Of the many companies in blockchain gaming, Immutable has emerged as one of the leaders, or at least survivors, in the emerging market. And it has an elevated role among blockchain platforms and so it can see more of the future.
ImmutableX generated $87 million in non-fungible token (NFT) trading volume, 250% higher than last year. And Immutable’s Gods Unchained game finished among the top 25 most-traded collections across all blockchains.
There’s two parts to the Sydney, Australia-based company. Immutable is making its own blockchain games like Gods Unchained and Guild of the Guardians. And ImmutableX is a Layer 2 scaling solution for Ethereum applications on the blockchain. It has become a platform for games with nonfungible tokens (NFTs) as well as a marketplace. Meanwhile, ImmutableX users get the benefit of the Ethereum blockchain’s security.
Robbie Ferguson, CEO of Immutable, started the company in 2018 with James Ferguson and Alex Connolly. It was originally created to lower the transaction costs associated with trading NFTs for Gods Unchained, offering a near-instant confirmation and near-zero gas fees for NFT trading and minting.
I talked with Ferguson about the milestones that Immutable has hit and what he expects to happen in 2023. The company had five games at the start of 2022 on its platform, and now there are more than 100. It has 15 marketplaces and more than 1.5 million active wallets on ImmutableX today. And the company has more than 300 employees. It certainly sounds like Ferguson means to be one of the survivors of the crypto winter and to drive NFTS into mainstream gaming.
Here’s an edited transcript of our interview.
GamesBeat: I wanted to check in on some of the milestones you hit this year, and what you’re looking forward to in the next year in general.
Robbie Ferguson: This was a massive year for Immutable. At the start of the year we had five games on the platform. We now have more than 100. We’ve moved from three marketplaces to 15. Our global order book has more than doubled through the volume of those marketplaces and those games, because more than half of origin trades on the Immutable protocol take place in a marketplace other than where it was created. If you list it on one marketplace or any game, half the time it’s being bought somewhere else, which is only possible with our global order book.
The stuff I’m really excited about that just came out, Delphi Digital released their gaming report. Immutable was the largest ecosystem by funding allocated for Web3 games, over any other layer-1 or layer-2 in the world, except for Ethereum layer-1. More than Polygon, Solana, Avalanche. I think we’re more than 10 times Solana. The reason we were thrilled about that is it’s a very high signal piece of information. It’s very easy to say that we have X number of games, which may be indie games that have very little chance of making a dent and going mainstream. We’ve focused on games with sufficient funding and firepower to actually get 10 million or 100 million players. We also have more than 1.5 million wallets active on Immutable today.
As far as we know, in terms of market share we’ve moved from fifth to first in terms of market share of winning Web3 games. It’s been a big year for us, and a big year for Web3 gaming in general, particularly across the backdrop of people asking, “Where will the first mainstream utility use cases for Web3 come from?” To us that is very clearly going to be Web3 gaming, now more than ever.
GamesBeat: I see five games listed there. Are they accounting for the bulk of the wallet activity?
Ferguson: Yes, it’ll definitely be the top 20% of projects contributing the vast majority of trade volume, which we expect to continue. You’ll have breakout hits which have more users and traders than the rest of the games combined.
GamesBeat: Each of those games, are they all live in terms of being out of beta now?
Ferguson: Gods Unchained obviously is. Guild of Guardians is launching (in 2023). Illuvium just launched the beta for overworld, and for their auto-battler. We have more than 18 games that will be launching in the first quarter of next year, based on our timings.
GamesBeat: Beyond the active wallets, how many players do you know are out there? Is that number going to be higher than the number of active wallets?
Ferguson: Across all the games? It’s going to be higher than traders, because some people might play a game but never end up trading. Customers like Aglet, which are building on Immutable–I know they had up to 3.5 million monthly unique players at their peak. Pretty significant numbers. In the last quarter we’ve onboarded more games than in the rest of the company’s lifetime combined, and half of those games migrated from competitors, like Ember Sword from Polygon, or Cross the Ages and Delyseum. Deviant Factions, Undead Blocks, and StarHeroes from Solana. Multiple games from Terra as well.
GamesBeat: What do you detect is happening there? Are you proving more successful on any single metric than those platforms?
Ferguson: I think people choose to switch for a few reasons. The first would be security and reliability. There has been more than $4.2 billion in consumer funds lost in the last 18 months from bridge hacks. Immutable is completely immune to these, because we use ZK-rollups at our core. That’s a choice we’ll never compromise on. The second thing is, our uptime and reliability is 99.9 percent, which is two to three orders of magnitude higher than the nearest competitors. If you look at something like Solana’s uptime, it’s been averaging around the 97% mark.
The other thing is how easy Immutable is to build on. Our goal is, you should not have to touch a smart contract in order to develop a high-quality Web3 game. You can build on us using APIs rather than having to write in smart contracts, let alone the new proprietary languages that are emerging from alternative layer-1s. It’s ease of use. It’s security and reliability. It’s the volume and audience we bring games to help make them successful. Obviously we’re doing this with things like our GameStop partnership.
GamesBeat: It’s interesting to see some folks come in with large amounts of funding, like Mysten Labs. How would you say you compare to someone like that, and other companies that have raised that much money?
Ferguson: There’s always fundraising in the space. Web3 has been one of the most invested-in categories, and gaming has been the most invested-in category of Web3. We’ve seen $15 billion poured into it in the last two years. We focus on how we translate that funding into a platform that games want to use, and that allows us to have leading market share. The reason we feel that’s so important, we fundamentally believe in Ethereum, in a decentralized platform, and in a low-fee platform that everyone can play on.
For us that’s philosophically why it’s so important to be the leading platform supporting Web3 games. We think that a lot of alternatives taking 52 percent fees on a “metaverse” or a locked-in aggregator app store are not the right way forward for digital asset ownership.
GamesBeat: Where do you feel we are in terms of having Web3 games reach mainstream audiences? In what ways have we cleared some hurdles there, and where would you like to see things go in 2023 for getting further into the mainstream market?
Ferguson: We’ve hopped over a big hurdle of risk with the amount of funding that’s poured into the space. That’s reduced the time to go to market and become live games with tens of millions of players. My prediction is that the global audience for Web3 gaming is going to move from roughly 2 million people to tens of millions in 2023. That’s going to be catalyzed by two to three games that become breakout hits. Games like Illuvium, games like Gods Unchained or Ember Sword. Or Ambrus Studio, where the Riot Games CEO in Asia dropped out to found a MOBA on Immutable. These are going to be hits with chances at having 10 million to 100 million players. The other crucial bit is building a mainstream user experience, which has progressed significantly over the last year as well.
Web3 gaming will continue to be the most invested-in category of Web3. The reason behind that, it’s the clearest empirical use case where nothing is hypothetical. The size of gaming has not stopped. When we started this it was $80 billion in in-game items every year. It’s now nearly $200 billion, and it’s growing 10 percent year on year. Everything is becoming interactive. The cost to build games has become significantly cheaper. This year, art became zero cost to create for games, with the invention of DALL-E 2 and GPT-3 and AI that’s going to completely change the cost structure of gaming businesses into the future. That will happen.
We’ll start to see the first forays of NFTs into other verticals in a meaningful way. Financial businesses tokenizing unique forms of value in sophisticated ways. I think we could see the market move sideways for ages, though, which is something we’re completely fine with. The point of this is to build use cases and applications that help tens or hundreds of millions of people. It’s not to make the price of Ethereum go up.
If I knew where macro was going in 2023 I’d be running a hedge fund. But to us the most important thing, and what we tell people all the time–the price of Ethereum doesn’t matter. What matters is how many people are getting real ownership of stuff, where the previous day they were getting scammed by an exploitative gaming company.
GamesBeat: What about different regions of the world? I’ve heard a lot of people saying that Asia may be the region that races off first, while there’s still a lot of resistance in places like the United States and the west in general.
Ferguson: In a lot of Asian gaming genres, the idea of buying power inside a game is native. There’s a very native application for Web3 asset ownership. You also have a high degree of progressivism. South Korea led the free-to-play gaming movement. They’re very much at the forefront of adopting Web3 for their games. That being said, I think we’re seeing a huge portion of entrepreneurial, well-funded developers and talent in the Web3 gaming space in the west as well. There are fewer incumbents. You’re seeing more activity from some of the largest gaming studios in the world in Asia.
GamesBeat: Is anything on your radar as far as regulations? Different regions of the world making this more predictable or unpredictable as far as how to operate?
Ferguson: Self-custody is incredibly important. There’s going to be more scrutiny than ever on custodial solutions, or solutions that propose ownership, but really you don’t have asset ownership at the end of the day. If it’s not your keys, it’s not your crypto. That’s what we’ve always had at the core of our philosophy as well.
