Written by: First.VIP

Compiled by: Medium

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 are 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 (chain game market distribution platform), and infrastructure (Beam game chain built on Avalanche, which went live on the mainnet on August 18 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, it was delayed and replaced by the infrastructure section.

Merit Circle, formerly known as Axie 420, was a "scholarship" organization for Axie Infinity, founded in July 2021, initially aimed at enabling players from 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 renamed itself to Merit Circle in September 2021, expanding its project focus from solely Axie Infinity to more popular games and the metaverse.

Advantages of Merit Circle:

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%; tokens/equity related to the chain game track account for 48%, with a majority in primary market equity, and the investment targets are mostly traditional game studios combined with blockchain technology, with an overall game style leaning towards playability). The treasury funds amount to approximately $94.1 million, with $MC not included in the treasury calculation, and the treasury funds 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 with 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 mid-to-high end of the chain game industry through investing in the primary market of chain games, collaborating to develop games, building game market distribution platform, and constructing infrastructure.

Risks of Merit Circle:

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 tokens/equity related to the chain game track. Merit Circle's income sources are relatively single, mainly relying on investment sectors. Most of the gamefi investments made by Merit Circle are small games, and there is a significant speculative component in the market value of the investment portion. The survival rate of such 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 subsequent development depends on the development of the chain game track and whether the invested games can generate good returns, 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 managed treasury assets, and the ceiling expectation seems relatively limited for now.

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

Note: The final determination of "Attention" or "Not Attention" by First.VIP is based on the comprehensive analysis of the current fundamentals of the project according to the First.VIP project evaluation framework, rather than a prediction of the future price movement of the project token. There are many factors that affect token prices, and the project fundamentals are not the only factor. Therefore, it cannot be assumed that a project will definitely experience a price drop just because it is determined as "Not Attention" in the research report. In addition, the development of blockchain projects is dynamic. Projects that we determine as "Not Attention" may be adjusted to "Attention" if there are significant positive changes in their fundamentals. Similarly, projects that we determine as "Attention" may be warned to all members if there are significant negative changes, and may also be adjusted to "Not Attention".

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 (based on Avalanche's Beam game chain, which went live on the mainnet on August 18 this year). In addition, Merit Circle has also launched its own NFT collection, Edenhorde, and the game NFT platform Sphere, which is still 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 den Heuvel — 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 to 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 publicly available on LinkedIn), Chief Operating Officer and Co-founder of Flow Ventures, joined Merit Circle together with Tommy Quite.

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

Brandon Aaskov — 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, and raised $1.25 million through other channels).

Table 2–1 Financing Situation of Merit Circle

2.2.2 Treasury

Figure 2–1 Merit Circle 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 tokens/equity related to the chain game track, with a treasury value of approximately $94.1 million. In addition, according to the official treasury address statistics, Merit Circle holds a total of approximately 42.49 million $MC in treasury addresses on Ethereum and BSC, which is approximately $12.83 million based on the current price, accounting for about 9.17% of the current total circulation.

2.3 Code

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

Figure 2–3 Merit Circle 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 of more 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 (chain game market distribution platform), and infrastructure (based on Avalanche's Beam game chain, which went live on the mainnet on August 18 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, it was delayed and 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 an investment committee responsible for investment was formed according to MIP-2 proposal, 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 include WBTC, Uni V2 staking, and WETH; NFT assets mainly include Bigtime Land ($1 million), Axies NFT, and Cyball NFT; tokens/equity related to the chain game track include investments in 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 tokens/equity related to the chain game track. These games lean more towards playability.

Figure 2–4 Merit Circle Treasury Allocation Details for Tokens/Equity in the Chain Game Track

Table 2–1 Major Investment Projects of Merit Circle (Treasury Allocation of 1% or More)

According to official data[12], the money spent on purchasing NFT assets is $4,834,000, currently valued at $3,404,852, resulting in a loss of $1,429,148 (-29.6%); the money spent on tokens/equity related to the chain game track is $28,045,486, currently valued at $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 tokens/equity related to the chain game track is based on market valuation, and most assets are not in circulation, so there is a certain margin of error.

