Gala Games blockchain gaming platform: still waiting for an explosive opportunity

Author: Chain Teahouse

Games and NFTs share a similar logic: due to the vast number of projects, the chances of winning for any single project are quite small; however, once a project becomes a hit, the potential returns can be enormous. In contrast to individual products, there are platform-type products that act as intermediaries: they can rely on strategies and operations to form a relatively solid moat, not having to worry about the success or failure of individual projects, but rather can benefit from the entire industry's dividends.

In this wave of GameFi, a new track for gaming platforms has also emerged. Although platforms have a logic of guaranteed profit, attracting developers and users to the ecosystem amidst competition from other platforms remains a significant challenge.

1. Platform Mechanism

Gala Games, as a gaming platform, has a very simple mechanism: it integrates various games while providing unified ecological services to empower those games. Its ecological services mainly include:

1) Unified account login system: Gala's account login system is compatible with Web2 experiences, allowing users to register with their email and providing two-step verification to enhance security. Additionally, the system requires users to create an ETH wallet and back up their mnemonic phrase as their on-chain account.

2) Built-in NFT trading market: Users can purchase all NFTs from games within the system, which can be used for in-game mining machines or skins.

Source: https://app.gala.games/store?games=town-star\&selectedCurrency=all

3) Decentralized server operation mechanism: Most of the game content in Gala Games is not on-chain, only the assets are on-chain. However, Gala Games has opened up game operation services to some extent, allowing users to purchase node credentials to run games and earn certain in-game token rewards, thus achieving decentralization. This part will be elaborated in Section 3 on token economics.

Moreover, Gala Games is also developing its own underlying chain, a project called Project GYRI, which was announced for testing in February this year but has not yet gone live. According to information disclosed on its blog, future migrations should also be limited to game tokens and NFTs, suggesting a relatively lightweight on-chain solution.

4) The platform issues a unified token, GALA, which can be used to purchase game NFTs and for platform governance.

Gala Games differs from traditional gaming platforms like Steam in two main ways.

First, the revenue model is completely different. Steam can rely on game sales to generate profits, but Gala does not have such a straightforward revenue logic. GameFi is not a one-time purchase of games; instead, it profits by selling game asset NFTs and increasing in-game consumption to boost token demand. As a Web3 project, Gala also relies on tokens as a means of value capture, which requires Gala to design scenarios where users need to continuously purchase tokens. In the analysis of Section 3, we will see that the current token demand designed by Gala is more focused on nodes, while the demand designed for players heavily relies on platform games, which is still unclear.

Second, Gala has a certain degree of decentralization, as it allows ordinary users to participate as nodes in server operations, which is qualitatively different from companies that operate completely centralized. However, the governance role of Gala's nodes is limited; to be fair, it is difficult for ordinary players to perceive the difference between decentralized and centralized game operations.

2. Ecological Operation

The game ecosystem of Gala is currently not very rich. Although there are 14 games displayed, only Town Star is playable. Town Star also has its own token, TOWN, with a circulating market cap of approximately $4.5 million and a total market cap of $16 million.

All games displayed on the Gala Games platform

Town Star is a farm management strategy game developed by the Gala team, which has been operational for about a year. Users can use initial funds to build factories, shops, etc., balancing consumption and revenue, and earn rewards by climbing the leaderboard. Users can also purchase NFTs and stake them for mining in the game.

Town Star introduction page

According to Gala Games' own disclosures, there are currently 1.3 million monthly active users. However, since this data is not on-chain, it cannot be verified externally.

Source: https://app.gala.games/about

In addition, Gala's business scope extends beyond games to include music and film. Similar to games, music also uses the platform's unified Gala token as node rewards, but the proportion of rewards for music projects is extremely low, accounting for less than 1% of the gaming business, with the overall focus on gaming.

Comparison of music and game projects, source: https://www.gala.com/

3. Token Economics

3.1 Token Utility

The Gala platform provides a unified token, GALA, and each game can also issue its own specific token. Compared to the peak in November last year, the price of GALA has dropped by over 90%, with a current circulating market cap of approximately $400 million and a total market cap of around $2 billion.

The utility of the GALA token includes two parts: one is to purchase founder node qualifications, and the other is to purchase in-game NFTs.

If users want to become platform nodes, they must use GALA to purchase node qualifications, which are referred to as founder nodes. The maximum number of node qualifications is 50,000, and they are non-transferable or sellable. The GALA used to purchase node qualifications should be fully locked by the team.

The initial pricing for founder node qualifications was around $2,000, and after selling about 19,000, a tiered price increase model was adopted, with prices increasing after every 100 nodes sold. Currently, approximately 43,000 qualifications have been sold, with prices reaching as high as 1.6 million GALA, about $100,000.

Gala node credential purchase page

Running a node is equivalent to being part of the game server, with obligations to provide storage, operation, and other services. At the same time, running nodes also grants users certain rights.

On one hand, founder nodes can receive GALA token incentives, as well as specific token incentives for each game and random NFT rewards.

In the past year, nodes that were online for at least 6 hours on a given day could earn about ~320 GALA, but on July 21, the distribution of GALA tokens began to halve, and in the future year, node incentives will decrease to about ~160 GALA per day. If calculated at the current price of ~1.6 million GALA, relying solely on GALA token incentives would take approximately ~25 years to break even.

