Crypto Confidential: What I Learned

How ‘Crypto Confidential’ echoed my own web3 gaming ventures during the pandemic years.

I recently read "Crypto Confidential" by Nat Eliason, a book that dives into the crypto mania during the pandemic. It took me back to my own experiences as an investor in the video game space during that crazy time. In this piece, I'll share my experiences and some highlights from the book that seem to fit my experience.

How it all started

Crypto is like venture capital on steroids. You can be wrong fifty times and lose a bit of money each time, but that one time you’re right, you might get a one-hundred-time return or more.

— Crypto Confidential, Nat Eliason

In December 2020, I had a video call with a gaming colleague who’d been deep into crypto for years. He explained coin swaps, farming, and other mechanics to earn in crypto, but almost everything was lost in translation. Things heated up six months later when some of my portfolio companies began pivoting from mobile free-to-play games to crypto games. By the end of 2021, after several sessions of sitting down with more educated crypto folks, I felt knowledgeable enough to grasp what was happening.

At this time, I had been following Nat Eliason for years, being a Twitter follower and a subscriber to his newsletter, with no knowledge that he'd been swept into crypto quite fully until he started sharing about web3 and crypto on Twitter and his newsletter. He had even created a crypto investing course during this time, which I enrolled in, further clarifying the web3 workings around me.

Now, in 2024, a question comes to mind: Why were very capable game developers switching from free-to-play to Web3 in the first place? It wasn't that they were abandoning free-to-play but rather embedding blockchain capabilities into their freemium model. It was also a hot area to be in when it came to raising funding for your games company from investors.

But it wasn't what other successful crypto games were doing, including Nat's game, Crypto Raiders (known as CryptoCraft in the book). The only way to play the game was to own an NFT game character, which you could buy from NFT marketplaces like Opensea.

Twists and turns

Quinn had shared a piece of crypto lingo with us while we were at Velocity: WAGMI. It stood for “We Are Gonna Make It,” as in “we’re all gonna get super rich together.” I was starting to feel like it was true. WAGMI.

— Crypto Confidential, Nat Eliason

As gaming companies shifted to what they called Web3, there were both fascinating and bewildering developments. For instance, many startups held these token rounds where investors poured money into British Virgin Islands entities holding tokens and investor funds.

My concern in 2021 was that investing in tokens instead of actual company shares misaligned the investor’s and the founder’s long-term interests and bypassed corporate governance standards. But many investors didn’t care; they were riding the wave of skyrocketing tokens in 2021. Personally, I wasn’t spellbound by these tokens; my focus was on long-term equity investment.

As more game companies pivoted to Web3, mismatches started emerging. Video games had always been about entertainment, but now, financial rewards were involved, which didn’t fit well with traditional reasons to play, hampering many laymen from enjoying these games. The primary motivation for participating in Web3 games seemed to be speculation—getting in early, riding the wave, and cashing out at the peak.

Despite this speculative frenzy, some founders aimed to build sustainable projects. Yet, many signs pointed to inflated token prices, leading these tokens to eventually crash to zero. Developers started thinking of game items and characters as NFTs—tradable blockchain assets—but the stickiness of Web3 games depended more on "getting rich" than gameplay quality. If a game’s assets tanked, so did the game.

Then it happened

During 2022, things stopped going up and to the right. STEPN was probably the last "game" that became huge in crypto. Even Crypto Raiders started going down in value.

I thought I’d figured out the game and won, but there were levels at which I couldn’t compete. The Three Arrows guys and other big players like Sam Bankman-Fried and FTX were still using me as exit liquidity. Almost everything I had invested in since the hack scare had been going straight towards zero, too, probably for the same reason. Big investors got in early, waited for the tokens to be tradeable, then started dumping them on public investors chasing the hype. For the investors, it was an incredible way to make money. But I was tired. They could have their win. I didn’t want to play anymore.

— Crypto Confidential, Nat Eliason

In 2024, it’s clear that most Web3 gaming companies that pivoted from free-to-play are either struggling or have shut down. Out of at least 15 companies I’ve talked to, only about half a dozen are still around. Those that survived raised token rounds and held millions in investor money to sustain a skeleton team for the next wave.

This is what happened with Nat Eliason’s game company as well. The big question now is when we will see the next crypto wave. In the meantime, whatever you do next, read Nat’s book. It's mandatory reading before the next crypto bull run.

Also, listen to my podcast episode from 2022 with Nat Eliason by going here: