Dcentral White Paper
Dcentral White Paper
Frictionless transactions within and between games, driven by virtual asset property rights
Executive Summary
“Without property rights, no other rights are possible.” -Ayn Rand
1 out of 3 people play video games. That’s more than ~3 billion gamers globally. [1] Revenue-wise, the video game industry exceeded USD $180 billion in 2021, and is forecasted to reach $218 billion in 2024. [2]
Nevertheless, in spite of its considerable market size and the staggering value of its components, including billions of dollars’ worth of virtual assets and commoditized personal data, the industry is still bereft of a system that adequately recognizes the real-world value of virtual assets, the ownership rights to these assets, and the necessity of their transferability across virtual worlds.
We intend to change this.
Dcentral’s approach to solving these issues can be defined as: (1) aligning incentives between Gamers and Game Studios, and (2) recognizing virtual property ownership rights. To achieve this, our platform synthesizes blockchain smart contracts, tokens, open APIs, and machine learning software. Collectively, our product stack provides the necessary infrastructure for a multi-game economy, enabling frictionless transactions within and between virtual worlds.
[2] Source: Newzoo
The Opportunity
TL;DR
Free-to-play (F2P) + micro-transactions are the dominant revenue model (75% of gaming revenue in 2020).
The gaming industry is large ($180b in 2021), and it is growing ($218b by 2024).
Subscription-based game access--Xbox Game Pass, PlayStation Plus, Apple Arcade, Google Play Pass, Nintendo Switch Online-- will lead to people playing many games (not just 1 or 2).
Gamers will acquire more virtual assets (e.g., currency, items, cosmetics, avatars), for many different games, played on many platforms (Apple / Xbox / Steam / Epic / PlayStation, and mobile / desktop / console).
Gamers will want to effortlessly transfer the value of their digital assets between games, and cash out to real world currency, just like any other physical property that they own.
Market Size
The global video games market is expected to exceed 218 billion USD by 2024. [3]
For context, Valve—the company that operates the gaming platform and virtual item marketplace Steam—is the 2nd largest private peer-to-peer (“P2P”) marketplace in the US by transaction value… among ALL private P2P marketplaces, in any vertical, including food, drink, transportation, etc. Valve is estimated to generate > $4 billion USD revenue annually. [4] This includes revenue from the sale of games to consumers, and commissions taken from trades of in-game items.
Trends
5 trends shaping the gaming industry will lead to a significant increase in demand for in-game item trading.
1. Free-to-Play + In-game Purchases
Why do Gamers buy in-game items?
Primary Sales: Gamers purchase in-game items, cosmetics, currency, and avatars/characters to:
- Acquire advantages within a game,
- Level up quickly,
- Change the look of their character or virtual space,
- Give gifts to others,
- Engage with their friends.
Secondary Sales: Gamers will trade directly with other Gamers on a secondary market using fiat currency (government-backed currency), cryptocurrency, or through swap trading (property exchange), when:
- It is cheaper than buying directly from a Game Operator.
- It is easier to find a special item or account.
- It cannot be directly purchased from the publisher (e.g., it is a limited-edition item that is no longer sold by the Game Operator).
- The Gamer-seller wants to sell their property for “real” money.
Why do Game Operators sell in-game items?
Game studios and publishers (“Game Operators”) rely on four monetization models:
- Paid (“Premium”): Gamers pay upfront for a game.
- Subscription: Gamers pay an ongoing fee to have access to a game.
- Ads: Access to the Game is ”free;” the Game Operator generates revenue through in-game advertisements.
- Free-to-play (“F2P”) with Micro-transactions: Access to the game is “free,” however Gamers are encouraged to purchase in-game assets, such as currency, additional lives, customized avatars / cosmetics, an ad-free experience, access to content, and so on.
The overwhelming trend is a mixture of F2P + Micro-transactions. Today, this model accounts for $3 out of every $4 dollars spent on digital games. [5]
Global Game Revenue by Monetization Model
Premium Games
In-Game Purchases
2010
2020
2. Persistent and Social (multi-player)
The persistent, open-world, and multi-player aspect of many games further encourages Gamers to invest time and money to acquire virtual property.
