Pirate, a GameFi token characterised as the utility token driving the economy of Pirate Nation (PN), a fully on-chain game built by Proof of Play. Core to this thesis is the belief that the team behind Pirate Nation are fully equipped with the resources, network and experience necessary to scale the current game to the upper bound of what a Web3 game is capable of, which as of 2024 seems to be ~600k-1m DAUs (or active wallets). This is a far cry from the current level of adoption the game sees today of ~50k DAUs which when combined with the fact that the public game being only 1 month old, presents an opportunity to obtain a piece of the network prior to a potential GameFi hype cycle unfolding, of which there has certainly been a dearth of this year.  Underpinning this investment are a few key points:

1. New iteration on Gamefi boasting a sticky user-base with potential for further growth.

2. Low valuation base with a ceiling for fundamentals that is sufficiently far away. 

3. Reasonably structured tokenomics with many token sinks.

4. Extremely well capitalised incubator Proof of Play and an exceptionally strong founding team.

Novel, fully on-chain GameFi with potential for growth with a captive userbase

Now a month from launch, the game has been able to on-board ~50k DAUs. Whilst there is little information disclosed on the demographic of these players, the majority are potentially poorer players perhaps from South East Asia, Turkey and China given the presence of these language channels in the PN discord but that is precisely the way Axie began, since these are the latent Web-3 players that are willing to try new game primitives. Crucially, however, the game loop is much more complex, and requires more engagement to actually 'play-to-earn' which lends sustainability to the game economy and removes a portion of mercenary yield-seeking only players that serve to only boost metrics. 

• Litepaper mentions a Day-7 retention of >65% which is markedly high compared to the casual/hyper-casual benchmark of 20-30% (see source 5 below). We fully expect the retention rate to drop off as the game becomes more mature in a few months, yet as of now there is clear evidence of players wanting to continue to play the game.

• See the on-chain economy: https://ua.helika.io/dashboard/pop-external. Further detail on this is provided in the tokenomics section.

Figure: Example screenshots and graphics from the desktop game. A mobile rollout is also in the roadmap (see sources 4). Customisable own islands and PvP mode.

Given that this is a Web-3 based game players are able to own all assets within the game. The flagship asset is the Founders Pirates. The Genesis Gen-0 collection features 9,999 free-to-mint NFTs, with subsequent expansions introducing Gen1 soulbound NFTs. So far, ~100,000 pirate NFTs have been minted, and Gen0 NFTs have continued to appreciate in value, potentially due to utility of bypassing the queue. Holders enjoy early access to future games and exclusive quests. These NFTs can be staked along with Pirate tokens to earn additional multipliers and accumulate Proof of Play points through soft staking, which are auto-detected in players' wallets

Figure: NFT prices steadily higher despite a 10x dilution in supply.

Low valuation base currently, with a much higher ceiling for growth

The assets including Pirate tokens and Founders Pirates live on the Ethereum blockchain, however, the gameplay currently is all set in a bespoke chain called Apex, built by Proof of Play. Apex is a Layer 3 chain, i.e. a chain that sits on top of a Layer 2 which in this case is Arbitrum. The chain stack itself uses Arbitrum Nitro technology. 

Currently, Apex is one of the most active chains in terms of transactions per second (TPS), executing a similar volume of transactions to Arbitrum. More importantly, it handles a higher gas usage per second (MGas/s) due to the complex game logic in the transactions (given it is fully onchain). This means the chain is scaling  and is being utilised more effectively than most other EVMs currently.

Figure: Comparison of various EVM roll ups in terms of gas usage and transactions per second

Despite the impressive technical rollout by a team that is primarily focussed on the gaming utility, the infrastructure has lagged behind adoption of the game, presenting a potential opportunity given that the headline DAU number is capped / throttled by the team at ~60k users this past month.

Figure: Throttled wait times given congestion as a result of player overload. A good problem to have for a casual game.

