How to Evaluate Web3 Area for Investing?

GM Investors,

Last week we discussed Blue Chips investing in Web3.

This week, we cover:

1. Highlights —> What’s moving the market?

2. Investment Strategy —> Evaluating an area or category

   1. An example: Gaming

3. Deep dive —> Parallel

As a bonus, I’ve unlocked 2 documents for you:

1. Web3 Starter Kit —> What is Web3 about?

2. Web3 Investment Starter Kit —> Web3 investing cookbook.

Let me know what you think —> [email protected]

Let’s jump in

1. WorldCoin is here (article)

   1. OpenAI CEO Sam Altman launched a crypto token Worldcoin on Monday.

   2. This token is developed by Tools for Humanity, which is a company that raised $115M (Series C) in May 2023 led by Blockchain Capital - together with A16z, Bain Capital Crypto, and Distributed Global (article).

   3. What is it about? Scanning the iris of your eye to create a unique digital ID (World ID), and allowing to use of a new digital currency (Worldcoin).

   4. The idea is broader, the team wants to create a new identity and financial network owned by everyone. They are even talking about a new AI-driven UBI (Universal Basic Income).

   5. With the explosion of AI projects, identifying human-created content is getting more and more attention. But would you today consent to create a new identity based on your eye scan, knowing a leak of this data could compromise your finances in a blink of an eye? Well, more than 1,5m people already did.

   6. My take: I’ll actually monitor WLD in the next few days. It currently sits at a $230M market cap, which is pretty low considering the Series C round, plus with a circulating supply of only 1%, this might be a good time to chip in. Time for some weekend research.

2. Avalanche is going hard for RWAs (article).

   1. RWA stands for Real-World Assets. It can be anything from a piece of swag shirt to your house, on the blockchain. It is leveraging blockchain’s easy-to-verify ownership and governance model to trade pieces of assets, that might be too expensive to sell individually - Art, real estate, cars, islands (??).

   2. The foundation behind Avalanche plans commits to purchase $50M of tokenized assets minted on the AVAX network, providing some extra demand for these assets on AVAX and hopefully bringing more projects in.

3. McNuggets, now in your Metaverse (article)

   1. McDonald’s is stepping into the Metaverse (Sandbox) with its McNuggets Land.

   2. How does it feel to live in the world of McDonald's? See below 👇

Token unlocks (tool)

There is some action in the next 7 days, Optimism is unlocking 3.56% ($35.51m) and Sui 6.3% ($25.58m). While in the case of IMX, it’s mainly ecosystem dev (low chance of selling), in the case of OP & Sui majority goes to early investors & contributors (high chance of selling).

Reading for the weekend

👉 Bonds Down, Crypto Up by Dan Morehead (Pantera)

How to evaluate a Web3 area?

2 weeks ago we selected 4 core areas that are very solid in the Web3 landscape. I got a few emails from you asking how to evaluate if an area is worth our time to explore deeper and position our investments. So let’s dive in!

The first step in evaluating the area (or its sub-category) is to understand the basics. What are the projects in the area? How are they different? How do they use Web3? Is it a valid use case for Web3, or does it feel more like forced addition?

Specific example → Gaming

What are the projects/categories in Web3 gaming? 

We can see gaming Metaverse projects like The Sandbox, Otherside, and Decentraland. Beyond Metaverses, there are big gaming studios, like Gala Games, Immutable, Sky Mavis (Axie Infinity), Illuvium, Vulcan Forged, and more. Also, we have infrastructure projects in gaming, like Enjin, Ronin, and Ultra. 

There are many different sub-categories, composed of projects with decent history, traction of users, but also market capitalization (“USD value”).

How are they different?

We can quickly grasp the basics of each project and see these projects have their own unique angle in which they’re tackling the gaming domain and we can highlight the differences between them. 

It can be as simple as different gaming genres, there are popular trading card games (Parallel, Gods Unchained), auto-battlers (Axie Infinity, Guild of Guardians, or Splinterlands), or shooter games (Ev.io, Harvest, Shrapnel, Meta Strike).

