Konvoy Ventures is a thesis driven venture capital firm focused on the video gaming industry. We invest in infrastructure technology, tools, and platforms.
Balancing community-forward strategy with ensuring successful execution of a game’s economy
Despite a decrease in overall venture investment activity since the beginning of the year, gaming is proving to be slightly insulated given the fundamental tailwinds for this industry (Konvoy). Blockchain gaming specifically has continued to raise >$1b in Q1 2022 (DrakeStar). Across the hundreds of blockchain gaming companies that Konvoy has seen in the past 60 days, one theme that remains consistent is every founding team’s emphasis on the importance of engaging and rewarding their community. As these web3 gaming companies mature, one thing that we look forward to evaluating is the efficacy of community fund allocation compared to overall player base health.
This week, we are evaluating the current community fund structures in place and we are proposing a new framework for how to think about balancing community-forward strategy with ensuring successful execution of the game’s economy.
When looking at some of the top blockchain games (see above), on average, ~40% of tokens are allocated for player rewards (LinkedIn), which are more widely referred to as “community funds” or “community token allocations.” This is wildly different from traditional startup cap tables where at IPO, institutional investors own the majority of the company. However, this category noticeably holds the biggest delta across all token allocation categories, ranging from 25% to 73%.
Tokens are typically allocated from this community category to active participants in the game ecosystem (i.e., pools of early or very active Discord users and high engagement users in alpha/beta). There is not a one size fits all approach to allocating nor is there a widely adopted framework for how to calculate the optimal token allocation. New people are entering the market everyday and it is becoming more and more important to be able to separate the price speculators (increasingly seen as unhelpful to the game’s success) from game supporters (gamers, value-add investors, team members, core partners).
Critique of the current structure: The goal of a community fund is fairly simple - 1) to foster a tight relationship between the development team and the player community; and 2) to reward players for early support and their continued contributions toward bettering the experience for all players. However, here are a few reasons why the current system is deeply and structurally flawed:
Konvoy proposal for token structures in gaming:
Introducing structural requirements: In order to ensure that incentives are aligned with future players, we recommend considering the following options for those who receive tokens from the community fund:
Consider alternatives: Outside of tokens, there are better alternatives that have the potential to be more rewarding to a larger portion of the highly engaged user base. For example boosting earning potential versus flat earnings (increasing the rate of reward or the probability of rare drops, removing the developer share of revenue for a set period of time or a percentage of sales) or introducing a revenue share structure to include players as part owners outside of the token structure. Additionally, a game could simply drop NFTs to their players vs currency tokens.
Calculating the right community token allocation: While we do not want to prescribe an exact percentage allocation for the community because every game will have a different number of users at a steady state and a different proportion of high priority users based on gameplay, we do think that this pool is overinflated today and should be closer to 15-20%. Consider the following:
The above analysis is why we conservatively propose a 15-20% community fund for blockchain games going forward (vs the current ranges of 25-73%). This will set the games up to thrive for the long term better than the current structures in the market.
Balancing community-forward strategy with ensuring successful execution of a game’s economy
Despite a decrease in overall venture investment activity since the beginning of the year, gaming is proving to be slightly insulated given the fundamental tailwinds for this industry (Konvoy). Blockchain gaming specifically has continued to raise >$1b in Q1 2022 (DrakeStar). Across the hundreds of blockchain gaming companies that Konvoy has seen in the past 60 days, one theme that remains consistent is every founding team’s emphasis on the importance of engaging and rewarding their community. As these web3 gaming companies mature, one thing that we look forward to evaluating is the efficacy of community fund allocation compared to overall player base health.
This week, we are evaluating the current community fund structures in place and we are proposing a new framework for how to think about balancing community-forward strategy with ensuring successful execution of the game’s economy.
When looking at some of the top blockchain games (see above), on average, ~40% of tokens are allocated for player rewards (LinkedIn), which are more widely referred to as “community funds” or “community token allocations.” This is wildly different from traditional startup cap tables where at IPO, institutional investors own the majority of the company. However, this category noticeably holds the biggest delta across all token allocation categories, ranging from 25% to 73%.
Tokens are typically allocated from this community category to active participants in the game ecosystem (i.e., pools of early or very active Discord users and high engagement users in alpha/beta). There is not a one size fits all approach to allocating nor is there a widely adopted framework for how to calculate the optimal token allocation. New people are entering the market everyday and it is becoming more and more important to be able to separate the price speculators (increasingly seen as unhelpful to the game’s success) from game supporters (gamers, value-add investors, team members, core partners).
Critique of the current structure: The goal of a community fund is fairly simple - 1) to foster a tight relationship between the development team and the player community; and 2) to reward players for early support and their continued contributions toward bettering the experience for all players. However, here are a few reasons why the current system is deeply and structurally flawed:
Konvoy proposal for token structures in gaming:
Introducing structural requirements: In order to ensure that incentives are aligned with future players, we recommend considering the following options for those who receive tokens from the community fund:
Consider alternatives: Outside of tokens, there are better alternatives that have the potential to be more rewarding to a larger portion of the highly engaged user base. For example boosting earning potential versus flat earnings (increasing the rate of reward or the probability of rare drops, removing the developer share of revenue for a set period of time or a percentage of sales) or introducing a revenue share structure to include players as part owners outside of the token structure. Additionally, a game could simply drop NFTs to their players vs currency tokens.
Calculating the right community token allocation: While we do not want to prescribe an exact percentage allocation for the community because every game will have a different number of users at a steady state and a different proportion of high priority users based on gameplay, we do think that this pool is overinflated today and should be closer to 15-20%. Consider the following:
The above analysis is why we conservatively propose a 15-20% community fund for blockchain games going forward (vs the current ranges of 25-73%). This will set the games up to thrive for the long term better than the current structures in the market.
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