Primer: Join Li Jin and Nathan Baschez as they interview Gabby Dizon, co-founder of Yield Guild Games (YGG), as he talks all about the play-to-earn blockchain-based game Axie Infinity and how it can break the poverty cycle via a unique rent to play scholarship program offered by the company.
Who is Gabby Dizon?
Co-founder of Yield Guild Games (YGG)
YGG is a play to earn gaming guild in the metaverse
Blockchain-based games
There are games with vibrant in-game economies, like Runescape and World of Warcraft, where people can buy and sell the items they earn in the game
However, it is against the terms of service to turn in-game items into cash
Blockchain-based games use NFT, so the economy of the game is on the blockchain
Instead of in-game currency, some form of cryptocurrency may be used
Assets in the game are NFT and priced in ETH or USD, so they can be bought or sold in the marketplace with other players
E.g. If you own land in the game, you can sell it anytime to cash it out
In traditional games with closed ecosystems, even if you own an item, you can't take it outside the game
In blockchain games, there is the portability of the assets because they exist on the blockchain
"Whereas in blockchain based games, there's portability of these assets, because they exist on the blockchain. And so they belong to you as the owner, they're associated with your account with your keys, and you can take them to other games, or you can sell them on exchanges. And that's the mechanism driving the economy behind how people are actually making money through the games."
- Gabby Dizon
The in-game items earned are truly yours, associated with your own account and secured with your own keys
And you can take them to other games or sell them on exchanges
Player-owned economy
A player-owned economy is where the developer sell items to players and then the players can transact among themselves
There is an NFT standard on Ethereum called ERC-721
The blockchain is like a global database that any application can read
The in-game item's ownership is with the player and you can do what you like with it
Items can be crossed over different platforms
There are people who owned crypto punk and finding ways for them to walk around in Decentraland or in The Sandbox
Still super early in use cases for interoperability
It will eventually mature and improve as developers will want to draw users from other games to their own game
Yield Guild Games (YGG)
How did YGG get started?
Gabby started playing Axie Infinity in late 2018
During the early part of the lockdown in 2020, a lot of Filipinos were laid off from their jobs
The minimum wage in the Philippines is $200 - $250 a month while people were earning $300 - $500 a month for playing the game 2 to 4 hours daily
Some of them found Axie Infinity and started playing
They are not crypto natives - just gamers from the rural Philippines needing to find ways to make money
"If they couldn't afford it, I would basically just give it to them and say hey, pay me back when you can afford it and to my surprise, like two to three weeks later, they pay me back. And they've already paid down the cost of the teams that they borrowed from me through playing the game."
- Gabby Dizon
Instead of rejecting them, he will just give it to them, asking them to pay it back when they can afford it
To his surprise, 2 to 3 weeks later, they paid him back the cost
Gabby saw an opportunity here to breed the Axies for new ones, lend them out to players who otherwise cannot afford the upfront cost
Earning an income with Axie Infinity
Axie Infinity is a game where you engage in battles using NFTs called Axies that can be bought from the marketplace
By winning battles, you earn an in-game item, which is an NFT called a smooth love potion (SLP).
SLPs can be sold and purchased on exchanges so people can play the game to earn an income
YGG Scholarship program
A scholarship program is a lending program that rents the NFT Axies to new players that cannot afford them, so they can start playing to earn
Players who are recipients of the scholarships are called scholars
Scholars get 70% of the SLP that they generate to their community manager
The community managers in the Philippines, Indonesia, Brazil and Venezuela are in charge of recruiting and training new players
Community managers get 20% and YGG gets 10%
All these payments are automated using smart contracts that govern the revenue share and the split
YGG wants scholars to graduate from their programme, earn enough money to buy their own Axies and take 100% of the share
These graduates usually stay within the community because it is very supportive
Once they leave the slot, the thousands of people on the waiting list can fill the slot
Usage of SLP in-game
There are around 2700 players with YGG playing Axie Infinity generating over $100,000 SLP every day, of which 70% goes back to the players
A scholar can earn 2 to 3 times the monthly salary of a fresh graduate on an entry-level job
As more people invest in the ecosystem, the price of SLP goes up
SLP are generated when you win battles
Breeding 2 Axies to create a new one requires SLP
There are breeders whose job is to breed new axies and sell them to incoming players and they will buy SLP
A new player needs 3 Axies to start playing the game to earn money
Player liquidity
Traditionally, if people choose to spend time on a platform and create content for it, they are not compensated
But now, players can choose to spend effort in a game to earn SLP that can be used for creating new Axies.
The players are compensated for their efforts because the SLP can be sold at market rates regardless of their location
This creates the same economic opportunity inside the game for everyone
The network effect of upward mobility
Scholars can jumpstart this powerful cycle of entrepreneurship because they can earn more income than a local job
They can take that income and reinvest it into their own assets by
Investing in crypto
Buying their own Axies to play
Start breeding those Axies to start their own scholarship programme to earn more income
This helps to break the cycle of poverty, creative a positive flywheel that causes a network effect of upward mobility
"And I think a lot of us gamers have gotten yelled at by our parents for just playing so much. And we've always thought it had no economic value. But actually, it's not true. It's just that the economic value of gaming wasn't shared with the players. And now we're seeing how powerful that economic value could be."
- Gabby Dizon
Can uplift the lives of the players and also the lives of people around them as well
YGG is like a worker cooperative because they buy the assets and tells the workers (players) to use them and share an equitable split with them
Diversification in YGG assets
YGG has already invested in 10 different games
NFT cars in Formula One Delta Time, land in League of Kingdoms and Sandbox, ships in Star Atlas
YGG is like an economic cooperative that spans to different game worlds
"Think of it as the kind of economic cooperative that spans all of these different worlds in the metaverse. So if you want to go into space, like we have some ships to lend you if you want to. If you love bottles, some cute pets, we have some Axies to lend you. If you want to play a strategy game and till some land, basically, we have a game for you."
- Gabby Dizon
The goal of YGG is to rent these assets to players to play, without which they cannot afford to pay the cost of the assets upfront
The mechanics of each game is different but the common thing is that the economies are on blockchain, so there is an element of scarcity and element of player-owned economies in them
Disrupting the game industry
For game developers, Apple and Google charges 30% of the revenue as platform fees
However, Axie is charging 4.25% for any player's transactions of NFT in the marketplace
Even though Axie Infinity is not available in iOS App Store or Google Play Store, the 4.25% fees amounted to over $8 million in the month of June
In the first 6 days of July, they made $8 million in fees again
All these will change the mindset of game developers to adopt a play to earn model, versus the traditional way where the developer controls all of the in-game assets in a centralised database
Even though the slice of the pie for the developing team is smaller, the overall pie is much bigger because everyone in the ecosystem has more skin in the game
Players have taken over the role of marketing, user acquisition and investment of assets in the game
All these are done by the community for the developers
Huge shifts are coming to the labour marketplaces
Labour marketplaces are any platform where there are multiple segments of users, creators and people building on top of the platform and contributing value to it
Going to be a huge shift in the platform and network design on labour marketplace
Currently, the value gets distributed according to the rules set by the platform and they end up taking the largest portion
In the future platform, founders and builders will take less of the economics for themselves and distributing it to the participants who are actually creating the value on those networks
This will create networks and services that are much bigger than their centralised counterparts
Blockchain enables this societal shift
Blockchain is just a very powerful enabler of this shift, which is impossible given the traditional equity system
Not possible to distribute at the scale that Axie Infinity has done through tokens
Equity for private companies is restricted to 2000 equity holders, so it is impossible to distribute to the millions of participants of these platform users
However, for blockchains, you can distribute tokens to each participant seamlessly at a low cost, instantaneously rewarding them proportionally for the value contributed
Level playing field for Indie game developers
Currently Facebook, Google are the ones that had the most user acquisition budget so they could dominate the app stores for games
For independent game developers, it will be hard to make a living making the games that they want to make
Crypto not only disrupt the playing field in the game industry, it also created a level playing field for developers to create indie games for a living
Possible to get Apple to be more creator-friendly?
