Market Making via Gamer Enablement with NFTy Arcade

As web3 wallows around in the bear market, Splinterlands has still seen some success in spite of market conditions. According to Dapp Radar, Splinterlands has more average Unique Active Wallets than any other decentralized application in web3. This is thanks to significant investment in community building over 4.5 years since launching in May 2018, as well as some welcome hype around new product launches, presales, and continued improvements to their flagship game.

Yet plenty of holes still exist. Asset values have dipped, and community growth has been slowed. Splinterlands has made valiant attempts to break through by providing what all games should provide - ever improving entertainment value. But it has still been a difficult, uphill climb.

Observing the rise of other early web3 games during the last bull run, we saw that part of their meteoric rise was due to the low barrier to entry. It didn’t cost much (or anything) for new players, regardless of social status or geography, to own NFT’s required for gameplay and begin to earn. Of course many of them employed ponzi-like economies, so they have predictably crashed severely under the weight of the bear market.

Part of the strength of Splinterlands is the design of their economy. Splinterlands has a good system of sources, sinks, and incentives to ensure that those extracting the most value are also the ones putting the most value into the ecosystem. It must remain this way for long run success. But at the end of the day, this economic design also increases the barrier to entry for the masses to play the game at a high level. Despite growing demand for gameplay in the upper leagues, it has been tough to attract new capital into the ecosystem under bear market conditions (although all bets are off during bull runs).

Gamers want to play games at a high level. In Splinterlands, that requires quality card decks that can be expensive to accumulate. The lower leagues within Splinterlands don’t offer much for earning incentives, and rightfully so. But the lower levels also employ less character abilities, lower card stats, and less interesting ruleset combinations than the higher league levels. This creates an issue - masses of gamers interested in playing at higher league levels hitting the wall of capital requirements to do so.

The Splinterlands ecosystem has long included card rentals as a key way to temporarily fill gaps in players’ card collections, but when it comes to onboarding new players into the ecosystem, this is an incomplete approach. First, Splinterlands is a heavy strategy game that rewards intimate knowledge of your own card collection and how different combos of cards harmonize under ever-changing rulesets. So in effect, deciding which cards to rent is a formidable challenge for new players. Second, renting cards still incurs an upfront cost, even if it’s low relative to purchasing cards. Even though renting cards is far less expensive than purchasing high quality card decks, it’s both time consuming to stay on top of and still rules out a lot of gamers who simply won’t bother with the extra time investment (or can’t afford to even rent cards).

What if Splinterlands could offer an onramp that costs nothing, provides curated decks of cards for novices, and accelerates the learning process for understanding such a strategy-heavy game? Would that help increase the supply of gamers with access to higher level league play? And if by offering such a smooth onramp for gamers, could demand for quality cards decks increase significantly? If demand for quality decks increases significantly, would that attract a lot of capital into the ecosystem to meet that demand? I suspect the answer to each of these questions is yes.

Lowering the Barrier to Entry

Part of Splinterlands’ ethos has always been to encourage third party developers to benefit from the ecosystem in exchange for adding value in the form of building tools and markets. Splinterlands doesn’t typically seek profit or control, but rather views this approach as an extension of their own dev team. After 4.5 years there are seemingly countless tools in the ecosystem, entire businesses built exclusively within the ecosystem. Tools like Peakmonsters, Splintercards.com, Monster Market, Bazario, and many others come to mind. More recently, NFTy Arcade has joined the fray after evolving from a guild that played Splinterlands to a platform and tool provider.

Play to Earn gaming guilds went bananas during the last crypto bull cycle. The concept is simple… centralized capital acquires assets in web3 games. They then hire gamers who otherwise couldn’t accumulate such capital to play the game with their assets. Then they share the rewards. This is the game NFTy Arcade initially played before innovating their entire business. Their innovation, like so many others throughout history, is tied to simplicity. They’re effectively decentralizing the P2E guild concept with their new platform - Gateway. Each individual owner of high quality card decks can behave as if they were running a P2E gaming guild, without the hassle of operating an entire business.

Their business model offers investors (lenders) who own quality Splinterlands card decks a way to deploy their decks for gamers (borrowers) to use and earn rewards in the more interesting higher leagues, while sharing the gamer’s earnings. There is no upfront cost to the gamer like there is with renting individual cards, and there is far less upfront time investment to figure out which cards they need/want to rent (and managing renewal rentals). Decks are preconfigured by the lender, with help available from NFTy Arcade’s staff, and gated by 1) minimum rating, and 2) league level which are both dictated by the owner of the deck. Deck owners can also dictate that the borrower play the deck in guild brawls (for additional rewards). If the conditions are not satisfied, the deck is pulled back to the lender automatically.

This is incredibly liberating for gamers who like playing a game like Splinterlands at a high level. Are there still gamers who are purely profit motivated? Sure, but that will always be the case with web3 gaming. The subtle brilliance of this model though is that a gamer who wants to be entertained in addition to earning rewards no longer has their choices limited to joining a P2E guild (which can have its own challenges). It also improves the education experience, as the free-to-play onramp allows for the best education possible in any game: learn by doing.

In essence, any gamer with the requisite rating can access a quality deck to play at a league level of their choosing, as long as there is a deck available capable of playing in that league. And they have a way to build their rating while learning the nuances of the game via a series of transient, lower-level decks available for rent with low earning potential. Gamers now have a way to 1) decide if they want to invest in owning their own card deck(s), and/or 2) begin building their own collection through reward cards and other assets earned by playing the game at a higher level.

Residential Real Estate Analogy

Without a system of financial institutions providing mortgages, home purchasing would be inaccessible to the vast majority of the population, even in affluent countries. And one can’t exactly earn a house over time without someone fronting the capital… it’s silly to consider buying a few 2x4’s here and there, an occasional PVC pipe, a couple shingles, etc. But with up front capital that in some cases requires $0 down to access, more people can afford to purchase a home over the course of years.