3. Blockchain and NFTs
The secure, transparent, and decentralized nature of blockchain technology has enabled true ownership of digital assets. The multi-billion-dollar market for non-fungible tokens (“NFTs”)—which are unique tokens written on a blockchain, and function to evidence ownership of assets—demonstrates this development. In 2021, users spent more than $44 billion USD worth of cryptocurrency to purchase Ethereum NFTs. [6]
As consumers become more familiar with the concept of virtual asset ownership, they will demand rights to the property that they spend time or money to acquire.
Note: On the legal front, there are indications that gamers will be granted legal ownership over their virtual gaming property. For instance, consider European court decision in September 2019 which held that consumers have the right to resell digital games. [7]
4. Subscription Game Access
Gaming companies have begun to embrace a subscription model, providing subscribers with free access to multiple games (similar to Netflix). Apple Arcade, PlayStation Plus, Xbox Game Pass, and Google Stadia are all examples of this trend.
5. Cloud-based, Device Agnostic
The preferred gaming platform among Gamers varies
PlayStation
Windows
Xbox
Android
iOS
MacOS
To appeal to a broader userbase, it is increasingly common for games to release on multiple platforms (“Cross Platform Gaming”). For instance, the game Fortnite—which generated more than $5 billion USD in 2020—can be played on Android, PlayStation 4, Nintendo Switch, Xbox One, iOS, Microsoft Windows, and Mac operating systems. [8]
Another illustration can be seen with the success of Nintendo Switch, a hybrid console device that permits both mobile and stationary gaming. [9]
Nintendo Product Revenue (Japanese yen, millions)
Nintendo 3DS
Wii U
Nintendo Switch
[3] Source: Newzoo
[4] Source: Andreessen Horowitz (a16z)
[5] Source: Ark Investment Management LLC - Big Ideas 2021
[6] Source: Bloomberg, Chainalysis
[7] Source: Lexology
[8] Source: Statista
[9] Source: Nintendo Consolidated Results
The Problem
Property Rights
A legal, economic, and moral issue.
Gamers spend time, money, and effort to acquire virtual property that they do not own. To illustrate, consider the scenarios below.
Scenario A: John Doe and RareItem
John Doe is an avid gamer. During the prior several years, John has been developing skills and a social community within AwesomeGame, a massively multiplayer online game (“MMO”).
John has his sights set on an exceedingly rare in-game item (“RareItem”). There are only 10 RareItems in AwesomeGame, a metaverse with 10 million players globally. To obtain RareItem, John has been grinding [10] for 1 year, cultivating unique skills within the game that are needed to defeat MegaBoss and thereby acquire RareItem.
In addition to devoting his time and effort, John has spent approximately $20 USD / month to buy F2P-Gems. F2P-Gems are required to purchase resources used in the game for crafting and building—such as metal, wood, and potions—which are needed to “level-up” John’s in-game statistics (“stats”) so that he can defeat MegaBoss.
After 1 year of hard work (10 hours per week x 52 weeks = 520 hours) and $240 worth of direct purchases (F2P-Gems of $20 x 12 months = $240) …John finally defeats MegaBoss and acquires RareItem!
The question:
Who owns RareItem? Does John own it, or does AwesomeGame? More importantly, who should own it?
According to most game studios and publishers (collectively “Game Operators”), all virtual assets (items, currency, cosmetics, accounts, etc.) remain the sole property of the respective Game Operator.
Game Operators use End User License Agreements (EULAs) to stipulate that players are licensees, not owners. The game player is merely granted a license that can be revoked if the player violates the game’s Terms of Use (TOU) or EULA. Typical Game Operator EULAs and TOUs stipulate:
- All property within the virtual world is the property of the Game Operator, not the players.
- All players are strictly prohibited from selling or otherwise exchanging virtual assets outside of the game platform.
- Any attempt to sell in-game items for “real” money is prohibited and will result in the player’s suspension or account deletion. In such instances, players stand to lose all of the value they’ve invested in the game, without any form of compensation.
We believe that any person who spends money, time, and effort to acquire property, whether physical or virtual, should be entitled to the fruits of their labor. Any EULA or TOS which assigns 0 rights to a Gamer is intrinsically unfair, especially since they are given no option to negotiate, and (often) does not fully understand the terms.
Aside from the ethical argument, free-market economics support player ownership rights. In an open market, entrepreneurship is encouraged and excess capacity is minimized. In the present state of the industry, entrepreneurship is denied—Gamers are not permitted to generate cash flows or earn wages from their efforts, and excess capacity is maximized—there is no opportunity to rent out or sell assets when they are no longer needed or desired.
Ultimately, the practice of denying the recognition of player property rights puts Game Operators in an adversarial position against their customers. It is our belief that this model is fundamentally flawed and ripe for disruption.
[10] Sources: Newzoo, Statista
[11] Source: Newzoo
Lack of Transparency & Liquidity
In many cases, in-game economies have grown so complicated that it is difficult for Game Operators to properly oversee them. As a result, they restrict player rights by denying ownership and prohibiting player-to-player property exchange.
Scenario C : NewGame’s Revenue Model
NewGame has become a viral sensation. Its Game Operator—NG_Inc—is forward-thinking and believes that NewGame should abide by player-first design principles. NG_Inc wants its in-game economy to simulate, as close as possible, a real-world economy. To achieve this, NewGame recognizes player property rights.
NG_Inc is aware that there is a large crossover between the players of NewGame, AwesomeGame, and FunGame. In fact, many NewGame players have expressed a desire to exchange their AwesomeGame and FunGame property for NewGame property, and vice versa.
Regrettably, NG_Inc and the Game Operators of AwesomeGame and Fun Game do not trust each other. Each Game Operator wants to maintain control over the terms of sale, believing that absolute control over the digital assets will bring maximum benefits.
Because there is no neutral third-party software to facilitate cross-game transactions, a cross-game economy is unworkable.
Data Privacy
Targeted advertising—which relies on user behavior analytics and personal data tracking—has led to the commodification of personal data.
When games are monetized through advertisements, players unknowingly pay for “free” games with their personal data. From the Game Operator‘s point of view, the ad revenue model has the advantage of providing access to a larger audience of players (users are more willing to try a game if it is free). However, it comes at the cost of privacy and quality of user experience. Everyone prefers an ad-free experience.
Scenario D : FunGame Ad Revenue Reliance
FunGame aspires to move away from its current ad revenue model to foster an environment where players are not compelled to surrender control over their personal data. Additionally, it aims to prevent players from having to endure uninteresting advertisements, which can negatively impact the overall gameplay experience.
Unfortunately, only 15% of FunGame users are willing to directly purchase virtual items (why buy something that you will not own?), and just 2% are willing to pay for access to the game. As a result, NewGame continues to rely on in-game advertisements for revenue.
The Solution
Frictionless transactions within and between games, driven by virtual asset ownership rights.
The Goal: Interest Alignment
Recognizing property rights to in-game assets presents a profound shift in the dynamic between game players and game companies, bringing several advantages to both parties.
For players, the acknowledgment of property rights to their virtual assets provides an element of tangibility and a sense of ownership to their digital accomplishments. Players invest considerable time, effort, and real-world money to acquire these assets, and acknowledging these as their property enhances the value of their engagement.
For game companies, recognizing property rights to in-game assets can significantly enhance user engagement and loyalty. When players know they own their virtual assets, they are more likely to stay invested in the game, increasing retention rates. Furthermore, as players become more active and engaged, it boosts the in-game economy, creating more opportunities for monetization for game companies.
Another potential benefit for game companies is the reduction in illicit trading of in-game assets. A significant amount of unofficial real-money trading happens due to the lack of legitimate channels for players to sell or trade their assets. By officially recognizing these rights, game companies can provide a secure platform for these transactions, reducing fraud and enhancing user trust.
Finally, acknowledging virtual property rights can also provide game companies with an alternative revenue stream. They could potentially charge a small fee for facilitating transactions between players, thus profiting from the secondary market while providing a valuable service to their users.
The Solution: What We're Building
Inventory & Distribution
We've seen the challenges players and developers face with traditional, centralized models - issues such as fraud, lack of transparency, and the inability for players to truly own and trade their in-game assets. That's why we've developed a solution that addresses these drawbacks.
Your Control Center for In-Game Items - Manage, Edit, and Analyze. Check it out here.
Our blockchain-based solution facilitates the tokenization of game assets, transforming each asset into a unique, immutable token that resides on the blockchain. This authenticates the asset and ensures its rarity, granting players real ownership and control.
No-Code Tools for Virtual Economy Management
We recognize that adopting new technologies can be daunting for any team. That's why we've integrated a no-code, event-based rule engine into our solution. This feature empowers non-technical team members, such as product managers, game designers, and level designers to construct game rules and logic without the need to code.
