Hi Everyone 👋 ,
Welcome to the +550 subscribers who have joined this week. If you’re reading this but haven’t subscribed, join our community of +43k smart, fun & edgy investors 👇
In a digital native economy, there are so many new ways to make money.
Parents who are still telling their kids they have to forego art, music, video games, travel, or any obscure obsession to “get a real job” are so painfully stuck in the past.
This if the most incredible time in history to be young. Infinite opportunities await.
— Nat Eliason (@nateliason)
Oct 12, 2021
YouTube was an early pioneer of the creator economy with a simple idea. Get users to upload content that other people want to see.
That way instead of paying big movie stars the big bucks, you don’t actually have to spend money to create content. Simply act as an aggregator platform that can pool together millions (or billions) of eyeballs.
You can charge advertisers money for showing a quick ad before or between videos.
You then need to share this advertiser money with the content creators to provide the incentive to come back and put more stellar content onto the platform. Thus, a beautiful virtuous flywheel is born.
We’re all very familiar with this idea of user-generated content (UGC), but what if you could participate in a wage-like salary through a digital economy?
And what if it didn’t seem like “work” at all… much more like…play.
The play-to-earn (P2E) economy is at the forefront of so many interesting global trends right now. NFTs, the metaverse, and video games are all components of this entirely new infrastructure, so let’s jump in!
This week, in <5 minutes, let’s look at P2E:
What Pre-Conditions Allowed This to Flourish? 👉 Digital Native
What is it? 👉 Key Components of Play to Earn (P2E)
Case Study 👉 Axie Infinity
How GRIT’s Playing it 👉 Roblox has Similar Attribute
Let’s get started!
1. What Pre-Conditions Allowed this to Flourish? 👉 Digital Native
More and more of our lives and work are online. The favourite phrase of all the industry folks is “digital transformation”. In a digital-first society, culture and identity are being formed through social media, work is being optimized through enterprise software solutions, and goods and services are being exchanged through decentralized networks in Web 3.
COVID even forced the die-hard banking culture to adopt remote work. Promotions are no longer handed out by how long you can sit in front of a screen in an office, they are given based on the actual merit of your work, regardless of hours spent or location.
What is happening here is a shift to a digital-native social and economic structure. We will still get together for dinner and go into offices here and there, but our identities will primarily live online.
What this inherently does is change the structure of the work that will be done. What it doesn’t mean is shifting those 10,000 unread Outlook emails to 400 unread slack messages. What it means is using workflow solutions to optimize efficiency.
It also completely changes what “work” looks like. For example, if you were to tell me as a kid that you could get paid playing video games, I’m sure I wouldn’t have believed you.
Recently, there was a leak at video game streaming site Twitch that released what the top earners make. As a reminder – the main business of Twitch is watching people play video games.
Let’s think of the current nature of your online ecosystem.
All day long you receive Outlook meeting invites that contain a link to a zoom call and you prepare for the meeting via a Slack channel. This sounds seriously and intentionally not fun.
You are using digital channels to produce goods or services that are also primarily digital whether it be this very article I am writing, a PowerPoint deck, a LBO model that you jammed at 4am last night after a “plz fix” from your MD, or a software solution.
What if you could have more fun with it and still earn?
Under the Radar
PSYCHEDELIC MEDICINE, HERE AND NOW: Novamind opened a 6th clinic recently with 2 more coming by the end of 2021. Forecasting 65,000 clinic visits this year, with more states and more clinics on the horizon, accelerating the psychedelic medicine revolution. Learn more here*.
BET ON THE HOTEST GAMES IN ESPORTS: Esports are more popular than ever. A new generation is coming into the fold of sports betting at nearly 1/3 of the global population, Gen Z. Ontario’s betting market is going live before this year’s end. Gambling is being legalized elsewhere all over the world. And NOBODY is better positioned globally and at home for the massive incoming windfall of these trends than Rivalry! The Ontario-based player started out with a focus on esports betting (before others were talking about it) and has evolved into a fully licensed sports and esports gambling platform. With higher brand engagement than the aggregate of the esports betting industry and a +21% MoM growth rate YTD in 2021, Rivalry is just getting started in its growth trajectory, and is a prime acquisition target for legacy players*.
CHANGING THE WORLD ONE BITE AT A TIME: The Very Good Food Co. is still undervalued, but their products are not! Their new gluten and soy-free Butcher’s Select line just won a coveted NEXTY Award! This plant-based food leader increased Q2 YTD revenue by 280% compared to last year! Very Good’s plant-based foods make your mouth, body, and planet a better place*!
WE SEE OPPORTUNITIES IN BLOCKCHAIN TECHNOLOGY: How can you get exposure to the hottest thing in crypto right now: NFTs!? Blockchain Foundry, the gateway to the decentralized universe, is developing an extended reality NFT marketplace, a white-label NFT product brand, and an NFT giving platform*!
PLAYING THE MACRO TRENDS: Sustainable real estate development and renewable energy are secular trends you wouldn’t want to bet against. Greenbriar Capital leads the market in both, with a 995-unit housing project in California, and 2 solar projects totalling over 500MW*!
COMPLIANCE FIRST CRYPTO: What’s one of the biggest risk factors for investors considering cryptocurrencies? REGULATION! BIGG Digital is doing something about that: they’re a software company that owns, operates, and invests in crypto businesses that support and enhance a compliant and regulated ecosystem! Not to mention, its subsidiary, Netcoins, has received regulatory approval in the crypto space*.
THE FUTURE OF FOOD HAS ARRIVED: Twenty. Five. Billion. Dollars. That’s what McKinsey estimates the lab grown meat market will be worth within the decade. CULT Food Science aims to be the first major company in North America to give investors access to the most innovative early-stage startups in this rapidly growing space*!
*This is sponsored advertising content.
2. What is it? 👉 Key Components of Play-to-Earn (P2E)
Instead of an ecosystem brought to you by Office 365, how about something more fun that is brought to you by Activision or Sky Mavis?
This is where the concept of P2E is born.
Business models in gaming have grown up and tertiary markets created. It started as only the publishers like Activision making money whether it was a one-time $60/game charge or the more recent push to freemium models. But now, as you saw in the Twitch earnings above, it has more broadly expanded as an entertainment category.
Just like I am an absolute monster on an excel sheet (we’re talking F1 key popped + mouse in the garbage), there are those that are much better at video games.
The product being shipped on a Twitch stream has entertainment and educational value. Average users will log on to watch differentiated skills levels (pros) or to learn how to better play the game, ultimately improving their own overall experience when they game themselves.
But where this starts to get interesting is when the product and value being created during gaming is a digital asset that exists within that ecosystem rather than just an entertaining experience. You can then cash in those digital assets for real hard cold cash that you can do with whatever you please – put it in an index fund (if you're smart), buy gold (if you're not), buy a lambo (if you're overcompensating for a receding hairline) – totally up to you!
Instead of just a few top game players being able to monetize, this allows all actors on the system whether casual or not to create and manage a portfolio of digital assets.
Certain power-users will be the best at farming or mining these assets. When I refer to assets here it could be anything from a cosmetic cool look to add to the character all the way up to actual items in the game that make you better/faster/stronger.
Users in the game who have less time to spend mining these goods will pay to acquire them so that they essentially have an express pass to participate in the game.
By selling these digital assets to other users on the platform, the power goes back to the user instead of the publisher capturing all the unit economics.
For frequent readers of my newsletter, this is all starting to sound very familiar with the concept of unique digital assets – NFTs. I provided an update on that market a couple weeks ago that you can find here.
In order to fully understand the real application of this idea, let’s go through a case example that I find absolutely fascinating – Axie Infinity.
But first, let’s check in with our Outrageous Chartered FinMEME Analyst Dr. Patel!
3. Case Study 👉 Axie Infinity
I first starting looking at Axie Infinity after the founder was on one of the offshoots of my favourite podcasts, Invest Like the Best, hosted by Patrick O’Shaugnessy. Patrick is a certified knowledge sponge, the best interviewer of our generation, and an all-around gangster. Next time you’re on a walk or a commute, be sure to listen to the podcast linked here.
Axie Infinity is an NFT-based online game created with the idea that the play-to-earn model could create more aligned incentives between game creators and game players over the longer term. The creator of Axie is Sky Mavis.
Axie is one of the most incredible examples of speed-to-scale, with the game reporting $100,000 of revenue in January, over $190,000,000 of revenue in July, and over $370,000,000 in August. Read that again – it’s not a typo.
Axie has similar-like attributes to Pokemon where it focuses around the collection and growth of individual characters that users own called Axies. These Axies interact in an ecosystem that has games built both by Sky Mavis and by the community itself (similar to Minecraft and Roblox).
Currently, one of the most popular games in the ecosystem is the Axie Infinity Battle Game where there is a team of three Axies that either battle against other players in a player vs player (PvP), or you can go on adventures in a player vs. environment format.
As you evolve and upgrade your Axies or buy a new one, the game studio does not actually sell the Axies. The Axie has to be purchased from another player and the studio makes money as a % fee of a transaction that takes place on the platform (therefore accruing alot of the value to the user-based rather than dominated by publisher capture).
To buy Axies in a marketplace, you convert fiat dollars to Ethereum then purchase the Axie that will then exist within the Axie game ecosystem. Here is a screenshot of the marketplace right now:
Each Axie exists as a unique asset (NFT) on the game’s blockchain. Every Axie is 1 of 1. Axies can be bred a maximum amount of times (to prevent inflation), and the cost to breed Axies increases every time you do it.
Through either PvP or adventures, as you progress you earn an in-game currency called smooth love potions (SLPs). The higher the level of your Axie, the more SLP you can earn.
SLP can be traded on a blockchain through purchasing the currency from other players. Again – Axie does not sell SLP. A player must either earn it through grinding out with their characters or buy it from someone else. Every SLP in creation is a result of another player playing the game.
SLP right now is tied to the breeding function. In order to breed an Axie you need to pay SLP. Once you have this newly created Axie, you can add it to your team, or sell it for Ethereum. Here is a price chart for SLP which can be traded on certain crypto exchanges.
