Dec 16, 2021 - 3 hours read

DeFi Kingdoms is the greatest project you’ve never heard of

Hans HODL 17k

Via Medium

It’s pretty rare that I get juiced up about a new crypto project. I got excited about Bitcoin and Ethereum back in 2015 after a friend of mine who was a senior software engineer broke down what it…

It’s pretty rare that I get juiced up about a new crypto project. I got excited about Bitcoin and Ethereum back in 2015 after a friend of mine who was a senior software engineer broke down what it all meant and a lightbulb suddenly lit up. That changed the direction of my career and my life, it was huge.

For the first time since 2015 I feel that same energy again surrounding the project DeFi Kingdoms (DFK). This article is to explain what I’ve learned over the last six years in crypto and why I think DFK is the best play in crypto right now.

Since diving into the crypto space I’ve learned so much and I am grateful to the community members who helped me along the way. I wouldn’t be where I am today without the writings of Dan Held, Nic Carter, Vitalik Buterin and Andreas Antonopoulos. I owe Satoshi a great debt of gratitude. But innovation does not stop, and there are new opportunities today that simply didn’t exist in the past.

In case you’re wondering, I’m still bullish on BTC and ETH. This article is not about why those projects are old, outdated, bad investments, or anything like that. It’s about the fact that the crypto universe is expanding at an exponential pace and some exciting things are emerging that present incredible opportunity now.

Enter DeFi Kingdoms, a project in the emerging GameFi space. In case you’re scratching your head on the “GameFi” lingo, check out the article I recently wrote on the topic which is linked below.

In brief, GameFi is the intersection of the Metaverse, DeFi and NFTs. It’s an emerging ecosystem where the players own the ecosystem itself. It’s about NFTs that actually do something as opposed to those JPEGs of monkeys that sell for millions and have no actual purpose other than flexing on other crypto degens. It’s about decentralized finance as a part of a world where you also enjoy spending time. It’s about the metaverse outside of the Facebook walled garden where geographic borders fade away and even the economically disadvantaged can benefit through scholarship programs.

TAM

But let’s back up for a minute and talk about some numbers. My day job is working at a hedge fund as some of you might know. And one thing we often discuss there is the total addressable market of a project. First we identify the sector and then we look at the numbers. For comparable sectors we need to talk about crypto at large, DeFi, Metaverse/GameFi, NFTs and traditional games and game studios.

  • The total crypto market cap today is over $2.3t
  • DeFi as a sub-sector is $249b
  • NFTs represent $50b
  • Leading blockchain game Axie Infinity is probably worth $10b all in
  • The two tiny dots you see in the bottom right of this chart represent the current market value of DFK all-in by market capitalization of Jewel (DFK’s native token — $432mm) and TVL in the protocol ($280mm)
The two tiny dots in the bottom right represent DFK’s market capitalization and TVL today (room to grow)

Executive Overview

“That’s great,” you’re probably thinking. “But why should we expect this project to take off and grab a bigger piece of the pie?”

Great question. Here’s why.

  1. DFK is properly positioned at the forefront of an emerging mega-trend; The metaverse.
  2. To date there has not been a blockchain game that is both highly successful and achieved mass adoption while operating across multiple blockchains. There is a vacancy here worth many billions that begs occupation.
  3. The market has become oversaturated with DeFi projects with no ostensible function outside of liquidity farming for ever diminishing rewards.
  4. Too many metaverse games are in the works that are already sitting on billion of dollars and have yet to produce anything (where do we go from here?).
  5. Points three and four lead us to the inexorable conclusion that there’s way too much liquidity right now looking for a home and not enough good places to park that liquidity.
  6. DFK has introduced NFT functionality that’s a first in the space and broadened the definition of what an NFT even is.
  7. The team is delivering and has great communication with the community.
  8. The roadmap is massively ambitious with plans for kingdom warfare and PvP guilds facing off across blockchains.
  9. Token economics are brilliantly planned and executed with the help of former Goldman Sachs VP DreamerDFK.
  10. Every major game is totally broken right now and DFK has the solution.

Let’s go through these points one at a time. I think if you stick around until the end of this article you might just end up falling down the rabbit hole like I have.

The metaverse mega-trend

Right now there is a literal frenzy to get dollars into the metaverse. I’ve never see anything like it. A few months ago I started watching this space in earnest and doing as much research as I could possibly fit into a day.

Then came the Facebook announcement that they’re changing their name to “Meta” to focus on the metaverse. Last month, over $8b was crammed into the space (crypto and metaverse, mostly metaverse) from VC raises and new capital formation. To put that in context, the total that went into VC globally last month was $54b. Paying attention yet?

