Analysis of BSC Top Game X World Games: Gains and Losses of a GameFi Project | CatcherVC Research

Researcher: Kit, CatcherVC

I. Executive Summary

Project Introduction: XWG (X World Games, hereinafter referred to as XWG) is a blockchain gaming platform aiming to become the OpenSea of blockchain games. Its token $XWG has been launched on BSC.

• Product: An expandable NFT gaming platform, which includes game publishing services, NFT trading platform, cross-game protocol ports, and game creation tools. Released games include Dream Card V1 & V2.
• Development Space: Future development will focus on creating more games and signing more original anime IPs, combining ecology and rich game content to achieve a self-governing DAO.

Team Background:

• Traditional Game Development Team: The XWG development team operated a Japanese action mobile game "Hime Dou Musou" with over 1 million active users in 2017. In 2019, XWG launched its first NFT TCG game project "Dream Card" with a Japanese ACG style, completing its NFT "first generation sale" in 2021. It then released the extended V2 game Auto-Battle RPG version of Dream Card.
• Rich Game Design Experience: Additionally, the XWG team has developed nearly a hundred online mini-games, possessing rich Web2 game production experience and a keen sense for games. XWG's founder, Fernando, has over ten years of investment experience and sharp insight into market trends. He supports the idea of integrating elements from games, blockchain, DeFi, ACG, NFTs, and the metaverse, hoping to create a native blockchain game ecosystem.

GameFi Definition:

• Gameplay (Game): Includes game types (from casual to hardcore), entertainment nature (strategy, casual, adventure, etc.), social attributes (titles, achievements, etc.), and gaming experience (story, UI/UX, culture, etc.). All attributes that allow players to capture entertainment value.
• Economics (Fi): Includes economic systems (token/NFT design, treasury, lending, rebase), inflation models (supply-demand staking, release, destruction, liquidity). All attributes that allow investors to capture information sentiment price differences.

GameFi History:

• First Generation Blockchain Games (2018-2020): With the rise of leading DeFi and the development of foundational infrastructure like OpenSea's NFT trading market, CryptoKitties sparked a surge in NFT sales and incubation forms of blockchain games.
• Second Generation Blockchain Games (2021): A surge in on-chain users and skyrocketing valuations of public chains/NFTs/metaverse led to the explosion of on-chain NFT turn-based and P2E game models like CryptoBlades and Axie Infinity.
• Future of New Generation Blockchain Games: Currently, the entire GameFi market has retraced by 50% to 90%, with some voices questioning whether GameFi has retreated from the first generation's craze, while developers and investors are seeking new game value niches. X2E blockchain games like StepN and LetMeSpeak, which combine reality and fantasy, have also seen small explosive growth. These games positioned between the metaverse and blockchain games are akin to the situation of centralized exchanges (CEXs), addressing the issues of fully decentralized trading and incomplete OTC trading infrastructure.
• From Web2 to Web3 Games: It is worth noting that investment strategies in Web3 and blockchain games primarily focus on token releases, bypassing developers' profits. This differs from traditional investments that lock in for two years; token distribution often begins unlocking within a year, with investors' perspectives and strengths often focused on early investments, while secondary investments are more susceptible to token sell pressure due to token releases and market sentiment.

Highlight 1: Expandable Gaming Platform

(Image Source: XWG Docs)

Summary: Game scalability has sustainability and the ability to address some shortcomings in V1 or V2 in later game architecture and economic systems. With the premise of a stable game economy, there is hope to increase 3D modeling, player-customizable NFTs, and the social attributes of the metaverse. However, cross-platform NFTs are also impacting economic stability.

