FirstVIP Research Report: DAO Blockchain GamIng Guild Merit Circle Hashtag：Ethereum, GameFi

Investment Summary [1]

Merit Circle (MC) is a DAO gaming guild built on Ethereum and BSC. At first, Merit Circle was a scholarship guild similar to YGG, and also had scholarship service[2], SubDao mode[3] etc.However, considering the sustainability and limitations of the scholarship services, as well as the dominance of YGG in these services, Merit Circle started to transform its DAO structure and positioning in March 2022, aiming to create a gaming DAO. Merit Circle divides its DAO into multiple sectors (vertical sectors). Currently, its main sectors are divided intoInvestment, studio (building and incubating new projects), gaming (chain game market distribution channel platform) and infrastructure (Beam game chain based on Avalanche, mainnet launched on August 18 this year.) In addition, the game NFT platform Sphere, which is still in the research and development stage, was once one of the four major sectors. Due to market factors, the release was delayed and replaced by the infrastructure sector.

Merit Circle, formerly known as Axie 420, is an Axie infinity “scholarship” organization founded in July 2021, the original purpose was to enable players in low-wage countries to play Axie Infinity. Axie 420 received US$200,000 in incubation investment from Flow Ventures in August 2021, and raised US$1.25 million through other channels, and was renamed Merit Circle in September 2021, expanding the project’s positioning from focusing only on Axie infinity to more popular games and metaverses.

The advantages of Merit Circle are:

1) The treasury funds are abundant and the information disclosure is transparent, with a relatively reasonable allocation of funds (according to official treasury data as of June 23 this year: cash accounts for 40%; highly liquid blue-chip tokens account for 8%; NFT assets account for 4%; tokens/equity related to the blockchain gaming sector account for 48%, with a majority of primary market equity investments targeting traditional game studios incorporating blockchain technology, with an overall game style leaning towards playability). The treasury funds amount to approximately $94.1 million, excluding $MC from the treasury calculation, and have decreased by about 7% compared to the end of 2021. In a bear market, Merit Circle ensures sufficient cash flow through reasonable treasury allocation, theoretically possessing the ability to withstand a bear market in terms of funds.

2) Compared to traditional blockchain gaming guilds, Merit Circle has taken a different development path. Merit Circle has abandoned the scholarship model and gradually expanded into the mid-to-upper stream of the blockchain gaming industry through investments in the primary market of blockchain gaming, cooperative game development, the establishment of a game market distribution channel platform, and infrastructure construction.

The risks of Merit Circle are:

1) From an investment perspective, Merit Circle invests mostly in the primary market of blockchain gaming, accounting for about 80% of the investments in the blockchain gaming sector. Merit Circle’s income streams are relatively single, mainly relying on investment sectors. Most of the gamefi projects invested by Merit Circle are small games, and there is a significant portion of market value fluctuation in the invested assets. The survival rate of such blockchain games in a bear market is 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 future development depends on the development of the blockchain gaming sector, the potential returns from the invested games, and 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 “Focus” / “Not Focus” determined by FirstVIP is the result of a comprehensive analysis of the current fundamentals of the project based on the FirstVIP project evaluation framework, not a prediction of the future price movement of the project’s token. There are many factors that influence token prices, and project fundamentals are not the only factor. Therefore, it should not be assumed that a project will definitely experience a price drop just because it is determined as “Not Focus” in the research report. In addition, the development of blockchain projects is dynamic. If a project determined as “Not Focus” undergoes significant positive changes in its fundamentals, we may adjust it to “Focus.” Similarly, if a project determined as “Focus” undergoes significant negative changes, we will issue warnings to all members and may adjust it to “Not Focus.”

1. Basic overview

1.1 Project Introduction

Merit Circle (MC) is a decentralized DAO gaming guild built on the Ethereum and BSC blockchains. Its main components include investment, studio (building and incubating new projects), gaming, and infrastructure (the Beam gaming chain built on Avalanche, which went live on the mainnet on August 18th this year). In addition, Merit Circle has launched its own NFT collection called Edenhorde and is currently developing a gaming NFT platform called Sphere.

1.2 Basic information[4]

2. Project Overview

2.1 Team[5]

According to LinkedIn data, the Merit Circle team has a total of 33 members. From the perspective of team background, team members generally have a blockchain work background. The 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 International Business and Language program at the Arnhem Business School in 2019. From September 2017 to October 2018, he co-founded a blockchain company called Happy Mod, which focused on providing community management and marketing services for blockchain startups. In July 2021, he founded the Axie 420 “Scholarship” organization, which was later 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. He also studied Entrepreneurship and Small Business Operations at Utrecht University of Applied Sciences in the Netherlands. From April 2014 to September 2018, he was a member of the Bitcoin Foundation[6], 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. In December 2020, he co-founded Flow Ventures, a web3 venture capital firm. In August 2021, he co-founded Merit Circle.

Mark Borsten—Co-founder@meritcirclorr, profile not published on LinkedIn">7, Chief Operating Officer and co-founder of Flow Ventures, joins Merit Circle with Tommy Quite.