With our rule engine, you can set specific events and conditions, and the system will trigger predefined actions when these conditions are met. This low-code approach significantly reduces the complexity and development time for game mechanics, streamlining the adoption of our blockchain-based system.
Using our intuitive interface, team members can easily set up if / then rules to automate in-game item distribution based on game events.
Marketing & Promotions
Our platform serves as a nexus connecting various games, allowing for the seamless transfer and recognition of assets across different virtual environments. This integration sets the stage for limitless opportunities for user acquisition and engagement.
Cross-game Promotions
Cross-game promotions offer a unique avenue for game studios to collaborate, creating thrilling opportunities for players to be rewarded and incentivized to engage with multiple games. This not only enhances the gaming experience but also builds a sense of continuity and progression across different gaming environments.
Easily reward players with in-game items if they've opted-in to receive game recommendations and free items or have completed a specific task.
For example, if a player has a preference for strategy games, a studio can propose discounts or special bonuses for trying out a new strategy game. This data-driven methodology not only aids games in optimizing their marketing endeavors but also enhances the user experience by providing players with content that is relevant and personalized to their preferences. If a player opts-in to receive game recommendations and free items, they can be rewarded with a token that can be used to purchase in-game items or other rewards.
Featured Games
Dcentral's peer-to-peer marketplace features games that are integrated with our platform, driving discoverability and engagement.
Being featured on our player-to-player marketplace offers a multitude of benefits for games. First and foremost, it provides an unparalleled level of exposure, placing games directly in the sightline of a highly engaged and active community of gamers. This increases discoverability, potentially driving a substantial influx of new players. Moreover, our marketplace creates a dynamic environment where players can trade and exchange in-game assets, thereby adding another layer of engagement and retention to the game. It also allows games to tap into a secondary market, offering a new revenue stream that goes beyond initial sales or in-game purchases. Lastly, the transparency and security of transactions on our platform, bolstered by blockchain technology, enhances trust in the game's economy, contributing to long-term player loyalty and satisfaction.
Security & Access Control
Maintaining the integrity of our platform and safeguarding the digital assets of our users is paramount. To this end, we have woven a complex tapestry of robust security measures and efficient access controls into the fabric of our platform.
Role-Based Access Control & MFA
The RBAC system allows game administrators to assign permissions based on the roles of individual team members within their specific context, whether they're a level designer, project manager, security manager, or an eSports tournament organizer. These permissions can govern a range of actions such as viewing, editing, transferring, or trading assets. This mechanism ensures that users can only perform actions that align with their roles, thereby reducing the risk of unauthorized access or manipulation.
Role-Based Access Control Management: An Intuitive Interface for Assigning and Managing Team Roles
Our platform also enforces Multi-Factor Authentication (MFA), an essential tool in verifying user identities and preventing unauthorized access. With MFA, even if a user's credentials are compromised, an attacker won't be able to gain access without the additional verification factor.
Game Admins setup MFA during the onboard process.
Multi-Signature Smart Wallets
Multi-signature Smart Wallets are a key component of our security architecture. These wallets require multiple signatories to approve transactions, adding an extra layer of security to the management of inventory and the signing of transactions.
During the onboarding process, Game Admins setup their hierarchical deterministic (HD) smart wallets. These wallets are used to store the game inventory and are used to sign transactions.
Inventory Loss
We understand that digital assets hold significant value, and the protection of these assets is paramount. Our comprehensive insurance coverage offers game companies the reassurance that their digital inventory is robustly protected. This fosters a secure environment that allows game developers to fully engage with our platform and services, knowing that their assets are well-guarded.
ISO 27001
In addition to this, we are proud to be ISO 27001 certified. This internationally recognized standard outlines the requirements for an Information Security Management System (ISMS) and is a testament to our commitment to maintaining the highest levels of security.
Audits
All our smart contracts have undergone rigorous auditing by reputable, independent third-party audit firms. These audits examine the safety and accuracy of our smart contracts, identifying any potential vulnerabilities and ensuring they operate as intended. This external validation further bolsters the trustworthiness of our platform, guaranteeing that our blockchain transactions and functionalities meet the highest standards of integrity and security.
IP Rights Management
We're keenly aware of the importance of intellectual property (IP) rights in the gaming industry, particularly where digital assets are gaining significant real-world value. To ensure these rights are effectively managed and protected, we've implemented a suite of IP rights management tools that are as effective as they are user-friendly.