Highlight 2: Economics and Game Probability

• Token Mechanism: The game has rich content design and economic models. The core mechanism of the project's token is as follows:

• V1 Mechanism: Increased complexity in calculating expected return rates (E(r)) standard deviation (Sigma) costs, including more than 9 random variables, such as 5 attribute interactions, evasion rates, critical hit rates, health points, attack power matching ability values, attack values, combat cooldown times, totem abilities, etc. Currently, its battle reward and punishment mechanism is as follows:

• V2 Mechanism: V2 features five professions such as warrior, mage, assassin, archer, and priest, and includes a PVE mode with weapon, equipment, and talent system upgrades.
• Dual Token System: Launched on April 5, the dual token system uses the P2E2S model, destroying $LUCID game tokens for upgrades and staking cards to reduce $XWG sell pressure.

Summary: The current product positioning is to cover casual entertainment games in PVP/PVE modes, and the complex probability creates a high barrier for gold farming teams, making it relatively friendly for casual players.

Shortcoming 1: Ambiguous Casual Game Attributes

As a casual game, XWG needs to strengthen the game design theories of researcher Jesper Juul:

Summary: As a blockchain game positioned for casual entertainment, it still needs to focus on enhancing casual functions, providing sustainable economic models to feedback to the community and players, while weakening the consumption-oriented economic system to increase active user numbers and user stickiness.

Shortcoming 2: Uncaptured Value of ACG Players

• Game Motivations: Players play games out of impulse, and the reasons for these impulses define the types of games. These impulses include: action competition (Call of Duty), social attributes (Fortnite), real-time strategy (Dota2), achievement challenges (game speedruns), immersive experiences (Star Citizen), and creative freedom (Minecraft).
• ACG Culture: These players share unified cultural traits, accepting bizarre art styles and having broad aesthetic insights. For example, the highly rated "Love, Death & Robots" on Rotten Tomatoes promotes a distinctly punk culture while not rejecting the electronic rendering and simple pale Eastern art style.
• XWG Player Group Attributes: XWG seems not to have captured some traits of ACG players through game mechanics. For example, products with ACG culture: developing 2D/3D NFT interactions, creating ideal dolls, opening social attribute functions, exploring unique immersive comic stories, etc.
• Bartle's Taxonomy Model:

Summary: The motivations for XWG's player group are broad and not prominent.

Shortcoming 3: Deflation Model Needs Improvement

• Fast Food Consumption: For XWG, it should focus on building an open global ACG culture and NFT platform. Alternatively, it could develop a sustainable live game ARPG type and design a high internal consumption token mechanism, extending the payback period and time costs for speculators, which would attract more ACG blockchain investors and players than fast food consumption culture.
• Reference Examples: Successful NFT projects (BAYC/AZUKI) and increasingly popular DAO communities possess strong consensus, including the comics, concepts, and stories behind the projects, all integrating backgrounds from different countries, cultures, and religions. Particularly, DAOs break down national and language barriers, liberating labor and dollar suppression. XWG's narrative capabilities can be enhanced by referencing such consensus-driven projects to build an inclusive and attractive story background.
• Introducing Equipment System: The LUCID generated in the game can be used not only for upgrading and staking NFTs to balance benefits and outputs but can also introduce an equipment system in V3 to further regulate the inflation rate of $XWG, utilizing the low liquidity characteristics of card NFTs and equipment NFTs to reduce the overall sell pressure of $XWG.
• On-chain Games: Currently, the first generation of blockchain games is seeing ideas of bringing game engine environments on-chain, which may become the future direction of blockchain game development. Its advantages include unlimited development space and openness for everyone to freely develop games and tools/equipment around virtual environments. The future economic systems of on-chain games will be very complex and inclined towards decentralized free trading, while currently, there is still no mature infrastructure and development teams focusing on this.

Summary: ACG itself is also a multicultural composite, and the inclusiveness of ACG is similar to the foundational cultural basis built by many developmental gaming platforms, such as Decentraland, The Sandbox (free creative culture), Dapper Labs' NBA Top Shot series (NBA American basketball culture), and Sorare (football club culture). Representatives of ACG, such as Marvel comics, Disney comics, and Naruto, are also globally popular, indicating that ACG culture can be accepted worldwide. It is believed that further strengthening narrative capabilities and improving the game inflation model can maintain the original players' holdings and attract more active users through the release of V3/V4 games.

