First Class Cabin: DAO Chain Game Guild Merit Circle

Merit Circle (MC) is a decentralized DAO chain game guild built on Ethereum and BSC. Unlike traditional chain game guilds, Merit Circle gradually expands into the midstream of the chain game industry through investing in the primary market of chain games, collaborating to develop games, building a platform for distributing chain game market channels, and constructing infrastructure.

Author: First Class Cabin

Investment Summary [1]

Merit Circle (MC) is a decentralized DAO chain game guild built on Ethereum and BSC. Initially, Merit Circle was a scholarship guild similar to YGG, with scholarship business [2], SubDao model [3], etc. However, considering the sustainability and limitations of the scholarship business, and the fact that these businesses were almost all suppressed by YGG, it began to transform the structure and positioning of the DAO in March 2022, hoping to create a game DAO. Merit Circle divides the DAO into multiple sections (vertical fields). Currently, its main sections are investment, studio (building and incubating new projects), games (platform for distributing chain game market channels), and infrastructure (Beam game chain based on Avalanche, which went live on the mainnet on August 18th this year). In addition, the game NFT platform Sphere, which is still in the development stage, was once one of the four main sections, but due to market factors, its release was postponed, and it was replaced by the infrastructure section.

Merit Circle, formerly known as Axie 420, was an Axie Infinity "scholarship" organization founded in July 2021. The initial purpose was to allow players in low-wage countries to play Axie Infinity. Axie 420 received a $200,000 incubation investment from Flow Ventures in August 2021, as well as raised $1.25 million through other channels, and was renamed Merit Circle in September 2021, expanding the project's focus from solely Axie Infinity to more popular games and the metaverse.

The advantages of Merit Circle are:

1) The treasury funds are abundant and transparent in disclosure, and the fund allocation is relatively reasonable (according to official treasury data as of June 23 this year: cash accounts for 40%; high liquidity blue-chip tokens account for 8%; NFT assets account for 4%; chain game-related tokens/equity account for 48%, with a majority in the primary market equity, and the investment targets are mostly traditional game studios combined with blockchain technology, with the overall game style leaning more towards playability). The treasury funds amount to approximately $94.1 million, with $MC not included in the treasury calculation, and the treasury funds have decreased by about 7% compared to the end of 2021. In the bear market, Merit Circle ensures sufficient cash flow through reasonable treasury allocation, theoretically possessing the ability to cope with the bear market in terms of funds.

2) Compared to traditional chain game guilds, Merit Circle has taken a significantly different development path. Merit Circle has abandoned the scholarship model and gradually expanded into the midstream of the chain game industry through investing in the primary market of chain games, collaborating to develop games, building a platform for distributing chain game market channels, and constructing infrastructure.

The risks of Merit Circle are:

1) From the investment perspective, most of the objects invested in by Merit Circle are in the primary market of chain games, accounting for about 80% of the investment in chain game-related tokens/equity. Merit Circle's income sources are relatively single, mainly relying on the investment section. Most of the gamefi investments made by Merit Circle are small games, and the market value of the investment part has a large speculative component. The survival rate of such chain games in a bear market is relatively low, with high risks and uncertainties. The short- to medium-term income situation of Merit Circle is difficult to improve due to market conditions, and the subsequent development depends on the development of the chain game sector and whether the invested games can have a good return, as well as whether the constructed Beam game chain and the upcoming game NFT market Sphere can have good development.

2) The market value of $MC is strongly correlated with the market value of the managed treasury assets, and the expected ceiling seems relatively limited for the time being.

3) Due to the lack of attractive gold-making business and community activities, the community foundation of Merit Circle is relatively weak.

1. Basic Overview

1.1 Project Introduction

Merit Circle (MC) is a decentralized DAO chain game guild built on Ethereum and BSC. Its main sections are investment, studio (building and incubating new projects), games, and infrastructure (Beam game chain based on Avalanche, which went live on August 18th this year). In addition, Merit Circle has also launched its own NFT collection Edenhorde, and the game NFT platform Sphere is in the development stage.

1.2 Basic Information [4]

2. Project Details

2.1 Team [5]

According to LinkedIn data, the Merit Circle team consists of 33 members. From the team's background, team members generally have a background in blockchain work, and core members have been deeply involved in Axie Infinity and have a background in web3 investment institutions.

Marco van denHeuvel—Co-founder, graduated from the Arnhem Business School with a major in International Business and Languages in 2019. From September 2017 to October 2018, he co-founded a blockchain company called Happy Mod, focusing on providing community management and marketing services for blockchain startups; founded Axie 420 "scholarship" organization in July 2021, renamed Merit Circle in September 2021.

Tommy Quite—Co-founder, graduated from Beijing University of Technology with a major in Contemporary Chinese Business and Language, and from Utrecht University of Applied Sciences with a major in Entrepreneurship and Small Business Operations. From April 2014 to September 2018, he was a member of the Bitcoin Foundation [6], dedicated to advocating and promoting Bitcoin and blockchain technology; from July 2017 to August 2019, he worked at Civic, a Web3 identity management tool provider, as a community manager; co-founded Flow Ventures, a web3 venture capital firm, in December 2020; co-founded Merit Circle in August 2021.

Mark Borsten—Co-founder [7] (Twitter @meritcirclorr, personal information not available on LinkedIn), Chief Operating Officer and Co-founder of Flow Ventures, joined Merit Circle along with Tommy Quite.

