Immutable X: From Blockchain Game Infrastructure to a Standardized NFT Issuance Platform

Author: echo_z, Chain Teahouse

Immutable, a company that transitioned from gaming to infrastructure, aims to support the development of all Web3 games, and its path is to build an L2 that facilitates trading of game NFT assets. This is precisely what we know as its main product, Immutable X (hereinafter referred to as IMX). Additionally, Immutable operates a game studio, capable of independently producing or publishing blockchain games.

From Immutable's origins and goals, it is centered around Web3 games, but while empowering games, IMX also empowers all NFT projects, thus in actual operations, Immutable has become a "general NFT" issuance platform. This article will focus on its infrastructure, IMX, analyzing the advantages and prospects of this gaming/NFT platform.

Product Mechanism

IMX is a special L2 public chain with two very developer- and user-friendly features: on one hand, minting/transferring NFTs incurs no fees at all, which distinguishes it from almost all public chains; on the other hand, IMX provides developers with a REST API interface, allowing them to deploy NFTs on IMX without writing smart contracts, and all marketplaces integrated with IMX can share NFT liquidity.

For both users and developers, IMX offers an extremely low threshold, laying the foundation for large-scale traffic acquisition. The following sections will analyze the implementation mechanisms of user experience and developer experience from several core designs: underlying technical solutions, fee distribution, developer tools, and shared order books.

1.1 High Throughput Validium Solution

The underlying technology of IMX adopts StarkEx's customized service, using the STARK proof system to verify transaction results for scaling. The advantage of this solution is its strong scalability, while the disadvantage is that it does not support general computation, making composability impossible. The IMX team believes that the lack of general computation is not fatal for the NFT ecosystem, hence this solution was adopted in the early stages[1]. It can be seen that the team has a very clear trade-off regarding product functionality.

In terms of scalability, IMX chose the lower-cost, higher-throughput Validium data availability solution, achieving further performance improvements.

Here is some background information: among all the information packed in L2, part of it is the updated state root, which must be submitted and stored on L1 for node verification, incurring gas costs; the other part consists of complete transaction instructions used to restore and verify the entire transaction history. There are typically two handling options for the latter: one is to submit it to L1 as well, which is costly but safer, representing a strict Rollup solution; the other is to submit it to multiple off-chain verifiers, and after verification, submit the signatures to L1, greatly improving performance at the cost of some security. In ZK-based scaling solutions, the latter is referred to as "Validium."

The Validium solution adopted by IMX is also one of the services provided by StarkEx, where transaction instructions are verified off-chain by a data security committee composed of multiple parties, including StarkWare, Immutable, DeversiFi, Nethermind, Cephalopod, iqlusion, and Consensys. Meanwhile, IMX's official team acts as the sole sequencer, performing initial validity verification and ordering of orders, which grants IMX strong control capabilities to filter out spam transactions. Additionally, since the current product does not involve privacy features, transaction instruction data is stored on IPFS.

The number of NFTs on IMX is vast, and the Validium model can significantly reduce transaction fees, which is crucial for IMX. According to StarkWare's disclosures, StarkEx can achieve a gas usage of only 17 gas per transaction and less than 10 gas for each NFT mint[2]. If we calculate based on a basic gas fee of 100 gwei (not considering miner tips) and an ETH price of $1,700, the single transaction and NFT minting costs would be $0.0029 and $0.0017, respectively. At the time StarkWare released this data (April 2021), IMX had already spent $3,000 minting approximately 1.5 million assets, averaging about $0.002 per asset.

In comparison to ZK Rollups, even the cheapest Loopring and the simplest ETH transfer cost $0.02. The Validium model saves at least 10 times on transaction fees for IMX.

Additionally, IMX's TPS reaches up to 9,000, far exceeding that of ordinary public chains. However, for IMX, since the main scenarios involve NFT minting and trading, while in-game operations are conducted off-chain, reducing transaction fees is more important.

It is worth mentioning that IMX is currently integrating StarkNet, which means it will expand from the Validium model to a strict Rollup model. Although in the initial decision, the team accepted the drawback of ZK-based solutions not supporting general computation, recent developments indicate that IMX still hopes to provide more diverse possibilities for game developers. The services provided by StarkEx are tailored for each app and cannot be functionally extended; more complex smart contract functionalities can only be developed by migrating to StarkNet. Therefore, IMX is transitioning from StarkEx services to StarkNet.