How do they use Web3?

The majority of these games use simple mechanics - they put gaming assets on the chain in the form of NFTs (your gaming items, characters, lands) or gaming tokens (your in-game currency).

To take an example, imagine World of Warcraft. Web3 version will have the currency (gold) as well as in-game items (gear, mounts, pets) as tradable Web3 tokens that you can get in the game by playing, and then trade on exchanges.

Is it a valid use case for Web3?

While having the game fully on-chain might be too heavy, the basics already exist in Web2. For example, Steam is a closed marketplace that allows you to trade your in-game assets with other players.

The problem is, that it’s a closed system that doesn’t support exchanges beyond Steam, so it often happens that accounts get banned and assets frozen because the exchange happened outside of Steam (like eBay).

Web3 brings an extra layer of flexibility (and complexity), which allows you to trade the assets outside the ecosystem. For example, trading your World of Warcraft items for skins in CS:GO.

So Web3 actually solves a problem here and an investor might assume this is a valid category.

Try going a step further and do the same for TCG games, or gaming metaverses.

Once we evaluate the basics, we can easily build our strategy around that.

A side note, I’m working on a guide of 10 investment strategies you can easily start with, highlighting the differences, benefits, and risks. There will be a detailed process of due diligence for a Web3 project - including a full journey of the above. So stay tuned, I hope to have it ready for you in two weeks.

As we discussed gaming, let’s dive deeper into one popular game - Parallel.

Parallel TCG is a sci-fi trading card game under Echelon (ETH-based gaming ecosystem). Beta access begins in late July 2023 and the opening of the game should happen end of August or the beginning of September 2023 (video).

Highlight: This game should come in AR mode, giving the game a whole new dimension (trailer).

Players can earn PRIME by winning ranked games of Parallel with NFT cards in their deck. The reward is determined by the number of NFT cards in the deck, the player’s rank, and some additional NFTs to boost the rewards.

Cards can be earned by playing, which makes it easy to start the game and earn our way to higher ranks.

Using ERC-6551 for their Avatars that will work across the Echelon ecosystem, like Colony, an AI-driven game already in closed Alpha.

Interesting social following and hype around the game; good portion thanks to big airdrop incentives (21,2% of the PRIME supply + NFTs); lower engagement

No roadmap in the whitepaper, the project was postponed vs. the original plan on the website.

Gameplay looks like a classic TCG, with nothing extra special except the AR mode plans.

Trading low to zero-value cards on ETH makes it pretty difficult and inefficient, the team plans to leverage some L2s, currently BASE (Coinbase) is the option.

Team with past experience from top-tier studios (EA, Riot, Ubisoft), but mainly art & design positions

Raised $50m in a round led by Paradigm, one of the top 3 Web3 VC funds.

My Strategy

NFTs are pretty pricey compared to the benefits right now. They were very useful early for securing the airdrop (21,2% of total token allocations).

The only NFT I want to have is the avatar(s) since they will work across the whole Echelon ecosystem, in different games. I have decided to pass on the pre-sale here, expecting the price to go lower. It did and now we sit around 0.09 ETH for a piece.

In the early phase of the game, players will be able to win their avatars for “free”, so I expect avatars will go even lower in price in the next weeks. Once people start selling the avatars they’ve won, I will consider buying a few.

Since it’s a game, it must be a good game first before anything else. So I will properly test the game once it’s released, and if I like the gameplay and what the team built, I will consider opening a bigger position in the ecosystem - through both assets and PRIME tokens.

For PRIME tokens I’m missing more information about the in-game economy and how big demand we can expect from players once they start buying the tokens. For almost 0 value cards there won’t be much demand, especially on ETH where the gas fee could be 10x the price of the card.

Full review with details here.

Next week we’ll explore how to join a token pre-sale on a Launchpad and a big overview of them, covering differences and highlighting noteworthy Launchpads to consider.

Let me know what you think of this newsletter - do you miss something specific? Do you like something? Would you like me to dive deeper into one of your projects?

You can ping me on Twitter, or send me an email to [email protected]

All the best,

Matt.