Thale Sonnemans—COO Chief Operating Officer, graduated with a major in Marketing Management from San Francisco State University and a major in Business Administration from Hanze University of Applied Sciences in the Netherlands. From July 2012 to July 2013 and January 2016 to December 2018, she held positions as a junior producer and junior sales representative at HALAL (a film production company and photography agency); from April 2019 to October 2021, she co-founded a gambling affiliate company called Chaser; joined Merit Circle in August 2021.

Brandon Aaskov—CTO Chief Technology Officer, graduated with a major in Interactive Media Design from the New England School of Art. From February 2006 to March 2013, he worked at Brightcove, a streaming media technology company, as a senior solutions engineer; from June 2015 to February 2023, he worked at DEPT®, a software product agency, holding positions such as software engineer, network director, cryptocurrency department manager, and vice president of web3; joined Merit Circle in February 2023.

2.2 Funds

2.2.1 Financing

Merit Circle has received a total of 3 rounds of financing (the predecessor Axie 420 received a $200,000 incubation investment from Flow Ventures in August 2021, as well as raised $1.25 million through other channels).

Table 2-1 MeritCircle Financing Situation

2.2.2 Treasury

Figure 2-1 MeritCircle Treasury Assets Data as of June 23 [8]

Merit Circle's treasury is divided into four parts (excluding the held $MC), namely cash, blue-chip coins, NFT assets, and chain game-related tokens/equity, with a treasury value of approximately $94.1 million. In addition, according to the official treasury address statistics, Merit Circle holds approximately 42.49 million $MC in treasury addresses on Ethereum and BSC, calculated at approximately $12.83 million based on the current price, accounting for approximately 9.17% of the current total circulation.

2.3 Code

Figure 2-2 Merit Circle Code Submission Status [9]

Figure 2-3 MeritCircle Code Contributors

Merit Circle's code is open source on GitHub [10], with a total of 4578 code submissions and an average of 10 code contributors. The periods with relatively frequent code submissions are from March 2022 to June 2022, and from July 2023 to September 2023, corresponding to the development of the game NFT market Sphere (not yet released, news in February revealed it will be released this year) and the development of the Beam game chain built on the Avalanche Subnet.

2.4 Products

2.4.1 Product Introduction

Merit Circle (MC) is a decentralized DAO chain game guild built on Ethereum and BSC. Initially, Merit Circle was a scholarship guild similar to YGG, with scholarship business, SubDao model, etc. Considering the sustainability and limitations of the scholarship business, it began to transform the structure and positioning of the DAO in March 2022, hoping to create a game DAO, dividing the DAO into multiple sections (vertical fields). Currently, its main sections are investment, studio (building and incubating new projects), games (platform for distributing chain game market channels), and infrastructure (Beam game chain based on Avalanche, which went live on August 18th this year). In addition, the game NFT platform Sphere, which is still in the development stage, was once one of the four main sections, but due to market factors, its release was postponed, and it was replaced by the infrastructure section.

2.4.2 Merit Circle Investment

1) Initial investment funds and sources;

Merit Circle's investment funds come from the $100 million USDC raised on the Copper platform, and according to MIP-2 proposal, an investment committee was formed to be responsible for investments, with specific members being: Flow Ventures LP, Sergei Chan, CitizenX, and Maven11.

2) Investment details;

The details of Merit Circle's investment section are reflected in the treasury allocation. According to treasury data as of June 23, cash allocation is mainly in USDC; blue-chip coins mainly consist of WBTC, Uni V2 staking, and WETH; NFT assets mainly include Bigtime Land ($1 million), Axies NFT, and CyballNFT; chain game-related tokens/equity are invested in a total of 79 projects (61 non-circulating, 18 circulating), with the majority being in the primary market of chain games, accounting for about 80% of the investment in chain game-related tokens/equity, and these games lean more towards playability.

Figure 2-4 MeritCircle Treasury Allocation Details for Chain Game-Related Tokens/Equity

Table 2-1 MeritCircle Major Investment Projects (Treasury Allocation of 1% or more)

According to official data [12], the money spent on purchasing NFT assets is $4,834,000, with a current valuation of $3,404,852, resulting in a loss of $1,429,148 (-29.6%); the money spent on chain game-related tokens/equity investment is $28,045,486, with a current valuation of $45,471,587, resulting in a profit of $17,426,101 (+62.1%). The above data is not precise, and the actual valuation of NFT assets is lower due to liquidity. The valuation of chain game-related tokens/equity is based on market valuation, and most assets are not in circulation, leading to a certain margin of error.

As the investment section is the main source of income for Merit Circle, and the market value of $MC is strongly correlated with the market value of the managed treasury assets, it is necessary to analyze the health of the projects it has invested in. The following lists the current situation of projects with a treasury allocation of 1% or more:

①Forgotten Playland, current valuation $7.5 million, accounting for 7.97% of the total treasury

On April 25th of this year, Merit Circle announced a partnership with Studio Red to launch Vermilion Studios, creating a social game ecosystem called ForgottenPlayland. It currently has two games, one called "Bomb Pitchers," where players throw bombs at each other, and another called "Toy Limb Golf," a golf game where players must find quirky items to use as their "golf clubs." The game's economy mainly revolves around selling customizable skin NFTs, such as cosmetics and skins.

From the official Twitter of ForgottenPlayland

Based on the lack of updates on the official Twitter of ForgottenPlayland since the announcement on April 25th, the author believes that the current valuation of $7.5 million for this game has a significant margin of error and poor health. Additionally, the development of small games and the average economic model indicate a relatively low likelihood of future development.