Since 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 managed treasury assets, it is necessary to analyze the health of the invested projects in detail. The current situation of projects with a treasury allocation of 1% or more is listed below:

① Forgotten Playland, currently valued at $7.5 million, accounting for 7.97% of the total treasury

Merit Circle announced a partnership with Studio Red on April 25 this year to launch Vermilion Studios, creating a social game ecosystem called Forgotten Playland. Currently, two small games have been revealed, one called "Bomb Pitchers," where players throw bombs at each other, trying to destroy their opponents while avoiding being destroyed themselves. Energy items are scattered throughout the game, allowing players to make bombs more deadly through larger explosions and other enhancements. The other game, "Toy Limb Golf," is a golf game where players must run to the equipment warehouse and find quirky items such as toy limbs, baseball bats, and even teleport guns from science fiction novels to use as their "golf clubs." The official statement indicates that 20 small games will be released in the future. Based on the information revealed, the game economy of Forgotten Playland mainly revolves around selling customizable skin NFTs, such as cosmetics and skins.

Figure 2–5 Forgotten Playland Official Twitter

Based on the official Twitter of Forgotten Playland, there have been no tweets or related developments since Merit Circle's announcement on April 25, so the author believes that the current valuation of $7.5 million for this game has a significant speculative component, poor health, and the development of mostly small games, with a relatively average economic model, making its future development prospects currently not very promising.

② Gameplay Galaxy, currently valued at $7 million, accounting for 7.44% of the total treasury

Figure 2–6 Gameplay Galaxy Official Website

Gameplay Galaxy is a decentralized competitive gaming ecosystem driven by Web3, developed by the creators of the web2 game series "Trial Xtreme." The various bike racing games in this series have been downloaded over 250 million times, with ratings of 4 stars on Google Play and 4.2 stars on the App Store (out of 5 stars). Gameplay Galaxy raised $12.8 million on September 7, 2022, with Blockchain Capital leading the investment, and Merit Circle ($5 million investment), Mysten Labs, Solana Ventures, Com2uS, Yield Guild Games, and Hustle Fund participating as co-investors.

According to LinkedIn data, the team behind Gameplay Galaxy currently has a total of 41 employees, with co-founders Doron Kagan, Maya Gurevich, and Dmitry Burlakov each having over 15 years of experience in game entrepreneurship and work.

Gameplay Galaxy is migrating its web2 game "Trial Xtreme" to web3 and is currently in beta testing, with testing qualifications available through email. Gameplay Galaxy has not yet issued tokens, and the project whitepaper has not been detailed. According to the project roadmap, future updates will include the announcement of the rarity and utility mechanisms of NFTs, the launch of early access versions, security reviews, localization in different regions, official game release, and the launch of the NFT owner community.

The official Twitter account of Gameplay Galaxy (@TrialXtreme) has 17,577 followers and is still active in updating information. However, the official Medium account of Gameplay Galaxy has not published any new content since the announcement on May 30.

In terms of the game project background, "Trial Xtreme" by Gameplay Galaxy has a certain level of popularity and influence. The game has been in existence for over ten years since its release in 2009 and is one of the early well-known motorcycle racing games, belonging to a niche genre within the gaming industry. It has a stable player base but still has a certain gap from mainstream popular games. Regarding the team background, the co-founders of Gameplay Galaxy each have over 15 years of experience in game entrepreneurship and work. In terms of funding, $12.8 million is sufficient to support this small game, as the game has been maturely operating in web2 for many years. Based on this information, the project's health is considered relatively good, although the probability of it becoming a popular hit is not high, it has a relatively solid foundation.

