How Animoca Brands Makes a Comeback and Profits in a Bear Market?
The crypto gaming sector has yet to live up to its massive market expectations, but now, one of the early pioneers in the field is finding its financial foothold in this challenging industry.
The crypto industry is once again witnessing exciting moments. Bitcoin has reached a new high, with prices hitting $111,814; Coinbase has become the first crypto company to enter the S&P 500 index; and an increasing number of industry players are planning to go public in this suddenly warming crypto market.
Against this backdrop, Hong Kong-based Web3 company Animoca Brands has also joined the ranks. This privately traded company is involved in NFTs, crypto games, and an investment platform that includes investments from over 500 companies, including crypto exchange Kraken and Ethereum development studio ConsenSys.
Animoca delisted from the Australian Securities Exchange in 2020 due to its ties to the crypto industry, but during the pandemic, its valuation soared from $100 million to $5.9 billion, marking a glorious moment. However, during the crypto winter, the NFT market crash, and the subsequent meme coin frenzy, the company gradually faded from the public eye. At the same time, the GameFi boom failed to attract widespread attention from the global gaming market, estimated by Oppenheimer to be worth $180 billion, further exacerbating the situation.
Despite this, under the leadership of CEO Yat Siu, Animoca has continued to forge ahead, carving out profitable business strategies for the company. According to unaudited financial data released on the company’s website, Animoca achieved a profit of $97 million last year, a 185% increase from 2023.
Today, the company is exploring more business connections with numerous global enterprises, thanks to the Trump administration’s friendly stance towards the crypto industry, including plans to potentially go public on well-known exchanges like NASDAQ or the New York Stock Exchange. “We believe that the U.S. will become the largest crypto market in the world, so it would be very foolish not to try to enter this market,” Siu stated in an interview with Unchained. However, he also pointed out that going public in the U.S. is just one of the many opportunities the company is currently exploring.
What kind of market reaction will Animoca receive? That will depend on whether GameFi and NFTs can once again attract users and whether investors recognize Animoca’s narrative as a “tool provider” in the GameFi sector.
Game Pause
Although the global gaming industry is largely unaffected by specific tariffs from the Trump administration, it remains highly dependent on the changing macroeconomic environment. “Overall, the industry’s performance is decent but far from as good as during the pandemic,” said Martin Yang, a senior analyst at Oppenheimer. “We experienced very strong growth over the past two years, but now the overall annual growth rate may only be 3-6%.”
The situation in the mobile gaming market is even more concerning, which is the primary area where GameFi exists. For external observers, this may seem somewhat counterintuitive, as the “freemium” model of mobile games and their relatively low costs appear to be more resilient. However, this phenomenon reveals an important detail about the gaming industry and explains why crypto games struggle to gain a foothold.
“People used to think, ‘Oh, players either pay nothing or only a little to play games,’ so they believed that the [mobile gaming model] could withstand a challenging macro environment,” said Mike Hickey, a senior analyst at The Benchmark Company, in an interview. “But in reality, we discovered that the mobile gaming market has been the most fragile since a few years ago.” He further pointed out that many major independent mobile gaming studios, such as Zynga, have either been acquired or faced layoffs.
How are these trends related to the crypto industry? Data shows that GameFi is in trouble, partly because its user base is far smaller than the overall gaming market. For instance, in the case of Ethereum (the dominant blockchain in this sector), key metrics such as transaction volume and user numbers have significantly declined, as can be clearly seen from the chart below (the second chart needs to be read from right to left).
Animoca’s B2B Strategy: Becoming the Market Engine for GameFi
In the current market environment, it seems surprising that Animoca has been able to nearly triple its profitability in just one year, but that is indeed its achievement. How has it done this? By becoming the primary liquidity engine or market maker for GameFi.
Yat Siu realized that providing financial back-end support to these companies is more robust, safer, and possibly more profitable than launching more games in an already competitive market. “This is the evolution of the business,” Siu said. “We know that many small companies do not have such financial infrastructure or relevant experience when launching games. We buy their tokens and provide capital market support, such as over-the-counter trading. It sounds very financialized, but in reality, it is just an extension of what we call the publishing business.”
What impact does this have on its business? In 2023, the majority of the company’s revenue came from its Web3 operations, including wholly-owned projects such as virtual worlds, chess games, and online education platforms. However, from 2023 to 2024, a year of extreme activity in the crypto industry, this revenue declined by 39.5%. Yet, the company’s profits grew by 185% year-on-year. How is this achieved? Its digital asset consulting business grew by 114%, which is where all the capital market activities are located.
Can This Growth Be Sustained?
Delta-neutral strategies like market making can be profitable both within and outside the crypto industry, and data shows that Animoca has found its unique product-market fit in this area. However, investors need to be assured that the company can continue to expand this revenue line, especially as key GameFi metrics remain sluggish.
This question is difficult to answer. One data point that can provide clues is the trading volume of GameFi tokens on decentralized exchanges (DEXs). As shown in the chart below, observing Ethereum-based tokens, the trend is similarly negative, even though daily trading volumes still reach hundreds of thousands of dollars. Other blockchains like Polygon and BNB show the same trend.
This is important because DEX trading volumes more accurately reflect actual user demand for specific tokens, while centralized exchange (CEX) volumes tend to lean towards speculative purposes. It remains unclear how much of this trading volume is conducted on behalf of clients by Animoca, which is an important blind spot for investors.
Supplement
An optimistic interpretation of Animoca’s performance is that the company has found a way to operate profitably before the next wave of GameFi arrives, assuming such a wave will come. In this regard, Yat Siu noted that President Trump’s support for the crypto market is particularly important since the unfavorable regulatory environment in the U.S. has hindered major American gaming companies from entering the field.
“We work with large institutions, essentially bringing them into the crypto space,” he said. “Doing so globally is somewhat comfortable, but in the U.S., communicating with large gaming companies can be more challenging. They do regularly communicate with us, saying, ‘Hey, tokens are interesting; we should pay attention to them.’ However… when the legality of something is not 100% clear, you can only rely on the estimates of lawyers.” Siu hinted that such attempts may be rejected.
If, and this is a big if, Siu and Animoca can bring in a major company like EA Sports, it could address another major issue in crypto gaming: the lack of entertainment in games, which has led players to react negatively to the industry’s excessive financialization. “When you try to attach something that is merely a monetization mechanism to a normal gaming experience without enhancing the gaming experience, players will oppose these company-led monetization strategies,” Hickey said.
This article is a collaborative repost from: Deep Tide