Thale Sonnemans——COO (Chief Operating Officer), graduated from San Francisco State University with a major in Marketing Management, and from Hanze University of Applied Sciences in the Netherlands with a major in Business Administration. From July 2012 to July 2013 and from January 2016 to December 2018, he held positions as 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. He joined Merit Circle in August 2021.

Brandon Aaskov——CTO Chief Technology Officer, graduated from the New England Institute of Art with a major in interactive media design. From 2006.02 to 2013.03, he worked at a streaming media technology company called Brightcove as a senior solution engineer; from 2015.06 to 2023.02, he worked at a software product agency called DEPT®, serving as software engineer, network director, cryptocurrency department manager and web3 deputy President and other positions. He joined Merit Circle in February 2023.

2.2 Funds

2.2.1 Financing

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

Table 2-1 Financing Status of Merit Circle

2.2.2 Treasury

Figure 2-1 Merit Circle Treasury Assets Data on June 23 [8]

The Merit Circle treasury is divided into four parts (excluding the held $MC), which are cash, blue-chip coins, NFT assets, and tokens/equity related to chain games. The treasury is valued at approximately $94.1 million. Additionally, according to the official treasury address statistics, Merit Circle holds approximately 42.49 million $MC on Ethereum and BSC, which is calculated to be approximately $12.83 million based on the current token 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 Data of Merit Circle code contributors

Code for Merit Circle is open source on GitHub[10], a total of 4578 code submissions, with an average of 10 code contributors. Among them, the time periods for more frequent code submissions are from March 2022 to June 2022, and from July 2023 to September 2023. These two periods correspond to the development of the game NFT market Sphere (not yet released, news was revealed in February Will be released this year) and develop the Beam gaming chain based on Avalanche Subnet.

2.4 Products

2.4.1 Product Overview

Merit Circle (MC) is a decentralized DAO gaming guild built on the Ethereum and BSC blockchains. Initially, Merit Circle was a scholarship guild similar to YGG, with scholarship operations and a SubDao model. However, considering the sustainability and limitations of the scholarship business, in March 2022, Merit Circle began transforming its DAO structure and positioning with the goal of becoming a gaming DAO. The DAO is divided into multiple sectors (vertical domains). Currently, its main sectors include investment, studios (building and incubating new projects), gaming (a platform for distributing blockchain games), and infrastructure (Beam gaming chain built on Avalanche, with the mainnet launched on August 18th this year). Additionally, the game NFT platform Sphere, which is still under development, was initially one of the four main sectors but was delayed due to market factors and replaced by the infrastructure sector.

2.4.2 Merit Circle Investment

1) Initial investment funds and sources;

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

2) Investment details;

The details of Merit Circle’s investment sector are reflected in the treasury allocation. According to treasury data as of June 23rd, the cash allocation is mainly in USDC; blue-chip coins include WBTC, Uni V2 staking, and WETH; NFT assets consist of Bigtime Land ($1 million), Axies NFT, and Cyball NFT; investments in 79 projects related to blockchain gaming (61 non-circulating, 18 circulating), with a focus on primary market investments in the blockchain gaming sector, accounting for approximately 80% of the investments in tokens/equities related to the blockchain gaming sector. These games lean more towards playability.

Figure 2-4 Merit Circle treasury gaming track token/equity investment allocation details

Table 2-1 Merit Circle’s main investment projects (treasury allocation accounts for more than 1%)

According to official data[12], the money spent on the purchase of NFT assets was US$4,834,000, and the current valuation is US$3,404,852, with a loss of US$1,429,148 (-29.6%); the money spent on token/equity investment related to the blockchain gaming track was US$28,045,486, and the current valuation It was US$45,471,587, with a profit of US$17,426,101 (+62.1%). The above data is not accurate. Due to liquidity of NFT assets, the actual valuation will be lower. The valuation calculation of tokens/equities related to the blockchain gaming track is based on market valuation, and most assets are not circulated, so there is a certain degree of error.

As the investment sector is Merit Circle’s main source of income and the $MC market value is strongly correlated with the treasury asset market value, it is important to analyze the health of the invested projects. The current status of projects with a treasury allocation of over 1% is as follows:

① Forgotten Playland, currently valued at $7.5 million, accounts 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 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 power-ups are scattered throughout the game, allowing players to make bombs more deadly with bigger explosions and other enhancements. The other game is called “Toy Limb Golf,” a golf game where players have to run to the equipment warehouse and find quirky items like toy limbs, baseball bats, and even teleport guns from science fiction novels to use as their “golf clubs.” The official statement mentioned that 20 small games will be released in the future. Based on the information disclosed, the game economy of Forgotten Playland mainly revolves around the sale of customizable skin NFTs, such as cosmetics and skins.

Figure 2-5 Forgotten Playland official Twitter

Judging from Forgotten Playland’s official Twitter, there have been no tweets or updates since the announcement on April 25th by Merit Circle. Therefore, we believe that the current valuation of the game at $7.5 million is inflated and the health of the game is poor. Additionally, most of the developed games are small games with a mediocre economic model. The current prospects for future development are not high.

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

Figure 2-6 Gameplay Galaxy official website page

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, led by Blockchain Capital, with follow-on investments from Merit Circle ($5 million), Mysten Labs, Solana Ventures, Com2uS, Yield Guild Games, and Hustle Fund.

According to LinkedIn data, the Gameplay Galaxy team currently has a total of 41 employees. Co-founders Doron Kagan, Maya Gurevich, and Dmitry Burlakov all have 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. Users can apply for testing qualifications via email. Gameplay Galaxy has not yet released its own token, and the project whitepaper has not provided detailed information. 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 audits, localization in different regions, the official game release, and the launch of an NFT owner community.

Gameplay Galaxy’s official Twitter (@TrialXtreme) has 17,577 Followers and is still actively tweeting updates. The official Medium of Gameplay Galaxy has not released any new content since the announcement on May 30.

In terms of the game’s background, the game “Trial Xtreme” by Gameplay Galaxy has a certain level of recognition and influence. Since its release in 2009, the game has been around for over a decade and is one of the early well-known motorcycle racing games. It belongs to a niche genre and has a stable player base, although it still has some distance to cover to become a mainstream hit. In terms of the team’s background, the co-founders of Gameplay Galaxy have over 15 years of game entrepreneurship and work experience. In terms of funding, $12.8 million is sufficient to support this small game, as it has been maturely operating in web2 for many years. Based on the above information, the author believes that the health of this project is relatively good. Although the probability of it becoming a popular hit is low, it has a relatively solid foundation.

③ Lava Games, current valuation of $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 elements of arcade and shooting games. Merit Circle announced its partnership with “A Far Away Realm” (AFAR) on March 21, 2022, and invested $1.2 million in it.

The game started its soft launch with pre-registration on Google Play on June 30th this year, but it has not been officially released yet. Its NFT collection, AFAR - RAFA Genesis, has only had a trading volume of 90 ETH on OpenSea, with a current floor price of 0.0099 ETH, indicating a lack of interest. Additionally, the official Twitter account of the game (@playafar) has 46,451 followers, but the activity level of tweets is low. Based on this information, the author believes that the health of this project is poor, and the current valuation of $2.64 million is inflated.

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

On August 25, 2022, Merit Circle announced a partnership with Vorto to launch the multiplayer online (MMO) real-time strategy (RTS) game called “Hash Rush” and invested $1 million in it. Currently, the game is in the development stage, and the official website states that it will be released on the Beam chain in the future. Based on the revealed game animations and graphics, the production quality seems average. It’s worth noting that this project has been in progress since July 2017 with intermittent progress and frequent changes in direction. Furthermore, the official Twitter account (@PlayHashRush) has only 9,117 followers. Based on this information, the author believes that the health of this project is poor, and the current valuation of $1.561 million is inflated.

⑤ Others

Upon reviewing other projects, it is observed that most of the gamefi investments made by Merit Circle are small games, and the survival rate of such blockchain games is relatively low during bear markets. Currently, nearly half of the treasury assets are allocated to gamefi projects. If a blockbuster game is not successfully invested in, it poses a potential risk to the overall project.

Figure 2-7 Merit Circle’s treasury funds situation from 2021.11 to 2023.06

Figure 2-8: Allocation Details for Merit Circle Finance Blockchain Gaming Track Token/Equity Investment in December 2021

As shown in Figure 2-7, Merit Circle’s overall shrinkage during the market downturn period from November 2021 to June 2023 is not significant. Compared to November 2021, it decreased by about 7%. According to the analysis, the main reasons are as follows:

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

② NFT assets with high volatility and poor liquidity have been maintained at a low level of about 5%.

③ Based on the proposal MIP-6 for early-stage risk aversion authorization, a series of profit-taking and stop-loss requirements were proposed.

④ The risk assets in the blockchain gaming track tokens/equities that were 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 cycle, the holdings of these assets were intentionally reduced, and the focus shifted to investing in the primary market of the blockchain gaming track. The investment proportion has increased month by month. It is worth noting that the projects invested in this part of the investment assets are of relatively average quality, mostly small games that have not yet been launched, and their valuations have a significant amount of speculation.

The above shows 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 amount of inflation.

3) Investment income distribution.

Figure 2-7 Merit Circle investment income distribution framework

According to MIP-7 proposal for Sustainable Future Vision, the framework for investment income distribution is 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 proceeds will be returned to the treasury in the form of crypto assets (mainly ETH and WBTC);

③ 60% of the income will be used for repurchasing $MC through limit orders (10%-35% below market price). The repurchased $MC will gradually become the main source of MC staking dividends (due to the MIP-26 proposal canceling V2 and V3 staking, the remaining approximately 9.5 million $MC will be burned, 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;

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

2.4.3 Merit Circle Studio

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

1) Merit Circle Grants

Grants are divided into research grants and development grants.