③ Lava Games, currently valued at $2.64 million, accounting for 2.81% of the total treasury

Lava Games is a game studio that has developed a third-person platform game "A Far Away Realm" (AFAR), which includes elements of arcade and shooting games. Merit Circle announced a partnership with "A Far Away Realm" (AFAR) on March 21, 2022, and invested $1.2 million in the project.

The game started pre-registration soft launch on Google Play on June 30 this year but has not yet been officially launched. Its NFT collection "AFAR — RAFA Genesis" has only had a trading volume of 90 ETH on OpenSea, with the current floor price at 0.0099 ETH, indicating a lack of interest. Additionally, the official Twitter account (@playafar) of the game has 46,451 followers, but the activity of posting updates is relatively low. Based on this information, the project's health is considered relatively poor, and the current valuation of $2.64 million has a significant speculative component.

④ Vorto, currently valued at $1.561 million, accounting for 1.66% of the total treasury

Merit Circle announced a joint launch with Vorto of the multiplayer online (MMO) real-time strategy (RTS) game "Hash Rush" on August 25, 2022, and invested $1 million in the project. 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 animations and visuals revealed by the project, the production quality is relatively average. It is worth noting that the project has been in development 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 project's health is considered relatively poor, and the current valuation of $1.561 million has a significant speculative component.

⑤ Others

Overall, most of the GameFi projects invested in by Merit Circle are small games, and the survival rate of these chain games in a bear market is relatively low. Currently, nearly half of the treasury assets are used for investing in GameFi projects. If a blockbuster hit is not achieved, it poses a potential risk to the overall project.

Figure 2–7 Merit Circle Treasury Funds Situation from November 2021 to June 2023

Figure 2–8 Treasury Allocation Details for Tokens/Equity in the Chain Game Track in December 2021

As shown in Figure 2–7, during the market downturn 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 analysis are as follows:

① Cash allocation has been maintained at around $40-50 million, accounting for 40%-50% of the treasury.

② NFT assets with significant fluctuations and poor liquidity have been consistently maintained at a low level, around 5%.

③ According to the early-stage risk aversion authorization proposed in MIP-6, a series of profit-taking and stop-loss requirements were proposed.

④ The tokens/equity related to the chain game track, which is a risky asset, was initially invested in the secondary market at the end of 2021 and the beginning of 2022 (as shown in Figure 2–8). In the early stage of the downturn, there was an intentional reduction in the holdings of these assets and a shift towards investing in the primary market of the chain game track, 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 small games, and almost none have been launched. Their valuations have a significant speculative component.

It can be seen that Merit Circle tends to be conservative in its investment style, with a strong risk awareness. However, the valuations of its investment projects have a significant speculative component.

3) Investment Income Distribution

Figure 2–7 Investment Income Distribution Framework for Merit Circle

The framework for investment income distribution was formulated according to the sustainable future vision proposal MIP-7, as shown in Figure 2–7, specifically:

① 20% of the income will be returned to the treasury in the form of USDC.

② 5% of the income will be returned to the treasury in the form of crypto assets (mainly ETH and WBTC).

③ 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 (as the MIP-26 proposal cancels V2 and V3 staking, the remaining approximately 9.5 million $MC that has not been allocated will be destroyed, and this portion of funds may be used for Beam chain rewards in the future). Additionally, it can be sold to strategic investors for long-term lock-up or destruction and is subject to DAO governance.

④ 15% of the income will be used to destroy $MC.

2.4.3 Merit Circle Studios

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

1) Merit Circle Grants;

The grants are divided into research grants and development grants.

• Research grants: Each applicant can receive up to $10,000. The purpose of these grants is to support research projects and lay the foundation for larger proposals decided by community voting. These grants are applicable to proposals that exceed this grant limit.

• Development grants: Each applicant can receive up to $25,000. The purpose of these grants is to provide compensation for expenses incurred by developers during the project development process.

Applicants can apply through Wonderverse, and the applications are reviewed and voted on by a committee of DAO community members.

