What is the project?
GameFlip is launching a platform where digital goods purchased and earned on gaming platforms can be sold as liquid assets. Currently, when gamers buy or earn digital goods–skins, items, power ups–they cannot recapture that value. Goods are locked on single platforms on single accounts, and if a gamer moves on from the game, they are lost. Using GameFlip, developers and publishers would allow gamers to resell these goods to other gamers and capture a share of the transaction. Transactions will be supported through smart contracts and goods would be vouched for by the game publishers.
The Gameflip marketplace is functioning currently with over 2 million gamers and support for P2P trading of in-game items, games, and equipment. They currently guarantee item delivery to protect against fraud and support a seller reputation system, similar to eBay. With the proceeds from the ICO, they would integrate smart contracts as payment escrow and introduce the FLIP token, which will be the payment rail on the platform.
What is the token being sold?
The FLIP token will be the only means of buying and selling goods on the platform, though Gameflip will offer the ability to actually pay using fiat and crypto: FLIP presumably is used as a payment rail. They haven’t released details about pricing on the platform itself, specifically whether gamers will price their goods in FLIP or in another currency. The FLIP token should thus track the total value of goods sold on the platform.
The token sale terms (250 FLIP per ETH at maximum bonus) implicitly value the 100 million total token supply at a minimum of 400,000 ETH–$180 million with ETH at $450. Unsold tokens will be discarded, so the supply in immediate circulation, which is sometimes used in the cryptofinance industry to calculate network value (market capitalization), would depend on the number of tokens sold in the sale and would roughly match the amount raised. It’s worth noting that the Gameflip team advertises itself as having a <$20 million market capitalization, which they arrive at using a different (but still common) method of only including sold circulating tokens.
Token distribution: 43.2% are reserved for the token sale (though it is unclear if this includes the amount sold in the October presale), 40% for network growth (discussed below), 14% for Gameflip, and 2.8% for advisors and partners. The supply in circulation will grow every six months due to the vesting schedule and a rewards scheme.
Gameflip is reserving tokens to support strategic partnerships and network growth. A portion of tokens are reserved for incentives for game publishers. Every year starting in 2018, Gameflip will release 10 million tokens to publishers to resell to their users. Each year starting in 2019, Gameflip will take a portion of the proceeds from those resales to reinvest in additional incentives for the community.
This will effectively give Gameflip a budget for marketing above and beyond amount raised in the sale.
What is the project and technology status?
Gameflip itself has been around since 2014 and has the backing of several venture capital firms, including Bullpen Capital, GoAhead Ventures, Lightbank, Forefront Ventures Partners, and BnkTotheFuture. The Gameflip marketplace is functioning currently with over 2 million gamers and support for P2P trading in-game items, games, and equipment. They currently support around 12 games, including CounterStrike and Rocket League. The white paper doesn’t specify sales numbers but indicate that sales are growing, with a monthly growth rate of 1500% since 2016. The marketplace currently has hundreds of item listings, with prices ranging from $.75 – $2500. The platform accepts fiat and Bitcoin.
Currently, the game relies on buyers and sellers authenticating purchases. Gamers initiate a trade on Gameflip, then go into the game itself to transfer ownership, and verify the transfer took place back on Gameflip. Gameflip hopes that integration with Ethereum will enable game publishers to support one-click payment and item transfer. The blockchain in turn can track who owns which items. Ultimately, publishers will control which items can and can’t be resold through Gameflip’s Software Development Kit (SDK), still to be developed .
Gameflip’s smart contract integration hasn’t been completed. Their github does have code for steam integration.
They held a presale in October 2017 and raised 3,360 ETH for an estimated 895,000 FLIP (according to advertised ETH/FLIP prices and an analysis of their token sale contracts). This placed the valuation on the total supply at 375,000 ETH–not far below the proposed ETH valuation and in-line with reasonable expectations about valuations growth over two months.
Who is the team behind the project?
The Gameflip team is comprised of experienced industry veterans. Co-founder and CEO JT Nguyen, with a MS in electrical engineering as well as an MBA, has a decade of experience in the gaming industry. Co-founder and CTO Terry Ngo has an MS in electrical engineering and also has a decade of experience in the gaming industry. Head of Engineering Bryan Talbot has a long history in the gaming industry, and in working with Gameflip’s co-founders, as all were together at a previous venture, Aeria Games. The group also has an extensive advisory board that includes considerable VC, gaming, and blockchain expertise and should leave the company well-prepared to meet any challenges that arise.
There are two ways to analyze the market for Gameflip. The first is by comparing Gameflip to similar blockchain projects. They are entering a surprisingly crowded field that has seen several similar token sales do well at arguably similar valuations.
The second is the actual gaming market and how such a product would be received. The general idea has been lavishly praised and eye-popping numbers attributed to it. Below, we offer some thoughts that summarize industry commentary on this market.
Gameflip is entering a dynamic market segment
Gameflip is not the only project to target the trading of in-game goods. The gaming sector in general has raised significant sums of money through token sales and has a rich history, starting with Spells of Genesis, of integrating blockchain technology in novel ways. Within this sector, there are many blockchain-based games, but there are also several marketplaces for gamers.
This chart does not include the myriad esports related token sales, the actual games that raised funds, or projects providing other services to gamers.
All of the above are either offering something directly competitive or could pivot into it easily. WAX is the coin powering Opskins, one of the largest active marketplaces for P2P gaming skins, focused on CounterStrike: Global Offensive. Opskins reportedly processed $120,000 in transactions per day in 2015. MobileGo is both a mobile gaming platform and a store for in-game purchases.
