I shut down my Web3 startup. Here’s what I learned (part 1)

Starting a venture-backed company was a long-held ambition of mine and I recently fulfilled it. At the end of 2021, I teamed up with two former co-workers from Zilliqa to launch Voyage Finance, which was intended to be a decentralized credit facility for blockchain gamers. By April last year, we had successfully raised a US$1 million pre-seed round.

Unfortunately, that was the high point. The company ceased to be commercially viable with no product-market fit, dwindling runway, and no hope of fresh funds in a post-FTX world.

Half the team, myself included, departed. The company still lives in principle but the original problem we set forth to solve and the product we built to that end no longer exist.

Failure is hard to swallow, but there are always lessons to be drawn. This two-part essay is an effort to crystallize those lessons so other founders can learn from them.

Image credit: Timmy Loen

Fixing X-to-earn

Voyage Finance was attempting to build a credit product for the GameFi niche. For the uninitiated, GameFi is a category of blockchain-enabled games that are NFT-gated. This means that only players that have the correct NFTs can participate in the game and earn the tokens that can be sold on the open market.

Though GameFi is now dead for all intents and purposes, the concept saw a significant amount of attention between 2020 and 2021. In emerging markets like the Philippines, a large number of people were earning a living by farming SLP, the in-game currency of Axie Infinity.

As the value of AXS (the Axie Infinity governance token) and SLP soared, a slew of copycat games were launched. Despite cosmetic differences, these titles all shared the same underlying mechanism: participants used NFTs to complete certain mundane tasks and were rewarded with cryptocurrency.

This category came to be known as X-to-earn (X2E) and it wasn’t long before capitalism birthed a new and exploitative business model to extract value from this newfangled paradigm. Groups of investors, often known as guilds, began to organize. These guilds went on to collectively raise hundreds of millions of dollars, often from retail investors.

Guilds began to monopolize NFT supply – the “tickets” a player needed to participate in games – and farm tokens. This business model was, for a time, extremely profitable. NFTs were loaned out to players who traded their time for a financial reward, typically a 30% to 50% cut of tokens earned through gaming activity.

This had some very undesirable consequences for players and game economies. First, participants had no incentive to stick around in the long run. They played only for financial compensation and were uninvested in any other way. Second, the hoarding of NFTs in the hands of a handful of large guilds caused prices to soar. Players were effectively locked out of ownership, defeating the goal of an open economy.

Guilds often added no other value other than a simple payroll system. Once a game turned unprofitable, they abandoned it in search of greener pastures to plunder. If that sounds like rent-seeking to you, you’re right.

Voyage aimed to solve that problem by making the model more equitable. We thought we had a solution: offer a credit line to players, who would then be able to buy NFTs and play to repay their debt with their earnings. Once repaid, they would fully own the tokens.

We hypothesized that our product would redistribute NFT ownership into the hands of players, incentivizing them to continue participating meaningfully in their chosen economies. Players would get to keep more of the earnings as interest rates could safely be kept under 30%.

Fatal flaw

All in

Doubling down

Shutting down