②Gameplay Galaxy, current valuation $7 million, accounting for 7.44% of the total treasury

From the official website of GameplayGalaxy

Gameplay Galaxy is a decentralized competitive gaming ecosystem driven by Web3, developed by the creators of the web2 game series "Trial Xtreme." The series has over 250 million downloads of various bike racing games and has ratings of 4 stars on Google Play and 4.2 stars on the App Store. The project raised $12.8 million on September 7, 2022, with lead investment from Blockchain Capital, and follow-on investments from Merit Circle ($5 million), Mysten Labs, Solana Ventures, Com2uS, Yield Guild Games, and Hustle Fund.

Based on the team's background and the popularity of the game "Trial Xtreme," the author believes that the project's health is relatively good, with a relatively solid foundation despite a low probability of becoming a popular hit.

③Lava Games, current valuation $2.64 million, accounting for 2.81% of the total treasury

Lava Games is a game studio that has created a third-person platform game called "A Far Away Realm" (AFAR), which includes arcade and shooting game elements. MeritCircle announced a partnership with "A Far Away Realm" (AFAR) on March 21, 2022, and invested $1.2 million in the project. However, based on the lack of activity on the official Twitter account and the low trading volume of the project's NFT collection on OpenSea, the author believes that the project's health is poor and the current valuation of $2.64 million has a significant margin of error.

④Vorto, current valuation $1.561 million, accounting for 1.66% of the total treasury

Merit Circle announced on August 25, 2022, a joint launch with Vorto of the multiplayer online (MMO) real-time strategy (RTS) game "Hash Rush" and invested $1 million in it. The game is currently in the development stage, and the official website states that it will be released on the Beam chain in the future. Based on the official game animation and visuals, the production quality appears to be average. It is worth noting that the project has been in progress since July 2017, with intermittent progress and frequent changes in direction. Additionally, the official Twitter account (@PlayHashRush) has only 9,117 followers. Based on this information, the author believes that the project's health is poor, and the current valuation of $2.64 million has a significant margin of error.

Other Projects

Upon further examination, it is observed that most of the gamefi projects invested in by Merit Circle are small games, and the survival rate of such chain games in a bear market is relatively low. Currently, nearly half of the treasury assets are allocated to investing in gamefi projects. If a breakout hit is not achieved, it poses a potential risk to the overall project.

Figure 2-7 MeritCircle Treasury Fund Situation from November 2021 to June 2023

Figure 2-8 shows the allocation details of chain game-related tokens/equity investments in the Merit Circle treasury in December 2021.

As shown in Figure 2-7, during the market downturn period from November 2021 to June 2023, the overall shrinkage of the treasury is not significant, decreasing by about 7% compared to November 2021. The main reasons for this are as follows:

Cash allocation has consistently remained at around $40-50 million, accounting for 40%-50% of the treasury.
NFT assets with poor liquidity have consistently remained at a low level, around 5%.
According to Proposal MIP-6 for early-stage risk mitigation authorization, a series of profit-taking and stop-loss requirements have been proposed.
The risky assets of chain game-related tokens/equity invested at the end of 2021 and the beginning of 2022 were mostly in the secondary market (as shown in Figure 2-8). In the early stage of the downturn, the holding of these assets was intentionally reduced, and the focus shifted to investing in the primary market of chain game-related tokens/equity, with the investment proportion increasing monthly. Additionally, it is worth noting that the quality of the projects invested in this part of the investment assets is relatively average, mostly consisting of small games that have not yet been launched, and their valuations have a significant margin of error.

It can be seen that Merit Circle's investment style tends to be conservative, with a strong risk awareness, but the valuations of its investment projects have a significant margin of error.

Investment Income Distribution

Figure 2-7 MeritCircle Investment Income Distribution Framework

According to Proposal MIP-7 for a sustainable future vision, the investment income distribution framework is as shown in Figure 2-7:

20% of the income will flow back to the treasury in the form of USDC.
5% of the income will flow back to the treasury in the form of crypto assets (mainly ETH and WBTC).
60% of the income will be used to repurchase $MC, with limit buy orders (10%-35% below market price). The repurchased $MC will gradually become the main source of MC staking rewards (due to the cancellation of V2 and V3 staking by Proposal MIP-26, the remaining approximately 9.5 million $MC that has not been allocated will be destroyed, and this fund may be used for Beam chain rewards in the future). Additionally, it can be sold to long-term locked or strategic investors and is subject to DAO governance.
15% of the income will be used to burn $MC.

Merit Circle Studios

The main function of Merit Circle Studios is to bring value to other sections of the DAO ecosystem and serve as the birthplace of creative projects within the Merit Circle DAO, collaborating with existing projects and projects from non-web3 companies. Currently, Merit Circle Studios offers three services and products:

Merit Circle Grants

Research grants, with a maximum of $10,000 per applicant, to support research projects and lay the foundation for larger proposals decided by community voting.
Development grants, with a maximum of $25,000 per applicant, to compensate developers for expenses incurred during project development. Applicants can apply on Wonderverse, and the applications are reviewed and voted on by a committee of DAO community members.