License Agreements
Central to our IP rights management tools is our innovative license agreement creation feature. This tool simplifies the process of creating a license agreement: users simply complete a form, and our system uses their responses to generate a comprehensive license agreement. This streamlines what can otherwise be a costly process, making it accessible and manageable for all users.
Our tools help game companies to easily create license agreements. Simply fill out the form and we'll generate a comprehensive license agreement.
But we don't just simplify the creation of license agreements. Each agreement is securely tethered to tokenized in-game items through their metadata. This allows anyone to easily view the terms associated with a particular in-game asset, promoting transparency and clear understanding. Importantly, every version of a license agreement is meticulously recorded and verified on a blockchain, with saved hashes of the agreement providing verifiable authenticity.
Chain of Custody
Track the ownership history of in-game items with our chain of custody widget.
We also provide APIs and a user-friendly interface to view key terms from these agreements and "chain of custody" illustrations. This innovative feature provides users with a visual representation of the ownership history of their in-game items. By mapping out this chain of custody, users can easily view and understand the transfer and transaction history of their assets. This approach not only simplifies the process of tracking item ownership but also enhances the overall user experience by providing a clear and understandable visualization of their item's history.
BI Analytics
We understand the power of data in driving decision-making and strategy. In response to this, we've developed a suite of Business Intelligence (BI) analytics tools that seamlessly integrate web2 and web3 data, offering game studios a comprehensive overview of their in-game economy.
Turn data into action, harnessing the combined potential of web2 and web3 synthesized analytics.
For instance, you can track traditional gaming metrics like player engagement, retention, and monetization, alongside blockchain-specific data like transaction volumes, game item distributions, and smart contract interactions. This integration of disparate data sources offers a holistic view of your gaming operations, helping you identify trends, opportunities, and potential areas of improvement.
Our analytics tools are designed to be intuitive and user-friendly, allowing those with minimal technical expertise to extract valuable insights from data.
Fraud Protection & Compliance
We're committed to creating an environment where our users can interact with confidence, assured by the knowledge that we're taking every measure to protect their digital assets and personal information.
AML Compliance Tools
As part of this commitment, we've incorporated advanced anti-money laundering (AML) tools into our system to ensure the security of transactions and the prevention of illicit activities.
Leveraging the power of machine learning technology, our software is designed to detect and prevent fraudulent activities and identity theft. Our algorithms continuously learn and adapt to new patterns and tactics used in fraudulent activities, ensuring a high level of accuracy and efficiency in identifying potential threats.
In addition to fraud prevention, our software automatically screens for signs of money laundering and other forms of criminal activity. This feature monitors patterns and behaviors in transactions, identifying any suspicious activities that might indicate potential money laundering.
Fraud & Identity Theft Prevention
When a transaction attempt is made, our system evaluates a myriad of factors and behavioral patterns to assess the risk level associated with the transaction. Using advanced machine learning algorithms, our tools are constantly learning, adapting, and improving their ability to identify threats.
Make informed decisions with our fraud detection tools.
One significant advantage of our platform is its extensive reach across numerous games. This breadth of coverage enables us to identify fraudulent actors and prevent them from causing harm in multiple gaming environments. If a user engages in fraudulent activity in one game, our system can detect this and block them before they have the opportunity to disrupt another game. In this way, we're not only ensuring the safety and integrity of individual games, but also contributing to the overall health and security of the wider gaming community.
Community
Communities play a critical role in driving the success and vibrancy of any game. Therefore, we provide an array of tools aimed at fostering and enhancing community engagement.
Our suite of no-code tools allows players to easily launch their own community Decentralized Autonomous Organizations (DAOs). Leveraging the power of blockchain technology, these tools empower players to actively participate in shaping the future of their games.
Each guild formed can have its unique set of rules, objectives, and governance structures, allowing for a diverse and inclusive community landscape. Players have the freedom to join existing guilds or create their own, effectively promoting collaboration and teamwork within the gaming environment. These guilds can make decisions, implement changes, and take actions based on consensus or a governance model they choose.
Through community tools, games can foster a truly player-centric gaming experience, where communities are not just spectators, but active contributors to the gaming narrative.
Let’s Talk
Got a question? Reach us at hi@dcentral.me
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