The throne is empty

Right now if you do a quick search for metaverse games you’ll probably stumble on Axie Infinity. Axie is not a new project, but they did get very popular recently when they launched their own side-chain in order to make their game playable in the high-fee ($20-$400 per transaction) Ethereum ecosystem.

But the big news was that their scholarship program suddenly started providing a living wage for Filipinos living below the poverty line. This was new and interesting. However, the party has been slowly winding down as the price of SLP has tumbled over the last few months by over 90%.

Source: https://ftx.com/intl/trade/SLP-PERP

Additionally, the entire Axie ecosystem operates completely on the Ronin Side-chain. If SLP price continues to fall, the utility of the entire ecosystem could be in question.

DeFi degens and the endless yield treadmill

Decentralized finance has rocked the traditional finance space with unfathomably high yields in a world with the majority of global debt now producing a negative real yield.

But there’s exhaustion in the air and many have had the rug pulled out from under them. Nevertheless, DeFi is here to stay and even after some massive drawdowns many protocols are still sitting on billions of dollars locked up.

Wouldn’t it be great if there could be more to this than just chasing LP rewards for those worthless governance tokens?

Metaverse liquidity hangover

I’m not going to tell you that some of these projects sitting on war chests are probably overfunded because the reality is we can thank the Federal Reserve and our clown show political system for creating trillions with no plan on how to unwind the mess they’ve created.

Source: https://fred.stlouisfed.org/series/WALCL

So godspeed to these projects that have soaked up this liquidity. I wish you the best, but remember that no amount of money can force people to play your game; it has to be fun and it needs an organic community if it’s going to work in the long-run.

Where will the money go?

Eventually it’s going to become apparent that the market is demanding something new. What the market wants — what we all want is something organic, interesting, unique, and just plain different. This is where DFK comes in with a bang, having raised $0 VC dollars but brandishing a very loyal community.

Another way that DFK stands out among its peers (if indeed it has any) is with its unique, retro pixel art style.

Source: https://game.defikingdoms.com/#/

Innovation we didn’t know we needed

At this point I want to start digging into how DFK has been innovating. Instead of buying an NFT because of “NGU Technology” (number go up) NFTs inside DeFi Kingdoms have real utility. Let’s take a look at the first class of NFTs, the heroes!

Source: https://game.defikingdoms.com/#/tavern

What you’re seeing in this picture is a snapshot of the tavern, where you can buy, sell or even rent heroes. Each hero is unique with his/her own DNA that comes right from the blockchain. Heroes have the following properties.

  • A primary and secondary class
  • A generation and a current level of experience
  • A number of summons (the ability to create more heroes)
  • HP/MP/Stamina and a rarity from common to mythic
  • Eight stats (one or two with bonuses) and four professions (one specialty)
  • A lineage you can view on the Harmony blockchain

And again, this is all well and good but other games have heroes too. The difference with DFK heroes is the massive amount of utility that they have now and that they will have on the roadmap.

For example, if you own a hero here are some things you can do right now.

  1. Go on profession quests and earn skill points (fishing or foraging)
  2. Collect items which are another form of currency
  3. Use heroes to summon other heroes
  4. Rent your heroes out to other players
  5. Sell or trade your heroes
  6. Level up your experience points to increase your stats and stamina

And coming soon you’ll be able to:

  • Mine with your heroes which will unlock Jewel rewards
  • Send your heroes to the garden to increase your farming rewards
  • Equip your heroes with other NFTs
  • Hatch pets to buff your heroes
  • Engage in PvP battles
  • Join a guild
  • And eventually take on more difficult quests to earn even more powerful rewards and items

I could go on and on about the depth of utility that some of these in-game currencies and NFTs have because there’s already so much to talk about. But for the sake of brevity I’ll stop here. Just know that this is only the tip of the iceberg.

The only thing that matters is the team

By the way, I want to stop here and give credit to GodofCoins, Anesem and Satsdart from DFKDAO who were incredibly patient with me when they explained this game to me in depth. In fact, if they do read this they are probably chuckling because they were the ones that originally put together some of these concepts and phrased them as they are written in this article. Kudos to you guys for your far-reaching insights.

But back to the topic at hand, the team matters a lot. Without a good team there’s no way in hell you’re going to build a good community. And without a good community and a good team good luck trying to have a successful game in the long-term.

So what is a good team? In the case of DFK I personally feel like communication, the ability to deliver (as a former dev myself I’m really impressed), the fact that they laid out in detail an exhaustive roadmap and did exactly what they said they would do are all evidence that suggest the team is top-notch.

Speaking of the roadmap, get a load of this thing.