II. Analytical Framework

This report will analyze XWG from multiple dimensions of GameFi combined with some models, with the dimensions and models as follows:

III. Multi-dimensional Model Analysis

1) Positioning Model and Macro Analysis of Playability

(Image Source: Unity)

Overview of the Gaming Industry

• Gaming Industry Explosion: Various games saw a total increase of 50% in 2021 due to the pandemic and staying at home.
• Casual Games Stand Out: Hyper-casual games increased by 137%, and casual games are showing a trend of surpassing heavy games in growth rate.
• Popular Genres: Adventure/casual/simulation games all reached over 10% annual growth in 2021, with hyper-casual, board games, racing games, and RPGs reaching 9% annual growth.
• Cross-Platform Trend: Entering console platforms like Xbox/PlayStation has become a development trend for more games.

(Data Source: Footprint)

Trends in Blockchain Game Types

• According to Footprint data, a total of 303 popular blockchain games have been recorded, among which turn-based/card incubation games, action games, and adventure games account for nearly 62% of the total games.
• Blockchain games have not exploded in hyper-casual or casual game development like traditional games but focus more on medium and heavy games.
• Auto-mining type games are booming, closely related to GameFi's financial attributes.
• MMO, RPG, strategy games, and racing games have not yet seen a large number of similar games developed due to technical barriers and game length.

(Image Source: Footprint)

Proportion of Blockchain Game Players: 80% of blockchain game players are occupied by WAX, Hive, BSC, Polygon, EOS, and Ronin. Among them:

• Splinterlands: A strategy card game occupying 99.9% of players on Hive, with 30.34M players.
• Alien Worlds: An NFT auto-mining game occupying 57% of players on WAX, with 17M players.
• Farmers World: An NFT farming game occupying 44% of players on WAX, with 8.4M players.
• MOBOX, Secondlive, Bomb Crypto, XWG, The Crypto You account for 12% of transaction volume on BSC.
• Sunflower Farmers, Crazy Defense Heroes, Pegaxy, Arc8 by GAMEE account for 25% of transaction volume on Polygon.
• Upland accounts for 50% of transaction volume on EOS, while Ronin is solely occupied by Axie Infinity, and DeFi Kingdoms represents Harmony.

(Image Source: Footprint)

Trends in Transaction Volume of Blockchain Game Types

• STEPN: The token GMT of the running social game combining blockchain games and offline sports has increased 22 times, with DAU reaching 70,000.
• GALA: MOBA-type Spider Tank, simulation management Town Star, and metaverse Mirandus have made Gala Games platform rank second.
• Metaverse: The metaverse Sandbox and Decentraland on Ethereum rank third and fourth, along with My Neighbor Alice, Highstreet, SaaR, Radio Caca, Voxies, and Aavegotchi.
• Card Collection/TCG: Axie Infinity's SLP and AXS rank fifth and sixth, Along with the Gods ranks twelfth, and DeFi Kingdoms ranks twentieth.
• NFT Auto-mining: Alien Worlds, Mobox, Miners of Dalarinia, and Treasure have also achieved high transaction volumes.
• MMO Strategy: League of Kingdoms ranks tenth.
• Guilds: YGG's transaction volume ranks fifteenth.

2) Economic System Analysis

(Image Source: BscScan, CoinMarketCap, Dune)

Macro Analysis

• Token Price Performance: Currently, the token price has retraced 90% from its peak, similar to the performance of most blockchain games, and has fallen more than BTC.
• Circulation: The token circulation is controllable, accounting for only 9%. This indicates that the token price and incentive mechanisms can still be flexibly adjusted in the later stages.
• NFT Staking Rate: Far lower than the token staking rate, accounting for only 6%. Combined with Dune's on-chain data, it indicates that large NFT holders are fleeing and transferring to smaller holders, suggesting a healthy cycle for NFTs. However, it is essential to control the panic emotions of large holders and consider incentive mechanisms to increase staking rates.
• Transaction Volume to Market Cap Ratio: The ratio of tokens and NFTs is 30% and 2%, respectively, indicating that NFT transaction volume is inactive.
• NFT/Token Holding Ratio: The total number of NFT holders accounts for only 150% of the total number of token holders, indicating a large number of NFT retail investors.

