On Tuesday, March 21, CCP Games announced that it is developing a ‘new AAA game’ that will leverage blockchain technology.
With this announcement, a new site touting the project, codenamed ‘Awakening’, was launched with details of the investment and backer statements. We’ll return to that in a moment.
Additionally, CCP Games has registered new subdomains on the morning of the announcement, including crypto.ccpgames.com – though at the time of writing, no page has been published for that address, and there are no redirects in place.
This announcement and investment in blockchain should come as no surprise to followers of CCP Games, given the regular and periodic references that Hilmar Pétursson has been making to blockchain technology. Hilmar followed up the initial tweet with one of his own thanking investors for believing in his vision.
Some readers may be confused, as Hilmar’s past references to crypto have been that ‘there are no plans for EVE Online to implement blockchain technology, cryptocurrency, or NFTs anytime soon‘ – a statement which was published by several game and technology news sites less than 1 year ago. Hilmar even went as far as to say NFT stood for ‘Not For Tranquility’. For those who’ve been following Hilmar’s public activity, this seems belied by the fact that Hilmar has been publicly talking crypto since at least August of 2019 and, in truth, much earlier.
While blockchain technology can be used in development, or to add security to identity management – basically verifying people are who they say they are, or locking down the release of updates to a specific, canon, verifiable record – its greatest area of development is in the creation of cryptocurrency.
For readers who don’t understand the draw of cryptocurrency, or just crypto, it allows for the creation of a limited capacity and verifiable currency upon which to trade.
For those without an economics degree or a lot of research time, the blockchain allows the provenance of a specific coin to be pinned to a specific person, place, time, and/or method. Imagine if you had a record for exactly when and where every nickel and dime in your pocket was minted, and could prove it.
Another way to think of it is to compare how crypto works, versus a physical currency; let’s use the US dollar as an example. Up until 1933, whenever the United States wanted to print money, the Treasury had to make sure there was a commensurate value in gold in the Federal Reserve – locations like Fort Knox – before they could print. This was called the ‘Gold Standard‘. It was a way to insure that, if the value of that paper dollar was ever called into question, it could be backed up by something physical that had a quantifiable international value.
The blockchain is to cryptocurrency what solid gold is to paper money.
Only, in cryptocurrency the two are inseparable; the process of making crypto is indelibly codified in the blockchain. The blockchain is both assurance and record. There will only ever be ~21 million Bitcoin. No more will be minted once the blockchain is exhausted. It’s rarity (or known quantity) raises its value against currencies that don’t have that assurance, and that value increases over time.
The US stopped using the Gold Standard first in 1933, and then again in 1971, under President Nixon, and the US has never gone back. The US prints money whenever they need it; the only thing keeping the world’s strongest currency afloat is confidence in the economy of the United States, and the number of economies in the world intrinsically dependent on the value of the US Dollar.
The Risks of Crypto
Video game companies that can incorporate crypto into their business models have the potential to establish a lasting and valuable currency to trade upon, in addition to general revenue and – if traded publicly – the value of their shares.
This is a mighty big ‘IF’, and doubly so if you consider the massive losses and controversies in cryptocurrency from just the last five years. Bitcoin, which serves as the high water mark for cryptocurrency valuations, has dropped massively at least once a year since 2015. On May 19, 2019, it experienced a single day drop so big it hurt the global market capitalization of cryptocurrency to the tune of $1 Trillion USD. The crypto markets didn’t begin to stabilize until June 20 of the same year.
One year later, in June of 2020, more than $200 Billion Dollars of value was erased from the entire crypto market in one day.
Furthermore, because of how cryptocurrencies are stored and traded, there have been enormously embarrassing losses because of lost passwords (Stefan Thomas [$200M], Mark Frauenfelder [$30K], and more [$140B]), thefts (~600 heists, $3 Bn stolen in 2022, and $1.9 Bn stolen in 2020-2021), and crypto exchange closures; in 2020, 75 crypto exchanges had shut their doors by October. It should be noted that there is currently no public resource officially tracking the closure of exchanges, but the particularly notable failure of FTX stands out as a cautionary tale.
With the recent failure at Silicon Valley Bank [svb] and subsequent takeover of Signature Bank by the Federal Deposit Insurance Corporation (FDIC) earlier this month, those investing in crypto are becoming more worried about liquidity. Signature Bank was notably heavily invested in crypto markets and this – at least in part – contributed to the bank’s liquidity crisis in the first week of March this year.
For a cryptocurrency to be successful, it must be available to buy, it must be liquid (able to be sold), and it must be widely adopted. Once success has been reached, maintained success depends on security, safe transaction, and a paranoid fortress position from which to guarantee the continued use and trade. So while cryptocurrencies in theory stand as a potentially more secure and verifiable value stream, in practice they are an extrinsic gamble as great as betting on horses and investing all your money on the chance of a trifecta.
