Two weeks ago, we discussed the role of play-to-earn (P2E) and play-and-earn (P&E) games as a component of the overall gaming landscape (full post here). This week, we examine a core contributor to the P2E and P&E ecosystem - gaming guilds - and make predictions on their role in this segment of gaming.
In the short term, we believe guilds provide asset lending, player education, and player base expansion opportunities for emerging games; however, this is replaceable. Where guilds have real power is in the financial, player, and asset liquidity they provide not only to games but to players and the credibility they are able to offer the maturing P&E ecosystem.
What are guilds?
The concept of guilds (also known as clans, factions, or communities) is not new to gaming. Historically, a guild can be defined as any organized group of gamers that ally and play together. Often these groups come together to team up for co-op gameplay (can be either PvP or PvE), talk shop, and share alpha. However, P2E/P&E guilds take this a step further by lending assets directly to players involved in their guild - also known as scholarships. This expands the addressable market for a game by ensuring players that would traditionally be priced-out are able to participate.
Within the past 12 months, the services of guilds have expanded even further. Today, guilds do the following:
Guilds have been introduced quickly and scaled rapidly with the growth of the P2E/P&E landscape. They are structured to “do it all” and thus have some serious faults in their structure.
Pro #1: Acceleration of P2E/P&E game development - While financial liquidity could arguably be provided by VCs and other formal financial entities or by prospective players themselves, guilds are an agile and strong source of capital that contribute both financial support and assurance of an early, engaged player base.
Pro #2: Added credibility and increased discoverability in a nascent, murky landscape - We at Konvoy have noticed the rise of hundreds of P2E/P&E opportunities over the past 6 months. A majority of these games have an unknown roadmap and unproven ability to execute. When compared side-by-side with those that have the resources to succeed, it is often difficult for players to discern where to spend their time and engagement. Guilds provide the upfront vetting of gameplay and teams prior to investing in tokens, equity, or assets, thus providing their stamp of approval when announcing official partnerships or investments. Reputation is a two way street and guilds need to be conscious of the games and teams they choose to back and funnel their players to; if those games cannot deliver on their promises to players, guild credibility will be tarnished as well.
Pro #3: Scalable, decentralized structure empowers groups of players - Economies of scale exist in banking: “larger firms operate more efficiently with lower per-unit costs than smaller banks” (Source). This scale should theoretically extend to the burgeoning gaming financial industry. As more capital is managed by a guild, lending will outpace operational costs and allow for smaller margins; which translates to cheaper access for players (the end users). Many guilds are also governed by a DAO, meaning that decision making can be democratized for the best interest of the players.
Con #1: Prioritization of P2E over P&E in the short-to-medium term - Since guilds are driven primarily by financial return and not joy creation like traditional gaming clans, investment dollars will be poured into games with the highest perceived yield, not necessarily the games with the most engaging content. In the short to medium term, we are concerned that earning potential and engaging gameplay will be mostly mutually exclusive and thus liquidity and players will be funneled to games that prioritize the former. Since guilds usually participate in funding rounds early on, we also see a potential conflict of interest between guilds and developers. Since guilds hold power through financial capital and player bases, guilds have the potential to influence game development to build for earning potential.
Con #2: No allegiance to games - For similar reasons to Con #1, guilds have the power to shift resources (in fiat, tokens, assets, and players) from game to game as earning structures and potential returns change. Depending on the maturity of the core player base, this has the potential to drastically alter game economies and kill games. It also begs the question for game developers: who really owns the player base?
Con #3: Guild scholarship structure is suboptimal for players - A 3rd party is arguably not the best positioned to provide asset lending services as the games themselves are able to track the best 1st party data on asset usage and utility. Guilds are often gated through a prospective scholar interview and vetting process that is geared to optimize financial return rather than encouraging any sort of participation in the game. Since prospective scholars and managers have to leave the main game application, it is also difficult for the player from a UX/UI perspective to locate and obtain scholarships.
Our perspective: The financial services and educational offerings currently provided by guilds are indefensible and can easily be replaced by a service built by games themselves. However, due to the exposure across games within the P2E/P&E ecosystem, guilds are still well-positioned to continue to offer vetting of pre-released games and discoverability of great games.
Currently, guilds have found great success in their financial liquidity and services, yet we do not believe the current state is defensible long term. Outside of gaming, room for banks and other financing players exists because lending is not a core competency for manufacturers. However, there is room for manufacturers to establish and grow this service. For example, for auto loans in 2020, auto loans offered by manufacturers made up 30% of the market in 2020. This was up ~3% from 2019, likely due to the pandemic (Super Money).
Games develop, grow, and die at a faster rate than car manufacturers. In gaming, new entrants always have the opportunity to take market share because they don’t have to compete with entrenched economies of scale. As such, games need to focus on their core competencies of delivering a better experience for their players and should share the lending functions to external financial partners, guilds. However, it is our belief that most games will natively offer a lot of the financial services guilds are currently offering their players today which will continue to cause guilds to expand their value proposition.
In the long term, guilds will need to focus on games with longevity. This means backing P&E games over P2E games (see our past newsletter on why P&E is more sustainable than P2E). It also means optimizing for player retention in games alongside potential earning. P&E games will be made up of players that participate with earning incentives and those that want to have fun, and likely a range in between with both motivations. Guilds will need to take this nuance into account, better understand and segment their player bases, and funnel to different types of games accordingly. Focusing on short-term earning potential alone will result in backing games that are not fun, which will be unsustainable unless there is unlimited user growth.
Conclusion: It remains to be seen if games within a P2E/P&E universe will continue to partner with 3rd party financial service providers (guilds) or want to assume the responsibility and liability solely to ensure they own the customer wholly. This is something that we are monitoring and debating internally at Konvoy as we watch how game studios and guilds evolve in this new economy.