Source: DFK Discord

DFK originally launched on the Harmony blockchain. The token that is core to their game is called Jewel. Jewel can be staked in the bank and a portion of every Jewel transaction is used to increase the value of xJewel which is what stakers hold. xJewel is the governance token that also provides juicy drops from time to time, such as land, equipment, or other rewards.

The first expansion is coming in Q1 of 2022. This will extend DFK to the Avalanche (AVAX) blockchain. Now keep in mind AVAX is an order of magnitude larger than Harmony (ONE). So when this happens we could see a massive inflow of new users. But if you’re concerned that this new launch will dilute the value of Jewel you’d be totally wrong.

When the game launches on AVAX there will be a new token (Crystal) with a reward schedule that will probably look like the Jewel reward system. But the twist is that Crystal will be rewarded to current Jewel holders. So all the Jewel that’s going to be on AVAX will have to be literally bridged over from Harmony chain. In other words, the supply will stay fixed at 500 million tokens. So if 10x new users show up, and the supply of Jewel stays constant we’re looking at a completely inelastic supply meeting a massive surge in demand; bullish economics 101.

Speaking of the Jewel reward system, the developers built in a clever mechanism that ensures that long-term holders, early adopters and enthusiasts will be the most heavily rewarded and incentivized. Take a look at this next chart which shows the unlock schedule of LP rewards in DFK.

Source: https://docs.defikingdoms.com/how-defi-kingdoms-works/the-gardens

What you’ll notice is that early adopters gain the most rewards, but those rewards start off mostly locked up. Over time, total rewards are lower but the mix shifts towards mostly unlocked. The schedule of locked and unlocked Jewel is stated below by Epoch (a number of blocks that usually take about one week to be mined on the Harmony chain, although some epochs are longer).

Source: https://docs.defikingdoms.com/how-defi-kingdoms-works/the-gardens

Looking at this schedule probably makes you want to be able to travel back in time to capture the 256x multiplier days, doesn’t it? In case you’re wondering we’re in epoch 14 right now. But never fear, because I believe that we will have a second chance to take part in this process with the launch of Crystalvale (the Avalanche expansion).

Source: https://miro.medium.com/max/1400/0*ARusaL56kP4fNHRr

One other thing we should touch on are the mechanics of the gardens and the bank because it illustrates how much thought have gone into the token economics of this game.

In the image below you are seeing the DFK gardens, which are where you plant your seeds to earn rewards in much the same way (actually the code for this was forked) as it works with UniswapV2.

Source: https://game.defikingdoms.com/#/gardens

Rewards for adding liquidity to these pools are very high right now, like over 800% APR. But in order to incentivize long-term thinking, reduce the likelihood of flash loan attacks, and encourage active participation the following mechanisms have been put into place.

First, there’s a steep penalty (25% slashing fee) for depositing and withdrawing in the same block. Second, withdrawal fees go from 8% for one hour down to 0.01% after about a month. Third, locked jewel rewards which currently account for 31% of all rewards will not be available until perhaps July of 2022 (depends on the average block speed of Harmony) at which point all rewards that are locked will begin to unlock in linear fashion.

If the wheels in your hear are turning now and you’re thinking “ok great, so the market will dump in July of next year,” you might want to back the truck up. Because the linear unlock will take another full year to be completed and the demand for Jewel will likely increase greatly in that same time. Why? Well for one, as the Jewel rewards are reaching the end of their primary issuance phase, Crystal issuance will be in full swing and remember you need Jewel to get Crystal and DFK on AVAX could end up being 10x larger than on Harmony.

Additionally, the “Kingdoms and Land” phase is coming up and guess what? If you’re holding Jewel there’s a chance you’ve already been airdropped a kingdom. If not, you’ll have another chance to buy one but I’ll discuss that in just a bit.

And if all that’s not enough, right around the time AVAX Crystal rewards are getting long in the tooth there are plans that have been laid (although not fully detailed yet) to expand to two more blockchains, repeating this process twice more. What will these other chains be? I don’t know for sure but if I had to guess I would be eyeballing Polygon (MATIC) and Fantom (FTM). Will the power tokens for these chains be called Amethyst and Sapphire? It kind of makes sense but this is speculation on my part.

So after all is said and done there could be four (or more?) chances to get in on power token issuance, land sales, generation zero heroes and more. Excited yet?

The Bank

Another cool system you can find in DFK already is the bank. If the risk of impermanent loss (IL) is not your thing, you can safely stake Jewel in the bank for modest rewards and some xJewel.

