I’m bearish on crypto games
If there is one thing that venture capitalists have taught me is that aligned incentives can kick ass.
It’s a phrase you’ll hear often if you spend time with professional private market investors. But if I refer to my college years, the expression is really just the economic principle according to which individuals react to incentives, reformulated in a little more targeted way.
In the land of venture capital, the idea is this: people react to incentives, so you want to make sure that everyone in a company, for example, has aligned incentives.
That’s why startups often offer a sprinkling of equity to employees, giving them a tiny share of ownership in the entire project. This aligns employee incentives for overall business success, which employers want because they are in the game of paying people as little as they can while still meeting human capital quality standards and ultimately ‘not having too many employee churns.
There are less crudely capitalist readings on why venture capitalists allow startups to sell stocks to employees at below-market rates through options. I don’t buy them. Investors love yield and optimize it through their own incentive structure.
The VCs have a good gig. They take money from existing mutual funds, invest it in the work others are doing, and then get a share of the profits from the trade while ripping a few hundred beeps a year from their investment vehicle. total. Here again we see aligned incentives, venture capitalists their donors profit. Team work.
I’m taking you through all of this to explain that the concept of aligned incentives is deeply rooted in the worlds of startups and venture capital, something that can sometimes blind people to other ways of doing business.
Games for example. Crypto games in particular.
You see, the crypto community and its myriad of contributors are pretty hot on crypto games. Here, it seems, is a place where incentives can be aligned in a new and exciting way, translating gambling into related economic activity. All the fun of gaming, but with aligned economic incentives! What could possibly go wrong?
Play to win?
Through the prism of aligned incentives, the concept of winning games on a blockchain excites venture capitalists. Users will play the game, generating both fun and economic activity. The user gets some of the value, and the business gets the rest. Everyone is happy and the game can continue to make money forever, right?