There is another component of this ecosystem called the AXS token. This is where it gets interesting. Very interesting. 100% of the revenue generated from inside Axie is getting put into a treasury wallet, which is being governed by those who hold the AXS token.
Sky Mavis, as a core team, issued themselves a large portion of those tokens initially, so that they would be incentivized to keep building for a longer period of time. So there is incentive alignment there. They plan to stake their tokens so that they can harvest rewards of what's being created.
It is still early days for the currency, but ultimately AXS will be used to incentivize players in the ecosystem for performing certain tasks. Right now the top 1000 players on the leaderboards get a small portion of the AXS token reward for being a part of the ecosystem.
The price of one AXS token has absolutely sky rocketed and is tradable on Coinbase. The marketcap of AXS now? CAD$9.5 Billion… Wow.
What does this all mean over the short term for real people playing the game?
The best example is in the Philippines. The Philippines has been hit hard by the pandemic, with GDP contracting 9.6% in 2020, the largest annual decline ever recorded since data collection began in 1946.
Many unemployed people in the Philippines turned to breeding Axies for SLP early in the game in order to make a living. Power users reported earning more than 4x their usual salary just from playing the game. Even the average user is making $400/month which is under the taxation threshold.
One user, John Aron Ramos, bought two homes, solely with money earned playing Axie Infinity.
Real people. Playing games. Making real money.
4. How GRIT’s Playing it 👉 Roblox has Similar Attribute & Ethereum
As a big believer in the NFT, crypto and Web 3, I am currently an investor in Roblox (just bought more Friday) that participates in this economy.
The two attributes that Roblox and Axie Infinity have in common is that they pay extremely close attention to the developer and user experience. Entire businesses are being built within these close-ended ecosystems that are creating online businesses.
Although these are new digital experiences, the same economic rules apply here. Inflation of a currency can be a problem, governance can be a problem (the rules can change), and if these games have user drop off it can end poorly. This to me, is the biggest risk. Games are a hits-driven business. Once the hot new game comes in, users migrate to the new dopamine hit. But if both platforms can keep making new games that give the users that “new game” sensation, they will continue to flourish.
Which is why I own Roblox. There are +40 million daily active users with +40 million user-generated games to choose from.
And of course I own Ethereum which is powering the majority of these new P2E platforms.
Wrapping Up…
When we focus and spend so much time online, it only makes sense that these platforms become more and more a part of our identity. Only now it’s also becoming a part of how we define “work”.
It is an extension of self, but one that allows you to be whoever you want. You’re not average, you can shoot fireballs out of your hands!
Until next time. Always Yours. Incessantly Chasing ROI,
-Genevieve Roch-Decter, CFA
P.S. “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” – #BitcoinLife
What else we Grittin’ On?
BITCOIN. Can’t be stopped. China tried, Jamie Dimon tried but now they look like fool’s gold as the first Bitcoin ETF is poised to hit U.S shelves next week. Buckle up fellas!
Q3 EARNINGS. Goldman, JPMorgan & Blackrock crushed earnings this week. For the 26 S&P 500 members that have reported Q3 results through Wednesday, October 13th, total earnings and revenues are up +32.6% and +17.6%, respectively from the same period last year, with 80.8% beating EPS estimates. Game on Garth!
INFLATION. “Friendly reminder that unless you got a 5.4% raise you got a paycut this year” (@ExogenyKarl) Inflation continues to flare-up… this is not all transitory.
GET OUT LOSERS. This week, Genevieve fired some losers, added to her favourite positions and bought TWO new positions in her portfolio. Find out which one’s by upgrading to the PAID GRIT newsletter HERE.
Sources:
Disclaimer: Grit Capital Corporation is a publisher of financial information, not an investment advisor. We rely upon the “publisher’s exclusion” from the definition of investment advisor under Section 202(a)(11)(D) of the Investment Advisors Act of 1940 and corresponding state securities laws. We also rely on the exemption from registration under Section 34 of the Securities Act (Ontario) and its equivalents in other Canadian jurisdictions.
We do not provide personalized or individualized investment advice or advice that is tailored to the needs of any particular recipient. Any information provided as part of the services is impersonal and not specific to any person’s investment needs. You acknowledge and agree that no content published or otherwise provided as part of any service constitutes a personalized recommendation or advice regarding the suitability of, or advisability of investing in, purchasing or selling any particular investment, security, portfolio, commodity, transaction or investment strategy. To the extent that any of the content may be deemed to be investment advice or recommendations in connection with a particular security, such information is impersonal and not tailored to the investment needs of any specific person.
No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Grit Capital Corporation does not provide individual investment counseling, act as an advisor, or individually advocate the purchase or sale of any security or investment. You assume the entire cost and risk of any investing or trading you choose to undertake. You are solely responsible for making your own investment decisions.
Grit Capital Corporation is NOT a registered investment advisor or dealer. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments discussed in this publication should only be made/considered after consulting with your investment advisor and only after reviewing the prospectus, other offering materials or financial statements of the issuer in question. Reading and using this website, newsletter or any content created by Grit Capital.
Corporation you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.