Well structured token with many sinks baked in and little supply overhang

The token genesis was via an airdrop to Founder Pirate holders and a portion to those who played the game in season 1. 45% of Community tokens and 38% of Ecosystem tokens are unlocked at TGE meaning that whilst FDV is ~ $340m, the circulating token supply is ~ 262m tokens representing 26% float and a circulating market cap of $89m. Additionally, with the Ecosystem tokens only making their way slowly into supply and with only 70% of the unlocked Community tokens being actually claimable, this further reduces the circulating token supply and marketcap to 200m and $68m respectively. Community tokens represent the vast proportion of inflation. These will likely enter supply via seasonal airdrops, Ecosystem tokens are to be used for exchange liquidity / market maker deals and strategic marketing.

Team and investors are locked for 12 months and as such this is likely what the circulating market cap will remain at for the foreseeable months as the game continues to gain traction. See figures below for indicative charts provided by the team (see source 1).

  Figure: Supply and Tokenomic inflation schedule.
Key to the success of Pirate, is how well the sinks operate within the game. Pirate has a soft staking sink, but that is a soft lock and cannot be considered out of circulating supply, harder sinks are those utilised in game that actually result in pseudo-burn (i.e. tokens flowing back to the treasury DAO). The biggest mechanism here is the Gem mint and its rate will likely influence how well the token does.

Figure: Pirate has a number of sinks that pull supply out of circulation. Its success depends on how well these operate 

At current rates, the Gem sink remains small when compared to the circulating market cap of the Pirate. Looking at the marketplace, players have spent ~$2m on Gems, see figure 12. Exact timeframe for this is being confirmed by the team.

Figure 12: Amount of Gems bought with Pirate to date.

From a comparables perspective, it is difficult to pinpoint a true 'comp' given that each project is different with varying supply/inflationary dynamics, and crucially, at different stages of the growth cycle. Having said this, the numbers suggest that whilst on an absolute basis it is cheap, on an FDV-to-DAU basis Pirate trades similarly enough to other GameFi projects and is not particularly cheap. Pirate is only 1 month into launch though, and we could see activity scale from here which is the main bull case, especially if the team handle the infrastructure issues in the coming weeks.

Figure : GameFi comparables across the market. Upper bound of what a Web-3 game can handle is a magnitude higher than what Pirate currently possesses. 

Further upside, above and beyond the core growth thesis is the ProofOfPlay points. Given its raise at 9 figure valuation post money during the bottom of the market in 2023, and assuming a 10x return on the raise we note the following potential returns on staking. 

Figure 14: Potential RoI from Proof of Play drop. This is only ancillary upside and there are many risks to achieving this return.

Exceptionally strong founding team and investor base

The team behind Proof of Play / PN are seasoned gaming veterans that have held leading roles in critically acclaimed games including wildly popular games such as Farmville. 

• Amitt Mahajan, CEO

  • Amitt was the founder and CTO of MyMiniLife (acquired by Zynga), founder and CEO of Toro (acquired by Google), and the cofounder and CTO of Rare Bits, an NFT marketplace launched in 2018 the same week as OpenSea. While at Zynga, he co-created the game FarmVille (300M players, $1B+ in revenue) and served as the CTO of Zynga Japan. Before his entrepreneurial work, Mahajan was an engineer at Epic Games on the Unreal Engine and Gears of War

• Matt Van, Head of Engineering

  • Matt is a core gamer and serial entrepreneur. Prior to Proof of Play he founded and grew Optic Power from 2 people to 350 people as a remote-first engineering company focusing on Gaming and Blockchain working with top Esports teams (100 Thieves, TSM) and Gaming IP (Star Trek, League of Legends). Before that, he was a Tech Lead at Riot Games’s Esports Engineering team on League of Legends and Valorant. He was also an early employee of multiple startups, including co-founding Washio, CTO of Ringadoc (Acquired by Practice Fusion), CTO of Brand Reporter (Acquired by YPB) and Telesign (Acquired by BICS).

• 5 Others in the senior executive team

As mentioned, Proof of Play, the incubator studio, raised a round at a 9 fig valuation post-money including participation from Zynga.

Figure: Angel participation in the seed round