eSports: The NFT use-case no one’s talking about

NFTs are useful for art but they don’t solve an existing problem. Digital ownership of art is certainly cool, and has many applications, however the art-collecting community did not have an urgent need to digitize itself.

The same is basically the same with regards to music NFTs. It’s true that DRM is enforceable by the blockchain, however it seems that projects like Audius [AUDIO] are electing to use the ERC-20 fungible token standard to handle royalty payments. Their model is similar to Spotify, and very different than an “online music store”. Like with art, there are use-cases for NFT’ifying a piece of music, but the industry was not exactly looking for a solution like this.

Ultimately, NFTs are useful for all forms of media and intellectual property. In the vast majority of cases, using an NFT standard to digitize assets is currently nothing more than a curiosity. A very interesting, valuable curiosity with the potential to become much more. But in most media, NFTs remain a curiosity and a toy at present.

On the other hand, the Digital Gaming present a unique and urgent need – players invest time and money into games, which they cannot recoup without putting their entire account at-risk of being banned. That is because it is against the Terms of Use to sell your World of Warcraft items and/or entire account, for example. Games like this are a one-way money sink, and a time-sink as well.

Second, if the developer of the game wishes to revoke your assets, they can do that at any time and for any reason. This may sound unlikely, however consider the case of Blizzard Entertainment, the makers of Hearthstone, and a Hong Kong based player who made a few rather provocative Pro-Hong-Kong (which could be interpreted as anti-Chinese) statements during his Hearthstone stream. Responding to unknown pressures, Blizzard banned that player and locked his account. Cancel Culture in full effect.

This player earned his income from playing Hearthstone, and was not violating any rules. He was censored for his political speech, plain and simple, and his assets were frozen and never unlocked. Countless hours of progress and reputation, gone in a click from a faceless corporation without any accountability.

It should come as no surprise, then, to learn that another game offered to sponsor him: Gods Unchained – essentially a blockchain version of Hearthstone. They donated to him a full collection of cards, everything needed to begin competing again at the highest level.

Guess what game he was playing, the last time I checked? Yep. Gods Unchained. And when he’s done and wants to move along, he can publicly announce that he’s selling his cards without risk of being banned. 180-degree different outlook as compared to the “old” model.

By comparison, in a blockchain game, your assets are freely tradable. That means you can swap them for items in the same game, items from another game, or sell them for a cryptocurrency such as Ether. This permits game-players to actually profit from their time and expertise – smart players can turn a video game into a fully functional small business.

Some Axie Infinity players have used their winnings and earnings to buy plots of land in developing nations like the Philippines. The encouragement of “real money” transactions within NFT-based systems teaches gamers how to think like businesspeople.

So far we’ve only discussed gaming in a general sense – the above applies across the board to almost every blockchain-based game available today. eSports, however, represent a very specific subset of the Gaming industry – the primary focus is on competitive play at the highest level. It mirrors professional athletic sports in some ways, such as organized teams with their own branding, sponsorships, and coaches. The same is true for competitive events like Tournaments, Championships, and Seasons/Leagues.

This leads to a series of use-cases which make NFTs an ideal asset class within eSports; they represent the first generation of digitally-native assets with secure cryptographic proof of ownership.

Specific Use Cases (IN PROGRESS)

The most clear and present use-case for Cryptocurrency & Blockchain within eSports is actually not an NFT-centric application. It’s Ethereum Layer 2, and at the moment, the Polygon Network – formerly Matic Network, token still {$MATIC}.

The primary value of these Layer 2 chains is, of course, nearly-zero gas costs. This makes transacting NFTs nearly free, a stark comparison to the 0.02 ETH we’re all accustomed to paying, if not more.

These microscopic gas fees mean that various dApps can operate on the Polygon network, and the most relevant example to us is Community Gaming, an arm of Consensys. When we do tournaments for E1337, WhaleShark, Axie, or any other game, we leverage their tournament organizer’s platform. The key feature of the platform? A Tournament = A Smart Contract, and can be funded up to the start of the event. Prize schedules are set when the event is first created, and – here’s the great part – when the event is over, your winnings are automatically deposited into your Polygon wallet.

To the average gamer, this may not actually seem like a big deal at all, let alone the top use case for crypto in gaming, in general. However, anyone who has operated a league, tournament or event venue knows the pain of handling tournament organizer duties. Because the Community Gaming dApp handles 100% of the admin on both front- and back-end, the TO is able to focus on promotion and player communication – not remittances and bracket-making.

But – that’s not even touching NFTs, and that’s what we’re here to talk about. Why NFTs and Esports are a match made in heaven. The first generation of crypto-gaming infrastructure (e.g. Community Gaming x Polygon for tournament payouts) has been built. This foundational layer can easily be extended via the NFT standard – there’s almost no real difference between sending an ERC20 and an ERC721 token beyond the underlying ETH protocol. So far as your wallet or any dAapp is concerned, “sign tx, send token” is all it needs. So sending an NFT as part of a tournament payout is absolutely the next evolution of these platforms.

