WAX: Consolidating NFTs and Digital Commerce

Video games and the internet have become inseparable. An internet connection is required to play most popular video game titles in 2021. In the last 5 years we’ve seen the meteoric rise of Free to Play games like Fortnite or Apex Legends. These Free to Play games rely on users buying their in-game currency in exchange for Fiat currency to fund their development. In exchange for this in-game currency users buy mostly cosmetic items. “Cosmetic” items change the way in-game characters or weapons look and are usually not transferable between users. Both Fortnite and Apex Legends combined have made over $3 billion in primary sales of in-game assets, and this has caused the video game market to adopt the Free to Play business model. Most In-game assets are created by time investment of players or bought with actual money and hold a particular value to their users. In some cases, there are even black markets for cosmetics. Counter Strike is an example of a game with a large black market for cosmetics. Some of these cosmetics have sold for thousands of dollars. Video game creators like Valve have worked to shut down these in-game asset black markets. Yet black markets for in-game assets persist. This is where WAX comes in.

Wax is an acronym for Word Asset Exchange. The Wax protocol aims to be the base layer for in-game asset transfer. Wax offers a secondary market solution to video game developers by utilizing blockchain technology and smart contracts. Using Wax’s smart contracts to deploy in-game assets as (NFTs) Non-fungible tokens would allow for video game developers to receive a cut of the profits every time an in-game asset changed hands. This would allow for a thriving and mutually beneficial avenue for secondary in-game asset markets. This will facilitate the video game market to move from a Free to Play model to a Play to Earn model and potentially a hybrid of both. Already we are seeing crypto based games like Axie Infinity corner the Play to Earn market to the point where individuals actually quit their jobs because they can earn a greater or similar amount of money playing the game. Imagine if playing Fortnight or Apex Legends became a viable way to make money. These games already have players who dedicate large portions of time and effort to playing and mastering them. Websites like Twitch have allowed for monetization of playing video games in a very real way through gameplay streams. Wax allows for the easy creation of in-game economies that benefit gamers and developers equally. Video game users are already putting billions of dollars into in-game assets that have no resale value. Imagine the increase of in-game asset sales if resale value was greater than zero.

Wax also supports NFT collectables and has partnerships with Weezer, Atari, Capcom, and Street Fighter. Non-fungible tokens are versatile and smart contract-based tokens are an integral part of the future of finance. 21st century collectors collect NFTs instead of physical goods. NFT collectables have recently seen a meteoric rise in popularity. We see popular NFTs like CryptoPunks going for hundreds of ETH, and Coinbase has recently announced their NFT platform launch similar to OpenSea. There are currently upwards of 4.5 million NFTs on the Wax blockchain and that number is steadily growing.

Wax is a blockchain specifically built for NFTs. These non-fungible tokens can be anything from profile pictures on twitter to in-game item skins. Wax stands out among its competitors because of its low to zero fees when creating NFTs or transacting on the blockchain. Wax already has a vibrant ecosystem of NFT dApp marketplaces using $WAXP such as NFTHive. Recently, many Crypto games have begun to require the user to own a certain NFT to play their game. The user connects their Wax Cloud Wallet to the game of their choice and is granted access based on the NFTs in their wallet. Alien Worlds currently has 35,694 members on Discord and is just one of the popular games that uses the Wax Cloud Wallet and associated NFTs. As Crypto gaming becomes increasingly popular developers will gravitate towards Wax due to its low transaction fees and pre-built developer tools.

What is behind Wax?

