While certain titans of tech argue over how different or not decentralized “web3” outfits will be compared to their unabashedly centralized predecessors, an ecosystem of companies is fast emerging with ties to each other, including backing from the same investors.
Consider that late last summer, Andreessen Horowitz (a16z) invested in an outfit, Yield Guild Games (YGG), that invests in NFTs from blockchain-based games, then loans them out to people who use them and generate revenue as they play. Among the fastest growing of these games is “Axie Infinity,” where creatures can be bred to battle and ultimately, if they battle well, sold for a decent price.
By October, a16z was leading a massive investment into the parent company of “Axie,” which is Sky Mavis. Now, it’s funding yet another building block: BreederDAO, a months-old, Philippines-based “specialist manufacturer” of digital assets for use in blockchain-based games and virtual worlds, including “Axie Infinity.”
Founded by a team of young founders, one of whom was an early advisor to YGG, the 23-person outfit just closed on $10 million in Series A funding via a token sale that was co-led by a16z and Delphi Digital, with participation from Hashed, com2us, Morningstar Ventures, Mechanism Capital, Sfermion, The LAO, Emfarsis and others.
Why fund an outfit that’s solely focused on producing digital assets, as if they were widgets on a factory line? According to Arianna Simpson, the general partner at a16z who is leading many of these related efforts, it’s simple; demand for NFTs is beginning to outstrip supply. “We’re seeing so much interest in the ability to play these games that there is actually a shortage of the Axies and other end-game assets that you need in order to play them.”
To ensure that their games offer enough liquidity to keep users engaged, game makers have already proven open to working with third-party outfits like YGG and other so-called play-to-earn guilds that similarly buy NFT gaming assets and lease them to players under revenue-sharing arrangements.
Yet the guilds suddenly need more assets to lend — faster — which explains why BreederDAO has sprung into existence, and why YGG and similar outfits, including Ready Player DAO and Earn Guild, are signing up as customers of the young outfit. (YGG also owns a stake in BreederDAO.)
Simpson and her partners believe more customers will be lining up soon. According to a16z data, outfits like YGG and Earn Guild attracted $532 million in funding last year. But the players to whom they lease assets still represent less than 2% of the nearly 3 million daily active users that “Axie Infinity” has attracted, suggesting room for growth. (On its site, BreederDAO says it’s aiming to work with 5,000 play-to-earn groups by 2025, assuming so many exist by that point in time.)
As for the technical limitations that prevent the blockchain games from simply generating more NFTs themselves, there are none, evidently. Instead, says Simpson, though outfits like Sky Mavis have created the engines to produce NFTs, they don’t necessarily want to focus on that aspect of their business more than is necessary. They aren’t territorial, either, as long as the economics benefit them. (For example, the more people who play Axie Infinity, the more valuable the game’s tokens become.)
She says to think of the whole process like a supply chain, wherein “you don’t necessarily have one company producing everything end to end but rather you have different companies at different parts of the supply chain [that produce] a fully finished product.”
Like a factory, the outfit is selling these NFTs at pre-set prices, though this could evolve into a revenue-sharing agreement over time. “Fractionalization is not something that they’re doing right now,” says Simpson, but “down the road,” she adds, “who’s to say?”
BreederDAO is led by Filipino co-founders Renz Chong, Jeth Ang and Nicolo Odulio. Chong is a former management consultant; Ang has founded numerous companies in the Philippines; Odulio, a former commercial pilot, is BreederDAO’s in-house smart contract expert, says the company, with experience building cryptocurrency projects and decentralized apps across several chains, including Binance Smart Chain and Ethereum.
Simpson and the startup’s other investors have all invested prior to the public launch of BreederDAO’s token; the idea is to help bolster the team ahead of that offering so they’re ready for prime time when that token gets released. The syndicate’s participants will all then get a number of tokens proportional to their investment.
BreederDAO had previously raised an undisclosed amount of seed funding, as well. In addition to YGG, which participated in that round, others of those backers included Infinity Ventures Crypto, Ascensive Assets, Bitscale Capital, FireX, Mentha Partners and Not3Lau Capital.