2) Merit Circle NFT Collection Edenhorde;

The Edenhorde NFT collection is the first creative project of the Merit Circle DAO, with a total supply of 8,800. The current 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% compared to the average selling price of 0.9 ETH at its peak in March 2022. The collection has shown a downward trend in both volume and price since its launch on OpenSea, with no significant rebound during this period. Additionally, the trading activity has been bleak in the past two months, with only sporadic transactions every three to four days. The Edenhorde NFT collection was initially created by Emmy Award-winning illustrator Andy Ristaino, and the IP story behind the NFTs was written by the author and historian of "Edenhorde," Celia Blythe. Currently, eight episodes have been released.

Merit Circle aims to develop Edenhorde into an IP, allowing entry into the multimedia field, such as merchandise, animation, and games. Edenhorde can interact with the creative incubation projects and collaborative projects of the Merit Circle DAO (for example, the chess game Canverse, where Edenhorde characters can be used as game pieces). Additionally, holders of Edenhorde can receive 2.5% of the income from incubated development projects (as shown in Figure 2–9, this allocation framework is a rough outline, and specific details can be found in proposal MIP-10). On August 21 of this year, a card game called Edenhorde Eclipse was released, which is currently in the alpha testing phase and will be released on the Beam gaming chain in the future. Additionally, according to official announcements, a project called Project Amginea is currently in development, and there will also be a launch of Edenhorde NFT staking in the future.

Figure 2–8 Edenhorde Official Website [15]

Figure 2–9 Income Distribution Framework for Merit Circle DAO Incubated Games [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, each 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 a lottery for Edenhorde NFT holders, 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 sector. The main functions of the current gaming sector include: promoting and acquiring game users for cooperative games, providing learning tutorials for popular chain games, 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 Sector Game Interface

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

Figure 2–11 Gaming Sector Academy Interface

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

Figure 2–12 Gaming Sector Rewards Interface

Players can register accounts and earn experience points by logging in daily. The rewards mainly consist of lotteries and related game NFTs. As players level up, they can access more tasks and rewards. For example, at Level 1, players can earn rewards by completing tasks in 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, and the currently released infrastructure product is the Beam gaming chain, built on Avalanche, which went live on the mainnet on August 18 of 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 to provide liquidity, support game/game developers (for paying gas fees), and verify and protect the Beam network. Additionally, 2.7 million USDC was allocated from the treasury for the development of 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 wallets 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 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. After the migration is completed, 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: "Trial Xtreme," a popular off-road motorcycle racing game with over 250 million downloads developed by Gameplay Galaxy; the social deduction game "Castle of Blackwater"; "Megaweapon," a multiplayer battle 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. Additionally, the game NFT trading market Sphere will be launched later.

Summary:

From the development roadmap, Merit Circle has transformed into a gaming DAO, which is quite different from traditional decentralized chain game guilds. Its 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 distribution channel platforms for chain games, and constructing infrastructure.

Looking at the four major business sectors of Merit Circle, the investment sector 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. The main investments are in the primary market of chain games, with most of the invested games being small games with a significant overvaluation. 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 and indicating relatively ample funds. The studio sector can bring value to other sectors within the DAO ecosystem and serves as the birthplace of creative projects within the Merit Circle DAO. However, the development of the studio sector is still in its early stages, with no significant profitability at present, and the quality of the developed and incubated innovative projects is relatively average. The gaming sector currently functions as a distribution channel for chain games, promoting games to developers to acquire users and providing learning tutorials for popular chain games to the Merit Circle gaming community. It also offers early access to games and opportunities to earn rewards (NFTs, lottery, etc.). However, the gaming sector currently does not generate profits and has relatively weak user appeal. The infrastructure sector has expanded the application scenarios of $MC, with the potential to raise expectations and project ceilings. 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

3.2 Current Situation

3.2.1 Media Attention

3.2.2 Operational Data

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

As of June 23, 2023, Merit Circle had repurchased a total of 5,485,270 $MC, with a cumulative expenditure of $9,443,937, accounting for approximately 39.2% of the income during the same period, mainly concentrated in 2022.

