Column: Don’t Get Hoodwinked Into A Coin – Sam Barberie

Beware game funding pitfalls: False promises of coins & alternative financing. Learn from mistakes & the allure of game coins. 

Two truths and a lie:

1. Game development costs a lot of money
2. Money from game publishers is hard to get 
3. Launching a coin is a great way to fund a game 

Bravo if you sniffed out number 3 as the boldfaced lie that many of us in blockchain gaming have fallen for over the past few years.  

You might say, “But Sam, it’s 2023. The jig is up and we’ve all realized that coins aren’t a good idea.” You say that now, but…

There have been dozens of ICOs/IDOs over the past year, despite macro conditions. And many more gaming coins are on hold, awaiting a theoretical bull run for such things. The bull is coming, but not for those. Even without the regulatory uncertainty, coins aren’t only a massive distraction and significant threat to a gaming company’s business, but are proving themselves to be long-term bad bets. 

[Obviously none of this is financial advice.] 

First, let’s take a look at why coins seemed so attractive a few years ago: 

1. For developers, they were a relatively easy way to raise money from a mix of institutions and consumers hopping on the hype train. They were also a way to cash out on vesting faster than traditional equity. 
2. For investors, the theory was, they were an immediately-liquid form of investment, as opposed to traditional equity which requires some kind of exit (acquisition or IPO). 
3. For consumers, it was another bout of get-rich-quickery and, not as often, a feeling of “investing” in a game’s future. The degen crypto trader crowd weren’t die-hard gamers, but were willing to make money off them. 

These coins also exposed some odd hypocrisy. In lots of cases, the developers insisted that they would be “utility tokens,” i.e. usable in-game for purchasing items, etc. Which was kind of bizarre coming from a crowd that was against the idea of web2’s closed ecosystems where Fortnite Vbucks had no value in Roblox, for example. These tokens are fungible, and while SAND can be swapped into GALA, each coin universe was essentially saying, “It’s our currency or nada.” Not exactly an open world of seamlessly transferable assets. 

But very quickly, developers and investors alike realized some uncomfortable truths: 

• Regulations make it incredibly hard to bake in usage for a coin in-game.
  • Not much utility when you can’t use the coin for anything.
  • The investor-y language around the launches puts these coins in even greater regulatory peril as securities.  
• Coins move relative to the macro crypto market (up until now, we’ll get into this more) and not the usability of the token.
  • The value lives and dies by forces that are uncontrollable. Unlike a stock, where macro conditions can be amazing for some, poor for others (like how leisurewear companies thrived during the pandemic but hotels certainly did not), when crypto winter occurred, every coin went with it. 
• Coin management and investor relations take significant time away from more important things.
  • A Discord filled with angry consumer investors asking, “Wen moon,” or a marketing plan focused more on pumping token price and not the game, is not a good use of anyone’s time. 
  • If you’ve got good VCs, they normally give you money, provide guidance, and then wait in the wings to offer support when needed. Those are investors game developers want. But consumer token investors want the world, and they want it now. A great way to kill anticipatory excitement. 
  • Lots of developers also set up DAOs or DAO-like structures that would allow for the community of holders to make decisions on game design. Nothing says “this game will be horrible and never launch” quite like design by committee. 
• Coins don’t reflect the fundamental value of a company.
  • When your company’s market cap is wrapped up in a coin you can’t easily control, compared to equity, it sets up a trough of despair that’s hard to work out of. 
  • Teammates whose compensation includes worthless tokens aren’t going to be extra motivated. 
• Price fluctuations turn people off.
  • There’s a reason why $1 doesn’t equal 1 Vbuck. That’s just F2P economics 101. 
  • So players already don’t want to see something cost $10, but—even if the coin is doing well—don’t want to see it cost 0.000947 Ape either. One layer of price abstraction is fine. Two is not, especially when it comes with daily changes that users will have to convert themselves (or the developer risks exposing fiat values which won’t be in their economy’s best interest). 

And even as the prices of Bitcoin and Ethereum have started to rally, sentiment still seems sour on early gaming coins, who have all followed similarly poor trajectories in underperforming the market.  

Even if the token price stays decent, coins complicate later investments, exits, and consumer choices:

• Reducing options for other outside investment.
  • Traditional investors in later rounds might not want to compete with supposed carve-outs for token holders, while coin holders will push back against a two-tier system. 
• Cutting off acquisition routes.
  • Public companies, especially, don’t want to acquire studios with regulatory baggage. 
• Consumer expectations.
  • As many games increasingly support multiple chains or use tech like LayerZero, games that stick to their coin economies will be behind the curve of what players expect to see.
  • Likewise with fiat on-ramps and direct purchase trending to the norm, many users won’t expect to see a crypto currency at all. 

Coins aren’t the only alternative fundraising route that developers have tried. Pre-product mints of NFTs, while having some benefits over coins, have largely followed similar trajectories: 

1. They’re normally bought by investors, not real players.
2. Their floor prices mimic the larger NFT trading market cycle, not anticipation for the game. 
3. High initial mint prices always fall dramatically as they converge on a normal game access pass, angering holders. 
4. Mints also come with the same community management challenges of coins. Lots of TLC for angry voices, not a lot of true community building or development focus. 

But NFTs have some key differences: 

1. Their regulatory standing (not as likely to be considered securities).
2. They’re much easier to bring in as fundamentally utile pieces of the game. 

More and more, however, we’re seeing free mints—both limited and unlimited—as a powerful way for developers to rally a community and earn some money through secondary trades. While free or extremely low cost mints don’t net developers the amount of building funds they want, they’re strong indicators of interest that can be put in front of publishers or other investors (similar to web2’s email signups). They also go a long way to build goodwill with future players, reach a larger potential audience in the pre-product phases, and don’t come with the same outsize expectations and distracting maintenance needs as high-priced drops and/or coins. 

The loss of coin launches as a viable option will mean the end for some new studios, full stop. As harsh as it sounds, however, that’s not only expected but also probably as it should be. The world’s best games haven’t been greenlit through speculative investment vehicles. And crowdfunding in general has a dicey history, like Star Citizen’s wildly successful Kickstarter and subsequent $500M in funding, which still hasn’t gotten anyone any playable game in a decade.   

I’m a firm believer that good games can come from anywhere and should have multiple ways of getting made, but I’ll leave you all with this: coins ain’t it. 

Sam Barberie is a gaming and web3 exec based in NY. He was part of the founding team of SuperData Research, which was acquired by Nielsen in 2018; an executive at Animoca Brands; and a consultant and advisor to several blockchain gaming companies. 

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