Appstore takes a 30% cut of all transactions is actually a rent-seeking behaviour
There are no other alternatives besides in-app purchases, so app developers selling digital goods on mobile apps have to pay the 30% fees
There is no point waiting for them to be more creator-friendly because they have the lock-in and it is up to them to decide unilaterally what kind of sharing they want to give to people in their ecosystem
Axie does not have an app store presence, so having to install 2 crypto wallets for the onboarding process can be very hard
However, people are still willing to do that because Axie Infinity confers such a huge benefit to people that they are willing to undergo the onboarding process
Sponsor a scholar programme by YGG
YGG has a sponsor a scholar programme
After donating a sum to them, YGG will use it to buy SLP to create Axies that are rented out to people in their scholarship program
E.g. Li Jin started a Leaping Corgi scholarship with YGG, raising $23,000 which translates to 87 Axies
So there will be 87 people that this donation can help
After these 87 people graduated, there will be another 87 people that it can help, so it is sustainable
Do people play the game for fun or to earn an income?
Cannot separate the two reasons for playing
If the game is not fun, they will not want to play it again and again too
The game is incredibly deep and it involves more than mindless clicking
Axie infinity has a 30 days 90% retention rate, so regardless of fun or not, Axie must have done something right to retain the players
What happens if the growth of Axie Infinity slows?
Nathan Baschez worries that if people are making money by generating tokens that other people have to buy to get into the game, and other people are getting into the game to make money, then what happens if the growth of new players slows down?
If the growth slows and eventually stops, and people don't make more money then the price of the token will tank catastrophically
In a way, this is like some sort of multi-level marketing thing
If players are creating things in the game that adds value to the game, then that will be different
Gabby agrees that Axie Infinity has a reflexive growth loop so new players need to come in
But the players eventually need a reason to stay and that can be done by creating things and selling to other players so that this will be sustainable
Jobs in this creator economy
Games in virtual worlds that have blockchain-based economies can offer many different types of jobs besides that of the developers who made the game
In Axie Infinity, you can be a breeder, a landholder or in other games, an Avatar designer
These are gig jobs that have economic value
If you are good at doing certain things, you can be a creator and get paid for without actually having a 9 to 5 job
Downsides of such jobs
The security of working in formal employment is already gone
You do need skills so that with an internet access, regardless of location, you can start producing
Some skills have a low bar, like participating in Axie Infinity as a player
You are just part of the player liquidity, so you're replaceable - more prone to being disrupted income-wise
Unless you're one of the best then you can compete in Esports
If you can differentiate yourself by being an artist or a good programmer and create things in those worlds, that's where the economic opportunities will lie
About NFT
Deeper meaning in collecting NFT
Li JIn and Gabby first met through her first-ever NFT auction and Gabby is the first person to bid on it
Gabby ended up losing the bid but the two gained a new friendship
Gabby's hobby is collecting crypto art
Started in late 2019 with Josie Bellini
Started ramping up his collection in a big way in 2020
As an independent game developer, he worked with many talented artists in the Philippines
They did client work doing commissions at a lower rate because they are based in the Philippines
Another equally skilled artist in America or Europe will be paid much higher
"And they basically made more money than they've ever seen in their lives by a crypto art because now people could value their skills, their talent, buy their NFT, like not really caring about what country they were from. And that was really powerful."
- Gabby Dizon
The global crypto art economy does not care about the location of where these artists came from
When the artists got connected to crypto art, their artwork can be evaluated solely on its own merit
This is very meaningful for Gabby
Hence buying NFT is very meaningful as this is what he was trying to create and the reason why he went to crypto in the first place
What do you get when you buy an NFT?
You do not just a get a piece of art digitally
You get a personal connection with the artist, which is different from buying at a gallery where the artist is abstracted away
Considers himself a seed-stage artist investor
He will discover up and coming artists and support them very early and help to promote them and widen their collector base so that they gain more recognition as artists
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