The funny thing about that, this year we had marketplaces like X2Y2 invented that effectively went zero royalties. Immutable is the only protocol live today that guarantees royalties at a protocol level. No matter where you trade an asset on whatever marketplace, the asset creator can always get a cut. That’s incredibly important for protecting the monetization and continuing mainstream interest in games. Otherwise we’ll see none. That’s something we’ll continue to offer. Earlier in the year that was a vitamin. It’s definitely now a painkiller.
GamesBeat: We had a pretty good discussion early on about the objections that people had to Web3 games. Where do you think that conversation is today? Where are the skeptics now, and how do you counter some of that skepticism?
Ferguson: Actually, I don’t try to. The answer to skeptics is not debate. It’s building an exceptional game that 100 million people play without knowing that they’re even touching NFTs, but experience far more value because of it. They can sell them for the $100 they would normally put into a trading card game and just see it go into the abyss through an exploitative system. To me the answer is to build great products that people want to use, and you don’t have to know about the blockchain to use them.
This is more crucial than ever against the backdrop of waning consumer trust, after things like FTX and the crypto bear market more broadly. What they’re going to see is Web3 gaming becoming the category that defines the earliest mainstream utility applications of Web3. That’s going to be very much the narrative that emerges in the next bull market.
GamesBeat: The crypto winter and the FTX effect, has that taken a toll on you in some way? Has it slowed growth or caused people to drop out?
Ferguson: We see more unique traders on our platform today than we did three months ago or even six months ago. The main impact it will have is on macro. But nothing we do is correlated with macro. Our goal is, how do we take economies where players want to trade assets for $1 or $2 or $10 and make them real? Truly empower them to own a piece of that game.
The great example of this is IMVU, which has been around for nearly 20 years now. It’s one of the biggest legacy examples of a web2 gray marketplace, where they monetize mainly through secondary volume. IMVU is converting every single asset in their game over to Immutable NFTs. They have more than a million daily active users. It’s experiments like these by old web2 companies that are looking to transition to a better economy, a better form of monetization, that will make a big dent in the public’s perception.
GamesBeat: Ethereum’s changes to proof of stake, did that also knock out some objections people had on the environmental front?
Ferguson: For sure. Being environmentally neutral is incredibly important. The proof of stake transition was a necessary and excellent one.
GamesBeat: Is there something tangible you can point to there as far as how it’s more energy-efficient now?
Ferguson: Immutable has always been carbon neutral. For us that just made it cheaper to be carbon neutral. The carbon offsets for our uploads to Ethereum in terms of ZK proofs are obviously reduced. Otherwise for us it didn’t make much of a difference. We’ve always been carbon neutral.
GamesBeat: Was that through a layer-2?
Ferguson: Because our layer-2 uses 1/600,000th of the gas costs of Ethereum natively, we can affordably offset every trade on our platform. It’s important to know, though, that even if Ethereum has reduced its environmental impacts, the scale we’re really looking at, if Web3 gaming truly takes off, is billions and billions of daily trades. This will require infrastructure that is not just optimized at the layer-1 level. It will be multiple layer-2s with cross-rollup liquidity, which is what we’re investing in very heavily on the product side.
GamesBeat: Do you feel like you’re getting to a “What’s not to like?” situation with blockchain games in general?
Ferguson: A lot of the category has been de-risked with talent and funding moving into the space. We have 10 or 20 games on the platform today with very significant amounts of funding that have chances to become 100-million-player hits that will redefine the way we think about Web3. The next 18 months will be the critical period for Web3 gaming as these games go live, as we optimize mainstream user experience, as we figure out how to fine-tune economies.
The role we want to play there is, one, make it as easy as possible for anyone to build. Two, ensure consumer assets are always completely secure. In the wake of the loss of custodial assets in FTX, it has never been more important to have a scalable protocol that is fundamentally self-custodial. Immutable has never deviated from this since day one. It would have been very easy for us to go to a sidechain or a centralized wallet, but this trust is fundamental to what we’re building.
GamesBeat: Any thinning out in the space, do you notice that starting to happen? Are weaker companies or more scammy companies going by the wayside? Is consolidation happening yet?
Ferguson: We’ll see significant consolidation over the next six to 12 months, as companies with poor monetization, or companies that relied on bull-market-only tactics, run out of cash. Excellent companies will still get funded, particularly at the growth stage and the early stages. But the bar for corporate governance, the bar for how you run your company and align incentives, will raise drastically, particularly with the growth stage investments.