The specific implementation method is: IMX will provide its product suite (order book functionality, NFT minting tools, marketplaces, etc.) on StarkNet, which are smart contracts written in Cairo. Project teams using the IMX suite can implement basic NFT minting and trading functionalities on StarkNet.

Interestingly, IMX suggests that project teams can choose to implement different functionalities on different chains. For example, in the case of Illuvium, land sales can occur on the L1 mainnet, while avatar (Illuvitars) sales can be implemented on IMX, which provides services through StarkEx, and staking and trading pools will be deployed on StarkNet[3].

IMX's integration with StarkNet opens up more options for project teams. On StarkEx, IMX provides low-cost, standardized NFT minting and trading functionalities; on StarkNet, it sacrifices low-cost features for greater flexibility.

1.2 Fee Distribution of Value Tax

By adopting the Validium off-chain storage solution for complete transaction data, IMX significantly reduces fee consumption, which is an important prerequisite for lowering user thresholds. Furthermore, IMX has wrapped a layer of fee distribution scheme, offering a "0 fee for minting/transferring NFTs" policy. This approach is very similar to the logic of Web2 products that rely on low prices or free strategies to acquire massive traffic and then convert high ARPU users from it.

The IMX team believes that valuable flowing behaviors should subsidize non-valuable flowing behaviors, hence for NFT transactions with prices, a uniform tax of 2% will be charged, while for minting and transferring, the platform will provide subsidies, allowing users to complete these actions for free[4]. Moreover, when charging, users can use the transaction token without needing to purchase the platform token $IMX separately, providing maximum convenience. IMX uses macro-control methods to provide free services for minting and transferring, undoubtedly expanding the user base.

However, this platform tax started to take effect only in June of this year, and in June, it was charged at only 1%, resuming the 2% rate in July.

The premise for the establishment of this typical Web2 subsidy logic is that the difference between revenue and subsidies is positive: that is, the profit from the 2% transaction tax must exceed the costs of subsidizing minting/transferring behaviors for the platform's cash flow to remain positive and sustainable.

Looking at the subsidy side: the official website shows that this year, 29.8 million NFTs have been minted, averaging 140,000 per day. Assuming a minting cost of $0.002 per NFT, the daily expenditure would be $280. NFT transfer data is not displayed here and is not counted, but it is estimated that the volume of this behavior is not large.

Now looking at the revenue side: the browser provided by IMX displays all NFT transaction volumes for the past two months, with precise values for each data point on the official website. Statistics show that the total transaction volume over the past two months is approximately $18 million, averaging $300,000 per day. With a 2% tax rate, it could collect $6,000 daily, which is more than sufficient compared to the daily subsidy expenditure of $280. Of course, the 2% rate is a future rule; in reality, the entire month of June was charged at 1%, and the 2% rate resumed in July. Additionally, it is currently only possible to estimate annualized figures based on the last two months of data, and longer-term data cannot be used to infer trends.

1.3 Developer Tools Based on API

Being developer-friendly is also a major feature of IMX.

IMX allows developers to access services through REST APIs, enabling NFT minting, trading, and transferring, or reading user balances, requesting user signatures for transactions, etc., all through API calls[5]. Thus, developers do not need to learn Solidity or smart contracts to complete basic NFT deployment, which is ideal for projects that focus more on market than development.

In fact, IMX has indeed attracted a number of such projects, which will be specifically exemplified in the operational ecosystem section of subsection 2.

1.4 Shared Order Book Model

For project teams, another feature of IMX is the shared order book: all projects using IMX's underlying technology can display and trade all NFTs listed in other marketplaces, even if they have built their own marketplaces, effectively aggregating all NFT liquidity automatically through the IMX protocol. Meanwhile, IMX also provides its own marketplace, with its developed game Gods Unchained integrating the IMX marketplace.

In the IMX ecosystem, shared liquidity allows sellers to have their listings purchased by buyers in any marketplace, and marketplaces can customize tax rates for buyers or sellers. As shown in the figure below, different marketplaces charge a 1% tax for buyers and sellers, respectively. Marketplaces are akin to free traders, sharing all goods but allowing for customized service models.

