The Roblox IPO Filing & Crypto Sandboxes

“Some refer to our category as the metaverse, a term often used to describe the concept of persistent, shared, 3D virtual spaces in a virtual universe. The idea of a metaverse has been written about by futurists and science fiction authors for over 30 years. With the advent of increasingly powerful consumer computing devices, cloud computing, and high bandwidth internet connections, the concept of the metaverse is materializing.” — Roblox S-1 Filing

Late last week, Roblox’s IPO announcement marked the first S-1 filing to really detail the vision for the Metaverse. (The Red Cat Holdings S-1 briefly mentioned it back in 2017). For those of you that don’t know, Roblox is a multiplayer sandbox game with over 30 million daily active users. For the uninitiated, sandbox games are defined as:

A video game with a gameplay element that gives the player a great degree of creativity to complete tasks towards a goal within the game, if such a goal exists. Some games exist as pure sandbox games with no objectives. Sandbox games are often associated with open world concepts which gives the player freedom of movement and progression in the game’s world. The “sandbox” term derives from the nature of a sandbox that lets children create nearly anything they want within it. 

Roblox focuses on providing its players with the tools to build and monetize worlds of their own, typically referred to as user-generated content (UGC). After almost 10 years of slow growth, the game has exploded in the back half of this decade and is now one of the most popular in the world boasting well over 150M monthly active users. The game operates across PC, Mac, iOS, Android, Console, and certain Virtual Reality devices servicing a huge variety of access points and a wide player spectrum. 

Source: Matthew Ball

The game is on track to pay out well in excess of $250M to its mostly young-adult creators in 2020, having booked $1.24 billion in sales for the first 9 months of the year. The payouts from UGC built on the platform is rewarded proportionally to the amount of time people spend in a given world.

Whilst it’s awesome to see the company paying out almost 17% of their total bookings from the last 12 months to creators on the platform, note how top-heavy this distribution is. The leading ~0.03% of creators captured almost 40% of total payouts. If only there were more granular monetization mechanisms available to creators out there… perhaps it would expand the creator population?

Source: Roblox S-1 Filing

It seems that rewarding players with a portion of the value they create is a winning strategy. As demonstrated in the figures above, there are over 8.5 million user-generated experiences across the platform—substantially more than any developer could hope to build alone. Game-to-player value flows sound eerily similar to those blockchain games I keep banging on about… I touched upon the suitability of blockchain for Crypto Sandboxes in an NFT report earlier this year. 

Crucially, these crypto sandboxes exhibit significantly more elegant monetization mechanisms whereby players can directly trade in-world goods and creations on global exchanges. For Roblox developers, they are paid out in Robux relative to how much time players spend in their worlds. For content creators in crypto sandboxes, there are many options available for being rewarded for your time and effort such as developing virtual real estate, designing voxel models, or trading limited-edition goods across worlds. Interestingly, one of the key risk factors listed in the Roblox S-1 filing was platform risk through the Google Play Store and the Apple App Store:

“For the nine months ended September 30, 2020, 34% of our revenue was attributable to Robux sales through the Apple App Store and 18% of our revenue was attributable to Robux sales through the Google Play Store … Because of the significant use of our platform on mobile devices, our application must remain interoperable with these and other popular mobile app stores and platforms, and related hardware. Further, we are subject to the standard policies and terms of service of these operating systems, as well as policies and terms of service of the various application stores that make our application and experiences available to our developers, creators, and users. These policies and terms of service govern the availability, promotion, distribution, content, and operation generally of applications and experiences on such operating systems and stores. As a result, we may not successfully cultivate relationships with key industry participants or develop products that operate effectively with these technologies, systems, networks, regulations, or standards.”

Whilst there are certainly many unique value propositions of crypto sandboxes, we still have a long way to go. Various UX frictions and scaling restraints will continue to hold these worlds back until solved. Just for fun, below I’ve shown the aggregate all-time sales (both primary and secondary) for the leading 4 crypto sandboxes vs just 9 months of Roblox sales this year.

