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Kan said in an interview with GamesBeat that the company will focus on making the ideal marketplace for selling game NFTs, which use the transparency and security of the digital ledger of blockchain to authenticate unique digital items.
NFTs have taken off this year as a new way to monetize games, and we have seen a boom in fundraising for the opportunity with startups like Mythical Games, Dapper Labs, Sky Mavis, Animoca Brands, and others.
If you look at Google Trends, you’ll see that NFTs started picking up in February and skyrocketed after related NFT sales like digital art and NBA Top Shot took off. Dapper Labs has now seen sales and resales of those NFTs top $780 million. In March, an NFT digital collage by the artist Beeple sold at Christie’s for $69.3 million. NFT sales hit $1.2 billion in the first quarter, $1.3 billion in the second quarter, and a whopping $10.7 billion in the third quarter as games such as Axie Infinity took off.
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NFT game challenges
But the road to riches won’t be easy. Big companies have hesitated on the sidelines as they await rulings from regulators. Ubisoft launched its Quartz NFT platform last week with a giveaway of NFT items for longtime players of Ghost Recon Breakpoint.
But it took down its video after facing scathing replies from gamers. Most objections fall along the lines of the environmental impact of cryptocurrency mining, scams and money laundering among the crypto startups, and the focus on get-rich schemes instead of fun games. Game industry leaders from Phil Spencer have criticized NFT games for being more exploitative than entertaining.
Yet the NFT advocates like Kan believe that blockchain and Web 3 can liberate gamers and game companies from being dependent on platform owners, which take a 30% cut for things like marketplaces and distribution. Sidechains can speed up the pace of transactions for slow chains such as Ethereum, and they can also reduce the environmental impact. (Ubisoft said the Tezos chain could reduce the environmental impact to a millionth of the impact of Bitcoin transactions.) On top of that, gamers can own their gear permanently and resell it for value when they no longer need it. This has spurred a whole “play-to-earn” movement that could disrupt the existing models for games. And part of that disruption is the emergence of new marketplaces like Fractal, Kan said.
As for the scams, Kan said, “We’re not interested in supporting scams or people who are never going to deliver projects. There are lots of entrants, but our goal is to work with the best gaming companies out there. And there are more legit companies now who have a history of making games that are coming to this industry. And we want to work with them.”
Kan believes that proper game design will result in NFT games that are fair for both developers and players.
Kan said that environmental impact is important to him, and he is making a large donation for climate causes, as he’s a “Burning Man nerd.” He’s using the Solana blockchain ecosystem, which has focused on low-cost (under one cent) and low-impact transactions.
“To me, that’s really important,” Kan said.
Kan said the company has partnerships with gaming studios that will be dropping new NFTs on the platform in the coming weeks. Players will be able to buy gaming NFTs directly from Fractal gaming partners as well as discover, buy and sell gaming NFTs from other players.
“Whether its starships or magical swords, or characters that are playable in NFT games, we want to be a primary and secondary marketplace,” Kan said. “Our goal is to like be that primary and secondary marketplace for all the endgame things that developers sell before or after they launch a game.”
Many gaming companies today are already generating the bulk of their revenue from selling digital goods that have in-game value to players and Fractal is the first marketplace to focus on gaming NFTs.
“Gaming is going through a transition, and it’s about how the next wave of games get funded and participate with their communities,” Kan said. “With NFTs, people are seeing that they can create a broader reach by giving up a little bit of the power to the players in the ecosystem.”
Game companies have found a new kind of Kickstarter with the tokens they’re launching, sometimes ahead of when the game is ready and sometimes after it has launched.
“It’s a way to reward the people who are participating early on,” Kan said. “And it can also pre-fund the game. Existing gaming companies are really excited about that future, and for the first time since Twitch, I was excited to be in the game industry again. We decided to build an NFT gaming marketplace to empower this kind of new world.”
Project verification will be an important task, as no one wants to see a company announce a 10,000 item limited edition NFT drop and then discover 70,000 fake items for sale in a market. Discoverability for new projects is also important. And crafting the right kind of NFTs also matters.
“I’m not particularly that interested in creating a marketplace where people are gambling on prices going up and speculating on NFTs,” Kan said. “I think what’s really interesting is how NFTs interact with the world and how people build experiences on top of NFTs that can go beyond the game. Maybe you can craft an awesome sword and lend it out like someone renting a Ferrari for a birthday.”