Wax offers a suite of blockchain-based tools for developers and businesses to create a secure, quick, and easy to use marketplace. Wax has already built a microservice layer that allows video game developers and marketplace owners to essentially plug and play with the Wax blockchain. This negates the need for developers to spend capital building a trading system for in-game assets that is secure, immutable, and fast. Wax has built a seamless integration system for existing businesses to participate in a new form of digital asset transfer. A form that grants developers perpetual residuals for their products. These perpetual residuals could also apply to real world items. Let's say for example Nike comes out with a hot new sneaker and uses Wax to tokenize said sneaker. These sneakers are held by Nike in a safe location until the token-holder redeems the token and has them shipped out to them. This new hybrid digital-physical asset could be bought and sold multiple times to users across the world in seconds while never physically moving in space. This allows for Nike to capture the primary sale and a portion of secondary sales in perpetuity. Potential buyers and sellers of these hybrid digital-physical assets no longer have to worry about the condition of the sneakers when the asset changes hands. Finally, when the token is redeemed, the redemption will be written into the blockchain and be forever tied to that hybrid digital-physical asset and inform its future price. This is just one of many examples in which using a hybrid digital-physical asset token would be mutually beneficial to all parties and add value on both sides of the interaction.

The Wax protocol is a DPoS (Delegated proof of stake) blockchain. This basically means the blockchain is governed like a democratic republic. $WAXP holders act as constituents and delegate their tokens to Guilds who act as representatives. The Guilds with the most delegated tokens get to write the most transactions onto the blockchain. Both Guilds and their constituents receive a percentage of those block rewards for processing transactions. If a Guild acts dishonestly, they receive less block rewards and therefore pay their constituents less than they could have gotten by staking $WAXP with a more trustworthy Guild. This incentivized $WAXP holders to delegate to Guilds who act in good faith. This incentive system secures the Wax blockchain and allows for fast transactions while giving up some decentralization. This lack of decentralization is necessary to increase scalability and security. To further understand why, read about the scalability trilemma.

Who is behind Wax?

William E. Quigley and Johnathan Yantis are both veterans in the crypto space and co-founders of Wax. Quigley has an impressive resume both in and out of the crypto space. Quigley worked for Disney where he oversaw strategic planning and finance activities for the Walt Disney Company's licensing division. Quigley is also a co-founder of Tether (USDT) which is one of the most widely used stable coins in the crypto ecosystem today. Quigley is a longtime VC having co-founded Clearstone Venture Partners in 1997. Quigley was an early adopter of Bitcoin and is the current managing director of Cashel Enterprises which is a crypto currency-based investment fund. Yantis pioneered the virtual item trading market in 1997 when he started a company that allowed users to trade fiat currency for in-game items in popular games like World of Warcraft and Everquest. Yantis is also an early adopter and miner of Bitcoin. The combined knowledge and expertise of Quigley and Yantis has propelled Wax to where it is today and foreshadows massive growth and adoption of Wax. Wax is backed by venture capital from Node Capital, Distributed Global, and Hashed just to name a few.

Why did we invest?

Wax is in the perfect position to onboard a large swath of mainstream video game and digital goods consumers into the crypto space. The suite of blockchain-based tools Wax has made available makes that onboarding much more feasible in the short term. In 2019 the video game industry made $109 billion in revenue. It’s safe to assume that number will continue to rise as internet connections become more ubiquitous. As Free to Play and Play to Earn merge we will see a rise in time spent playing video games and revenue accrued by video game companies. Tokenization of real-world assets stands to benefit the environment and business with drastic changes in shipping habits and new opportunities for secondary market royalties. $WAXP is the crypto currency that powers Wax’s whole economy. At the time of our investment, the Market Cap was under $200 million. Today the Market Cap of $WAXP is about $430 million. In comparison the video game company Take-Two Interactive Software has a Market Cap of $19.1 billion. Wax’s team is phenomenal and have in-depth knowledge in both digital assets and crypto currency. Wax is also backed by smart money. The tokenomics of the DPoS coin $WAXP is sound, and their whitepaper is both thorough and understandable. The Wax blockchain currently has 15 million daily transactions and supports 30 thousand decentralized applications. Adoption of Wax is growing, and the Wax team continues to make improvements along the way. The potential for $WAXP to grow is huge and upon inspection Wax seems ready and able to handle this growth.

Written by David Coryat, Crypto native and analyst at Istari Capital LP.

This Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this report constitutes a solicitation, recommendation, endorsement, or offer by Istari or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. Please be advised that Istari Capital LP is invested in the project discussed in this article or in projects related to this article.