(Image Source: XWG Docs)

Internal Circulation Mechanism

• Consuming LUCID to upgrade NFT attributes increases NFT yield and reduces payback periods.
• Only $XWG and LUCID are allowed to be consumed to break through the rarity of held NFTs to further increase yield.
• Players are forced to earn LUCID by investing time costs and consume LUCID to obtain permission to stake and earn $XWG.
• This negates the imbalance of investment-output ratios between pay-to-win players and DAU, thereby improving the economic internal circulation of the system.
• It forces the number of players and stakers to tend toward balance (the output and consumption ratio of XWG reaches dynamic equilibrium).
• Overall, this increases token consumption and burning effects, making governance tokens deflationary (release < consumption).

(Image Source: XWG Docs)

Deflation Mechanism Analysis

• XWG burned governance tokens through in-game consumption and 50% of blind box revenue at the end of Q1 2022.
• A total of 26M tokens have been burned so far, with an estimated 35.5M tokens to be burned by the end of Q2 2022.
• Thus, the predicted half-year burning amount is 61,518,386 XWG every six months.
• Currently, the monthly release of XWG staking is = (270,000 + 33,666) * 30 days = 9,109,980 XWG per month.
• Therefore, the half-year release of XWG staking is = 9,109,980 * 6 months = 54,659,880 XWG every six months.
• Token release mechanism (calculated as half-year monthly release):
• Seed round 8% (released every six months over a five-year period) = (total token amount * 8%) / (5 years * 2 times) = 80,000,000 XWG every six months.
• Strategic round 17% (10% TGE, released every six months over a five-year period) = (total token amount * 17% * 90%) / (5 years * 2 times) = 153,000,000 XWG every six months.
• Marketing round 5% (50% TGE, released quarterly over a one-year period) = 2 * (total token amount * 5% * 50%) / (1 year * 4 times) = 125,000,000 XWG every six months.
• Team 9% (released every six months over a ten-year period) = (total token amount * 9%) / (10 years * 2 times) = 45,000,000 XWG every six months.
• Potential release sell pressure is 403M XWG every six months 358M XWG excluding the team.
• Since currently, all rounds of tokens are locked except for staking releases, burning > sell pressure.
• Comparison of deflationary token mechanisms: 61.5M half-year burning amount > sell pressure 54.6M.
• Assuming stable prices, under the condition that the team only sells 1/2 of the tokens from each round, the sell pressure would be 179M XWG every six months excluding the team, burning < sell pressure.

Token Release Mechanism

• Innovative Mechanism: Currently, XWG's token release mechanism is similar to most DeFi projects, and through discrete tables, it can be seen that only the incremental release mechanism in four periods will produce a deflationary effect.
• Extend Incremental Period: The project's economic model should aim to extend the incremental period, delay the slowdown period, and spiral down period.
• Preventive Measures: By suppressing the user increment and growth rate during the incremental period, a lasting deflationary period can be created.
• Insurance Measures: By releasing new products and liquidity locking features, prevent the slowdown period from entering a spiral down period.
• Remedial Measures: By adding internal consumption mechanisms and burning excess circulation, the net circulation can be negative or close to zero.