• Research Grants: Each applicant can receive a maximum of $10,000. The purpose of this grant is to support research projects and lay the foundation for larger proposals determined by community voting. This grant is applicable to proposals that exceed the grant limit.
• Development Grants: Each applicant can receive a maximum of $25,000. The purpose of this grant is to compensate developers for expenses incurred during the project development process.

Applicants can apply in Wonderverse, and a committee composed of DAO community members will review and vote.

2) Merit Circle NFT Collection - Edenhorde

The Edenhorde NFT collection is the first creative project of the Merit Circle DAO. There are a total of 8,800 NFTs, currently listed on OpenSea with a floor price of 0.059 ETH. The total trading volume is 10,103 ETH. The current floor price has dropped by nearly 93.4% compared to the average selling price of 0.9 ETH in March 2022, showing a downward trend in volume and price since its launch on OpenSea. Additionally, the trading activity has been dismal in the past two months, with sporadic transactions occurring every three to four days. The initial NFT artwork of the Edenhorde collection was created by Emmy Award-winning illustrator Andy Ristaino, and the IP story behind the NFTs was written by the author and historian Celia Blythe, known for “Edenhorde.” Currently, eight sets have been released.

Merit Circle aims to develop Edenhorde into an IP and enter 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, in the game Canverse, Edenhorde characters can be used as game pieces. Furthermore, Edenhorde holders can earn 2.5% of the income generated from the incubation and development projects (see Figure 2-9; the distribution details are a rough framework and may be subject to modification. For specific details, refer to proposal MIP-10). On August 21st, a card game called Edenhorde Eclipse was released and is currently in the alpha testing phase. It will be launched on the Beam gaming chain in the future. Additionally, according to official sources [13], a project called Project Amginea is currently under development, and an Edenhorde NFT staking feature will be introduced [14].

Figure 2-8 Edenhorde official website[15]

Figure 2-9 Revenue distribution framework of Merit Circle DAO incubation game[16]

3）Merit Circle Tactile

According to the proposalMIP-22[17], Merit Circle Tactile is a set of 650 merchandise boxes specially provided to the community, which contains seven wearable items (T-shirts, hoodies, scarves and hats). These merchandise boxes can be obtained by holding Merit Circle Tactile NFT, NFT Distribution is carried out through two stages, and the distribution targets are proposal creators, contributors, Edenhorde NFT holders lottery, etc.

2.4.4 Merit Circle Game [18]

At first, Merit Circle also had a gold-farming business, namely the scholarship model. However, considering the sustainability and limitations of the scholarship business, Merit Circle decided to transform into its current gaming sector. The main functions of the current gaming sector are: promoting and acquiring game users for cooperative games, providing learning tutorials for popular blockchain games to players, and offering exclusive game experiences to Merit Circle’s gaming community users. Players can earn rewards (NFTs, lotteries, etc.) by completing tasks.

Figure 2-10 Game Interface of the Gaming Section

The game interface introduces popular games on the market, games available for exclusive experiences, games partnered with Merit Circle, upcoming competitions, free-to-play games, and game tournaments.

Figure 2-11: Game Academy Interface

The Academy provides introductory tutorials for web3 and learning tutorials for popular blockchain games.

Figure 2-12 Game Reward Interface

Players can register an account and earn experience points by logging in daily. Rewards mainly include lotteries and corresponding game-related NFTs. As the player’s level increases, they can access more tasks and rewards. For example, at Level 1, the currently rewarded game is CropBytes. By completing these tasks within the deadline, players have a chance to win game NFT props.

2.4.5 Merit Circle Infrastructure

Merit Circle’s infrastructure is built around gaming. The currently released infrastructure product is the Beam gaming chain built on Avalanche, which went live on the mainnet on August 18th of this year. According to Proposal MIP-27 [19], 75 million $MC tokens (valued at approximately $22.5 million based on the current token price) were allocated from the treasury for liquidity injection, funding for games/game developers (for gas fees), and validation and protection of the Beam network. Additionally, 2.7 million USDC tokens were allocated from the treasury for the development of Beam and its ecosystem products (with $200,000 allocated for Beam’s AMM liquidity).

The Beam gaming chain adopts the POS consensus mechanism and allows users to become validator nodes by staking $AVAX or $MC. $MC is used as the gas fee, LayerZero serves as the official cross-chain bridge, and Openfort provides account abstraction wallets and integration services.

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 (while $MC remains the platform token before the migration). However, the Merit Circle name 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, while $BEAM will serve as the gas consumption and validator staking token for the Beam chain. After the migration, it will be important to monitor whether there will be significant changes to the economic model.

According to official sources, the following ecosystem games will be launched on the chain: “Trial Xtreme,” a popular motocross racing game developed by Gameplay Galaxy with over 250 million downloads; “Castle of Blackwater,” a social deduction game; “Megaweapon,” a multiplayer shooting game; “Walker World,” an open-world adventure and multiplayer shooting game supported by the Unreal Engine 5; “Hash Rush,” a multiplayer online (MMO) real-time strategy (RTS) game jointly launched by Merit Circle DAO and Vorto; “Edenhorde Eclipse,” a card game incubated by Merit Circle that allows the use of Edenhorde NFTs in gameplay. Additionally, the game NFT marketplace Sphere will be launched in the future.

