Yield Guild Games
YGG
Target Name
Yield Guild Games
Ticker
YGG
Strategy
long
Position Type
token
Current Price (USD)
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Circulating Market Cap ($M)
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Fully Diluted Market Cap ($M)
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CoinGecko
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YGG - Web3 Gaming Kingmaker?
25 May 2024, 08:22pm
Thesis and Catalysts
The past year has seen a number of crypto projects pivot to infrastructure, including those in the gaming sector, cynically for a valuation bump. That's great, but having 300 games and no-one to play them isn't particularly valuable. YGG doubled down in the bear market to build a platform for player liquidity, with potential for a mutually beneficial incentive mechanism - We bring the players, you provide the assets.
$YGG Staking - founder Gabby Dizon has hinted at the potential for $YGG staking multiple times. It makes sense if we extrapolate from the stake-to-airdrop meta, what better way to kickstart a gamer's progress than with tokens or NFTs dropped straight to their wallet. From the developer perspective, this model grants them attention and access to a community ready and incentivised to start playing.
Onchain guilds - YGG are building out an onchain reputation system based on player activity. This comes via soulbound NFTs and experience points (XP), and could be used in combination with the staking mentioned above, to provide targeted rewards to the best and most engaged players in the YGG ecosystem.
GAP quests - Through the Guild Advancement Program players can complete quests for rewards, it has been hinted that future quests will involve burning YGG for added player benefits. Progress here is being measured in XP, which lays the foundation for the upcoming reputation system mentioned above.
DePIN - somewhat under the radar are YGG’s investments in Sapien and Synesis One, both gamified AI training projects. It seems like a natural fit for a play-to-earn userbase to be directed at DePIN projects such as these, allowing players to supplement their income while providing a useful service.
Investments - not only do the investments create closer ties to YGG’s partners, there is obviously a financial benefit too. Current mark-to-market prices put the YGG investment arm up $20m on their portfolio. It is not just a static holding though, as the assets can be used productively by the community to play and earn.
Narrative - web3 gaming as a sector is still yet to see a full blown rotation. It’s also true that excitement around guilds will naturally come after games have first shown promise. However the next few months are rife with highly anticipated launches, including blockbusters like Illuvium and Sipher, plus the ramping up of games like Pixels and Parallel TCG as they continue to see steady player metrics. YGG has forged partnerships with many of these, and stands ready to offer up player liquidity when the games go live. Providing YGG stakers with assets and tokens to kickstart their journey creates a symbiotic potential for growth.
Over time we might expect YGG to become somewhat of a kingmaker in the web3 space, akin to how Curve tokenholders became important by voting to direct reward flow. An established community of avid players, who can be credibly sorted by skill using the onchain guild system provides a way to create an onchain group primitive. This can allow YGG to amass player liquidity, leading to better bargaining power with games for quests and rewards.
Fundamentals
GAP quests have grown with every season. Starting with less than 1k participants during season 1, season 4 had 6,184 account sign-ups and 33,681 quest enrolments. These programs have been shown to increase average revenue per user (ARPU) which will be of interest for longer standing and new games alike.
Investor unlocks are 78% complete at this point, with $40m left to vest between now and July 2026. The founding team is only 27% of the way through unlocking, but at a manageable $3.5m/month at current prices.
Balance sheet assets total $67 when marked-to-market, with $17m in stable and large cap tokens. Between treasury assets and completing a $13.8m raise last year from DWF, a16z and others, the team has a projected runway of at least 20 months.
Valuation
This is a catalyst trade based on the upgrade, and therefore relies on charting levels rather than a fundamental analysis.
Base case would be a revisit of the $1.36 level by the time the protocol rolls out, representing 36% upside from today’s price of $1. This would put the market cap at $505m, between GMT and ILV, which is reasonable in the context of the sector.
The exuberant case would be that a confluence of YGG’s upgrade with gaming as a sector coming into focus. Flagship names like Illuvium launching, Immutable and Beam continuing to onboard games, and continued success of Pixels and Axie could drive a sector rotation. In this case I would look to $1.80 as the target, 80% upside from today.
The downside risk is that this catalyst has been well understood and priced in over the last 6-8 weeks. The token ran to $1.80 already at the beginning of April, unfortunately right into a market-wide selloff. It has been quietly showing strength since then, rebounding well vs other gaming tokens. In the bearish scenario I would expect the token to remain in the $1.05 - 0.75 range.
Reliance on gaming success - as mentioned, building a guild platform is predicated on the success of underlying games. If the games are not rewarding (financially or emotionally) then players will simply go elsewhere. For YGG to build a compelling case here we need to see the long awaited games like Illuvium build a solid base, proving out the web3 gaming thesis.
Everything is priced in - as mentioned above it is possible $YGG has been pricing the upgrade in over a long period already. This presents a risk as the eventual upgrade could be a sell the news event. In the event that staking is included in the rollout, this will mitigate the sell pressure by providing a novel token sink.
Introducing a major token sink via staking, combined with avenues for token burn, turns YGG into a structurally interesting play. Over time as web3 games proliferate, having the YGG community onside could potentially decide winners and losers in the gaming sector.
The pieces are falling into place for what YGG is building as a virtuous cycle:
Players complete quests and earn NFTs, XP > assets and score used in reputation system > onchain guilds build community around these players and their data > combined with YGG staking, games now have a rich data source for where to send their assets > game bootstrapped from day 1 with the right kind of players, who have ability to get stuck in immediately > can supplement with targeted GAP quests, increase ARPU and allow players to build reputation while bootstrapping healthy gaming eco.
Further reading:
Decrypt - building the guild protocol.
YGG community update - Feb 2024
YGG Treasury Report - April 2024
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