Bruce | Oct-21-2024
Project Summary
Ronin is a GameFi-focused EVM blockchain developed by Sky Mavis, the creator of Axie Infinity. Given Axie Infinity’s prominence as one of the most popular GameFi projects in 2021, Sky Mavis rapidly established a large and dedicated gaming community, particularly in the Asia-Pacific region.
The Ronin blockchain was launched in late 2021, followed by the issuance of its native token in January 2022. Designed specifically for Web3 gaming, Sky Mavis developed a suite of applications to enhance the experience for both game developers and players.
Since its inception, Ronin has focused on incubating high-quality mobile and indie games, providing game studios with essential support in areas such as tokenomics design, marketing strategies, and fundraising. Notable titles like Pixels, The Machines Arena, and Apeiron have successfully integrated into the Ronin ecosystem, solidifying its reputation as the leading blockchain for gaming.
Investment Thesis
Ecosystem Growth
The massive success of Axie Infinity provided a strong initial boost for Ronin upon its launch. However, after three years of development, Ronin has successfully onboarded several high-quality games, including Pixels, The Machines Arena, Wild Forest, and Apeiron. Notably, despite its pivotal role in Ronin’s early success, Axie Infinity now ranks 5th in terms of monthly active users on the Ronin network. According to DappRadar, Axie accounts for less than 5% of Ronin’s total active users, illustrating a more balanced and diversified ecosystem. This contrasts with blockchains like WAX, where a single game, Alien Worlds, contributes over 60% of its active user base. Ronin’s ability to foster a broader range of games and distribute its user activity more evenly demonstrates the development of a healthier, more sustainable ecosystem. In July, data from FootPrint revealed that Ronin held 32.6% of the total daily active users in the Web3 gaming sector, more than double its share at the beginning of the year. However, the negative impact of the network hack in August and other popular games like SERAPH: In The Darkness came on the market, leading to a decline in user numbers over the following months. Despite these challenges, Ronin remains the most dominant blockchain in the GameFi space, currently maintaining a 21% share of active users.
Position Advantage
Mature Ecosystem: Unlike other GameFi-focused blockchains that may rely on third parties to develop service applications, Sky Mavis has developed a comprehensive suite of service applications to support the gaming ecosystem, including Mavis Hub for desktop game downloads, Mavis Market for NFT trading, Katana for token swaps, and MetaLend for in-game asset lending.
Better Experience: By maintaining control over the development of core components for Web3 gaming, Ronin offers a better onboarding experience for traditional gamers while reducing the development barrier for game studios.
More Profitable: Ronin’s integrated service applications provide additional revenue streams. Ronin can capture value not only from network transactions but also through NFT trades, token swaps, NFT lending, in-game asset purchases, and name services, creating a more diversified and sustainable business model.
Currently, the Web3 gaming market lacks the presence of a professional game publisher. While other GameFi blockchains like WAX and ImmutableX offer support to ecosystem games through funding and marketing, the role of a traditional game publisher extends far beyond these functions.
A professional game publisher typically possesses strong relationships with local gaming communities and media outlets, enabling them to assist game studios with localization and promotional strategies. Ronin is well-positioned to assume this role. Leveraging its vast gamer community and network built through Axie Infinity, new games launched on Ronin benefit from enhanced visibility and exposure from the outset, especially in the Asia-Pacific region.
Another critical function of a game publisher is ensuring quality control. Sky Mavis has demonstrated success in developing high-quality Web3 games, and through the successful launches of Pixels and Apeiron, it has proven that their support in the game development process significantly enhances a game’s likelihood of success.
Given its track record, Ronin is emerging as the most qualified game publisher in the Web3 space. Their recent lead investment in Moku (a game publisher) further highlights their strategic intent to establish themselves as a professional game publisher in this evolving ecosystem.
Opportunity
According to FootPrint, Ronin currently has approximately 1 million daily active users in September, representing around 20% of the total market share. This marks a decline from 27.8% in the previous month and 31% in July, reflecting a downward trend in Ronin’s DAU market share. The decline was largely driven by the August 6th hack and the launch of SERAPH: In The Darkness on opBNB, which contributed to a more than 40% drop in Ronin’s price since July.
However, with the recovery of the drained funds and the return of active users to the Ronin ecosystem, as evidenced by daily user activity charts in the latest week, the user market share has recovered to 21.89%. These signs of resurgence suggest that Ronin’s price is stabilizing and may continue to recover. Looking ahead, two of the most anticipated beta games, Lumiterra and Ragnarok: Monster World, are currently undergoing testing on the Ronin network. However, user data from these games has not yet been factored into Ronin’s active user metrics, representing the potential for growth in both the platform’s user base and its token value.
Competitor Analysis
There are several GameFi-focused blockchains in the market, with Ronin currently holding a dominant position in terms of user base and market size. Its closest competitors are Skale Network and WAX.
Skale Network
Ethereum Compatibility: Since SKALE is Ethereum-native, it benefits from Ethereum’s security while offering improved scalability and lower costs. dApps on SKALE can seamlessly integrate with Ethereum, which gives it an advantage when attracting developers already familiar with the Ethereum ecosystem.
