Why we invested in Phantasia
Not financial advice.
When Axie Infinity first took the spotlight earlier this year, the cryptoverse was surprised by the rapid growth it achieved. It had fundamentally shifted the perception of games and nfts. Everyone was somewhat aware of the potential of nfts and games but the success of Axie Infinity proved that it was truly possible to have a game that worked hand-in-hand with crypto and brought forth a new narrative to crypto; Game Finance (GameFi) and Play to Earn (P2E).
Game Finance (GameFi) refers to the financialization of a game. Financial elements are brought into a game and a whole economy is created with the possibility of selling in-game assets or currencies for real money. These mechanics which allow players of the game to earn rewards and money by playing the game are coined as Play to Earn (P2E).
With the floodgates opened, many GameFi ideas which were previously thought impossible or brushed aside as being too early were suddenly brought back into focus. Through Axie Infinity’s product market fit, the cryptoverse pundits, investors and builders alike went through a rerating process for GameFi. The success of Axie Infinity marks a paradigm shift for gaming in crypto, it has unlocked the creative potential of a truly game-changing game that incorporates all the benefits that web3 can offer to be integrated seamlessly within a game.
The global gaming market size stood at USD 203.12 billion in 2020 and is projected to grow even further year on year. Today, we see a great number of games in crypto that have been funded and are being built by some of the brightest minds in the space and we expect this number to continue growing as the boundaries of games integrated with the cryptoverse are pushed further and further. As for GameFi growth, @0xyuffie at Nansen gives some top down estimates for (A) Total Addressable Market (TAM); (B) Serviceable Available Market (SAM); and (3) Serviceable Obtainable Market (SOM):
These estimates are based off Ethereum Metamask wallets only, so when you factor the tremendous growth opportunities in Solana based GameFi, the numbers become even more impressive.
With that, Sino Global Capital is happy to announce our investment into Phantasia, a fantasy sports platform built on Solana. In this investment thesis, we will share our thoughts on how Phantasia is pushing boundaries and creating the ultimate platform for fantasy sports.
For the uninitiated, fantasy sports are online prediction games where you put together a virtual team of real sports players and draft them in a league/season/competition. You score points based on real life results from the players’ performance in real life action over the period. It creates an environment where people are able to use their knowledge and intuition of their favourite sport and make predictions to validate themselves on the results. Fans of fantasy sports are more vested while watching games and get a truly special feeling when their fantasy draft plays out as per their predictions that only someone who has felt it before is able to understand.
Coupling this addictive game with web3 ownership, you get a truly fun game for sports fans that rewards skill and expertise for participating in something you love in the form of Phantasia. We’ll dive into the features and mechanics of Phantasia and what makes it an improvement over conventional fantasy sports further below.
Industry Analysis: Fantasy Sports
The global fantasy sports market is expected to grow from US$20.36 billion in 2020 to US$22.31 billion in 2021 at a compound annual growth rate (CAGR) of 9.5 per cent, according to Research & Markets. The market research and data service’s report added that the fantasy sports market is set to reach US$38.6 billion in 2025 at a CAGR of 14.7 per cent. The rise is mainly due to the increasing youth population, growth in digital infrastructure, availability of affordable smartphones, increasing popularity of players in various sports, growing investment in internet infrastructure, and the launch of fantasy sports applications.
To understand the problems that market leaders face in the fantasy sports market, we must dive into their business model and operations.
Market leaders currently have high transaction costs, stemming from the use of payment processors that typically charge a fee ranging from 0.3–3+% (variable / fixed + variable fees) depending on the type of transaction that was performed. These fees eat into the revenue and are eventually borne by users through high fees/rake on tournaments. Diving into the rakes that these platforms charge, we find that it ranges from 6% to as high as 15% for different types of tournaments users participate in. 15% rake is an incredibly high % to charge and it basically negates most or all of the edge any player has in winning a tournament over a long period of time. These rakes are usually non-transparent and tend to be hidden unless a customer deliberately goes and calculates it themselves.
Lack of customer loyalty — DraftKings and Fanduel were truly revolutionary platforms, however they had difficulty differentiating themselves and creating “stickiness” within their platforms. To promote customer loyalty and reduce churn, they offered free game cash and exclusive competitions, among other promotions and partnerships. However, even with these promotions, it always felt like they were missing a sense of true community…
The Phantasia Vision
Phantasia presents a unique opportunity to capture and grow part of the fantasy sports market, bringing the benefits of Web3 to it; redesign some of the concepts and gameplay around fantasy sports.
The fantasy sports market is a beloved game with much of its users being true fan-atics, proven in the growth of the industry despite the abysmal rakes being imposed on them. The vision is to onboard the next million users to blockchain using the love of sports which is a shared appeal packaged into fantasy sports that anyone is able to play for fun or to play to earn.
Slowly but surely, all mainstream sports will be offered on Phantasia and anyone can compete and enjoy the thrill of sports with their friends and family globally without any restrictions. Phantasia believes that true decentralization and in-game identity will define the future of fantasy sports and eventually morphing into a Decentralized Autonomous Organization (DAO) will bring fantasy sports to the next level.
Phantasia is uniquely positioned to use web 3 features to activate and incentivize a community built around daily fantasy sports with key features and new mechanics. This innovation reduces web 2 fantasy sports pain points and enhances the overall experience and feel of community.
There are several key advantages to explore — all of this enable a community of engaged daily fantasy sports players.
