Thu. Jan 20th, 2022

I’m bearish on crypto games

if there is one what venture capitalists have taught me is that coordinated incentives can be a thrill.

It’s a phrase you’ll often hear when you spend time with professional private market investors. But when I mention my collegiate years, the phrase is really just the economic principle that individuals respond to incentives, phrased in a slightly more focused way.

In the land of venture capital, the idea works like this: Individuals respond to incentives, so you want to make sure that everyone at a company, say aligned incentives.

This is why startups often offer some of the equity to employees, giving them a small piece of ownership in the overall project. This one aligns employee incentives toward joint business success, something employers want because they are in the business of paying people as little as possible while meeting quality human capital standards and not having too much employee turnover.

There are less crude capitalist lectures on why venture capitalists allow startups to sell stock to employees through options at below-market rates. I don’t buy them. Investors like returns and optimize for it thanks to their own incentive structure.

VCs have a good outing. They take money from existing pools of capital, invest it in work that others are doing, and then get a cut of the deal profits while also ripping up a few hundred bucks a year from their total investment vehicle. Again, we see tuned incentives, with venture capitalists taking advantage when their grassroots profit. teamwork.

I’ll walk you through to explain that the concept of aligned incentives runs deep in the startup and venture capital worlds, something that can sometimes blind people to other ways of doing business.

Games for example. Especially crypto games.

You see, the crypto community and its countless supporters are quite enthusiastic about crypto games. Here it seems to be a place where incentives can be aligned in a new, exciting way, translating gaming into related economic activity. All the fun of games, but with matched economic incentives! What could go wrong?

Play to earn?

Through the lens of aligned incentives, the concept of play-to-earn games on a blockchain excites venture capitalists. Users will play the game and generate both fun and economic activity. The user gets part of the value, and the company gets the rest. Everyone is happy, and the game can keep making money forever, right?

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