Summary:

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

Looking at the four major business sectors of Merit Circle, the investment sector is currently the main source of income and the core of the business, so it needs to be closely monitored. Merit Circle’s investment style tends to be conservative with a strong risk awareness. Currently, the primary investments are in the primary market of chain games, with most of the invested games being small games. Their current valuations have a significant room for improvement, and these projects have a low survival probability in a bear market. However, the treasury still holds $45 million in cash and highly liquid blue-chip coins, accounting for 48% of the treasury, indicating ample funds. The studio sector can bring value to other sectors within the DAO ecosystem and is the birthplace of creative projects within Merit Circle DAO. Currently, the development of the studio sector is still in its early stages and has no obvious profit benefits. The quality of the innovative projects being developed and incubated is average. The game sector currently functions as a distribution channel similar to the chain game market, promoting games for game developers to acquire users and providing learning tutorials for popular chain games to the Merit Circle game community players. It also offers opportunities for early access to games and rewards (NFTs, lotteries, etc.). However, currently the game sector does not generate profits and has weak attractiveness to users. The infrastructure sector adds utility to $MC and has the potential to increase 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 situation of the on-chain game ecosystem in the future.

3.Development

3.1 History

3.2 Current situation

3.2.1 Number of Media Followers

Table 3-2 Number of media followers

3.2.2 Operational data

Figure 3-1 Historical income details

As of June 23, 2023, Merit Circle’s cumulative revenue was US$24.09 million, of which the main revenue came from 2022, and its revenue in the first half of this year was only US$180,000.

Figure 3-2 $MC repurchase details

As of June 23, 2023, Merit Circle has repurchased a total of 5,485,270 $MC and spent a total of $9,443,937.Accounting for approximately 39.2% of revenue during the same period. The main repurchase time period was also 2022.

Figure 3-3 $MC destruction details

As of September 23, 2023, a total of 368,707,273 $MC has been destroyed by Merit Circle, with a cumulative value of $316,430,488. The total supply has been reduced from 1 billion to 631,292,726. The main sources of destruction are as follows: According to the MIP7 proposal, 75% of unused tokens are destroyed from the community incentive distribution every month, and 15% of investment earnings are used to destroy $MC. According to the MIP-20 proposal, on October 26, 2022, 200 million $MC, worth $147 million, was destroyed from the community incentive distribution (290 million $MC in total).

Figure 3-4 Merit Circle treasury allocation from 2021.11 to 2023.06

In the period from November 2021 to June 2023, during a market downturn, the overall shrinkage of Merit Circle’s treasury is not significant, decreasing by approximately 7% compared to November 2021.

Figure 3-5 Staking pools provided by Merit Circle

According to MIP-19 proposal, from November 8, 2022, to November 2023, 30,000,000 MC will be allocated for V2 staking rewards. A new staking policy vote will take place before the end of the year to determine the rewards for the following year. 20% of the liquidity mining rewards will be allocated to the Single Coin Pool, while 80% will be allocated to the MC/ETH pool. Staking rewards in $MC have a customizable lock-up period, with different reward weights based on the duration of the lock-up. The specific examples are as follows: no lock-up period has a weight of 1; 12 months lock-up period has a weight of 1.65; 24 months lock-up period has a weight of 2.5; 48 months lock-up period has a weight of 6. Additionally, $MC from investment income buybacks will also be used for staking rewards.

But according to the MIP-26 proposal on June 30th this year, Merit Circle will cancel the remaining V2 staking plan four months in advance. All stakers’ positions will be unlocked, and accumulated $MC rewards from staking can be claimed. The remaining approximately 9.5 million $MC that has not been allocated will be burned. The project team stated that although the current staking plan is being canceled and further rewards are being halted, they do not rule out the possibility of implementing new staking plans or exploring alternative solutions in the future.

3.3 The future

The official has not announced the latest road map.

4. Tokenomic model

4.1.1 Token distribution

The initial total amount of $MC is 1 billion, and the specific distribution is as follows in Table 4-1. After that, as the community voted to destroy it and part of the income was used for destruction, nearly 1/3 was destroyed. As of the time of writing, September 18, the total amount was 631,292,726.

It is worth noting that according to the MIP-28 proposal, by the end of this year, there may be a migration of $MC to $BEAM at a ratio of 1:100 (where $MC will still be the platform token of the project 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, while $BEAM will serve as the gas consumption and staking token for the Beam chain. It is important to monitor whether there will be significant changes to the tokenomic model after the migration is completed.

Table 4-1 $MC initial allocation[21]

Figure 4-1 $MC unlocking table

4.1.2 Token holding address analysis

According to Ethereum browser and Nansen data, as of 2023.09.22, the total number of $MC holding addresses is 11,995. The top 100 holding addresses collectively hold 91.99%, while the top 10 addresses hold 75.63%. The top 10 addresses mainly consist of contract addresses, multisig contract addresses, team advisor unlock contracts, Binance hot wallets, and staking pool contracts, with no individual wallet addresses. Overall, the holdings are relatively diversified.