Why? Because even crypto is subject to the confidence of the market, and as has been demonstrated time and again, that value can plummet to almost nothing – or even a negative position – overnight.
Investment & Embarrassment
Returning to the topic at hand (Project Awakening), CCP’s new blockchain-linked game title, there are some worrying statements and contradictions embedded in the news releases about this new venture.
The project website lists Andreessen Horowitz (a16z) as the primary financier of the project’s $40M development budget, with additional partners listed. It’s these additional partners that raise eyebrows for those familiar with investment in game development and international finance.
This financing was led by Andreessen Horowitz (a16z), with participation from Makers Fund, BITKRAFT, Kingsway Capital, HASHED, Nexon, and additional participants
Andreessen Horowitz – AH Capital Management LLC – also known as a16z, is a private venture capital firm that invests in both early-stage startups and growth companies; investment areas include cryptocurrency and gaming, among others. Based in Menlo Park, California, some of their early investments include Twitter, Skype (later sold to Microsoft), Okta, Tanium, Stack Exchange, Smartcar, Pindrop and Roblox.
They were also a large and early investor in Y-Combinator, which was recently affected by the liquidity crisis at [svb] and is now calling on Congress to act on the collapse. Is is unknown what the impact to a16z has been from the collapse of [svb].
As of 2022, Andreessen Horowitz purportedly manages $28.2 Billion USD in assets, and in 2020 Anthony Albanese – former Chief Regulatory Officer of the New York Stock Exchange – joined their crypto team as Managing Partner and COO of a16z crypto. Chris Dixon, venture capitalist and Web 1.0 investor, is a senior partner at a16z and also sits on the board of Coinbase. This makes Andreessen Horowitz, and a16z crypto, ideally positioned to help fund Project Awakening. In fact, they could finance it entirely in-house.
A Curious Situation
This raises the question as to why CCP or a16z crypto would need additional partners for this deal; and, also, why did CCP games have to go outside of parent Pearl Abyss for funding?
While it’s fiscally responsible to distribute the burden of an investment in a startup, or to sell the investment as an opportunity for buy-in (likely a16z was mitigating risk here by doing both), those partners include direct competitors to CCP hf’s parent company. Among investing partners is Nexon, a Japanese-South Korean video game publisher and one of the N3 Korea game studios. The N3 represent South Korea’s 3 largest video game publishers; Nexon, NCSoft, and Netmarble; all of whom are competitors to Pearl Abyss.
Potentially embarrassing, for sure, but that’s just business. What is more embarrassing, perhaps, are the unintentional divulgences being made in press releases and project investor testimonials.
Maker’s Fund Principal and ex-CCP Aðalsteinn “Alli” Óttarsson offered the following,
“The depth and nuances of EVE have become a frequent point of reference in blockchain gaming and we are therefore thrilled to support the team’s impressive vision of expanding the EVE Universe utilizing this technology. As a former employee, it’s a great personal joy to be reunited with CCP and to witness their continued passion for creating truly meaningful virtual worlds.”
It’s the frequent point of reference in blockchain gaming part that has the writers of Imperium News wondering who, other than Hilmar, has been talking about blockchain and EVE. Several of the investors in the project appear to have close ties to CCP, either as former employees or as friends and acquaintances of Hilmar.
Óttarsson was previously at Riot Games after leaving CCP, as was a16z General Partner Jonathan Lai, who gave a testimonial for the project launch site. In fact, many former CCP staff found new homes at Riot Games. It seems close conversation with Hilmar has also bred some comfort in talking about Project Awakening, as there have been some bold revelations made in recent releases.
More Than Meets the Eye, Perhaps?
A16z, in a recent blog post about Investing in CCP Games, shared the following,
“The CCP team is uniquely qualified for this endeavor. Over the last year, we’ve spent a lot of time with CEO Hilmar Pétursson and came away impressed with his thoughtful approach…
“To lead this new title, he has assembled an independent team of world-class experts from CCP including director Sæmundur Hermannsson. Through many meetings, late-night conversations and meals , we’ve gotten to know the CCP team well, and even celebrated as one with the player community at EVE Fanfest in Reykjavik. The team has already made great progress in product development and we’ve been very impressed by the playtests thus far.“
The relevant disclosures in the above tell us two things pretty concretely: first, that Sæmundur Hermannsson – AKA recent EVE Online Brand Director CCP Goodfella – will be leading the project as Game Director and, second, that while Hilmar was telling reporters there would be no blockchain or cryptocurrency development before Fanfest in April of last year, in actual fact financing and active development for this was already underway.