NFTy Arcade’s Gateway platform effectively is analogous to a residential real estate market. Lenders provide a 0% down payment mortgage (premium card decks) with terms and conditions, and in exchange borrowers get to live in the house they want (play in the top leagues). Over time, the borrower pays down the principal on the mortgage (lender’s split of earnings), and builds up equity (their own card collection along with other rewards), while the lender earns interest (fungible tokens, cards, etc).

If the borrower truly enjoys the game, they simply continue accumulating rewards and sharing back to the lenders… and eventually build a nice collection for themselves. If the gamer grows bored of the game, no sweat… just stop playing the game and consider whether they want to sell the net assets they accumulated while playing.

This model can potentially create an entirely new core of gamers in Splinterlands, playing an important role for a free market like the Splinterlands’ ecosystem - increasing demand. As with any free market, if demand exists, supply will naturally rise to meet it. Everybody wins in this case, as more gamers that enjoy games like Splinterlands have access, investors have a potentially valuable option for earning on their capital, and everyone in the ecosystem benefits from rising asset values. This is not investment advice, do your own research of course!

The Deflation Flywheel

The Splinterlands ecosystem is quite diverse. It’s like a gamified survey course on DeFi education, with a lot of different components that participants can choose to participate in. It has been essential in my own journey to learn decentralized finance… everything from how to use a DEX to learning the effects of deflationary mechanics. One can choose to play the game for entertainment value only, or, at their discretion, stair step up into playing the “game behind the game”.

Of course the cards you play the game with are non-fungible tokens. These NFT’s can be combined to increase their power and add new abilities, but the only way to do so is to burn multiple copies together into one leveled-up copy. The extraneous copies are then burned from an already capped supply, creating an engine for deflation. As an example, common-rarity cards in recent editions require 400 level 1 copies to be burned together for a single level 10 (max level) copy. Each time this happens, 399 copies of that card are burned from supply forever.

In order to play in the highest leagues, a deck must have the following basic characteristics: 1) a diverse menu of cards to choose from, and 2) high level copies of those cards. Presumably if demand is high for quality decks, there will be additional incentive for card owners to burn a lot of lower level cards to create the requisite decks for top leagues. Deflation takes hold, and card values rise. Hence the flywheel analogy (flywheels are hard to get going, but once they do they pick up momentum quickly and with much less effort).

Aside from a more entertaining gaming experience (with better competition, more rulesets, etc), why do gamers want to play in higher league levels though? Because the rewards are much better. Keeping 100% of your rewards for playing in the bronze league level is far less valuable than keeping 20% of your rewards for playing in the champion league level. And if the lender is keeping 80% of the earnings with decks in the champion leagues without having to lift a finger, therein lies additional incentive for them (on top of rising card values thanks to accelerated deflation).

Rewards come in the form of cards (an essential motivator for gamers to build their own collections), but also soul-bound items (rarity boosting potions etc) and SPS tokens. SPS (Splintershards) is the governance token of Splinterlands. The bear market certainly has suppressed the value of all fungible crypto, and SPS is no exception. But the token already has a good amount of utility (including, ironically, real governance applications) with more on the way. Assuming investors believe in the potential future value of SPS, deploying capital into the Splinterlands ecosystem via Gateway to accumulate more SPS can be an attractive option. Especially if they believe this is indeed a flywheel like I have outlined here.

To be clear, there are other incentives to level cards up already in place in the Splinterlands economy, as well as incentives to burn SPS. And there are more incentives for each on the way, especially as land expansion takes hold. But NFTy Arcade’s Gateway platform provides yet another incentive that could play a major role for the deflation flywheel.

A New Narrative for GameFi Capital Deployment

As bad actors undermined the collective efforts of good actors in web3 during the bear, Splinterlands has been establishing a unique position. They offer a battle tested, proven model with over 4.5 years of track record. Moreover, the overall growth and penetration that gaming enjoys globally stands out as an indicator for growth in web3 gaming. Those that do have liquidity and believe in the future of GameFi will likely want trustworthy options to deploy capital. But I believe they also will want to see evidence that there is indeed a growing market. Thus, Splinterlands gamer market making via NFTy Arcade’s Gateway platform gives the future of Splinterlands a nice boost.

Ironically, an apt metaphor for NFTy’s platform is a gateway drug. In roughly 2 months of operation (and not nearly enough decks listed to satisfy existing demand, despite very little marketing effort), data already shows that gamers who initially experience Splinterlands by renting decks on Gateway quickly assimilate to other areas in the Splinterlands ecosystem. They’re buying and renting cards from other players, and they’re buying card packs & rarity boosters at an unexpected clip. In other words, they’re not only sticking with the game, they’re growing their presence. As this new onboarding model proliferates further, it will likely start getting noticed by market participants of all types… including capital bullish on the future of GameFi.

One look at the roadmap (and another look at the team’s track record of delivering roadmap items) indicates that more and more value will be stacked into the ecosystem by the Splinterlands team. Pair that with undeniable demand by gamers who want to play the game at a high level, who now have a much easier pathway in, and it’s hard not to be bullish on the future of this ecosystem. NFTy Arcade is essentially a market maker for lenders and borrowers, evolving the old P2E guild model towards decentralization and a broader spectrum of participants. Gateway is a DEX for gamers and investors to transact, and it’s likely to continue attracting liquidity for the pair. No longer does a gamer need to grind with a guild. No longer does an investor need to stand up a guild business. And most importantly, gamers now have an easier option to learn a fun game, which is informing how they want to participate in the game behind the game (the economy), promoting web3 education.