Figure 4-2 $MC currency holding address information, from Nansen[22]

Judging from the changes in token-holding addresses, the number of token-holding addresses has increased significantly after October 29, 2022.

Figure 4-3 Changes in currency holding addresses, from Nansen

4.1.3 Governance

All major decisions of Merit Circle are basically determined by governance proposals[23]. There are 27 proposals so far, here are a few important proposals: MIP-1 is publicly sold through the Balancer Labs Liquidity Bootstrapping Pool on the Copper platform, MIP-6 proposes a series of stop-profit and stop-loss requirements for early-stage risk aversion authorization, MIP -7 formulates investment allocation and destruction measures, MIP-13 and -14 buy out the distribution of YGG and Nifty funds for US$1.75 million, MIP-17 DAO structures reorganization, MIP-20 destroys $200 million MC in community incentive distribution, MIP- 27 allocates funds for Beam development grant.

The governance proposal terms of Merit Circle are clear and transparent. They have also created a governance forum for discussions. However, it appears that most of the main proposals are currently submitted by the project team.

4.1.4 Token demand

1) As a Gas in the Beam game, and verification node staking;

2) Staking $MC can earn profits from a portion of the rewards allocated and income obtained from investment sectors;

3) Governance voting.

5. Competition

Merit Circle is positioned in the track of blockchain gaming guilds, but it differs significantly from traditional blockchain gaming guilds in terms of development strategies. Merit Circle has abandoned the scholarship model and instead gradually expanded into the mid-to-high-end segment of the blockchain gaming industry through investing in the primary market of blockchain games, collaborating in game development, building a distribution channel platform for blockchain games, and constructing infrastructure.

5.1 Track Overview[24]

In the traditional gaming industry, the formation of gaming guilds allows players to gather and cooperate to overcome dungeons or defeat bosses together. In games like World of Warcraft, top guilds often compete for the first clear of dungeons or the first kill of monsters. Apart from these cooperative guilds, traditional gaming guilds also focus on social interactions among players and sharing of game content, becoming the hub of the gaming community.

In Web3, with the rise of the Gamefi trend in 2021, the success of Axie Infinity has sparked a frenzy among blockchain players. However, for many low-income gamers in developing countries, the cost of owning a $600 pet that requires three pets to start battling is unaffordable. In this environment, the emergence of blockchain gaming guilds has greatly reduced the entry barrier for players to participate in Play-to-Earn (P2E) games. One of the pioneering guilds in this space is Yield Guild Games, which introduced the scholarship model and led the rise of blockchain gaming guilds.

The scholarship model was one of the core business models for blockchain gaming guilds during the last Gamefi summer bull market. Its operation logic involves guilds providing the necessary in-game items for Gamefi and recruiting community managers. These managers are responsible for recruiting and training Play-to-Earn players (scholars). Qualified players then lease the in-game items provided by the guilds to earn income, which is then distributed proportionally among the guild, community managers, and scholars.

With the development of blockchain gaming guilds in the past two years, the following characteristics have gradually emerged:

1. Limitations of the scholarship mechanism: The scholarship model essentially helps Gamefi attract a player base focused on earning income. This player group can help generate interest and expand the game community in the early stages. However, as they enter the middle and later stages, in the current token model design prevalent in blockchain gaming, the death spiral phenomenon is prevalent. The large number of income-focused players and the heavy game assets (NFT game items) held by the guilds can severely damage the game itself and accelerate the collapse of Gamefi’s tokenomic model.

That 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. During bear markets, there may be a limited number of profitable Gamefi projects, resulting in significant cyclical changes in guild income.

Furthermore, the current scholarship model used by blockchain gaming guilds is only suitable for P2E games. However, P2E games, without exception, are currently facing a downturn. In the long run, it is uncertain whether P2E blockchain gaming will continue to exist or decline.

As the Gamefi track gradually matures, more and more Gamefi projects are starting to have their own rental systems, such as Starshark and Pegaxy. The emergence of rental systems can also squeeze the target players of the scholarship system. If more players choose to use rental systems instead of revenue-sharing scholarship systems like YGG, the income of such guilds will decrease significantly.

1. Guilds are heavily regionalized: Currently, mainstream guilds are mainly distributed in Southeast Asia. For example, YGG, the largest guild in this track, has its main community of players in the Philippines. GuildFi, which is dedicated to developing Guild-As-a-Service (Gaas), has its main community located in Thailand. The largest blockchain gaming guild in Vietnam is Ancient8.

2. Future development shows fundization and functionalization: After the success of the scholarship model, guilds started looking for the next “Axie Infinity.” Therefore, guilds nowadays commonly participate in the early NFT presales of blockchain gaming projects, aiming to obtain a certain number of NFTs through partnerships in preparation for the game’s launch.

In addition to NFTs, guilds even act as early-stage investors in many blockchain gaming projects, transforming their role from NFT rental intermediaries and player communities to risk investment funds in the blockchain gaming track. Apart from the direction of fundization, some guilds are also exploring other development directions, such as developing infrastructure, incubating game development, providing data services, community services, user acquisition services, and systematic management services for guild scholarship systems and income systems. They are moving towards functional development.