Further, there was enough of it prepared to present gameplay demos, and playtests have been shown to investors. If you know anything at all about how the sausage gets made at video game studios, you know the process of getting to a playable alpha can take years. This then requires the question, “How long has CCP been developing this?”
If development has been ongoing for this long, it puts the need for Hilmar to secure external financing in new light. Based on all public reports, CCP has had a team led by Goodfella working on this for some time. This means that existing CCP resources have been engaged in an EVE-related property during regular business, a project effort which must have been footed at Pearl Abyss’ expense.
When Korean game studio Pearl Abyss acquired Iceland based CCP hf, or CCP Games, in September 2018 they paid more than $400 Million for the company and its assets. Five years on, EVE Online is celebrating its twenty-year anniversary, and CCP currently has several other EVE-related titles in active or stalled development, including at least one mobile game and a new shooter.
Much of the last five years in EVE development seems to have been focused on housekeeping, as well as building scalability and resilience into EVE for the next decade. The teams at CCP have done a lot of work removing old dependencies and packages, cleaning up the code base, removing legacy code, reducing the need for – and duration of – maintenance windows / downtime, and building new systems. There have been numerous quality of life improvements, further iteration on UX/UI, and new game modes.
That said, FanFest 2022 felt hollow.
Last year’s FanFest was the first in-person gathering in Iceland since the start of the Coronavirus Pandemic hit the global stage in February of 2020. CCP was, like many IT companies, able to rapidly shift to remote work. They did not experience mass layoffs, nor did they significantly see a disruption to their dev cycles when people were working; it was pretty much business as usual, just from home. And yet, when they came to the stage in 2022 they had surprisingly little significant development to show for it.
A lot of the showcased features from last year’s FanFest were not, as many felt, a representative showing for nearly three years of not having a keynote address or any sort of roadmap for the future. Even to those unfamiliar with game development, the amount of juice for CCP’s squeeze seemed fairly meagre on the main stage
Key points included were:
- A market API for Microsoft Excel (better community tools exist)
- A Faction Warfare rework to add dynamics to contesting territory
- (Yet ever more) New Player Experience redevelopment
- New arrival / departure animations for stations
- This is actually pretty neat
- The art team always does great work
- New Corp Tools and Taxes
- Heraldry and Cosmetic Rewards
A Plausible Explanation?
Is it possible that development focus for EVE was light because team members were otherwise allocated to new development for project awakening and supportive crypto dependencies?
The latter new feature, Heraldry, is described as such:
These cosmetic rewards can be bought with a new untradeable currency called “Interbus Credits” that must be earned in-game. They function like untradeable loyalty points and will be earned by just playing the game and completing small challenges in everything from mining and mission-running to PvP.Brendan Drain, MassivelyOP.com
These Interbus Credits are a play-to-earn system, and represent a model of trading player effort for a non-tradeable currency players can use to purchase untradeable art assets. It’s worth noting that EVE Online already had a non-tradeable currency that rewarded player effort: Loyalty Points. Why EVE Online needed another seems tied to the new Heraldry system. Even before FanFest, players engaged in the Alliance Tournament 17 (ATXVII) would receive Non-Fungible Tokens, or NFTs (another type of crypto) of their kill-mails as part of successful kills during the tournament.
This seems strongly aligned with wording from Pearl Abyss’ Q3 2021 earnings call, where they expressed a directive to investigate opportunities in introducing cryptocurrency and NFTs to EVE Online and Black Desert Online.
Understanding the cost of development and recent massive risks evident in the crypto market, as outlined in sections above, is it logically consistent to suggest that following the FTX collapse, Pearl Abyss expressed strong reservations about continued crypto development and suggested that Hilmar should seek outside funding to continue the project? Even if that funding comes from their competitors?
Feet First: Competitive Pressures
The development of Project Awakening, at the surface, appears to follow predictably from a number of points of evidence over the last decade where Hilmar and CCP have pushed the idea that EVE is work, “EVE Online is Real” and somehow they should be able to monetize that.
There is at least superficial and/or circumstantial (anecdotal) evidence that this statement holds some amount of water. People have used EVE Online, or the skills they’ve learned from other players and developed in the game, to land real jobs, meaningful advancement, and break off into entrepreneurship.
One of the most notable examples is lockefox of the EVE Prosper YouTube channel, who turned his market analysis hobby from EVE into a data science role; he now works in internal tools development.
This writer also has anecdotal examples from personal experience of how EVE has helped with career progression.
However, this evidence is still a tenuous cats cradle of testimony on which to base a business model or a novel revenue stream.
