Original article by Steven Ehrlich
Original translation: TechFlow
Crypto gaming has failed to live up to its massive market expectations, but now one of the space’s early pioneers is finding its financial footing in the challenging industry.
Animoca’s crypto gaming business is becoming increasingly profitable
Image source: Shutterstock
The crypto industry is once again enjoying a moment of glory. Bitcoin hit a new high, with the price reaching $111,814; Coinbase became the first crypto company to enter the SP 500 index; and more and more industry companies are planning to go public in this suddenly heated crypto market.
In this context, Hong Kong-based Web3 company Animoca Brands has also joined the ranks. The private market-traded company is involved in NFTs, crypto gaming, and an investment platform that includes more than 500 companies, including crypto exchange Kraken and Ethereum development studio ConsenSys.
Animoca was delisted from the Australian Stock Exchange in 2020 due to its links to the crypto industry, but had its moment during the pandemic when its valuation grew from $100 million to $5.9 billion. However, the company faded from public view during the crypto winter, the NFT market crash, and the subsequent meme coin craze. At the same time, the GameFi craze failed to attract widespread attention in the $180 billion global gaming market estimated by Oppenheimer, which also made the situation worse.
Despite this, Animoca has continued to forge ahead under the leadership of CEO Yat Siu, carving out a profitable business strategy for the company. According to unaudited financial data published on the companys website, Animoca achieved a profit of $97 million last year, an increase of 185% from 2023.
Today, the company is joining a host of global businesses in exploring more commercial ties with the U.S. market, helped by the Trump administration’s crypto-friendly stance, including plans for a possible listing on a prominent exchange such as Nasdaq or the New York Stock Exchange. “We think the U.S. is going to be the largest crypto market in the world, so it would be really stupid for us not to try to enter that market,” Siu said in an interview with Unchained. However, he also noted that a U.S. listing is just one of many opportunities the company is currently exploring.
What kind of market reaction will Animoca get? This will depend on whether GameFi and NFT can re-attract users and whether investors recognize Animocas narrative as a tool provider in the GameFi field.
Game Pause
While the global gaming industry is largely unaffected by the Trump administration’s specific tariffs, it remains highly dependent on the changing macroeconomic environment. “Overall, the industry is doing OK, but not nearly as well as it was during the pandemic,” said Martin Yang, a senior analyst at Oppenheimer Co. “We’ve experienced very strong growth over the past two years, but now the overall annual growth rate is probably only 3-6%.”
The situation in the mobile gaming market is even more worrying, which is where GameFi mainly exists. This may seem counterintuitive to outside observers, as the freemium model and relatively low costs of mobile games seem more resilient. However, this phenomenon reveals an important detail about the gaming industry and explains why crypto games are having a hard time gaining a foothold.
People used to think, Oh, either players dont pay at all or they only pay a little to play games, so they thought [the mobile gaming model] would be able to withstand a challenging macro environment, said Mike Hickey, senior analyst at The Benchmark Company, in an interview. But in fact, we found that the mobile gaming market was the most vulnerable a few years ago. He further pointed out that even many major independent mobile game studios, such as Zynga, have been acquired or faced layoffs.
How do these trends relate to the crypto industry? The data shows that GameFi is struggling, perhaps in part because its user base is much smaller than the overall gaming market. For example, in the case of Ethereum (the dominant blockchain in the space), key metrics such as transaction volume and number of users have dropped significantly, a trend that can be clearly seen in the chart below (the second chart needs to be read from right to left).
Animoca’s B2B strategy: Becoming the market engine for GameFi
It may seem surprising in the current market environment that Animoca was able to almost triple its profitability in a year, but that’s exactly what it has achieved. How did it do it? By becoming the primary liquidity engine, or market maker, for GameFi. Yat Siu realized that providing financial backend support to these companies would be more robust, safer, and potentially more profitable than launching more games in an already competitive market. “That’s the evolution of the business,” Siu says. “We know that a lot of smaller companies don’t have that kind of financial infrastructure or experience when launching games. We buy their tokens and provide capital markets support, like over-the-counter trading. It sounds very financial, but it’s really just an extension of what we call publishing.”
How does this affect its business? In 2023, the majority of the company’s revenue came from its Web3 operations, including wholly owned projects like virtual worlds, chess games, and online education platforms. However, from 2023 to 2024, a very active year for the crypto industry, that revenue fell 39.5%. But the company’s profits grew 185% year-over-year. How did it do that? Its digital asset advisory business grew 114%, which is where all the capital markets activity is.
Can this growth continue?
Delta-neutral strategies like market making can be profitable both inside and outside of the crypto industry, and data shows that Animoca has found product-market fit in this area where it has unique expertise. But investors need to be confident that the company can continue to expand this revenue line, especially as key GameFi metrics continue to be sluggish.
This question is difficult to answer. One data point that could provide a clue is the trading volume of GameFi tokens on decentralized exchanges (DEX). As the chart below shows, looking only at Ethereum-based tokens, the trend is similarly negative, although daily trading volumes are still in the hundreds of thousands of dollars. Other blockchains such as Polygon and BNB are also following the same trend.
This is important because DEX volume is a truer reflection of actual user demand for a particular token, while CEX volume is more skewed toward speculative purposes. It is unclear how much of this volume is being conducted by Animoca on behalf of its clients, which is a significant blind spot for investors.
Replenish
The optimistic interpretation of Animoca’s performance is that the company has found a way to operate profitably before the next GameFi wave arrives, assuming such a wave comes. In this regard, Yat Siu said that President Trump’s support for the crypto market is particularly important because the unfavorable regulatory environment in the United States has hindered major American gaming companies from entering the field.
“We work with large institutions and basically bring them into the crypto space,” he said. “There’s a certain comfort level with doing that [globally], but in the U.S. it can be more difficult to talk to [large gaming companies]. They do talk to us regularly and say, ‘Hey, the token is interesting, we should pay attention to it.’ But … when there’s not 100 percent clarity on the legality of something [the legality of the token], you can only rely on the lawyers’ estimates.” Siu hinted that such attempts might be rejected.
If, and it’s a big if, Siu and Animoca can get one of these big companies like EA Sports on board, it could solve another major problem with crypto gaming, which is that games lack entertainment and players don’t respond well to the over-financialization of the industry. “When you try to attach something to the normal gaming experience that’s just a monetization mechanic that doesn’t enhance the gaming experience, players are going to rebel against these corporate-led monetization strategies,” Hickey said.