Currently, several marketplaces, including OKX, Mintable, and Token Trove, have integrated IMX technology. In addition to paying marketplace fees and creator royalties, orders completed through these marketplaces will also contribute a 2% protocol fee to IMX. Opensea also officially announced last April that it would inherit IMX, but there is currently no clear timeline.

Through this method, cooperation between different marketplaces will outweigh competition, enhancing liquidity within the entire IMX ecosystem, which is undoubtedly beneficial for the IMX ecosystem.

2. Operational Ecosystem

As mentioned earlier, IMX's original intention is to support the development of Web3 games, but its actual functionality can meet the issuance needs of all NFT projects, thus becoming a "general NFT" platform.

From an overall scale perspective, the IMX ecosystem is already quite substantial. In subsection 1.2, we calculated that the total NFT transaction volume over the past two months is approximately $18 million, averaging $300,000 per day. If this volume continues and the 2% protocol tax policy is implemented, then the protocol's daily revenue would be approximately $6,000, and monthly revenue would be approximately $180,000, which is already 10 times the revenue of the Optimism protocol.

In terms of distribution, NFT projects in collaboration with IMX account for approximately 35% of the total, which is significant but does not hold an absolute advantage, while the remaining 75% are other general NFT projects.

The chart below shows the top 15 projects ranked by transaction volume over the past 7 days on IMX, where #1 Gods Unchained, #3 Illuvium, #6 Ember Sword, #8 PlanetQuest, and #13#14 GOG are all game projects recommended by IMX.

The official team has recommended a total of 6 game projects, of which only one card strategy game, Gods Unchained, is open to all players. This was also the project Immutable initially entered the industry with, and later Immutable transitioned to building NFT infrastructure to support the development of Gods Unchained. Although the other games are still in internal testing, most have already released assets, so 5 out of the 6 games are among the top 15 in platform transaction volume.

Based on the 90-day transaction volume in the table, the daily average transaction volume of these 5 game projects is approximately $100,000, while the overall platform's daily average transaction volume is approximately $300,000 (as noted in subsection 1.2), with NFT transaction volume from game projects accounting for about 35% of the total.

The other projects come from a wide range of sources, such as #5 Hro, which is a licensed merchandise distributor for the DC brand, issuing 1:1 DC cards on-chain and in physical form, allowing users to purchase physical cards on Amazon and scan to obtain corresponding NFT cards, with both minting and trading occurring on IMX; and #10 Book Games, which is one of the NFT series issued by the NFT community VeeFriends, focused on intellectual property.

Overall, IMX, as a platform serving NFT functionalities, starts with a focus on gaming assets but also encompasses various pure NFT projects in actual operations, with the latter accounting for a significant portion of transaction volume (approximately 75%).

Whether for gaming assets or pure NFTs, projects on IMX share a common characteristic: individual assets tend to be small. For instance, the floor prices of the top 15 ranked projects range between 0.002 to 1.5 ETH, with many projects having floor prices below 0.1 ETH. Considering IMX's free minting/transferring feature, IMX is particularly suitable for "small and frequent" NFT trading scenarios, where operational fees are low, but the security level is not as high as that of the Ethereum mainnet or Rollups, and games requiring a large number of cards, such as Gods Unchained, are representative of this type of scenario.

3. Token Economics

The platform token for IMX is $IMX, which was issued in November last year, with a total supply of 2 billion tokens and a current circulating supply of approximately 240 million tokens.

$IMX has three utilities.

1) As a transaction fee. 20% of the IMX protocol fees need to be paid in $IMX, which can be directly used with this token, or IMX will exchange actual transaction tokens for $IMX in the secondary market to increase buying pressure.

2) Staking to obtain ecosystem incentives. IMX's staking is slightly different; users need to hold at least 10 $IMX for a period of time, and during this period, they must have traded at least 1 NFT and participated in governance to be considered as staking.

3) Governance. Proposals have a certain holding threshold, but all token holders can vote. The details of this part have not yet been planned and are currently vacant.

In the distribution of $IMX, approximately 51.74% is allocated for ecosystem development, including user staking incentives, developer funds, marketing, etc.; 25% is allocated for the protocol itself for development and operations; approximately 14.26% is allocated for private placements; 5% was sold in public offerings; and 4% is retained by the foundation for providing exchange liquidity, etc.