I very much enjoy bear markets, because it means we can focus on product. It means that the people in the space are genuinely here for increasing the quality of products, increasing the number of people playing Web3 games. It’s a fantastic opportunity to build excellent games with our partners and invest a ton in actual customer acquisition, rather than having to worry about bull-market narratives.
Immutable was born into the biggest bear market in crypto in 2018. We’re very used to it as a company. I think that’s where the strongest companies are formed by far. When we emerge into the next bull market, the proof points on Web3 gaming will be more than any other application of crypto so far. There is going to be a huge influx of capital and talent at that point as well.
GamesBeat: As far as how the technology has evolved, what have you seen on that front? It feels like a lot of things were thrown at the wall, and I wonder what is sticking and what is turning out to be a better choice.
Ferguson: When we started Immutable, we were looking for scaling infrastructure. We built prototypes of sidechains where we were never happy with the security. We built a prototype implementation of Plasma which never ended up working. We were never happy with the cost basis of minting or trading NFTs. We looked into optimistic rollups, but the time required for the proofs to be validated, as well as the cost, didn’t suit the scale or the uniqueness of assets in gaming. When ZK-rollups first came out, we knew that if they worked, this would be the future of how Ethereum scaled. It’s very clear now that ZK-rollups are the future of how any blockchain scales. Certainly Ethereum’s scaling right now.
Our vision is, how can we take away the Achilles’ heel of layer-2s? Every new layer-2, or layer-1 for that matter, fractures liquidity. That’s why all these new blockchains have to raise so much money from VC funds: to re-create network effects, to re-create DeFi, to kickstart the ecosystem. It’s rubbish. You should simply unify liquidity and the network across any number of layer-2s, which is what we’re building across StarkNet with our cross-rollup liquidity. You’ll be able to have a dedicated ZK-rollup scaling environment, with your own 10,000 transactions per second. Any asset sold there can be bought on any other Immutable rollup, with any of your funds in those Immutable rollups, directly and atomically.
What they’re creating is this liquidity platform that’s supercharging the volume and improving the prices no matter where you trade. Rather than fracturing this in order to try to make some money for VCs by creating silo’d blockchains or layer-1s or layer-2s.
GamesBeat: Can you step back a little and explain the zero knowledge rollup?
Ferguson: The magic of ZK-rollups is effectively we’re able to compress a huge amount of state transitions or transactions off chain by having people sign transactions rather than submit them, which is free. It costs nothing. But it still has the full cryptographic security of the underlying blockchain. The beauty of ZK-rollups, they inherit the full security of Ethereum, which is by far the most secure platform, particularly with proof of stake upgrades. The other excellent thing is, because of implementations like Validium, you can have zero dollars required to mint a billion assets. That’s because the cost required to mint those assets for us is logarithmic. We pay for those costs on behalf of the customer.
The other radical thing about ZK-rollups is they work validity proofs rather than fraud proofs. They are inherently correct and can never be wrong, rather than relying on people to prove that they’re incorrect once they’re uploaded. That means you don’t have this one-week withdrawal period, which is crucial, particularly for NFTs. You can withdraw your assets instantly. The thing I’m very proud of is, even if Immutable goes away, you can always withdraw your assets to layer-1 Ethereum completely provably, with no loss of security.
GamesBeat: So you get low transaction cost, a lot of speed, and security all at once.
Ferguson: Precisely. And the one thing I missed obviously is no bridges. A lot of sidechain infrastructure relies on centralized bridges, which is the number one loss of consumer funds in crypto, apart from FTX.
GamesBeat: Things like the Axie Infinity hack?
Ferguson: Right, $600 million for Axie, $600 million for Poly Network on Polygon. These incidents really impact consumer confidence. We’ve never been happy to take that risk as a company. For us it’s always ZK-rollups, where you’re fully secured by Ethereum and you can always use your own private keys.
GamesBeat: How widely is this adopted at this point? When did it really start making an impact?
Ferguson: When we adopted it, we were probably one of only two or three reasonably-sized companies in the world looking at it. It’s now the type of scaling infrastructure that everyone is adopting in terms of building out their solutions.
GamesBeat: How many people are at Immutable now across the different parts of the company?
Ferguson: We’re more than 300 people full-time today. We were 80 full-time at this same time last year. That’s with a runway of about three and a half years. About one-third of those people work on our internal games versus two-thirds on the platform. But obviously we contract development for our internal games. Those contractors would be very sizable in number, although they’re not full-time employees.