Merit Circle NFT Collection Edenhorde

The Edenhorde NFT collection is the first creative project of the Merit Circle DAO, with a total of 8,800 items. The floor price on OpenSea is 0.059 ETH, with a total trading volume of 10,103 ETH. The current floor price has decreased by nearly 93.4% from the average selling price of 0.9 ETH at its peak in March 2022, showing a consistent decline in volume and price since its listing on OpenSea. Additionally, the trading activity has been bleak in the past two months, with only sporadic transactions every three to four days. The NFT collection was initially created by Emmy Award-winning illustrator Andy Ristaino, with the IP story behind the NFTs written by the author and historian of "Edenhorde," Celia Blythe. Merit Circle aims to develop Edenhorde into an IP to enter the multimedia field, including merchandise, animation, and games. Edenhorde can interact with creative incubation projects and collaborative projects of Merit Circle DAO (e.g., Canverse, a chess game where Edenhorde characters can be used as game pieces). Additionally, holders of Edenhorde can earn 2.5% of the income from incubated projects (as shown in Figure 2-9, this allocation details the general framework, and specific details can be found in Proposal MIP-10). On August 21, a card game called Edenhorde Eclipse was released, currently in the alpha testing phase, and will be released on the Beam gaming chain in the future. Additionally, according to official announcements [13], a project called Project Amginea is in development, and there will be future releases of Edenhorde NFT staking [14].

Figure 2-8 Edenhorde Official Website [15]

Figure 2-9 MeritCircle DAO Incubation Game Revenue Distribution Framework [16]

3) Merit Circle Tactile

According to Proposal MIP-22 [17], Merit Circle Tactile is a set of 650 merchandise boxes specifically designed for the community, containing seven wearable items (T-shirts, hoodies, scarves, and hats). Holders of the Merit Circle Tactile NFT can obtain these merchandise boxes. The distribution of the NFT occurs in two stages and is targeted at proposal creators, contributors, and holders of Edenhorde NFTs for a lottery, among others.

2.4.4 Merit Circle Games [18]

Initially, Merit Circle also had a gold farming business, known as the scholarship model. However, considering the sustainability and limitations of the scholarship business, Merit Circle decided to transition to its current gaming section. The main functions of the current gaming section are: promoting and acquiring game users for cooperative games, providing learning tutorials for major popular chain games to players, and offering early access to games for Merit Circle gaming community users, who can earn rewards (NFTs, lottery, etc.) by completing tasks.

Figure 2-10 Gaming Section Game Interface

The game interface introduces popular games on the market, games available for early access, games in cooperation with Merit Circle, upcoming competitions, free-to-play games, and game tournaments.

Figure 2-11 Gaming Section Academy Interface

The academy provides players with introductory tutorials on web3 and tutorials for learning major popular chain games.

Figure 2-12 Gaming Section Rewards Interface

Players can earn experience points by registering and logging in daily. The rewards mainly consist of lottery and related game NFTs. As the level increases, players can access more tasks and rewards. For example, at Level 1, players can earn rewards by completing tasks for the game CropBytes, which provides a chance to win game NFT items through a lottery within the deadline.

2.4.5 Merit Circle Infrastructure

Merit Circle's infrastructure is built around gaming. The infrastructure product currently released is the Beam gaming chain built on Avalanche, which went live on the mainnet on August 18 this year. According to Proposal MIP-27 [19], 75 million $MC (valued at approximately $22.5 million based on the current token price) was allocated from the treasury for injecting liquidity, providing support to games/game developers (for paying gas fees), and verifying and protecting the Beam network. Additionally, 2.7 million USDC was allocated from the treasury for developing Beam and ecosystem products (with $200,000 allocated for AMM liquidity on Beam).

The Beam gaming chain uses a POS consensus mechanism, allowing users to become validator nodes by staking $AVAX or $MC. $MC is used as gas fees, and LayerZero is used as the official cross-chain bridge. Openfort provides account abstract wallet and integration services.

It is worth noting that according to Proposal MIP-28, at the end of this year, $MC may be migrated to $BEAM at a ratio of 1:100 (where $MC will still be the platform token before the migration). However, the Merit Circle name will continue to be associated with the overall brand related to the Beam network and $BEAM. After the migration, $MC will be associated with outdated information from the initial stage of Merit Circle, and $BEAM will subsequently serve as the token for gas consumption and node staking on the Beam chain. After the migration, it will be necessary to monitor whether there will be significant changes to the economic model.

According to official sources, the ecosystem games to be released on the chain include: the popular off-road racing game "Trial Xtreme" with over 250 million downloads developed by Gameplay Galaxy; the social deduction game "Castle of Blackwater"; "Megaweapon," a multiplayer melee shooting game; "Walker World," an open-world adventure and multiplayer shooting game supported by Unreal Engine 5; the multiplayer online (MMO) real-time strategy (RTS) game "Hash Rush" jointly launched by Merit Circle DAO and Vorto; "Edenhorde Eclipse," a card game incubated by Merit Circle, which can be played using Edenhorde NFTs; and additionally, the game NFT trading market Sphere will be launched later.

Summary:

From the development roadmap, Merit Circle has transitioned into a gaming DAO, which is quite different from traditional decentralized chain game guilds. The main product business no longer relies on the scholarship model but gradually expands into the mid-to-high-end chain game industry through investing in the primary market of chain games, collaborating in game development, building a distribution platform for chain games, and constructing infrastructure.

