Blockchain-based game marketplace DMarket has raised $6.5 million in venture funding and added video game pioneer Trip Hawkins as a board member. The funding will help DMarket expand its decentralized, cross-game marketplace, which lets gamers freely trade and sell in-game assets, earning real value for those virtual items. Hawkins brings a measure of respectability to blockchain games, which have struggled to gain mainstream acceptance and business traction.
DMarket has built an in-game item trading platform based on blockchain, the transparent and secure decentralized ledger that can confirm who owns a particular item and whether it is unique. Game developers, players, influencers, and brands are able to co-create video game content securely and generate profit while continuing to play and have fun in different gaming multiverses, said DMarket CEO Vlad Panchenko in an interview with GamesBeat.
Almaz Capital led the round, with support from Xsolla. With the new funds, DMarket will expand its in-game ecosystem and is planning to hire engineers and additional executives in the next three months. Amid the economic uncertainty of the pandemic, DMarket hopes to gain momentum in creating a virtual economy, allowing more people to make a living trading virtual goods, well beyond those in the gaming industry.
Alongside the investment, Hawkins is joining DMarket as an independent board member. He is the founder and former CEO of Electronic Arts, 3DO, and Digital Chocolate. Сalled “King of the Nerds” by the Economist, he led EA for more than a decade, and the company is valued at over $30 billion today.
Panchenko said he met Hawkins about a year and a half ago and they got along well. Hawkins had studied the space and knew how to “finish my sentences,” Panchenko said. “He has had quite interesting experiences. I was hoping he would take the board position.”
Panchenko said his company is already paying out millions of dollars a month to users who are trading wares, known as skins, in games like Counter-Strike: Global Offensive, Dota 2, Team Fortress 2, and Life Beyond. Users trade skins for weapons or other decorative items that change the look and features of their items. A couple more game worlds should come online soon, Panchenko said.
DMarket had to develop the technology for blocking fraudulent trades and money laundering transactions by figuring out things like cross-border payments, taxation, and exchange rates. “We’ve had algorithms … that help us be better than others in the market,” Panchenko said.
Why Hawkins signed up
Hawkins said in an interview that DMarket is at the center of multiple growth trends: advanced social games, virtual goods trading, fashion, esports, and blockchain. He noted that today’s gamers don’t really own the virtual goods they pay real money for. If a game company shuts a game down, the virtual goods have no value and the gamer can’t take them to another game. This inhibits the adoption of virtual game worlds and economies, Hawkins said.
“Guys like Vlad are fun to work with, and it’s a real pleasure for me to be able to share some of these lessons that I learned in my career with this next generation of young, talented technology gurus,” Hawkins said. “And as far as blockchain, what I would say is that blockchain is kind of the bonus element for this concept. I think there are other fundamental things about the market that are leading edge. Clearly, there’s an entirely new kind of social platform today that isn’t a horizontal utility service like a Facebook.”
He added, “The mainstream game business is getting really big. You’ve got all the synergy between the social games and esports and virtual goods economies and the cloud. And in that context, DMarket is riding a lot of these themes and breaking some ground by saying ‘How about a marketplace where virtual goods can be traded independently outside of the ecosystem of the game itself?’”
Hawkins said a lot of the blockchain world has been obsessed with speculation and getting rich quick. That hasn’t been good, but hardcore gamers have been fascinated by blockchain, and they’ve been willing to try out blockchain-based trading. These forces have both propelled blockchain forward and held it back.
Hawkins said he liked Panchenko’s company, as it showed it could operate out of multiple locations, including places where development costs are inexpensive. Ukraine is a good place for development, Hawkins said, because DMarket can hang onto its team there more easily than in a place like Silicon Valley.
DMarket has 75 employees, about 70 of them in Ukraine. Other companies in the same space include Animoca Brands, Mythical Games, CryptoKitties, and Forte. But DMarket isn’t making its own games, nor is it issuing its own cryptocurrency. Its focus is on making tools that developers can use to build in-game marketplaces and enable item trading, Panchenko said.
Panchenko previously raised $19 million in 2017, and the company has offices in Kyiv, London, and Los Angeles. DMarket’s partners and customers include Xsolla, Unity, 4A Games, GSC Game World, Darewise, Playkey, Kiss, and Tatem Games.
Game makers can use the DMarket applications programming interface (API) to make the items in their games tradable so developers don’t have to create their own independent markets. This will enable portability of assets across games, which should encourage players to spend more and in turn generate more money for game makers.
Toward “Ready Player One”
Some dreamers hope blockchain will enable cross-game activity and be the precursor of the Metaverse, the universe of interconnected virtual worlds, as in novels like Snow Crash and Ready Player One. Panchenko said progress on this front is slower than he would like, but he’s talking with major brands now and hopes they will engage with DMarket by the fall. He is also signing up more games to use the in-game marketplace.
“Ready Player One? I want to live in that world,” Panchenko said. “But to bring it quicker, I need to build the business of the game developers. This is step No. 1. If I combine this business and my vision for the future, it will happen quicker. When I see other people making a living in virtual worlds, that’s like magic for me.”
For the Metaverse to arrive, blockchain needs to achieve mainstream acceptance. Asked when that might be, Hawkins said “I don’t really know how long it’s going to take. Obviously, there are creative things people do in the blockchain space. And I think virtual trading is going to be a really big deal, whether blockchain is the key or not. I personally feel kind of patient about the blockchain side of things. I don’t think you can put any particular expectation about widespread public adoption of specific commercial applications for blockchain on a rigid schedule and forecast when it’s going to happen. What I think is much more predictable is that virtual goods are an enormous chunk of business in the future.”
Hawkins noted that big companies have always been slow to adopt new technology. Apple, for instance, was initially hesitant to embrace in-game virtual item sales that you could buy with virtual currency. That was in the early days of the App Store, but this kind of in-app purchase eventually became the primary way to monetize free-to-play mobile games.
“It’s now a gigantic economic activity,” Hawkins said. “Now everybody cares about virtual goods. We are growing the gamer audience at such a fast clip.”
Hawkins warned that blockchain companies that took advantage of the cryptocurrency boom with initial coin offerings (ICOs) — which are now impossible to pull off in the U.S. regulated market — may not be able to access capital again.
“There was clearly a blockchain bubble, and a lot of companies took advantage of that,” Hawkins said. “The venture community was more thoughtful. They avoided some of the companies that did ICOs and were shut down. But there is plenty of potential for a company that is creating an innovative marketplace.”
Panchenko said the platform providers should pay attention, as many companies are building their own platforms with stores and distribution. When you launch a new console like the PlayStation 5, you want players to stay inside your ecosystem. The way to do that is to move players from one favorite game to another.
“The perfect way to do that is on the blockchain, where I have some piece of memorabilia from one game and I can use that in another game. It’s all under one umbrella,” Panchenko said.