The price of early nodes may not have been too high, but at the current price of around $100,000, there are still occasional purchases. As for who the buyers are, it is unknown; however, to break even, it is basically impossible to rely on GALA tokens and would need to depend on tokens from other specific games.

Regarding the token incentives from specific games, the platform is very favorable to founder nodes: each specific game will also have corresponding game nodes, and running these nodes will earn the respective game's token incentives (without earning Gala platform token incentives). However, these incentives will also be given to founder nodes, and the rewards obtained from specific game nodes can only be 0.25 to 1 times the rewards obtained by founder nodes, meaning only founder nodes will receive the maximum rewards from the entire platform. Nevertheless, since there is currently only one game, Town Star, relying on game tokens is likely also difficult to break even, needing to bet on future game explosions.

On the other hand, founder nodes also possess certain governance rights, including voting on which games can go live and matters related to token distribution.

For instance, during the halving last year, to enhance the decentralization of node operations and continue attracting users to become founder nodes, all nodes almost unanimously agreed to increase the proportion allocated to founder nodes to ensure that even after the halving, the earnings for founder nodes would remain unchanged over the next year.

However, apart from this, the governance scope of founder nodes should be relatively limited, as Gala Games' overall operations remain somewhat centralized, advocating for efficient centralized decision-making. For example, in a blog post regarding Gala's future public chain plans, the team mentioned that the future public chain will be "censored," meaning that decisions regarding the chain itself will be made by game developers, and only after stable operation will it gradually shift to founder nodes.

In addition to purchasing founder nodes, another utility of the GALA token is to purchase game NFTs within the platform. However, currently, this only applies to NFT presales for games that have not yet launched, while for games like Town Star that already have their own tokens, transactions within the platform can only be completed using TOWN, which diminishes the role of the GALA token.

These two parts are also the core value capture points of the GALA token. It can be seen that the first part of founder nodes has a limited total number, which cannot continuously generate demand; the second part heavily relies on in-game NFT consumption, and demand cannot be guaranteed.

3.2 Token Distribution

The total supply of GALA tokens is approximately 50 billion, with about 2.5 billion distributed in the first year of 2019, and subsequently halving every July 21[4]. So far, approximately ~38 billion have been distributed, but the circulating supply is only ~7.5 billion (data source: Etherscan).

The newly added GALA tokens are partially distributed to founder nodes and partially to the Gala Games platform, with the ratio between the two being changeable by votes from founder nodes.

The chart below shows the changes in distribution ratios over the past three years. It can be seen that in 2020, the share allocated to founder nodes was 25%. To continue attracting users to become founder nodes, during the halving in 2021, the ratio between founder nodes and the Gala Games platform changed from 1:3 to 1:1, ensuring that the daily GALA incentives for founder nodes remained unchanged after the halving. This year, after the halving, the distribution ratio between the two remains unchanged while also halving. The Option 2 in the chart assumes that part of the incentives will be taken out as a bonus pool to incentivize nodes that contribute more, but this has not yet been implemented.

Source: https://blog.gala.games/gala-founders-nodes-omnibus-proposal-v2-def7f52fca48

Aside from the relatively clear allocation of GALA tokens for founder nodes, the distribution and use of other GALA tokens are not transparent. Ordinary external users can only know that other tokens are held by the Gala Games platform, but how much is allocated to investors and how much is used for platform marketing and operations remains unknown. We can only infer some uses from other aspects, such as Town Star distributing ~200,000 GALA tokens weekly to the top 100 players on the leaderboard, which should come from the tokens held by Gala Games.

4. Team and Financing

Gala Games has a strong team background, with core members having years of experience in the gaming industry.

CEO Eric Schiermeyer can be considered a legendary figure in the gaming world, best known for being a co-founder of MySpace and Zynga. MySpace, founded in 2003, was a popular social application before the era of Facebook and was acquired by News Corporation for $580 million in 2005, but gradually fell behind Facebook after 2008 and 2009. Zynga, founded in 2007, is a globally recognized social gaming company, acquired by Take-Two Interactive for $12.7 billion in 2022. In 2018, Eric founded Gala Games.

John Osvald serves as the President of Games at Gala Games and has a very senior resume in the gaming industry. He served as Senior Vice President at Zynga twice, from 2009 to 2013 and from 2016 to 2017, and founded Shiver Entertainment during the period from 2013 to 2016. After leaving Zynga in 2017, John co-founded the mobile social and gaming company Carnivore Inc. with Eric and served as CEO, raising a total of $9 million. In 2020, John became the head of product at Electronic Arts (EA), and in 2021, he joined Gala Games.

Gala Games has not announced any external financing, but according to third-party statistics, as of January this year, Gala Games has raised $510 million and 8,681.8 ETH through the sale of nodes. Gala Games should have considerable assets on its books and announced last December the establishment of a $100 million blockchain gaming fund in collaboration with C2Ventures to promote industry development.

5. Challenges and Risks

The most striking aspect of Gala Games is its star CEO, Eric, who once created the glory of Zynga. Early users competing to purchase founder nodes may have been investing in Eric.

However, as it stands, Gala Games' ecosystem is relatively singular, with only one game launched. The performance of future game launches will be the core assessment of Gala Games' development.

Additionally, Gala Games' overall operations are somewhat centralized, with decision-making being efficient and concentrated, but the community atmosphere is relatively weak, and the governance scope of nodes is limited. For ordinary investors, whether it is obtaining information or participating in investments, the entry barrier is quite high.