This brings us to the next massive use-case for NFTs in Esports. Trophies and Medals. In real-world tournaments, you get cool stuff for winning. Some of it has financial value, and some of these prizes are simply social signals. A 1st place trophy made of gold is worth the value of the gold, at the very minimum. A 1st place trophy made of glued-together garbage is worth…well, beauty is in the eye of the beholder.

So, whether any given trophy contains actual value (or utility-value, which we’ll cover shortly) or simply social value, there is some intrinsic value to an NFT that was minted or earned through a public competition of gamer skillz. Whether that intrinsic value translates to financial value at any point depends entirely on the specifics of the situation.

In some cases, winning a tournament entitles the game-player entry to a higher-level event. Or alternatively, season-long performance in a PVP Arena could render a player eligible for a season-long reward in the future. These “utility value” NFTs have literally endless use-cases.

Here’s a simple example, a situation stripped down to the minimum number of ‘moving parts’. This example is not meant to be a “motivating example” – it’s not representative of a real-world situation with respect to numbers and economic theory! I repeat, this is just an abstract example.

Let’s say a player places in the Top 10 of the current Arena season. And let us assume that each season is a monthly affair, scored with the standard ELO system. A player “in the money” at the conclusion of the season is issued an NFT with artwork representing a stylized, personalized trophy. This art can be 2D or 3D, and can generally be displayed in any “metaverse” style game-world.

Atop the aesthetic / social layer, however, are the utility benefits of our hypothetical NFT trophy – a trophy-holder automatically begins all subsequent seasons with additional ELO points, proportional to their placement in the “top X”. So perhaps the first-place finisher of the season is entitled to a bonus 100 ELO points above baseline, at the start of each new season.

This example contains many economic short-comings; from a tokenomics perspective, it’s awful! However, it’s a clean way to demonstrate that “value earned can always be resold”. A player who doesn’t care about the +100 ELO points can instantly list their +100 ELO NFT for sale on a marketplace.

Who would buy such a thing? Well, in most games, the low ELO rankings are a hive of scum and villainy. There is a very frustrating grind to get out of the “amateur tier”, and it is often the case that talented game-players enter a new situation and are given no ability to “Test Up and Out” of the starting ranks. This is a very negative user experience for the game-player and leads to elevated churn numbers for the miserable biz analysts responsible for monitoring the company’s growth or lack-thereof.

Suspending the terrible tokenomics for a moment, lets work through how the incentives here play out with our imaginary friends Alice and Bob playing the made-up game “Who’s Turn Is It Anyway?”*.

Let Alice equal an experienced game-player who routinely finishes “in the money” each Arena season of “Who’s Turn”

Let Bob equal an equally-experienced game-player who money-finished each Arena season of the formerly popular game “War of World-Craft”, but is only beginning to play competitively in “Who’s Turn”.

Let’s fast-forward to the part where Bob has purchased a top-quality Arena team from the open market. This is an expensive collection of assets which has been finely tuned by obsessive nerds to be the finest “metagame” team; the kind of team that can keep you in the Top 10. Unfortunately, these kinds of teams are not nearly as optimized against the “average” amateur team and often have glaring weaknesses. This creates a scenario where Bob has two crappy choices – first, he can purchase an additional team to suit the low-ranking metagame, or second, he can just grind it out and adapt. Neither of these are particularly cost-effective.

Enter the NFT Trophy collection of Alice, who has been consistently placing in-the-money each season. She has a diverse collection of teams, and she’s a rock-solid player who has no problem getting out of the “doldrums” of low ELO brackets. In other words, she’s ideally suited to grind out trophies and sell them for hard money.

On the other side of the transaction, Bob can buy Alice’s trophy rack of +ELO items (of no practical use to Alice, as we have just established). Given that Bob’s alternative choices are buying another team, or burning time grinding low ranks, it becomes a no-brainer transaction on both sides. Alice invests Time, Expertise, and Staked Assets*. Bob invests Capital. Alice therefore monetizes her Time on a high-leverage basis ( Expertise * assetUtility) and Bob is able to deploy Capital in a more effective manner while also buying back his own Time.

To conclude the example, we can say that the combination of Time, Expertise, Assets, and Capital represent the core alchemy of business. Through a structured NFT-centric program, this alchemy can be reduced down into practical, working software which is usable by the average professional software engineer. That is to say, one does not need to be a Vitalik Buterin-level galaxy-brain in order to be a crypto-alchemist. Shoulders of giants and all that.

So, beyond this hypothetical scenario which is of particular value to an eSports gamer, there is a more broadly applicable use-case for NFTs as the game items themselves. This is hardly news to NFT fans, however most first exposure is via Artwork, not game items. Games like Gods Unchained & Axie Infinity issue all of their assets as blockchain items; that means even if the game itself ceases to exist, the community could build another game atop those same tokens. In this way, NFTs function exactly the same way a physical collectible card does; even if the maker of the game fails to create new cards, players can still play with their cards, under whatever rules they wish.

*A game where all the rules are made-up and the points dont matter.