To Anticipate The Future, Look To The Past
Unfortunately, the development of Project Awakening also seems to follow the precedent of prior CCP Games developments and – until evidenced otherwise – their trajectory. The truth is that Hilmar Pétursson has an established history of jumping feet first after novel technologies and dragging CCP hf in his wake, or driving it before him like the cart before the proverbial horse.
Consider the following failed or failing development ghosts of CCP past:
- Vampire the Masquerade and buying Atlanta-based White Wolf Games
- Dust 514 first-person shooter for Sony (ended up on PS3, due to raw deal)
- Project Nova, a second FPS-based shooter that has gone back to drawing board at least once (that we know of) and is the basis for CCP London’s ongoing Project Legion
- The collection of Virtual Reality games — full stop
It can even be argued that the success of EVE: Echoes is largely attributable to it being a mobile game (bigger market) and to not being a CCP-led project.
Will Project Awakening suffer from the same pattern as Hilmar’s passion projects that have come before it? Well, it’s entirely possible that this project will be an undeniable commercial success. That is something CCP has never actually achieved, and EVE Online – their longest standing IP at 20 years – is maybe AA at best. Not the touted AAA that Project Awakening is slated to be.
The competitive pressures are not insignificant.
Market Pressures Are Not The Only Hurdle
Beyond the risks posed inherently in crypto (market drop, theft, loss, etc), there is also the threat of government regulation, prohibitive legislation, and the challenges of attribution – financial data is transacted at a higher level of scrutiny than normal game user data. Would giving players cryptocurrency vestments require CCP to keep user data that would contravene GDPR?
There are also jurisdictions which have outright banned cryptocurrency and blockchain development at the national level. These countries include China, Egypt, Iraq, Qatar, Oman, Bangladesh, and Bolivia. While several of these may have less than palatable human rights records and may be banning crypto precisely because it side-skates their national currencies, the truth is that any nation can ban crypto.
Additional threat comes from the pressures of simple competition. CCP is not the only mature, senior development studio pursuing crypto.
All of the AAA studios have considered or are examining blockchain; several may be using it already. CCP and Pearl Abyss simply don’t have the bench or the wallet to compete with the likes of Electronic Arts or Ubisoft. Their only hope is on patenting independent, novel ideation in the space; and, by design you can’t patent a process, which is exactly what blockchain necessarily is (by definition).
Also, consider CCP’s past challenges developing formative roadmaps and delivering on major milestones within their flagship product (EVE); CCP has lost years of development and even more opportunity cost when a key developer or project lead died or left for greener pastures. An organized, agile, and hungry start-up could outpace CCP’s historical performance with a quarter of the funding that CCP has just received from a16z and others.
Power Plays & Predictions
There is the very real possibility that Project Awakening will fare better than Project Nova and other past “codename” projects from CCP. There is also the distinct possibility that this project’s platform is just large enough now to propel it to prominence.
Power plays that CCP can attempt are to develop systems that do not rely upon turning blockchain into a revenue stream, but making blockchain an integral and required component for security, which increases the value and positioning of new and existing IP. Meaning: if it makes what they already have intrinsically more valuable, it’s good.
Another would be to establish a protocol or a technology that leverages blockchain and makes the use of their protocol so valuable that they can license it to other studios to improve their products. In other words, “It’s not crypto, but it makes crypto make sense as the only thing to use. So license it from us, since we’ve already done the work of creating it for you.”
An example of the above would be version control software; Git isn’t the only version control software around, but it’s so good that it’s become the de facto choice for developers at all scales. Competing against Git and GitHub is hard – not impossible, but not easy until someone makes something better.
This is perhaps what CCP had in mind when they said,
With key game systems developed on-chain, this new project will also leverage smart-contract blockchain technology, focusing on persistence, composability and truly open third-party development to create a new relationship between virtual worlds and players.projectawakening.io
It’s too soon to tell.
Walking Along A Knife-Edge?
If Pearl Abyss was the instigator for outside funding, it is worth considering what the consequences may be if this venture is a commercial flop or a net loss. What do Hilmar and CCP stand to lose if they’re trading on their name?
Based on the current trajectory and pace of crypto gaming developments, it’s likely only a matter of time before crypto becomes as ubiquitous as microtransactions. However, as with microtransactions, the execution sets the tone. EA has been an obvious exemplar of both very good and very bad execution on microtransactions.
It is also likely that CCP Games will at some point attempt to implement some of the successful revenue strategies of their competitors, as they have done in the past. Expect the words battle pass soon in a game near you.
This writer cautions that if CCP is setting down this path they had better consider their investors as awkward bedfellows and not as allies. All venture capital firms operate on the need to demonstrate returns. Period. When returns aren’t forthcoming, or growth is not assured, they will leverage what they have – leverage is the name of the game – and we don’t know what Hilmar offered up as collateral. One wrong move and the entire house could come crumbling down.