Ultimately, Kan sees NFTs as an onramp to the metaverse, the universe of virtual worlds that are all interconnected, like in novels such as Snow Crash and Ready Player One. (We’re doing our second GamesBeat metaverse online conference on January 26-27). That metaverse will get stronger when they are social channels like Discord and commerce opportunities as well through NFTs.
Fractal’s leaders include serial entrepreneurs in gaming and ecommerce: Kan, president; Robin Chan, head of business development, and founder of XPD Media which was acquired by Zynga; David Wurtz, chief product officer, cofounder of Google Drive and an adviser to Shopify; and Mike Angell, chief technology officer, a 20-year ecommerce veteran who was previously at Fast and Shopify.
Fractal’s first partners include some of the most innovative games that have already been working on blockchain integrations. The exclusive NFTs they will be dropping on Fractal will be items that will give players abilities and experiences within their upcoming games. Fractal is focused on the crypto gaming companies that are building fun and engaging games with replayability.
“Gaming companies want to partner with us because we are industry veterans who are building for their needs.” said Chan, in a statement. “We’ve seen an influx of traditional developers who want to build a crypto experience, and we are excited to support them.”
Rivals include OpenSea, which has become the largest NFT marketplace with $16 billion worth of the total $27 billion in NFT transactions this year. But Kan believes that the market will eventually segment into vertical marketplaces, and he believes gaming should have one of its own.
“If you look at Steam, there are marketplaces for software, but the focus on gaming has existed at the same time,” Kan said. “I think the same thing is going to happen with game assets. You’ll be able to showcase your NFTs in a different way.”
It is similar to the way Twitch evolved. At first, Kan’s Justin.tv was a livestreaming site for anything. But the thing that took off was gaming livestreams, and the company morphed itself into Twitch.
“There was a specific community that created its own culture,” Kan said.
After Amazon bought Twitch for $970 million in 2014, Kan has been investing in crypto since 2013, and has been an adviser to decentralized projects like Theta and Audius. And he’s returning to his roots.
“When I was growing up and playing games, I played an absurd amount of Ultima Online and World of Warcraft,” he said.
Richard Garriot’s massively multiplayer online role-playing game gathered thousands of players together in a virtual, persistent fantasy world. You could team up with players to kill monsters and collect loot. But if you died in the game, your hard-earned goods could be looted off your corpse by random passersby. It was brutal, unforgiving, but Kan loved the high stakes.
Players could keep their digital treasures in their persistent homes, but the real estate was scarce and eventually, houses started selling on eBay for hundreds of real dollars.
“Real-world value was ascribed to these digital items,” Kan said.
A real economy started up, and some players began farming and selling in-game currency online. To anyone not playing the game, this sounded ridiculous: how could something inside a video game be worth real dollars? The idea that digital goods could have monetary value wasn’t yet established, Kan said in a blog post.
Now, it isn’t weird to make your entire living online now, making games on Roblox, trading cryptocurrency, or entertaining the masses as a Twitch streamer, Kan wrote. Game companies have embraced digital goods: in its first two years Fortnite made $9 billion in revenue primarily from selling skins. The business model of gaming has shifted away from game sales revenue to selling items and skins that have durable in-game value to players.
Kan’s own investment company backed Syn City in the crypto space, and that gave him insight into blockchain projects.
The next step
Putting these durable in-game assets on a blockchain is the next step in gaming, Kan wrote. While players have recognized the value of items in centralized games for a long time, when game companies create lasting durability beyond their games by making their in-game assets NFTs on a blockchain, tremendous amounts of value will be unlocked for players and the gaming ecosystems themselves, he said.
For players, this will mean they can truly own the value of their in-game work: items they own will be buyable, tradeable or sellable. For game companies, their in-game assets become persistent platforms on top of which other developers will be able to build experiences, Kan said.
Kan said that his previous startup, the legal firm Atrium, raised too much money too early and it became a problem. This time, the founders are putting their own money into the company and they’re focusing on getting a good product out the door first. The firm remains small with a handful of people.
Web 3 and decentralization
“The building of the decentralized Web 3 feels like the building of the web years ago,” Kan said. “It felt very exciting building Justin.TV and then Twitch, like anything was possible. It matured and became a lot of big companies. I think with Web 3 we’re back to people creating new experiences that are exciting.”
Decentralization will put ownership in the hands of people that make your marketplace, Kan said.
“I think it is a really powerful idea,” he said. “These big companies own the entire experience, and they’re able to rent the digital items for a pretty substantial fee. There is a lot of control they exert over the marketplace and a lot of fees they can charge customers. The way the web is supposed to work is communal ownership and a free exchange of ideas. That’s the future I want to live in.”
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