Looking at the four major business sections of Merit Circle, the investment section is currently the main source of income and is the core of the business, requiring close attention. Merit Circle's investment style tends to be conservative, with a strong risk awareness. Currently, the main investments are in the primary market of chain games, and most of the invested games are small games with a significant margin of error in their current valuations. The survival probability of such projects in a bear market is not high. However, the treasury still holds approximately $45 million in cash and highly liquid blue-chip tokens, accounting for 48% of the treasury, indicating sufficient funds. The development of the studio section can bring value to other sections of the DAO ecosystem and serves as the birthplace of creative projects within the Merit Circle DAO. Currently, the development of the studio section is still in its early stages, with no significant profitability. The quality of the developed incubation projects is relatively average. The gaming section currently functions as a distribution channel for chain games, promoting games to acquire users for game developers, providing learning tutorials for players on major popular chain games, offering early access to games, and providing opportunities to earn rewards (NFTs, lottery, etc.). However, the gaming section currently does not generate profits and has relatively weak user appeal. The infrastructure section has expanded the application scenarios for $MC, with the potential to raise expectations and the project's ceiling. Many of the invested projects claim to be released on the Beam chain, and it will be necessary to observe the landing of the on-chain gaming ecosystem in the future.

3. Development

3.1 History

Table 3-1 MeritCircle Major Events [20]

July 2021

The predecessor of Merit Circle, Axie 420 scholarship organization, was established.

August 2021

Received a $200,000 investment from Flow Ventures, with two co-founders of Flow Ventures joining the team.

August 16, 2021

The predecessor of Merit Circle, Axie 420 scholarship, raised $1,250,000.

September 1, 2021

Renamed to Merit Circle DAO

October 7, 2021

Received a $4.5 million investment from DeFiance Capital, Mechanism Capital, Spartan Group, DCG, Maven11, OP Crypto, Dilectic, CitizenX, Yield Guild Games, and Bitscale Capital, among other investment institutions. Angel investors include Jihoz, co-founder of Axie, Alex, co-founder and CEO of Nasen, Danny, CFO of Illuvium, and Bobby, co-founder of Coingecko.

October 12, 2021

Introduced the project token $MC.

November 2, 2021

Increased the lock-up period for $MC allocated to the team and advisors by 6 months.

November 6, 2021

Completed a $105 million fundraising through the Balancer Labs Liquidity Bootstrapping Pool on the Copper platform, selling 40,976,598 $MC (55% of the circulating supply at the time).

November 7, 2021

Launched $MC staking and liquidity mining rewards.

November 12, 2021

Launched DAO governance.

November 16, 2021

Launched DAO treasury investments.

December 22, 2021

Collaborated with Big Time Studios and purchased land worth $1,000,000.

December 2, 2021

Launched on Binance Launchpool, offering 12,500,000 $MC mining rewards.

February 14, 2022

Released the NFT collection Edenhorde.

March 3, 2022

Transitioned to a gaming DAO, with the main business sections being: investment, studio, game NFT market, and gaming.

May 28, 2022

Proposals MIP-13 and MIP-14 were approved, buying out the allocations of YGG and Nifty funds at a price of $0.32, totaling 5,468,750 $MC tokens. A total of $1,750,000 USDC.

September 9, 2022

Collaborated with Gameplay Galaxy and invested $5,000,000.

October 26, 2022

Proposal MIP-20 was approved, destroying 2 billion $MC from the community incentive allocation due to the lack of utility, valued at $1.47 billion.

November 7, 2022

Launched $MC V2 staking.

January 31, 2023

Collaborated with Oh Baby Games and invested $180,000.

February 9, 2023

Announced the upcoming launch of the game NFT market Sphere this year.

February 24, 2023

Changed the initial contributor allocation of $MC from a four-year vesting period to a four-year lock-up period, involving a total of 71,700,000 $MC.

April 19, 2023

Announced a collaboration with Avalanche to launch the Beam gaming chain subnet.

August 18, 2023

The Beam gaming chain on the Avalanche Subnet went live on the mainnet.

August 21, 2023

Released the Edenhorde Eclipse card game.

3.2 Current Status

3.2.1 Media Attention

Table 3-2 Media Attention

3.2.2 Operational Data

Figure 3-1 Detailed Historical Revenue

As of June 23, 2023, Merit Circle has accumulated a total revenue of $24.09 million, with the majority of revenue coming in 2022. The revenue for the first half of this year was only $180,000.

Figure 3-2 $MC Buyback Details

As of June 23, 2023, Merit Circle has repurchased a total of 5,485,270 $MC, with a cumulative expenditure of $9,443,937, approximately 39.2% of the concurrent revenue. The main buyback period was also in 2022.

Figure 3-3 $MC Burn Details

As of September 23, 2023, Merit Circle has burned a total of 368,707,273 $MC, valued at $316,430,488, reducing the total supply from 1 billion to 631,292,726. The main sources of the burn include: according to Proposal MIP7, 75% of unused tokens are burned monthly from the community incentive allocation, and 15% of investment returns are used for $MC burning; according to Proposal MIP-20, 2 billion $MC (valued at $1.47 billion) were burned from the community incentive allocation (2.94 billion $MC) on October 26, 2022.

Figure 3-4 MeritCircle Treasury Allocation from November 2021 to June 2023

During the market downturn from November 2021 to June 2023, Merit Circle's treasury did not significantly shrink, decreasing by approximately 7% compared to November 2021.