1. Highly dependent on the development of the blockchain gaming track: The income of blockchain gaming guilds relies on both the revenue-sharing mechanism of scholarships and the return rate from Gamefi investments. Both are built on the development of the blockchain gaming track, which is currently in its early stages. There is a significant growth potential in the future. For game guilds, it is crucial to grow along with this track and ensure that their investment portfolio remains profitable.

5.2 Comparison of competing products[25]

1) Yield Guild Games（YGG）

YGG is a decentralized gaming guild built on the ETH and Polygon networks. It pioneered the scholarship model, which drove the emergence of the gaming guild track. However, due to the current lack of activity in the gaming guild track, the limitations of the scholarship model have gradually become apparent. YGG has started to shift its development focus towards investing in high-quality games rather than solely focusing on play-to-earn (P2E) games. Initially, Merit Circle was a scholarship guild similar to YGG, offering scholarship services and utilizing the SubDao model. However, considering the sustainability and limitations of the scholarship business, as well as the fact that these services were largely overshadowed by YGG, in March 2022, Merit Circle began to transform its DAO structure and positioning, aiming to develop it into a gaming DAO.

2）GuildFi（GF）

GF is a blockchain gaming guild and guild service platform built on Ethereum. Currently, the project is trying to develop in the direction of funding and functionality, providing early financing for the game community and guild-related services after launch.

5.2.1 Competitor business development

Figure 5-1 YGG GAP Season 4 task list

YGG’s current focus is on partnering with popular games and related projects, investing in and incubating games, guilds, and infrastructure in the race track, and expanding the community through web3 mini-competition and events. However, the once core scholarship business has shown a quarterly reduction in 2022, and no scholarship-related data has been disclosed in the community reports for Q1 and Q2 of this year.

Currently, the main method of community operation in YGG is the Quest game task system. Currently, the main focus is on expanding the community and enhancing community cohesion through the Guild Advancement Program (GAP). This program promotes collaboration between community members and cooperative games. Participants need to complete achievement tasks officially released by YGG, such as reaching a certain duration in the cooperative games, recruiting a certain number of players to join YGG, and hosting high-quality streaming content, in order to receive YGG token rewards and corresponding NFTs. This program is one of the key directions of YGG’s current development, and Season 4 of GAP is currently underway. As shown in Figure 5-1, GAP Season 4 provides a total of 14 task sets, offering over 150 tasks in total. However, these tasks are difficult to achieve, and the income for players who can complete these tasks is relatively low and only in $YGG rewards, making them less attractive overall. But compared to the NFT rewards and lotteries provided by the game section of Merit Circle, YGG’s Quest rewards appear to be slightly more generous.

Figure 5-2 GuildFi task system

Figure 5-3 GuildFi reward market

GuildFi’s current community operation method is mainly through the task system and reward marketplace. Players can earn a certain amount of GXP points by completing tasks provided. These points 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 have relatively low value.

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 a lack of attractive gold farming businesses and community activities. YGG, on the other hand, has a first-mover advantage and has accumulated a certain community foundation through its previous scholarship model and SubDAO mechanism. However, at present, all three of them lack the ability to attract new users and retain old users.

5.1.2 Financial data comparison

Figure 5-4 YGG Q2 investment information disclosure[26]

Figure 5-5 GuildFi 2023 mid-year financial update[27]

Table 5-2 Comparison of investment status disclosed by YGG, Merit Circle and GuildFi

YGG disclosed financial information in the 2023Q2 community update document. From its establishment to 2023Q2, YGG has invested in a total of 83 projects related to blockchain gaming. The investments include 41 types of game tokens, 35 types of NFT assets, 57 games, 9 blockchain gaming guilds, and 17 play-to-earn infrastructures. The total cost of these projects amounts to $18.37 million. 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 the investments from its own treasury, YGG also raised $75 million on February 18 this year to establish a venture capital fund named YGG Ventures Fund I. This fund is used for early-stage token and equity transactions in web3, game studios, and infrastructure supporting industry development.

As of June 23, 2023, Merit Circle’s treasury size amounts to $94.1 million, divided into four parts as follows: 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 blockchain gaming-related tokens/equities, with investments in 79 projects (61 non-circulating, 18 circulating), primarily in the primary market of blockchain gaming, accounting for approximately 80% of blockchain gaming-related token/equity investments.

In terms of investment performance, Merit Circle appears to be more impressive compared to YGG and GuildFi. However, most of the projects invested in by Merit Circle are non-circulating equities, and their valuations are generally inflated based on the quality of the current projects. This means that Merit Circle’s actual investment situation could potentially result in greater losses, although calculating specific losses is difficult. Nevertheless, Merit Circle does have better risk control capabilities, a larger fund size, and relatively transparent financial disclosure (monthly updates with publicly available dashboards). On the other hand, GuildFi has lower overall investment and participation in the blockchain gaming market, and its competitiveness is weaker, giving the impression of a passive interest-earning strategy. In terms of investment and partnership targets, YGG has a competitive advantage in terms of game quality and also possesses a stronger brand effect compared to Merit Circle and GuildFi.