3) Team Analysis Combined with Product Lifecycle

Team Resource Analysis

• Financial Background: The team has a composite technology and finance background, which is beneficial for instant adjustments and optimization of the in-game economic system's design and parameters.
• Blockchain Incubation Experience: The team has rich project management cases in blockchain community operation, product development, marketing, and talent recruitment, greatly improving XWG's success rate and aligning with XWG's platform and long-term positioning.
• Stable Employment History: Co-founders have a long history in the blockchain industry, which is beneficial for XWG to integrate resources within the industry.
• Art/Storytelling: The team can consider strengthening ACG art style resources and enhancing XWG's unique positioning in blockchain games, including recruiting talents for comic creation and story design, which will help leverage XWG's advantages for development.

Lifecycle Analysis

• Current Status: XWG is in a declining phase of V1 and V2 and an extended period of V1, characterized by a decline in user numbers and user stickiness.
• Cause Analysis: Due to the large flow of blockchain funds and speculative characteristics, the current PLC cycle of blockchain games is shorter than that of traditional games.
• Solution: Continuous updates and development of game content, enriching stories, and enhancing artistic attributes can delay the characteristics of this period.
• Timing for Continuation: The timing for launching new content and V3 should follow PLC rules, with the team focusing on studying product return cycles and economic systems. Introducing equipment/land NFTs to reduce the liquidity of governance tokens can also help delay the exit time of speculators and active users.

(Data Source: XWG Docs)

Delivery Analysis

• Strong Delivery Capability: The project's roadmap shows a high degree of completion.
• Short Roadmap: The project's roadmap is planned on a yearly basis, and there are no clear annual goals for a project with a development cycle of 10 years.
• Tight Delivery Timeline: The Q2/2022 delivery goals are currently delayed.

4) Community Operation Analysis

(Data Source: Twitterscan)

Community Heat

• High mention and hot topic discussion on Twitter, with active interaction with Binance/GAL/STEPN.
• Frequent update frequency, synchronized with Discord and Telegram.
• Growth of Twitter followers has slowed.

(Image Source: Footprint)

Daily Active User Analysis

• Overview: Currently, there are a total of 544,354 users, with a peak DAU of 18,000, an average daily DAU of 12,500, and a DAU retention rate of 2.27%.
• New Users and Lifecycle: The lifecycle of new users aligns with the release of V1/V2 card games, peaking and then declining.
• New Users and Spiral Decline: After peaking in January 2022, the increase in V2 users saw the price of XWG drop due to circulation inflation.
• V1 Peak: The active user peak coincided with the release of the V1 card game and XWG token in August 2021, followed by a rapid decline.
• V2 Peak: The peak occurred between November 2021 and January 2022, coinciding with the release of the V2 card game and economic system upgrade, with high staking retention rates.

5) Resource Analysis

Summary -- Multi-dimensional Model Quantification

Quantitative Conclusion

• The team, community, and resource background are relatively balanced.
• Strong team resources enhance game playability and refine a better economic system.
• Community heat can attract cooperative guilds to settle in, lowering the entry barrier.
• The transaction volume on BSC and the proportion of users remain substantial, favorable for continuous development and innovation.

IV. Project Details -- Competitive Analysis

Barrier Resistance (Weak):

• Simple game mode is easy to replicate.
• Low detail in 3D models, easily surpassed.
• Platform and contract code barriers are high, leading to high hiring costs for developers.

Competitor Capability (Medium):

• Card/strategy/story-based blockchain games are nearing saturation, with fierce competition in user groups, and lower DAU compared to leading blockchain games.
• Similar products targeting ACG have not seen explosive phenomena comparable to leading blockchain games (AXS and STEPN).
• Few blockchain games or platforms of the same style exist, and it remains a niche track.
• Compared to traditional games of the same style, competitiveness is weak, such as Genshin Impact and Honkai Impact, which support multiple platforms.

Substitution Resistance (Medium):

• Currently, the metaverse concept aggregates SocialFi and blockchain games, but there is little infrastructure, and leading platforms only support web-based access.
• VR/XR technology is still in its infancy, with many uncertainties regarding portability, device costs, and performance.
• The flexibility of the XWG platform supports product extensions to any emerging substitutes.