Figure 3-5 Merit Circle Stake Staking Provided

According to Proposal MIP-19, from November 8, 2022, to November 2023, 30,000,000 MC will be used for V2 staking rewards. Before the end of the year, a new staking policy vote will be conducted to determine the rewards for the following year. The liquidity mining rewards allocation for single-coin pools is 20%, while the MC/ETH pool receives 80% of the rewards. The $MC earnings from staking have a custom lock-up period, with different reward weights allocated based on the duration of the lock-up period. For example, the weight for no lock-up period is 1; for a 12-month lock-up period, the weight is 1.65; for a 24-month lock-up period, the weight is 2.5; and for a 48-month lock-up period, the weight is 6. Additionally, the $MC repurchased from investment returns will also be used for staking rewards.

However, according to Proposal MIP-26 on June 30 of this year, Merit Circle will cancel the remaining V2 staking plan four months early, and all stakers' positions will be unlocked. The accumulated $MC rewards from staking can be claimed, and the remaining approximately 9.5 million $MC that has not been allocated will be destroyed. The project team stated that although the current staking plan has been canceled and further rewards have been stopped, the possibility of implementing a new staking plan or exploring alternative solutions in the future is not ruled out.

3.3 Future

The official roadmap has not been released at this time.

4. Economic Model

4.1 Token Distribution

The initial total supply of $MC is 1 billion, with the specific allocation as shown in Table 4-1. As of the drafting date of September 18, approximately one-third of the supply has been destroyed through community voting and partial income used for burning, reducing the total supply to 631,292,726.

It is worth noting that according to Proposal MIP-28, at the end of this year, $MC may be migrated to $BEAM at a ratio of 1:100 (where $MC will still be the platform token of the project before the migration). However, the Merit Circle name will continue to be associated with the overall brand of the Beam network and $BEAM. After the migration, $MC will be associated with outdated information from the initial stage of Merit Circle, and $BEAM will be used as the gas consumption and node staking token for the Beam chain. It will be important to monitor whether there will be significant changes to the economic model after the migration is completed.

Table 4-1 $MC Initial Allocation [21]

Figure 4-1 $MC Unlocking Table

4.2 Token Holder Analysis

According to Ethereum browser and Nansen data, as of September 22, 2023, there are a total of 11,995 $MC holding addresses. The top 100 $MC holding addresses collectively hold 91.99%, and the top 10 addresses hold 75.63%. The top 10 addresses mainly consist of contract addresses, multi-signature contract addresses, team advisor unlocking contracts, Binance hot wallets, and staking pool contracts, with no individual wallet addresses, indicating a relatively diversified overall holding.

Figure 4-2 $MC Holding Address Information, from Nansen [22]

Looking at the change in holding addresses, there has been a noticeable increase in the number of holding addresses after October 29, 2022.

Figure 4-3 Change in Holding Addresses, from Nansen

4.3 Governance

Most of the major decisions of Merit Circle are determined by governance proposals [23], with a total of 27 proposals as of now. Some important proposals include: MIP-1, which approved the public sale through the Balancer Labs Liquidity Bootstrapping Pool on the Copper platform; MIP-6, which proposed a series of stop-loss and take-profit requirements for early-stage risk mitigation; MIP-7, which established investment allocation and burning measures; MIP-13 and 14, which bought out the allocations of YGG and Nifty funds for $1.75 million; MIP-17, which restructured the DAO architecture; MIP-20, which destroyed 2 billion $MC from the community incentive allocation; and MIP-27, which allocated funds for Beam development.

Merit Circle's governance proposal terms are clear and transparent, and a governance forum has been specifically created for discussion. However, it appears that most of the main proposals are currently proposed by the project team.

4.4 Token Demand

1) Used as gas for the Beam game and for staking in verification nodes.

2) Staking $MC can generate income from pre-allocated rewards and the investment section.

3) Governance voting.

5. Competition

Merit Circle operates in the chain game guild track, but it has shown significant differences from traditional chain game guilds in terms of development direction. Merit Circle has abandoned the scholarship model and gradually expanded into the mid-to-high-end chain game industry through investment in the primary market of chain games, game development partnerships, building distribution platform channels for chain games, and infrastructure construction.

5.1 Track Overview [24]

In the traditional gaming field, the formation of game guilds is to allow players to gather, cooperate, and conquer dungeons or collectively defeat big bosses. For example, in "World of Warcraft," top guilds often compete for the first clear of various dungeons or the first kill of monsters. Apart from these highly cooperative guilds, traditional game guilds also focus on player socialization and sharing of game content, becoming the community hub for the game.

In Web3, due to the rise of the Gamefi track in 2021, the explosive popularity of Axie Infinity has sparked a frenzy among blockchain players. However, for many low-income country gamers, the cost of a $600 pet or the configuration cost of needing three pets to start battles is unaffordable. In this environment, the emergence of chain game guilds has greatly reduced the barriers for players to enter Play-to-Earn (P2E) games. The scholarship model pioneered by Yield Guild Games led the rise of chain game guilds.

The scholarship model was one of the core businesses of chain game guilds in the previous Gamefi summer bull market. Its operation logic is that the game guild provides the game items needed for Gamefi and recruits community managers. The community managers recruit and train Play-to-Earn players (scholars). Qualified players engage in Play-to-Earn using the game items provided by the game guild, and the earnings from Play-to-Earn are then distributed proportionally between the game guild and the community managers.