Source: https://game.defikingdoms.com/#/bank

Each time Jewel is transacted a portion of the proceeds go to the bank. What this does is slowly ratchet up the xJewel exchange rate. Here’s an example. Let’s say the xJewel exchange rate is 1.5. If you deposit 150 Jewel into the bank, you will receive 100 xJewel. Later on, the xJewel exchange rate goes up to 1.7. If you withdraw your 100 xJewel now you get 170 Jewel instead of the original 150 Jewel you put in. The genius of this mechanic is that you always get more Jewel back than you put in even though the growth rate is smaller than that of the Liquidity Pools (gardens).

But the utility of the bank doesn’t stop there because the developers want to incentivize people to stake their Jewel and increase its value for everyone. So what they do is a running series of airdrops and raffles for xJewel holders. There have been two so far in which 25 wallets got dropped entire kingdoms (more on those later), and there’s a raffle starting on December 15th in which participants have a chance to win mythic, legendary or rare amulets.

The amulets will be the first pieces of equipment in the game, but certainly not the last. The amulets will give some kind of a bonus to your heroes, but we don’t know yet exactly how it will work.

Game Mechanics Continued

The best games give you no easy decisions.

GodofCoins

Think for a moment about the dumpster fire that Axie Infinity has turned into because the only thing there is to do is farm SLP until the price runs into the ground. It’s kind of sad, really.

So what about DFK? I’m not even sure that anyone knows the optimal strategy for DFK yet because frankly the game has a lot of nuance and interesting wrinkles. It really depends on what you’re interested in.

For example, you could put everything in the liquidity pools. You could buy generation zero heroes and summon more heroes. You could buy a bunch of heroes and run profession quests in order to stack up rewards. You could put huge sums in the bank and try to win an incredibly valuable item. You could level up heroes and try to flip them for more Jewel. You could try to get the most powerful heroes and create the number one PvP guild. You could try to get a land and deck that out.

See what I mean? Many top players are opting instead to just try everything!

DFK is a game where you can really nerd out, which is what people actually want to do. The game is just there to give you an excuse to nerd out.

GodofCoins

All popular games right now are suffering from the same disease

If I told you that every major game was broken in the same way right now, what would you say? What do you think I’m talking about? Let me give you a hint.

I have a friend who plays Pokémon GO…. Ok I also play Pokémon GO but that’s besides the point. The other day she was telling me that she never has enough of one item in the game, but too much of another item. At the exact same time her husband needs some of the items she has but has too much of another item and no way to use it. What’s going on here?

This is the same issue that comes up in every single game and it’s dead simple. There’s not enough liquidity. Items are not liquid so you end up stuck with piles of stuff you don’t want and other things you can’t get unless you fork over real money. And once you fork over the money, you don’t even own the thing you bought!

Think about it. That Pokémon you caught, how much can you sell it for? The legendary sword that you fought for in WoW spending months to acquire. What’s the sell price? There isn’t one, because it belongs to the game platform and the best you can hope for is to trade it for spare change at the company store which is reminiscent of of railroad workers (or Chinese factory slaves) who were/are forced to live in company barracks and spend their railroad bucks on overpriced soap and whatever else the corporate overlords decided you are allowed to purchase. But try taking those BS company dollars anywhere else and what are they really worth?

Aren’t we ready for something better? In DFK, your hero and everything they produce is your own property. You can do a quest and then sell the quest items for stablecoins, Bitcoin, Jewel, whatever. IT’S YOUR PROPERTY. Do whatever you want with it.

The last thing I want to touch on in this section is the fact that spending money in a game probably has typically felt or been stigmatized because you get nothing for the purchase. But with DFK that hero you purchased can be sold back if you decide you’re done with it. Nobody knows what the price will be in the future, so please don’t take this like there’s no risk. But at least you are in control of what really should be yours considering you paid for it.

Conclusion

I started off intending to write an article about DFK and why I think the implications of this GameFi project go far beyond what people are seeing now if they have even seen this project at all. But what I realized as I started writing is that there is such depth in this topic, that I could probably write a whole series of articles or even a short book.

Am I just here pumping my own bags? Listen, if you don’t understand that everyone you have ever meet is doing just that in every aspect of life, I’ve got a bridge to sell you. The thing about DFK is that I’m in this project because I really believe in it and I don’t mind bearing the flag. I could have chosen thousands of other projects to write about but how could I have mustered the energy to make it worth your time to read?

I’m sure I’ll be set ablaze by the BTC maximalists for uttering such heresy, but my cards are on the table now and that’s the way I think it should be.

Lastly, I have gathered a short list of DFK resources where you can learn more about the game. If you liked this article, drop a comment below. I can also be reached on Twitter.

Cheers,

Hans HODL

Other Resources