Thesis and Catalysts

Sentiment (and valuations) for web3 games are still below the highs of last cycle, with players and investors likely scarred by the downside reflexivity and poor quality games that were on offer in 2021. Prime Studios have delivered a quality trading card game (TCG) in Parallel, and will use the momentum to roll players and liquidity into their lesser mentioned crypto x AI offering, Colony.

Parallel open beta - after battle testing the game and tweaking match balance during private beta, the team will open the doors to everyone via the Epic Games store in February.

Planetfall - the first expansion pack is available on Base, and the community via Echelon Foundation has built a marketplace there too. This makes building a set more accessible from a cost perspective, potentially bringing in a new playerbase.

Bonds - Lending/borrowing of cards and 'bonds' aka guilds are not currently live, but will act as a token sink when they are. This will also draw in players from the likes of YGG and their guilds.

Colony - The team has underplayed this part of the roadmap while focused on shipping Parallel. It could be one of the first games directly involving GPT tech, described as the first ‘1.5 player game’.

The Trade

Narratives - while the web3 gaming thesis is still being questioned by some, this underestimates the quality of projects that will come to fruition in 2024. The recent piece by Vitalik, and coverage from forward thinking investors like Zee Prime, Framework and 1kx have brought the potential crossover between gaming and AI more sharply into focus. Colony sits right at that intersection.

Fundamentals

• The founder, Kalos, recently shared some stats relating to the private beta. There have been 800k games played with over $500k spent in-game.

• Card trading volumes remain strong with the Alpha set regularly seeing $200-500k volume per month. Planetfall achieved $770k volume during December, the month of its launch.

• The rate of tokens being sunk is decreasing, this is expected to pick up with fresh players at open beta. The $Prime rewards rate will also be increased, making play-to-earn more viable and drawing in guilds.

• We are 7 and 5 months into investor and team unlocks, which continue at a rate of 1.6m tokens per month until mid 2025.

• Parallel Studios runway appears healthy, with creator royalties over 8.5k ETH for the lifetime of the Parallel collection, plus a $50m raise from Paradigm in Oct ‘21.

Valuation - Priced as a TCG Prime looks expensive vs Gods Unchained at $346m vs $84m market cap respectively. When compared to the old guard from last cycle, Axie and Illuvium, Prime’s current valuation seems reasonable. If the first AI game were to come from crypto and have an investable token, then amid current AI offerings at $2-3bn FDV could be a reasonable target.

Risks

User friendliness - trading card games are difficult to master by design. This makes it tough to become a viral hit, but the implementation of token rewards and desirable sinks for those tokens goes some way to overcoming this hurdle. Also, seeing top Hearthstone players move to focus on Parallel suggests the game is on par with web2 offerings, and certainly more attractive for earnings.

Token unlocks - with $17m of supply unlocking to team and investors per month at today’s price of $10.40, this is worth noting and substantial in the face of only $1-2m of daily trading volumes. While the token is listed on Coinbase, some effort on the market making side would certainly be helpful here.