As of September 23, 2023, Merit Circle had destroyed a total of 368,707,273 $MC, with a cumulative value of $316,430,488, reducing the total supply from 1 billion to 631,292,726. The main sources of destruction were as follows: according to proposal MIP7, 75% of unused tokens were destroyed from the community incentive allocation each month, and 15% of investment returns were used for $MC destruction; according to proposal MIP-20, on October 26, 2022, 200 million $MC, valued at $147 million, were destroyed from the community incentive allocation (294 million $MC).

3.3 Future

The official roadmap has not been released at this time.

4. Economic Model

4.1.1 Token Distribution

The initial total supply of $MC was 1 billion, with the specific distribution detailed in Table 4–1. Subsequently, with community voting and a portion of income used for destruction, nearly one-third has been destroyed, reducing the total supply to 631,292,726 as of the writing date of September 18.

It is worth noting that, according to proposal MIP-28, by the end of this year, there may be a migration of $MC to $BEAM at a ratio of 1:100 (with $MC remaining as the platform token before the migration). However, the name "Merit Circle" will continue to serve as the overall brand associated with 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 serve 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.

Table 4–1: Initial Distribution of $MC [21]

Figure 4–1: $MC Unlocking Table

4.1.2 Token Holder Address Analysis

According to Ethereum browsers and Nansen data, as of September 22, 2023, there are a total of 11,995 $MC holder addresses. The top 100 $MC holder addresses collectively hold 91.99%, with the top 10 addresses holding 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 dispersed overall holding.

Figure 4–2: $MC Holder Address Information, from Nansen [22]

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

Figure 4–3: Holder Address Change, from Nansen

4.1.3 Governance

Most of the important 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 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 authorization, MIP-7, which established investment allocation and destruction measures, MIP-13 and 14, which allocated $1.75 million to buy out YGG and Nifty funds, MIP-17, which restructured the DAO architecture, MIP-20, which destroyed 200 million $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 major proposals are currently put forward by the project team.

4.1.4 Token Demand

1) As gas for Beam games and for staking in verification nodes; 2) Staking $MC can generate income from pre-allocated rewards and the investment sector; 3) Governance voting.

5. Competition

Merit Circle operates in the chain game guild track, but it has shown significant differences in its development roadmap compared to traditional chain game guilds. Merit Circle has abandoned the scholarship model and has gradually expanded into the mid-to-high-end chain game industry through investing in the primary market of chain games, collaborating in game development, building distribution channel platforms for chain games, and constructing infrastructure.

5.1 Track Overview [24]

In the traditional gaming field, the formation of game guilds was 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 this cooperative nature, traditional game guilds also focus on social interaction among players and sharing game content, becoming the hub of the game community.

In Web3, the rise of the Gamefi track in 2021, sparked by the success of Axie Infinity, led to a frenzy of blockchain players seeking to earn money. However, for many players in low-income countries, the cost of configuring pets for battle, which often requires three pets to start, is unaffordable. In this environment, the emergence of chain game guilds has greatly reduced the barrier for players to enter Play-to-Earn (P2E) games. The scholarship model pioneered by Yield Guild Games (YGG) led to the rise of chain game guilds.

The scholarship model was a core business of chain game guilds in the previous Gamefi summer bull market. Its operation logic involved game guilds providing the necessary game items for Gamefi and recruiting community managers. Community managers would recruit and train players (scholars), who would then use the game items provided by the guild to earn money. The earnings from gameplay would then be distributed proportionally between the game guild, community managers, and scholars.

