A16z’s first Philippine bet is shaking up blockchain gaming

As Covid-19 hit the Philippines last year, Bienvenido Penera, a 50-year-old fish trader based in Davao City, a coastal center located south of Manila, was forced to close shop. Stretching out what little gains he made from selling the assets of his small business, he and his family struggled to make ends meet.

But recently, Penera discovered a rather unusual way to ease the hardship: playing a video game.

Axie Infinity, a Pokemon-style, blockchain-based game created by Vietnamese gaming studio Sky Mavis, allows players to earn money by training and breeding colorful creatures called axies, and using them to complete challenges and battle other teams.

Axies are a type of non-fungible tokens or NFTs – unique digital assets that can be bought and sold online. The goal is to obtain the in-game tokens smooth love potion (SLP) and Axie Infinity shard (AXS), which are required for breeding new axies. Doubling as cryptocurrencies, SLP and AXS can be swapped by players for fiat money.

To start playing, users must buy a team of three axies, which today costs upwards of US$600.

It’s an investment that Penera couldn’t afford. “We barely had enough for food and other basic needs,” he says. Like other cash-strapped people seeking to join the fast-growing “play-to-earn” community, Penera turned to Yield Guild Games (YGG), a decentralized gaming guild based in the Philippines.

Launched in October 2020, YGG (a decentralized autonomous organization or DAO in technical terms) invests in yield-farming NFTs found in games and loans them out to players under a “scholarship” program. This allows the “scholars” to get started on play-to-earn games without having to shell out anything upfront. The NFTs could be anything, from the cute creatures on Axie Infinity to plots of virtual land on The Sandbox, as long as they’re used in games with clear monetization potential for players.

The main revenue stream is pretty straightforward: YGG gets a 10% cut of the scholar’s game earnings while the scholar receives a larger 70% chunk, keeping them highly incentivized. The remaining 20% goes to community managers – vetted local leaders that YGG taps to onboard and train scholars and help them maximize returns.

The approach has allowed YGG to scale. Since the guild rolled out the scholarship program in April 2021, it has onboarded more than 4,700 scholars so far. Between April and July, its scholars collectively earned 31.9 million SLP, equivalent to a value of US$8.93 million.

Marquee investors

The impressive early results have sparked euphoria around the new business model. To date, YGG has raised US$22.4 million in total funding. Of this, US$12.5 million came from investors who gobbled up YGG tokens in its initial public sale in July that lasted a total of 31 seconds. Just this week, YGG announced that it had raised US$4.6 million in extended series A funding, led by top Silicon Valley investor Andreessen Horowitz (a16z), marking a rare investment by the VC in Southeast Asia and its first-ever in the Philippines.

Before this, YGG raised funding from the likes of Bitkraft Ventures, a VC fund focused on gaming and esports, and Delphi Digital, one of crypto’s most influential early-stage investors. Angel investors include Sky Mavis co-founder Jiho Zirlin.

Around the time of publishing, YGG’s tokens in circulation are worth US$690 million. Its fully diluted valuation, which takes into account tokens that are yet to be issued, is nearly US$8 billion. It’s a rare feat for an upstart organization based out of the Philippines.

What’s also interesting is that the Philippines is where Axie Infinity has really taken off. The country has been a major market for video games in Southeast Asia. But the desperation caused by the pandemic is what’s largely fueled Axie Infinity’s growth. The game has found robust adoption among Filipino small-business owners like Penera and informal workers earning day-to-day – the hardest-hit by the pandemic, according to a mini documentary by crypto consulting firm Emfarsis.

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