No Gas Fees for Users: One of SKALE’s main selling points is that it eliminates gas fees for users. Instead, dApp developers pay subscription fees to run on the SKALE Network, offering a more predictable cost structure for scaling applications and reducing friction for end-users.
Ecosystem Growth and Adoption: Skale’s ecosystem is still growing slowly and lags behind major players in terms of user adoption and dApp deployment.
Complexity in Developer Adoption: Skale’s infrastructure and architecture can be complex for developers to adopt, especially when compared to simpler Layer 2 solutions like Ronin, which are specifically tailored to game development and launch.
WAX
Purpose-Built for NFTs and Gaming: WAX has established itself as a specialized blockchain for gaming and digital collectibles, securing partnerships with prominent brands and projects like Topps, Capcom, and Atari for NFT collaborations. While these collaborations have generated significant transaction volumes during their launches, WAX operates within a different niche and does not directly compete with Ronin’s position in the GameFi space.
Smaller Gamer Community: WAX has been around longer than Ronin, but it has failed to launch more quality games after Alien Worlds, and like all games, the user amount will continue to drop with time. One game simply can’t keep massive users interested over the years. Currently
Smaller Developer Ecosystem: WAX has fewer developer tools and SDKs compared to Ronin, which may limit its ability to attract and onboard new projects.
Conclusion
Ronin continues to be a leading GameFi-focused blockchain for both gamers and game developers despite competitors potentially having more advanced technology or a broader range of partnerships. Ronin’s large user base, mature ecosystem of services, and effective game incubation processes make it the most favorable platform for game launches. This creates a virtuous cycle, where high-quality games are attracted to Ronin, further driving user growth and reinforcing its dominant position in the GameFi space.
Valuation
As of now, the price of $RON stands at $1.69, with a circulating market cap of $598 million and a fully diluted valuation of $1.69 billion. Approximately 53% of $RON’s total supply has been unlocked, with 22.8% currently staked on the network for validator rewards. Currently, the staking APR is 11%. It’s unlikely for the holders to unstake and take profits at this status.
The $RON token distribution is allocated across four key areas: Rewards (25%), Community Incentives (30%), Sky Mavis (30%), and the Ecosystem Fund (15%). The complete distribution process is set to take place over nine years. Tokens from the Rewards and Community sectors are unlocked on a monthly basis, while Sky Mavis and the Ecosystem Fund are unlocked quarterly. The next unlock event is scheduled for October 28, 2024, when 3.4% of the total supply will be released. Historically, $RON has shown mixed performance around unlock events: in July, it dropped 7.5% (compared to Bitcoin’s 0.6% decline); in April, it fell 13.6% (Bitcoin down 9.6%); And in January, $RON saw a rise of 25.5% (Bitcoin up 6.6%), indicating potential buy-in opportunities around the event.
Ronin’s revenue comes from two primary sources: network fees and application fees. Between May and August, the network handled a minimum of 51 million transactions in June and a peak of 75 million in August. Each transaction generates a network fee of $0.0012 to $0.002, resulting in monthly revenues between $62,000 and $151,000. In addition, revenue from Ronin’s in-house service applications, such as Katana and Mavis Marketplace, contributed $260,000 in May and $147,000 in August. This brings Ronin’s estimated annual protocol revenue to approximately $2.8 million.
When evaluated using traditional revenue multiple models, Ronin’s current revenue might suggest a lower valuation than its market cap. However, this approach may not fully account for the platform’s growth potential and the value of its user base in the rapidly expanding Web3 gaming sector. According to Future Market Insights’ outlook for Web3 gaming in 2023, the sector is projected to be worth $23.93 billion, with an adjusted CAGR of approximately 18.7%. If Ronin maintains its dominant position with in the market, with its robust user base and value capture mechanisms, alongside its role as a Web3 gaming infrastructure provider and publisher, its token valuation could range much higher.
Risk
Network Exposure
Ronin has experienced two significant bridge hacks: the first in March 2022, resulting in the loss of $600 million in cryptocurrency, and the second in August 2024, where $12 million worth of assets were stolen. In response to the 2022 hack, Ronin raised $150 million to compensate affected users. For the 2024 incident, the team successfully recovered the stolen assets. While these actions demonstrate the team’s commitment to the project and the resilience of its ecosystem, the repeated security breaches have raised concerns about Ronin’s technical capabilities and security infrastructure.
Centralization
Ronin takes charge of the ecosystem services, and the network development is heavily dependent on Sky Mavis. Even the launch of a new game requires approval from the team. While this serves as a mechanism for quality control, it also poses the significant risk of missing out on high-quality games and stifling permissionless innovation. This reliance on centralized oversight could hinder the platform’s ability to fully capitalize on the creative potential of the broader developer community.
Compliance
Game publishing typically requires studios to obtain approval from the relevant governmental authorities in their target markets. At present, Web3 games operate in a regulatory grey area due to the lack of established legal frameworks. However, as legislation surrounding blockchain and cryptocurrency continues to evolve, Ronin’s business model will need to adapt to these changes. This introduces a degree of uncertainty for the project, as future regulatory developments could significantly impact its operations and growth trajectory.