Source: Nonfungible.com, Roblox

At first it might look daunting, but there are two sides to every coin and we could equally view this disparity as exemplifying the staggering scale of the opportunity before us. These crypto-infused creator-driven games are unlocking fundamentally new tools alongside native economic rails to support them.

Source: Nonfungible.com

Decentraland has historically dominated amongst these worlds, thought it now seems that other games are gradually closing the gap as evidenced by the year-to-date sales shown below.

Source: Nonfungible.com

Source: Nonfungible.com

Source: Nonfungible.com

Source: Nonfungible.com

As we can see, appetite for blockchain-based virtual worlds appears to be strongly correlated across major peers. The year-to-date sales for 3 of the top 4 (excluding Decentraland) all hover near $2.5 million. What might serve as a meaningful differentiator that could drive a divergence? 

Interestingly, many of them either are (Somnium Space) or have (Cryptovoxels, Decentraland) rolled out browser-based gameplay which inches them closer to hardware agnosticism. One potential differentiator I’m interested in tracking is whoever properly cracks mobile support first as it’s clear that it dominates platform share for Roblox (72%) and other large sandbox games.

Both Cryptovoxels and Somnium Space support virtual reality, deepening immersion. If compelling experiences that really take advantage of this component are created, we could see this emerge as a meaningful differentiator between them and other crypto sandboxes. For now however, it’s not clear this is the case.

Looking a bit closer to home with the toolsets uniquely available to crypto sandboxes, who will be the first to truly take advantage of novel token mechanics? Of the words currently available, just two have a native token—Decentraland (MANA) and The Sandbox (SAND). MANA, whilst much older and boasting almost 50K unique addresses, is effectively just a medium of exchange token for the ecosystem to allow users to buy LAND and other assets. More recently, The Sandbox team have tried to weave additional functionality into their SAND token such as staking and governance. Time will tell how effective their implementations are at bootstrapping adoption, spurring investor interest, and increasing user retention.

For many games with a land component, speculators buy up prime virtual real estate hoping to flip them for a profit and never actually build anything on them. As a result, we see “dead parcels” ruining the feel of otherwise vibrant neighbourhoods. One interesting example games with a native token could explore is the concept of a dynamic map, whereby your parcel’s proximity to the centre is determined by your plot’s collateralization. At regular intervals the map could “reset” based upon who is effectively staking the most to be nearest the central spawn point. The result would be a high density of the most developed plots built by the most committed creators, improving continuity of the experience and overall immersion.

I’m bullish on crypto sandboxes due to their strong compatibility with deep blockchain integrations—almost any aspect of the world can be tokenized, built upon, and traded. What’s more, breakout successes in the traditional video game industry have demonstrated that sandboxes are a winning formula. I believe that accentuating the natural desire to create with strong incentive systems throughout virtual worlds will result in some colossal wins in the years ahead. I’ll be monitoring the leading crypto sandboxes closely to see how one might start to break away from the others and capture a larger portion of the crypto sandbox market, and beyond.

The latest sandbox that’s worth watching is Blankos Block Party from Mythical Games, using the EOS dGoods standard on a private EOS implementation. Whilst it appears to be isolated from the rest of the crypto game ecosystem, it looks to have solid mainstream appeal and has done a great job at abstracting away the blockchain component. As the project moves out of beta in the coming months, we should be provided with enough data to draw useful comparisons with the other contenders.

The Roblox IPO is a landmark event, and represents perhaps the first pure, public Metaverse play. As I’ve mentioned in a previous daily, Epic Games’ most recent raise was over a $17 billion valuation. Once RBLX goes public, that number may well turn out to look low…

“In our vision, metaverse platforms will connect people from different life experiences with new and interesting ideas. We believe these connections will help build empathy by safely immersing people in different perspectives, where they will hear diverse viewpoints. And someday, as the metaverse supports a broader range of positive educational and social experiences, we hope this can expand opportunities for all people around the world.” — Roblox S-1 Filing