[Previously Private Library] Sample Case Study: CryptoValleys
A Deep-Dive into the Latest Gamified Yield Protocol on Blast
Introduction
Crypto Valley is a "play-to-earn" gamified yield engine that borrows from its predecessors, "Crystal Kingdoms" (Harmony a la 2021) amongst other variations such as "Wolf/Sheep" game, "Crabada" and "Raid Party" as similar high-quality comparables. The game is mostly idle, with the user having to make choices based on game theory, namely opining around expected profitability of "farming" (re: interacting with the game in an organic manner) against expected future growth of the game, which extends the risk curve to the right. These games tend to have a concave return profile, as initial users (taking the most risk wrt rug risk and creating pilot precedents for the game) enjoy a much larger share of rewards than future participants.
This dynamic occurs because of two reasons: early participants are able to obtain resources, and subsequent "buffs"/multipliers from applying said resources, and hit a threshold where their game-theory optimal strategy is to sell their farming-profits into the market, diluting incoming/future entrants.
The Game Theory
Well-designed games generally have "sinks" built into the game that theoretically create a "glass ceiling" whereby promised future gains appear so profitable from a nominal, non-future value adjusted basis that all participants are incentivized to defer accessing said returns today. This is the critical lynchpin whereby these games fail or succeed: the math is often not clear as to where one should start taking profit, because with numerous sinks available, an unknown volume of future onboarded players and additional nuances that games can introduce, users generally start becoming indifferent between maximizing returns on an efficient capital basis (MOIC) vs returns on an absolute basis (recycling capital and creating right-tail numerator effects).In Crypto Valleys, the game loop is as follows:
1. Player must market-buy $YIELD, the token underpinning the game's ecosystem. As of today, there is no intention to split off into another token.
2. Players expend $YIELD to purchase seeds (800 $YIELD for one pack of seeds).
3a. Seeds are randomized wrt ROI (%) and time to harvest (min. amount of time before rewards are available).
3b. At onset, rewards are generally ~85% locked / ~15% unlocked (more on locked yield down below).
4. After harvesting a seed, the player can elect to:
- put new $YIELD to work and recycle rewards via buying seeds and repeating steps 1-3
- use $YIELD in Sink #1: upgrading the farmer/valley such that 1) more crop slots become available (thereby multiple seeds can be farmed at once and 2) the chance of better seed unlocks improve
- stake $YIELD, whereby participants trade $YIELD for $XYIELD, a token receipt that is pegged to the value of $YIELD. The peg is expected to grow as time goes on, given that the underlying $YIELD bank captures a share of seed volume exchanged
5. New sinks (equipment upgrades, quests/expeditions) are planned in later iterations of the game
Model Assumptions
Model Output
Way to Play
Crypto Valleys is an extremely profitable game for users who get in, likely in the first 24-72 hours, as they will break-even (or do better) on their initial yield purchase, and thereafter benefit from not having to buy YIELD to increase their unit share of farming organically, instead being able to recycle existing yield. The half-life of the game based on initial review will likely not exist past 1-2 weeks (looking at similar games in the past) even with the design of new sinks.
The proposal to put locked yield to work into being able to exchange it for NFT-0s (for early users) further exacerbates the liquidity mismatch issue where users after 3/20 would have to put new money to work, where legacy users can instead put recycled lock yield and being able to immediately leverage new users as liquidity.
Therefore, I expect that the best risk-adjusted way to play this game as an entrant today is:
- purchase $YIELD on market on dips/discounts
- stake $YIELD to receive add'l rewards as volume grows, and the peg grows (there is no time min. delay on staking)
- unstake $YIELD, sell $YIELD 24h before NFT-0 generation event
Comps
Crabada - $75-150mm MC
DFK / Jewel - $500-1,000mm MC (closely mirrored Harmony's TVL - majority of participants were onboarding to ONE for only this game)
Back in 2022, AVAX was a multi-functional chain w/ many aspiring game and NFT projects; as such, Crabada only commanded ~2-3% market share of TVL. This stands in contrast to DFK, which at its peak likely drove 70%+ of TVL to the game.
Base case for CV would be to hit ~5-15% of TVL as MC given front-running & 1st game out for BLAST on opening week. Biggest memecoin on-chain currently takes ~$350mm MC given lack of alternatives on-chain to deploy capital.
Conclusion
Our analysis would suggest that the game could re-rate to ~$100mm MC within the next 2 weeks (not building in +flows to TVL for Blast given that we assume interested users would have likely onboarded already given lack of catalysts around the chain announced near-term.) We can also expect for 250k-1mm YIELD/day over the next week diluting current supply. This would indicate ~5-10% dilution of O/S float per day against an anticipated 2-3x re-rate over this time frame.
Therefore, to illustrate with numbers:
MC Today = $5.40 x 6,250,000 Supply = ~$37.5mm
MC in 1 Wk = [z] x 10,000,000 Supply = ~$100mm
z = ~$10/YIELD
A risk-adjusted price target for the coin would be ~$7.50-$10.00 to exit.
See disclaimer here: https://pastebin.com/1mRkzEsh