Control over Player Power (Strong):

• The project can adjust incentive parameters and token burning mechanisms to control player return cycles.
• Parameters of the NFT trading market can be adjusted to control arbitrage costs and profits.
• The release lock mechanism of tokens can be controlled for macro adjustments of token prices.

Governance Power over the Project (Strong)

• The game roadmap and token release plan are planned for a total of 10 years, with only one year having passed.
• Contract ownership has not been destroyed, allowing community governance through Snapshot/Discourse, giving the team significant control.
• Economic mechanisms, game development, and cooperative launches still hold power in the hands of the team.

V. Project Valuation Factors and Solutions

In summary, the valuation and solutions for the XWG platform need to consider four important factors: differentiated positioning, innovative economic systems, resource integration, and costs, detailed as follows:

Differentiation:

• Strengthen ACG cultural characteristics, enhance brand platform effects through output/cooperation/import of leading IPs to improve competitiveness.
• Establish a vast worldview and storytelling, enhancing artistic perception and game interface/playability experience.
• Extend metaverse brand cooperation/development, incorporating VR/XR devices and console support to increase substitution resistance.
• Focus on strengthening the technical entry barriers of products, leveraging community power to absorb and widen the gap with similar competing products.

Economic System:

• Game updates and product development continue to grow the deflationary effect.
• Integrate innovative technologies from DeFi, such as derivatives, stablecoin systems, AMM, ZK, NFT lending, equipment NFTs, etc.
• Dynamically adjust token release and burning parameters, developing new economic systems to extend the deflationary period indefinitely.
• Open community-based governance and game creation to extend the platform's lifecycle indefinitely.

Resource Integration:

• Utilize resources from partners and investors to capture more traditional and blockchain players not yet captured by blockchain games.
• Leverage community heat and fanbase to establish a gathering place for ACG creators, organizing online and offline community activities.
• Seek partnerships with guilds that benefit game economic development, lowering entry barriers for newcomers.
• Collaborate with leading traditional ACG game studios/games to accumulate talent resources in this industry.

Costs:

• Development costs and time costs of roadmap goals.
• Community governance costs and decision-making costs.

1) Competitive Products in Gaming Platforms

2) Competitive Products in Games

3) Potential Competitive Valuation Methods

Valuation Analysis

• Market Cap: Total market cap of circulating tokens, mainly used to analyze short-term holders' valuation of the project.
• Diluted Market Cap: Total market cap of issued tokens, mainly used for comparative analysis of similar projects' long-term valuation.
• Market Cap/Total User Count: This ratio is used to observe the valuation situation of the game's circulating market cap relative to the total number of users; a larger value indicates higher valuation risk, while a smaller value indicates lower valuation risk and higher return rate.
• Market Cap/Monthly Active User Count: This ratio is used to observe the valuation situation of the game's circulating market cap relative to current player activity; a larger value indicates a higher impact of user sentiment on market cap, while a smaller value indicates a lower impact.
• Market Cap/Staking Amount: This ratio is used to observe the confidence of the community in the game relative to the staking amount; a larger value indicates greater confidence, while a smaller value indicates less confidence.
• Diluted Market Cap/Total User Count: This ratio is used to observe the valuation situation of the game's diluted market cap relative to the total number of users; a larger value indicates a higher valuation compared to similar projects and higher downside risk, while a smaller value indicates a lower valuation and higher upside potential.
• Diluted Market Cap/Monthly Active User Count: This ratio is used to observe the valuation situation of the game's diluted market cap relative to player activity; a larger value indicates a higher valuation per active user, while a smaller value indicates a lower valuation.
• Diluted Market Cap/Staking Amount: This ratio is used to observe the game's diluted market cap relative to the community staking amount; a larger value indicates greater project credibility, while a smaller value indicates lesser credibility.

4) Solutions -- Roadmap Goals (Total Score 100)