As chain game guilds have developed over the past two years, they have gradually shown the following characteristics:

1) Limitations of the scholarship mechanism: The scholarship mechanism essentially helps bring in a player base focused on Play-to-Earn for Gamefi. This player base can help attract attention to the game and expand the game community in the early stages. However, once in the mid-to-late stages, in the current prevalent token model design of the chain game track, the situation of the death spiral is common. The large Play-to-Earn user base and the heavy game asset (NFT game items) holdings of chain game guilds can severely damage the game itself and accelerate the collapse of the Gamefi economic model.

This means that the operation of the scholarship system is difficult to sustain in a single Gamefi, as guilds need to constantly seek profitable Gamefi to generate profits. During bear markets, the number of profitable Gamefi is limited, leading to significant cyclical changes in guild income.

Furthermore, the current scholarship mechanism of chain game guilds is only applicable to P2E mode games, and P2E mode games, without exception, are currently heading towards a downturn. In the long run, it is uncertain whether P2E mode chain games will continue to exist or decline.

As the Gamefi track matures, more and more Gamefi projects are developing their own leasing systems, such as Starshark and Pegaxy. The emergence of leasing systems will also put pressure on the audience of the scholarship system. If more players choose to use leasing systems instead of systems like YGG's profit-sharing scholarship system, the income of such guilds will significantly decrease.

2. Regional Nature of Guilds: Currently, mainstream guilds are mainly distributed in Southeast Asia. For example, the largest guild in this track, YGG, has its main community players in the Philippines. GuildFi, dedicated to developing Guild-As-a-Service (Gaas), has its main community in Thailand, and the largest chain game guild in Vietnam is Ancient8.

3. Future Development Trends Towards Fundification and Functionalization: After the success of the scholarship model, guilds are starting to look for the next "Axie Infinity." Therefore, many guilds are now participating in the early NFT presales of chain game projects, aiming to obtain a certain number of NFTs early on through partnerships in preparation for the launch of games. In addition to NFTs, guilds may even act as early-stage investors in many chain game projects, transforming their role from NFT leasing intermediaries to risk investment funds in the chain game track. Apart from the direction of fundification, some guilds are also exploring other development directions, such as developing infrastructure, incubating game development, providing data services, community services, user acquisition services, and providing systematic management services for the guild's scholarship and income systems, moving towards functional development.

4. High Dependence on the Development of the Chain Game Track: The income of chain game guilds, whether relying on the profit-sharing mechanism of scholarships or the return on investment in Gamefi, is built on the development of the chain game track. The chain game track is still in its early stages, and there is significant room for growth in the future. For game guilds, the ability to grow with this track and ensure the continuous profitability of their investment portfolio is crucial.

5.2 Competitive Comparison [25]

1) Yield Guild Games (YGG)

YGG is a decentralized chain game guild built on ETH and Polygon. It pioneered the scholarship model, driving the rise of the chain game guild track. However, due to the current quietness of the chain game track, the limitations of the scholarship model are gradually becoming apparent. YGG is now shifting its development focus towards investing in high-quality games rather than purely P2E games. Initially, Merit Circle was similar to YGG, with scholarship business and SubDAO models. However, considering the sustainability and limitations of the scholarship business, and the fact that these businesses are almost all overshadowed by YGG, Merit Circle began to transition the structure and positioning of its DAO in March 2022, hoping to transform Merit Circle into a game DAO.

2) GuildFi (GF)

GF is a chain game guild and guild service platform built on Ethereum. The project is currently attempting to develop towards fundification and functionalization, providing early-stage financing for game communities and post-launch guild-related services.

5.2.1 Business Development of Competitors

Figure 5-1 YGGGAP Season 4 Task List

YGG is currently focused on collaborating with popular games and related projects, investing in and incubating games, guilds, and infrastructure in the track, hosting web3 micro-competitive events and activities to continue expanding the community. The core scholarship business has shown a reduction in each quarter in 2022, and no scholarship-related data was disclosed in the community reports for Q1 and Q2 of this year.

Currently, YGG's community operations mainly revolve around the Quest game task system, primarily through the launch of the Guild Advancement Program (GAP) to expand the community and enhance community cohesion. Participants need to complete achievement tasks released by YGG, such as reaching a certain duration in collaborative games, recruiting a certain number of players to join YGG, and hosting high-quality streaming content to receive $YGG token rewards and corresponding NFTs. This program is currently one of the key development directions for YGG, and Season 4 of GAP is currently underway. As shown in Figure 5-1, GAP Season 4 offers a total of 14 task sets, providing over 150 tasks in total. However, these tasks are relatively difficult to accomplish, and the rewards are in $YGG tokens, making them less attractive. However, compared to the NFT rewards and lotteries provided by Merit Circle's gaming section, YGG's Quest rewards appear to be more lucrative.

Figure 5-2 GuildFi Task System

Figure 5-3 GuildFi Reward Market

GuildFi's community operations currently revolve around the task system and reward market. Players complete provided tasks to earn GXP points, which can be used to exchange for game whitelist qualifications, game NFTs, game tickets, in-game items, and gift cards (mainly for Axie Infinity). The categories available for exchange are limited, and the value is relatively low.

Table 5-1 Community Data

From the perspective of community size and community operations, both Merit Circle and GuildFi have relatively weak community foundations due to the lack of attractive Play-to-Earn business and community activities. YGG has a first-mover advantage and has accumulated a certain community base through its previous scholarship model and SubDAO mechanism. However, at present, all three lack the ability to attract new users and retain old users.

