Tencent's digital collectibles, although also based on blockchain and possessing characteristics such as immutability and traceability, cannot be directly traded by users. They emphasize compliance and control, with limited speculative space. (Related reading: “Big Companies Rush into NFTs: On the Wind, but Afraid of Being Blown Away”)

However, this investment in Immutable marks Tencent's first direct investment in the NFT space, and it is an investment in a company that has issued cryptocurrency. Although Tencent is known for its broad coverage investment strategy, this investment still seems somewhat abrupt, especially since cryptocurrency remains a sensitive topic in China, with strict policies prohibiting virtual currency trading and speculation.

After the news of Tencent's investment in the project was made public, the token IMX issued by Immutable surged from $1.1 to a high of $1.8 within a day, an increase of 63%. However, according to Chain Catcher, this financing from Tencent is equity financing, not token financing.

So, what kind of project is Immutable, and why has it attracted Tencent to venture into the NFT space? This article will provide a relatively comprehensive analysis of the project.

Immutable was founded in June 2018 by brothers Robbie Ferguson and James Ferguson, headquartered in Sydney, Australia, focusing on developing blockchain games that allow players to truly own game assets. As early as September 2019, the project's $15 million Series A financing was led by Naspers Ventures, the investment company of Tencent's largest shareholder, Naspers.

"Last year, gamers spent over $110 billion on in-game items. Despite such huge spending, users own nothing—they cannot sell them to other players, cannot take them to third-party markets, and all assets can be arbitrarily confiscated by game developers." Immutable co-founder Alex stated, "If you spend $100 on in-game items, we believe you should be able to resell it after completion (just like you can sell any physical asset you purchase). NFTs are an excellent solution to this problem because they allow digital assets to be scarce and tradable without a third party (such as a game studio) acting as an intermediary/ledger/source of truth for each transaction."

Currently, most NFT transactions occur on the Ethereum mainnet, where gas fees are high, and users need to pay several dollars to tens of dollars for each transaction. Additionally, due to the low TPS of the Ethereum mainnet, user transactions often require at least several tens of seconds for confirmation, creating significant barriers for most ordinary users to purchase and trade NFTs, thus limiting the further expansion and popularization of NFTs among the general public.

Immutable has developed Immutable X to address this pain point, which is the first Layer 2 scaling solution for NFTs on Ethereum. Through ZK Rollup technology, the project builds a Layer 2 blockchain network on top of the Ethereum mainnet, offering instant transaction confirmation, high transaction throughput, and zero gas fees, all while maintaining Ethereum's security. According to the Immutable X official website, Immutable X can process over 9,000 transactions per second.

Compared to other general-purpose smart contract platforms, Immutable X primarily targets NFT scenarios, addressing various core challenges faced by games, game markets, and players when creating and trading NFT assets, with many technical solutions and features optimized for these scenarios.

For example, metadata trading allows users to filter the NFT assets they want to purchase by inputting characteristics, improving the efficiency of selection and purchase; the Volition model finds suitable zero-knowledge proof methods for minting and trading NFTs, allowing game developers to mint NFTs in Validium mode and NFT trading platforms to operate in zkRollup mode.

In addition, Immutable X's developer suite (SDKs and APIs) provides NFT developers with a permissionless gateway, integrating basic NFT-related functional modules, enabling them to build a mainstream NFT game, dapp, or marketplace in days instead of months.

At the end of last year, Immutable X also issued the token IMX, aimed at accelerating the growth of Immutable X by rewarding network activities on Immutable X (such as trading, providing liquidity, and building applications). Use cases include paying transaction fees, staking rights, and governance rights. This token aligns the incentive mechanisms between traders, creators, and the market so that everyone benefits from protocol activities. Currently, the diluted total market value of this token is approximately $3.2 billion.

Currently, Immutable X is striving to attract more projects to issue NFTs or develop blockchain games on its network, with announced projects including well-known names like Illuvium, TikTok, and GameStop. On March 6, the platform's NFT trading volume reached $3.25 million, setting a historical record with 27,000 transactions.

Source: immutascan

In addition to developing Immutable X, Immutable is also developing several blockchain game projects on the network, all of which have been publicly offered and issued tokens on Coinlist.

One of them is the collectible card blockchain game Gods Unchained, which allows users to convert in-game items into ERC-721 tokens/NFTs to provide true ownership of in-game items. Players have the right to sell their items for real money, use them in Gods Unchained, and even embed them in third-party games and tools. (Related reading: “Understanding Gods Unchained, a Collectible Card Blockchain Game Incubated by Immutable in 5 Minutes”)

Another project is Guild of Guardians, a role-playing mobile blockchain game where players take on the role of heroes and form teams to complete challenges in dungeons to collect resources. These resources can be used to create NFT items and hero characters for players to sell. Players will collaboratively create the best guardian teams, contribute to their guilds, and strategize to complete the most challenging content in the game. (Related reading: “Interview with the Blockchain Game Project Guild of Guardians: What is the operational mechanism? What are the token use cases?”)

Overall, as the developer behind popular NFT projects Immutable X, Gods Unchained, and Guild of Guardians, Immutable serves as both a smart contract platform and a developer of popular blockchain games, making it one of the main players in the NFT space and a promising investment target for Tencent.

Since last year, the development momentum of blockchain game projects has been vigorous, with leading blockchain game project Axie Infinity's daily revenue once exceeding $40 million, reaching three times that of Honor of Kings' daily revenue. At the same time, more and more traditional game developers are entering the blockchain game market, which is likely to make Tencent feel some sense of crisis, prompting it to invest in this space.

After investing in Immutable, Tencent may also take further actions in the NFT space, and Chain Catcher will continue to keep an eye on this.

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