This suggests Gameflip will have well funded competition at or ahead of its level of development–but also that capital to support projects like these isn’t hard to come by and the market generally believes there will be demand for such infrastructure.
The market for in-game goods is clear and growing
The second question is whether the market Gameflip is targeting is truly big enough.
It is clear and widely acknowledged that gamers already spend billions of dollars on digital gaming and that many aspects of the gaming industry are slated to grow. The 2 million gamers currently using Gameflip and the $120,000 processed on Opskins are a testament to that. In addition, secondary markets for purchased or earned in-game goods have been alive and well for over a decade.
There are several key unknowns in the industry.
Solid data on the market size are hard to come by. The $94.4 billion figure usually cited by companies in this industry includes all digital purchases, including games themselves. It is somewhat disingenuous for companies to cite this figure as their addressable market–and incorrect for other token sale reviews to parrot it. Mobile games are one of the largest segments and growing the fastest (20% YoY), but in-app purchases on mobile games usually involve expendable items and power-ups rather than rare and potentially resellable goods. The total market for tradeable gaming purchases may be more limited than companies present. Gameflip contends that the market will grow remarkably if gamers can resell their goods, although this is an unknown. A payment token designed to support a $1 billion market is vastly different than one designed to support a $100 billion one.
Does the industry want to embrace secondary markets? There are many reasons companies prefer the status-quo. In-game items are relatively cheap to design and the game developer or publisher has absolute control over pricing. They can increase the relative value of items simply by making them rare. They also pocket all the proceeds. Allowing gamers to resell items introduces a lot of complexity and uncertainty in sales and cuts into that revenue. It is one of the reasons Amazon has no incentive to let Kindle users resell their used ebooks: why collect $1 on a resale when you could collect $10 on a sale.
That said, many companies already contend with black markets for the trading of their in-game goods. There are also reasons they are in search of a new model. In-app purchases have a soiled reputation after publishers like Zynga started designing games to maximize the yield from paying gamers. The industry is currently grappling with considerable gamer backlash, though gamers don’t have much influence over publishers. In addition, the business model has led to widespread dependence on a small set of ‘whales’ whose purchases drive a majority of revenue. It’s a precarious business model that the industry could be willing to ditch if a clear alternative emerged.
Finally, if companies do embrace this model, how much of the industry will rely on third-party platforms? In other words, how much of the market is up for grabs for a company like GameFlip. The case of World of Warcraft and the Wowtoken (see Appendix) suggests that publishers could explore the model but might prefer their own infrastructure, where they have more control over the user experience and aren’t subject to the market implications of another game’s design decisions. Without such control, there will always remain arbitrage opportunities because ultimately, game publishers will likely retain control over how easy their items are to acquire and how relatively powerful or desired they would be.
Publishing empires like Blizzard and EA might create their own economies, while platforms like Steam might also introduce exclusive markets long-term. All have implications for Gameflip’s penetration.
Ultimately, an open platform utilizing cryptocurrency for the sale of in-game items would be a radically different model for the gaming industry. Gameflip argues that publishers will be able to sell digital goods at higher prices, increase the longevity of their games, and earn fees from the resale of their goods. This new model could solve some existing challenges facing gaming companies trying to monetize while keeping their user base engaged. In addition, while titans like Blizzard can support their own markets, the longer tail of indie games would need such infrastructure if they wanted to embrace a new model. Gameflip will be one of several companies trying to provide such infrastructure.
The sale terms seem in-line with current industry activity and not different from peer companies. The Gameflip team is very experienced and already have a working product and community. This doesn’t necessarily distinguish them from MobileGo and Worldwide Asset Exchange (WAX), but it means they should be able to compete. Their use of a large portion of their token supply to support network growth was smart and could give them a hefty war chest for future growth. MobileGo and WAX did something similar but with a smaller portion of supply.
Between games themselves, esports, and platforms like Gameflip, a lot of money will be made at the intersection of gaming and cryptocurrency. A team like Gameflip’s seems well positioned to navigate this intersection. However, if they decide to pivot or realize another market opportunity, will they bring the FLIP token along with them? This is an unknown the entire token industry is still grappling with, and given the dynamism in both the gaming and blockchain industries, Gameflip and its peer might be test cases.
APPENDIX: the Wowtoken
One of the most infamous economies to emerge from the industry was the market for gold in World of Warcraft. In the game, gold was used to purchase items and power ups. Gamers could earn gold–or they could buy it from others. This led to the emergence of gold miners who would mine for valuable goods and then resell them in-game for fiat. The game did not support such activity, and it was effectively a black market in which gamers rich with cash but poor on time could buy their way to rare items they otherwise would have need to earn through hundreds of hours of play. Blizzard, the publisher behind World of Warcraft, initially did not sanction the activity, citing the use of stolen player accounts for acquiring items for resale (instead of mining it), the use of bots to mine gold, and widespread fraud.
Nonetheless, the activity proved difficult to police and eventually Blizzard had to respond. In 2015, they introduced the Wow token. Players could sell goods to each other for Wow tokens that the seller could redeem for game time. A market emerged for the effective fiat price of gold, with real-time prices tracked since 2015 at wowtoken.info. In 2017, they allowed the token to be redeemed for $15 Battle.net balance, which can be used to buy a variety of goods across Blizzard games, including the popular Overwatch. This led to an initial immediate ~50% increase in the price of gold and a steady climb since to a high of approximately 200,000g per token, or $7.50 for 100,000g.
This market does suggest that publishers might be open to such an approach but the Wowtoken suggests popular publishers (who likely drive a large share of total spend) might prefer to build their own infrastructure with which they can control their own economies. Blizzard’s API does not reveal Wowtoken trading volume, which would be an excellent baseline for estimating revenues for trading fees.