As chain game guilds have developed over the past two years, they have begun to exhibit the following characteristics:

1) Limitations of the scholarship mechanism: The scholarship mechanism essentially helps bring in a player base focused on earning money through gameplay. 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 situation where the token model of the chain game track is not mature, the spiral of death is prevalent. The large number of players focused on earning money and the heavy game asset holdings of chain game guilds pose a serious threat to the game itself and can accelerate the collapse of the Gamefi economic model.

This means that the operation of the scholarship system is not sustainable in individual Gamefi projects. Guilds need to constantly seek profitable Gamefi projects to generate profits, and during bear markets, there may be significant cyclical changes in guild income.

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

As the Gamefi track matures, more and more Gamefi projects are beginning to have their own rental systems, such as Starshark and Pegaxy. The emergence of rental systems will also put pressure on the audience of the scholarship system. Once more players choose to use rental systems instead of participating in profit-sharing scholarship systems like YGG, the income of such guilds will significantly decrease.

2) Strong 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, which is 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 now looking for the next "Axie Infinity." Therefore, guilds are now commonly participating in the early NFT presales of chain game projects, aiming to obtain a certain number of NFTs early on through collaboration in preparation for the game's launch.

In addition to NFTs, guilds are even acting as early-stage investors in many chain game projects, transforming their role from NFT rental intermediaries and player communities 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. Highly dependent on the development of the chain game track: The income of chain game guilds, whether relying on the commission of the scholarship mechanism 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 a game guild, the ability to grow with this track and ensure the continuous profitability of its 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, and it pioneered the scholarship model that drove 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 have gradually become apparent. YGG is 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 transform the structure and positioning of its DAO in March 2022, hoping to build 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 move towards fundification and functionalization, providing early-stage funding for game communities and post-launch guild-related services.

5.2.1 Competitive Business Development

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

Currently, YGG's community operations are mainly through the Quest game task system, primarily by launching the Guild Advancement Program (GAP) to expand the community and enhance community cohesion, promoting collaboration between community members and cooperative games. Participants need to complete achievement tasks released by YGG, such as reaching a certain duration in cooperative 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 one of the key directions of YGG's current development and is currently in the fourth season, GAP Season 4. 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 income for players who complete these tasks is low, all in $YGG rewards, making them less attractive overall. However, compared to the NFT rewards and lotteries provided by the game section of Merit Circle, YGG's Quest rewards appear to be more lucrative.

GuildFi's current community operations are mainly through the task system and reward market. Players complete provided tasks to earn GXP points, which can be exchanged 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.

In terms of community size and community operations, both Merit Circle and GuildFi have relatively weak community foundations due to the lack of attractive gameplay 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

YGG disclosed financial information in its Q2 2023 community update document, revealing that from its inception to Q2 2023, it has invested in 83 projects related to the chain game track. This includes investments in 41 types of game tokens, 35 types of game NFT assets, 57 games, 9 chain game guilds, and 17 P2E infrastructures. The cost of these investments was $18.37 million, and as of June 30, 2023, the value of these investments was 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 18 this year to establish the YGG Ventures Fund I, a venture capital fund used for early token and equity transactions in web3, game studios, and supporting industry development infrastructure.

As of June 23, 2023, Merit Circle's treasury size was $94.10 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 Bigtime Land ($1 million), Axies NFT, and Cyball NFT; and 48% in chain game track-related tokens/equity, with investments in 79 projects (61 non-circulating, 18 circulating), mainly in the primary market of the chain game track, accounting for approximately 80% of the investment in chain game track-related tokens/equity.

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 invested in, their valuations generally have a significant amount of speculation. This means that the actual investment situation of Merit Circle is likely to incur 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 publicly available 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 of earning interest. In terms of cooperation and investment targets, compared to Merit Circle and GuildFi, YGG has a competitive advantage in the quality of games invested in and collaborated with, and has a better brand effect.

