Sfermion: Why We Invested In YGG

We are happy to announce our investment in Yield Guild Games (YGG). We will be releasing a separate investment summary in the future but the YGG coms team asked if we wanted to transcribe a conversation around our YGG investment. As this is a great idea I heartily agreed. What you will read below is the rough transcription of our conversation.  

Tell us a bit about you and your background in crypto.

I first became involved in Bitcoin in 2013 after reading about it in some article. Maybe the article was about the Silk Road but I honestly do not remember.  

From 2014 to 2016, while having a full-time job, I tried to launch different blockchain-based startups, but they did not even get off the ground.

Then I started a crypto fund in 2017 with a great friend of mine named Dan Patterson. Dan is a former private equity professional who knew all about fund set up, structure, and operations. We operated that entity with our own capital until the tail of 2018 which was when we accepted outside investment from family and friends.

We realized that our growth prospects were not amazing in terms of the crypto funds because there are already many dominant players who raised massive amounts of capital. These large funds had access to the best deals and the best talent so I began to look for a niche within crypto where we could possibly become dominant players. 

Luckily, NFTs became that niche and I launched an NFT focused investment fund in September 2019. Again, I operated that vehicle with my personal capital for around 1.5 years and then in January of this year, launched with outside investor capital.

What about the Zima Red newsletter? How did it get started?

One of the mistakes that I made in 2017 while operating the crypto fund was that we had no brand. We did not go on any podcasts, we did not write blogs and no one knew about us so getting access to the best deals was impossible. 

I realized that branding is so important on so many different levels, especially for deal flow and accessing specific people. Having a great brand also helps the companies you invest in by providing them a megaphone. 

So in October 2018, I set up a newsletter and podcast about NFTs called Zima Red. And today, it has a very concentrated audience, but it is recognized as a top NFT content brand in the ecosystem. 

What's your investment thesis? Are there any core values that drive your decision-making in terms of how you identify great opportunities?

We are pretty broad on the NFT scene in general. We could be looking at a collectible NFT, or a crypto art piece, or a virtual world project, or a fun blockchain game, or even the fungible token that’s involved with that world or that game. Or it could be something like YGG, which covers a range of concepts and new ideas in the world of NFTs.

We assess each investment opportunity on its core fundamentals through the team, the product, the token economics, the community, the market, the data, and the risks. Because the space is so new, often unusual, and confusing, we thought that distilling the information down to the core fundamentals is the best choice. If a project passes this assessment, we decide to get involved.

What are some notable projects you’ve invested in so far?

We’ve invested in a user-owned virtual world project called Cryptovoxels. We're landholders in The Sandbox. Also, we are a holder in a collectible project called CryptoPunks. We have a page on our website that lists our public investments (https://www.sfermion.io/portfolio)

I believe YGG is probably the most exciting project that we've got involved with so far. Although all of them are exciting, YGG is revolutionary. 

What makes YGG different from other projects that you’ve invested in so far?

YGG is a multifaceted entity. It is part-NFT fund, part-NFT farming. YGG is able to deliver returns because it has people leveraging yield-generating NFTs, to play NFT games, and ultimately, all that action drives value back towards YGG. 

YGG also adds value to the platforms themselves, because they're adding users and activity. 

It's an entity that would only exist in the crypto world because it's just so new, cool, and weird. If I had to sum it up, it’s: fun / NFT-farming / community building.

Another thing is that YGG is tokenized in a kind of co-operative model. I have a traditional fund but it’s not accessible for most people, which sucks because I think it's great to give everyone access to the NFT sector. In the future, I think more funds will be tokenized which will democratize access to great investments. 

But the fact that Gabby did it so early is just incredible. I think this is going to be a very popular model going forward. And YGG has the first-mover advantage, so it’s just going to grow in size. 

What qualities or experience do you look for in an outstanding founding team?

Especially at this early stage, it’s all about the team. Gabby Dizon has over 20 years experience in mobile gaming and has built an NFT game of his own, Battle Racers. He’s got an excellent reputation, he’s super thoughtful, and he’s proven himself with his own personal investments, so I know he executes very well. This kind of experience is really important because he already knows the pain points. Plus, he’s a guy that I know and trust, and everyone else knows and trusts too. Gabby is the ideal person that you'd want to invest in.

I originally connected with Gabby at the end of 2019, when I was reaching out to people in the NFT sector in the Philippines to figure out if we could set up an NFT-farming operation.

Back then, he was already thinking about where the NFT space was going and seeding ideas for what would eventually turn into YGG. To see it go from idea to implementation is extremely exciting. 

Gabby evolved the concept of NFT-farming from a one-dimensional idea, with people across the Philippines just playing games and earning money, to bring this hugely authentic community aspect to it, that you wouldn't get from a traditional company running an operation like that. 

Also, being able to tokenize exposure to that entity is even crazier. That means YGG doesn't have to be registered in the United States and only accessed by accredited investors. It means anyone with a Web 3.0 wallet has access to this. This is what makes YGG truly game-changing.

How do you think YGG will drive adoption of blockchain technology more broadly?

NFTs are the Trojan horse that will bring mass adoption of crypto.

Not enough people care about blockchains and distributed ledgers, or other confusing concepts, like, transactions per second. Even for DeFi, when you tell people to “buy this token and you can earn yield,” most will ignore it. 

But if you tell them there's this amazing new world that’s full of beautiful art and cool collectibles,  with a great community, and a fun game where you can attack monsters, and even earn money — all these things are much more relatable. People will be more inclined to check those types of things out compared with “staking” etc.  

I've thought for a long time that NFTs will be the thing that brings the masses, and so far, that's proving to be the case. Especially now that we are seeing celebrities get involved with NFTs. These people have huge megaphones and audiences. And that's great for adoption. 

In terms of YGG specifically, they're making it easy for anyone in the world to get access to a community that will teach them all about this space. 

People ask questions like: Where do I start? How do I play? Where can I get a How-To Guide? And I don't have good answers because it's such a diverse and wide-ranging ecosystem. 

But if you can get integrated into the community, that's the best way. Even when I first started with Cryptovoxels, it taught me everything, showing me different products and whatnot. Having a core group of people made it much more sticky for me, because you get to know all these great people, and make friends. Those relationships grow from there, while you're exploring and experimenting and doing all sorts of different things. 

So the secret power of YGG is the community aspect. This is where YGG will really shine and that is very exciting for me.

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