Figure 5-6 YGG treasury situation[28]

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

Merit Circle disclosed that its treasury size was US$94.1 million as of June 23, 2023, of which stablecoins and blue-chip coins are worth approximately US$45 million. According to the official treasury wallet address, Merit Circle’s treasury addresses on Ethereum and BSC hold a total of approximately 42.49 million $MC, which is approximately $12.83 million US dollars based on the current currency price, accounting for approximately 9.17% of the current total circulation.

In its mid-year report released on July 26 this year, GuildFi stated that its total treasury funds are approximately US$92.68 million, which is divided into three parts - Stablecoins, BTC, ETH, and LP worth approximately $71.89 million, invested tokens and primary markets worth approximately $15.91 million, and held NFT assets worth $4.89 million. However, based on the current holdings of the five disclosed treasury addresses, it was found that its total funds amount to approximately $42.26 million, with $735,000 worth of $GF tokens, and the rest mostly consisting of stablecoins, ETH, and LP. In addition, two transfers were made from the main treasury addresses to Binance, totaling $8 million USDT and $2.97 million USDT. According to the official statement, these funds were mainly used to support daily operations and repurchase tokens from investors.

Judging from the treasury situation, YGG holds a large amount of $YGG in the treasury, accounting for 95.54%, and holds only US$7 million in stable coins and other liquid tokens, accounting for only 4.46%. On the other hand, the treasury distribution of Merit Circle and GuildFi is more reasonable. The former’s stable and blue-chip coins account for nearly 50%, with a value of approximately US$45 million. The latter holds approximately 71.9% of stable and blue-chip coins[29], worth approximately US$53.23 million. In addition, Merit Circle’s token $MC has a higher unlocked circulation ratio, about 73.32% ($YGG is 18.51%, $GF is 42.56%). It also has a token burn 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 for Beam’s gas consumption and node staking, while YGG and GuildFi do not have token burn and repurchase mechanisms, and their token empowerment is weaker compared to $MC.

The market values ​​of cash plus high-liquidity tokens in the treasury of Merit Circle and GuildFi are similar, but the market value of the two is quite different. The current liquid market value of $GF is approximately US$20.38 million, and the fully circulated market value is approximately US$47.86 million, both of which are lower than the current total amount of funds in its treasury of US$74 million ($53.23 million + NFT and investment project value in the mid-year report). The circulating market value of $MC is approximately US$140 million, and the fully circulated market value is approximately US$195 million, both of which are higher than the current total amount of funds in its treasury this year, which is US$94.1 million. The possible reasons for this difference are as follows:

①Although the cash flows of Merit Circle and GuildFi are close and the quality of the projects invested by both is relatively average, Merit Circle’s investment scale is larger, indicating that it is more active in laying out and participating in the industry, while GuildFi, on the other hand, has a tendency to stay away from the track and earn interest, and may have difficulty getting on board when the track heats up. However, if the bear market continues for a long time, it may be an advantage for GuildFi.

②Merit Circle is actively developing blockchain gaming infrastructure. Although the development of MC in infrastructure is still in its early stages, this positioning shift reflects its willingness to expand its business scope in the industry. However, considering that the development is still in the early stages, there may be some overly optimistic expectations and speculation regarding its high market value. Over time, if Merit Circle’s investment business and infrastructure development do not meet expectations, its valuation advantage compared to GuildFi may be diminished.

③$MC has a token burn and repurchase mechanism, as well as being used for Beam’s gas consumption and node staking, which overall empowers the token more than $GF.

Summary:

The scale of the blockchain gaming guild track is still relatively small, and the community size is even smaller than the user base of popular blockchain games. There is still significant room for growth in the entire track.

YGG has maintained high growth by expanding its community and cooperating with popular games, making it a prestigious choice among guilds in the track. Merit Circle, on the other hand, is actively transitioning and diversifying its business scope in the mid-to-upper range of the blockchain gaming industry, exploring more possibilities, but it is still in the early stages and needs time to prove itself. GF, on the other hand, has relatively flat development and is somewhat detached from the track, with limited investment scale and a focus on earning interest, resulting in weaker influence in the industry. \

6.Risk

1）From the perspective of investment, the majority of Merit Circle’s investments are in the primary market of blockchain games, accounting for about 80% of investments in tokens/equities related to the blockchain gaming industry. Merit Circle’s revenue streams are relatively limited, mainly relying on investment sectors. Most of the gamefi projects invested in by Merit Circle are small games, and there is a significant risk of overvaluation in the investment portfolio. These types of blockchain games have a lower survival rate during bear markets, with higher risks and uncertainties. The short-to-medium-term income situation of Merit Circle is hindered by market conditions and will depend on the development of the blockchain gaming industry and whether the invested games can generate good returns, as well as the development of the Beam gaming chain and the upcoming game NFT marketplace Sphere.

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

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

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