Figure 5–6 YGG Treasury Situation [28]

YGG's treasury currently holds tokens worth $157 million, of which it holds approximately 724 million $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 $94.10 million, with stablecoins and blue-chip coins valued at approximately $45 million. Calculated based on the official treasury wallet addresses, Merit Circle holds approximately 42.49 million $MC on Ethereum and BSC, valued at approximately $12.83 million, accounting for approximately 9.17% of the current total circulation.

In a 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 are approximately $71.89 million, tokens and primary market investments are approximately $15.91 million, and NFT assets held are $4.89 million. However, based on the current holdings in the five disclosed treasury addresses, it was found that the total funds are approximately $42.26 million, with the value of $GF tokens at approximately $7.35 million, and the majority being stablecoins, ETH, and LP. In addition, there were two transfers from the main treasury addresses to Binance, 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 situation, YGG's treasury holds a large amount of $YGG, accounting for a high 95.54%, while stablecoins and other circulating tokens amount to only $7 million, accounting for 4.46%. In contrast, 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 circulating supply of $MC is relatively high, at approximately 73.32% ($YGG is 18.51%, $GF is 42.56%), and it also has a token burning and repurchase mechanism. As of now, a total of 368,707,273 $MC has been burned, and 5,485,270 $MC has been repurchased. $MC can also be used as gas consumption for Beam 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 high growth by expanding the community and collaborating with popular games, making it a prestigious choice among guilds in the track. Merit Circle is actively expanding its business scope by transitioning and diversifying into the mid-to-high-end chain game market, but it is still in the early stages and needs time to validate its approach. On the other hand, GuildFi's development is relatively passive and somewhat detached from the track, with limited investment and a focus on earning interest, resulting in weaker influence in the industry.

6. Risks

1) From an investment perspective, most of the objects invested in by Merit Circle are in the primary market of the chain game track, accounting for approximately 80% of the investment in chain game track-related tokens/equity. 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 projects has a significant speculative component. The survival rate of these chain games in a bear market is relatively low, posing significant risks and uncertainties. The short- to medium-term income situation of Merit Circle is difficult to improve due to market conditions, and its future depends on the development of the chain game track and whether the invested games can generate good returns, as well as whether the Beam game chain under construction and the upcoming game NFT market Sphere can develop well.

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

3) Due to the lack of attractive gameplay business and community activities, Merit Circle's community foundation is relatively weak.

References:

Merit Circle Whitepaper, https://meritcircle.gitbook.io/merit-circle/

Merit Circle Treasury Dashboard, https://treasury.meritcircle.io/

Merit Circle Financial and DAO Monthly Reports, https://meritcircle.substack.com/

Merit Circle Proposal Forum, https://gov.meritcircle.io/

Merit Circle Medium, https://medium.com/@meritcircle

YGG Medium, https://yieldguild.medium.com/

"Top Game Guilds in a Bear Market: Some Are Growing in the Sun, Some Are Quietly Falling Behind," Mint Ventures, Scarlett Wu https://mintventures.fund/zh/research

"Yield Guild Games Research Report," First.VIP

Investment Risk and Disclaimer

The above analysis is for reference only and should not be used as a basis for investment decisions. Please do not make any investment decisions based on this report. First.VIP and the report authors are not responsible for the investment results of users.

The content of the report is prepared as of the date shown, and as subsequent market or economic conditions may change, the report may not necessarily reflect these changes. The provided graphics, charts, and other visual aids are for reference only. These graphics, charts, or visual aids cannot be used to make investment decisions. First.VIP does not assist anyone in making investment decisions, and any graphics, charts, or other visual aids cannot capture all the factors and variables needed to make such decisions.

Some of the statements in this article may be assumptions and other forward-looking views of First.VIP about future expectations, and known and unknown risks and uncertainties may cause actual results, performance, or events to differ substantially from the views and assumptions in the statements.