The issuance of tokens for user incentives is still held irregularly. Recently, IMX launched a new incentive activity, starting a trading mining activity on July 26, along with two rounds of staking mining activities running simultaneously.

4. Team and Financing

Immutable was co-founded by a pair of young brothers from Australia. The elder brother, James Ferguson, serves as CEO, having studied law at the University of Sydney from 2011 to 2016, and after graduation, founded three companies before starting Immutable in 2018. The younger brother, Robbie Ferguson, who is five years younger, also attended the University of Sydney but dropped out to establish Immutable, serving as the general manager[6]. CTO Alex Connolly is also a peer; he dropped out while studying at the University of Sydney and co-founded Immutable with the Ferguson brothers.

In addition to the IMX infrastructure, Immutable also has a game studio responsible for the operation and maintenance of Gods Unchained, as well as game publishing. Another game project recommended by the platform, Guild of Guardians, is published by Immutable's game studio.

The game studio has an independent team, with VP and game director of Gods Unchained, Chris Clay, being a veteran in the gaming industry who joined Immutable in July 2019. Most of the other management team members have not been with the company for long, including G. Justin Hulog, the studio executive director from Riot, and Veronica Foo, the marketing director who has worked at Ubisoft, Riot, and Illuvium, both of whom joined this year; Aakash Mandhar, the engineering director who has worked for Microsoft and Electronic Arts for many years, joined in November last year.

Although the core team is young, they have recruited many seasoned industry figures and have solid capital backing.

So far, Immutable has announced five rounds of financing, raising a total of approximately $280 million. In July 2018, two financing rounds were announced, both led by Continue Capital and Nirvana Capital, with each amounting to $2.4 million; in September 2019, a $15 million Series A financing was completed, led by Galaxy Interactive and Prosus Ventures; in September 2021, an A$82 million Series B financing was completed, led by BITKRAFT Ventures and King River Capital; in March 2022, a $200 million Series C financing was completed, led by Temasek.

5. Advantages and Challenges

The characteristics of IMX are very clear, trading a certain level of data security for convenient and low-cost experiences for developers and users, which also creates its corresponding advantages and disadvantages.

IMX's free minting/transferring of NFTs and API interfaces are its greatest strengths, significantly lowering the barriers to NFT issuance. At the same time, IMX is also part of the Ethereum ecosystem, and by integrating with StarkNet, it can achieve composability with other smart contracts, making it more flexible compared to the completely independent Flow.

This also makes IMX more suitable for "small and frequent" lightweight assets, where such scenarios can better leverage the high throughput advantages of the Validium model, and the requirements for data security are lower. Conversely, high-value asset holders may be reluctant to risk storing and trading assets on IMX, which may not attract high-quality blue-chip NFT projects; moreover, if NFT projects have complex DeFi interaction logic, the current IMX may also struggle to provide technical support.

Looking at the data from the past two months, IMX's business data appears very healthy, with an annualized transaction volume reaching approximately $100 million, and with a 2% tax rate, annual revenue could reach $2 million, which can fully offset the costs of minting NFTs. Observing future trends will require tracking upcoming business data to see if it declines with a deep bear market or decreases with the implementation of the 2% tax rate.

6. Appendix

[1] Explainer on how our design architecture powers the future of NFTs:

https://immutablex.medium.com/explainer-on-how-our-design-architecture-powers-the-future-of-nfts-c05a9efc19fd

[2] StarkEx --- Now for NFTs:

https://medium.com/starkware/starkex-now-for-nfts-bfdc9f4655a2

[3] Immutable + StarkNet: Cross-Rollup NFT Liquidity:

https://immutablex.medium.com/immutable-starknet-cross-rollup-nft-liquidity-b32df88cda02

[4] Protocol fees alive:

https://immutablex.medium.com/fees-on-immutable-x-79d3e7207b12

[5] Explainer on how our design architecture powers the future of NFTs:

https://immutablex.medium.com/explainer-on-how-our-design-architecture-powers-the-future-of-nfts-c05a9efc19fd

[6] https://www.finnotes.org/people/robbie-ferguson