Low Transaction Costs
The most obvious advantage is utilizing Solana as a payment method and a transaction layer for Phantasia. Solana is an ultrafast, low latency, high performance blockchain with smart contract functionality. For more information about Solana, we encourage you to read about it in our Solana investment thesis here. Solana is able to solve the problem of expensive fees from payment processors, with Solana fees being almost free costing less than 0.00001 SOL per transaction making it incredibly efficient for processing verifiable transactions. Through the usage of Solana itself, Phantasia is able to glean a massive competitive advantage compared to existing market leaders. These cost savings can be transferred to users, resulting in a way lower rake fee. At the time of writing, Phantasia is live on mainnet but has no paid entry tournaments yet.
Phantasia also has very strong tokenomics planned revolving around it’s $FANT token. Utilizing tokens to incentivize all stakeholders to coordinate towards a shared direction is very important to a project’s success.
To bootstrap Phantasia’s initial user base, Phantasia designed Play-To-Earn (P2E) Contests.
$FANT tokens serve as the contest prize in Phantasia’s daily fantasy sports competitions. Because this is a play-to-earn model, joining a contest is completely free, yet offers the opportunity to still be rewarded. The amount of $FANT rewarded to contest winners is determined by two basic variables: the number of contest participants and the Phantasia treasury’s wealth.
When more users participate in a contest, it will be more difficult for a single user to win, but as more users interact with the protocol by entering a contest, the corresponding $FANT token prize increases. This incentivizes users to take part in larger contests and invite their friends to grow prize potential. Following this same modal, any contest with less than 10 users will not pay a $FANT prize, since not enough users interacted with the protocol to generate a relevant prize.
Since day 1, Phantasia has worked to give users the opportunity to play the role of both the player and house — or in other words — users benefit when Phantasia thrives. Because of this, $FANT prizes awarded to contest winners will be greater when the amount in the treasury grows through separate revenue streams (NFT drops, for example).
NFT Integration and Utility
Phantasia is leveraging NFT technology to provide true utility to their ecosytem. Their ‘Phanbots’ unlock profile customization, access to exclusive content and in-game features.
Specifically, holders can customize their ‘Fan Card’ in-game identity for showcasing on leaderboards, chat rooms etc. What’s particularly unique, is that they provide access to cool features like AI roster builders, analytics tools and blog knowledge to help hone user skills and up their strategy. Team Phantasia also understand the how social gaming is fundamental to fantasy sports and allow users who hold Phanbots get access to a gated discord server with where they can get exclusive info from fantasy sports experts.
Fortunately for users who are new to fantasy sports, winning contests is not the only way to receive $FANT in their wallet. Phantasia also offers $FANT rewards for small achievements or quests in order to help new players get introduced to $FANT and diversify distribution of the token. Simple examples of this may be receiving a small amount of $FANT for drafting your first team or creating a private contest and filling it with users.
Achievement tracks are proven to be great incentives for users to complete certain objectives and learn the game. This will help create stickiness and get users onboarded in a fun way. Over time, users are able to accumulate $FANT tokens and participate in larger and larger tournaments to pit themselves against the very best players and feel the rush of winning coveted achievements that are displayed on their profile.
$FANT Staking (Future Plans)
Upon sufficient, gradual decentralization of the platform, Phantasia intends to offer staking $FANT as a method of rewarding community members for locking up their $FANT with long-term intentions with the exact details to be determined.
High-level model of $FANT’s primary functionality and use cases:
Users can participate in fantasy contests, earn $FANT for their success, stake their $FANT winnings and be rewarded as the treasury grows.
NFTs and Clubs
Phantasia is also looking into incorporating NFTs and Clubs within Phantasia and building community features to help expand the virality and health of its user base. There is a lot of design space here and the team has kept it under wraps for now, but will be unveiled in due time. We are especially excited to see further exploration of the NFT space and believe that building a great community through clubs will help accelerate the growth of Phantasia. Creating/participating in clubs naturally brings a sense of inclusion and will help grow Phantasia through word of mouth.
Regulatory Risks — Many states impose registration and licensing requirements on Daily Fantasy Sports companies which are not necessarily cost prohibitive but administratively burdensome for a project to deal with. Moving forward, Phantasia might face some regulatory issues down the line as they expand their businesses and expand their user base into different countries.
Daniel, Ben, Jake and Sachin make up the core team of Phantasia. All core members of the Phantasia team are avid users of fantasy sports platforms and have spent a lot of time playing and understanding how it works. It’s no surprise that when deciding what to build in the crypto space the first thing they thought of building was a better fantasy sports platform that really looked to solve user pain points and incorporate web3 elements for a far superior experience.
Daniel worked as a management consultant focused on delivering positive impact through Digital Transformation projects, his product management background serves as a pillar for the team organizing and leading the way to keep everything running on schedule.
Ben is an experienced full-stack engineer who has worked on multiple projects alongside Daniel and is leading the tech team.
Jake was previously an analyst at a consulting firm and studied software engineering. He is currently the design lead working on front-end features.
Sachin serves as the blockchain lead and was previously working as a backend developer at an ecommerce marketplace in India. He previously picked up Rust and started working on Solana projects before finding his role in Phantasia.
The team is extremely talented on the tech development side and their skill sets complement each other to quickly test and iterate ideas and features, while building out the team to help grow Phantasia.
We believe that Phantasia will bring about a whole new experience and innovate upon existing business models through the use of cheap payments and web3 integrations. As Phantasia builds out its product suite and ecosystem, it will solve the key issues in the fantasy sports industry and innovate upon fantasy sports as a game. We look forward to Phantasia’s growth and supporting both the project and it’s community in the future.
Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained here constitutes a solicitation, recommendation. endorsement or offer by Sino or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.