[End of Document]

Any speculations, forecasts, and estimates contained in this report are inherently speculative and based on certain assumptions. These forward-looking statements may prove to be incorrect and may be affected by incorrect assumptions or known or unknown risks, uncertainties, and other factors, most of which are beyond our control. It can be expected that some or all of these forward-looking assumptions will not be realized, or will differ significantly from actual results.

[1] Unless otherwise specified, the data and information in this article are dated as of 2023.9.18.

[2] The scholarship model refers to the game guild providing the game items required for Gamefi and recruiting community managers. Community managers recruit and train gold-making players (scholars), and qualified players use the game items provided by the game guild for Gamefi to make gold, and the gold-making income is then distributed proportionally to the game guild and community managers.

[3] SubDAO, or sub-guild, is used to focus on specific games or specific countries/regions.

[4] Data as of 2023.10.19, from https://www.coingecko.com/zh/%E6%95%B0%E5%AD%97%E8%B4%A7%E5%B8%81/merit-circle

[5] https://www.linkedin.com/company/merit-circle/

[6] From the information on the organization's official website, it is not what we usually consider to be a foundation established by the Bitcoin Core (Blockstream) team, but a very profit-oriented private organization.

[7] https://medium.com/@meritcircle/looking-back-at-2021-the-year-of-play-to-earn-f8fefadfeb4c

[8] https://treasury.meritcircle.io/treasury

[9] https://cauldron.io/project/7881?from_date=2020-09-20&to_date=2023-09-20&tab=overview

[10] https://github.com/Merit-Circle

[11] https://twitter.com/MeritCircle_IO/status/1669706594077032448

[12] https://meritcircle.substack.com/p/31-treasury-report-july-2023

[13] https://medium.com/@meritcircle/edenhorde-a-new-chapter-75f3701c21bf

[14]

[15] https://edenhorde.world/

[16] https://gov.meritcircle.io/t/mip-10-framework-around-financial-terms-for-games-developed-by-merit-circle-dao/294

[17] https://gov.meritcircle.io/t/mip-22-development-of-mc-tactile-the-first-merit-circle-merchandise-project/702

[18] https://gaming.meritcircle.io/

[19] https://gov.meritcircle.io/t/mip-27-beam-development-and-ecosystem-funding/822

[20] https://medium.com/@meritcircle

[21] https://meritcircle.gitbook.io/merit-circle/merit-circle-usdmc/merit-circle-usdmc/token-distribution

[22] https://pro.nansen.ai/token-god-mode/notable?token_address=0x949d48eca67b17269629c7194f4b727d4ef9e5d6

[23] https://snapshot.org/#/meritcircle.eth

[24] First.VIP "Yield Guild Games" Research Report

[25] https://research.mintventures.fund/2023/08/23/zh-top-game-guilds-in-a-bear-market-some-thrived-some-fall/#Merit_Circle_%E4%B8%9A%E5%8A%A1%E7%A8%B3%E6%89%8E%E7%A8%B3%E6%89%93%EF%BC%8C%E5%9B%BD%E5%BA%93%E8%B5%84%E9%87%91%E5%B9%B3%E8%A1%A1%E6%9C%80%E4%BD%B3%EF%BC%8C%E7%A8%B3%E5%AE%9A%E6%94%B6%E7%9B%8A%E5%92%8C%E9%AB%98%E9%A3%8E%E9%99%A9%E8%B5%84%E4%BA%A7%E5%AF%B9%E5%8D%8A

[26] https://storage.googleapis.com/external_communication/YGG-2023Q2-CommunityUpdate.pdf

[27] https://medium.com/guildfi/guildfi-mid-year-update-94ac88a55017

[28] Data as of 2023.09.26, https://platform.arkhamintelligence.com/explorer/entity/yield-guild-games

[29] This data is calculated based on the treasury addresses provided in GuildFi's 2023 mid-year report, including the proposal to CEX of 10.97 million USDT. The formula is (4226+1097)/(4226+1097+NFT assets+investment assets). This result has timeliness issues and does not exclude the possibility of calculation errors.

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