5.1.2 Financial Data Comparison

Figure 5-4 YGGQ2 Investment Disclosure [26]

Figure 5-5 GuildFi 2023 Mid-Year Financial Update [27]

Table 5-2 Comparison of Investment Disclosures by YGG, Merit Circle, and GuildFi

In the 2023 Q2 community update document, YGG disclosed its financial information. From its establishment to 2023 Q2, YGG has invested in a total of 83 projects related to the chain game track. This includes investments in 41 gaming tokens, 35 gaming NFT assets, 57 games, 9 chain game guilds, and 17 P2E infrastructures. The total cost of these investments is $18.37 million, and as of June 30, 2023, the value of these investments is approximately $27.25 million, with a profit of about 32.58%. In addition to its own treasury investments, YGG also raised $75 million on February 18th to establish a venture capital fund called YGG Ventures Fund I. This fund is used for early token and equity trading in web3, game studios, and industry development infrastructure.

As of June 23, 2023, Merit Circle's treasury size is $94.1 million, divided into four parts: 40% in cash, mainly in USDC; 8% in blue-chip coins, mainly WBTC, Uni V2 staking, and WETH; 4% in NFT assets, mainly in BigtimeLand ($1 million), Axies NFT, and Cyball NFT; and 48% in chain game-related tokens/equity, with investments in 79 projects (61 non-circulating and 18 circulating), mainly in the primary market, accounting for about 80% of the chain game-related token/equity investments.

In terms of investment performance, Merit Circle appears to be more outstanding compared to YGG and GuildFi. However, the projects invested in by Merit Circle are mostly non-circulating equity, and based on the current quality of the projects, their valuations are generally overestimated. This means that the actual investment situation of Merit Circle may result in greater losses, although the specific losses are difficult to calculate. However, Merit Circle does have better risk control capabilities, a larger fund size, and relatively transparent financial information disclosure (monthly updates and public dashboards). On the other hand, GuildFi has lower overall investment and participation in the chain game market, weaker competitiveness, and seems to have a passive stance. In terms of cooperation and investment targets, YGG has an advantage in the quality of games invested in and cooperated with, as well as a better brand effect.

Figure 5-6 YGG Treasury Situation [28]

YGG's treasury currently holds tokens worth $157 million, with approximately $724 million in $YGG, currently valued at $150 million, accounting for 95.54%. Stablecoins and other circulating tokens are currently valued at $7 million, accounting for 4.46%.

As of June 23, 2023, Merit Circle disclosed that its treasury size is $94.1 million, with stablecoins and blue-chip coins valued at approximately $45 million. According to the official treasury wallet addresses provided, Merit Circle holds approximately 42.49 million $MC on Ethereum and BSC, currently valued at approximately $12.83 million, accounting for about 9.17% of the current total circulation.

In its mid-year report released on July 26, GuildFi stated that its total treasury funds are approximately $92.68 million, divided into three parts: stablecoins, BTC, ETH, and LP valued at approximately $71.89 million, tokens and primary market investments valued at approximately $15.91 million, and NFT assets valued at $4.89 million. However, based on the current holdings in the five disclosed treasury addresses, the total funds are approximately $42.26 million, with the $GF token valued at approximately $7.35 million, and the majority being stablecoins, ETH, and LP. In addition, two significant transfers from the main treasury addresses to Binance were made, with amounts of $8 million USDT and $2.97 million USDT. According to the official statement, these funds are mainly used to support daily operations and repurchase tokens from investors.

In terms of treasury funds, YGG holds a large amount of $YGG, accounting for 95.54%, with stablecoins and other circulating tokens accounting for only 4.46%. On the other hand, the treasury allocation of Merit Circle and GuildFi is more reasonable. The former's stablecoins and blue-chip coins account for nearly 50%, valued at approximately $45 million. The latter's stablecoins and blue-chip coins account for approximately 71.9% [29], valued at approximately $53.23 million. Additionally, the circulation ratio of $MC is relatively high, at about 73.32% ($YGG is 18.51%, $GF is 42.56%), and it also has a token burning and repurchase mechanism. So far, a total of 368,707,273 $MC has been burned, and 5,485,270 $MC has been repurchased. $MC can also be used for gas consumption on the Beam chain and node staking. In contrast, YGG and GuildFi currently do not have token burning and repurchase mechanisms, and their token empowerment is weaker compared to $MC.

In summary:

The chain game guild track is currently not very large, and the community size is even smaller than the user base of popular chain games. There is still significant room for growth in the entire track.

YGG has maintained a high level of growth by expanding its community and collaborating with popular games, making it a prestigious choice for guilds in the track. Merit Circle, on the other hand, is actively expanding its business scope in the mid-to-high-end chain game market through transformation, exploring more possibilities, but it is still in the early stages and needs time to validate. On the other hand, GuildFi's development is relatively passive and somewhat detached from the track, with limited investment scale and a primary focus on earning interest, resulting in weaker influence in the industry.

6. Risks

1) From an investment perspective, most of the projects invested in by Merit Circle are in the primary market of the chain game, accounting for about 80% of the chain game-related token/equity investments. Merit Circle's income is relatively single, mainly relying on the investment sector. Most of the gamefi investments made by Merit Circle are small games, and the market value of the invested portion has a significant overestimation. The survival rate of these chain games in a bear market is relatively low, with significant risks and uncertainties. The short-to-medium-term income situation of Merit Circle is difficult to improve due to market conditions, and the future depends on the development of the chain game track and whether the invested games can generate good returns, as well as the development of the Beam game chain and the upcoming game NFT market Sphere.