23 DECEMBER 2021

Decentral Games | $DG

Investment Summary

Winner from accelerating structural growth
We see Decentral Games as well positioned to capitalize on three compelling structural growth themes (1) rising online gambling penetration globally, (2) play-to-earn gaming, (3) and the metaverse. We believe that blockchain solutions will capture a growing share of the online iGaming market, with a potential GGR (gross gaming revenue) of $15b, and believe that DG will be one of the top operators in the space. More immediately, we see DG benefiting from growing interest in P2E gaming and the metaverse.

Rising penetration of online gaming
Globally, online penetration in gambling stands at only 16% (45% in sports betting; 8% in gaming), having doubled over the last decade. Online penetration has historically been increasing by around 2pp per annum over the last five years underpinned by technology, product development and mobile proliferation. COVID-19 has further shifted players online. We assume that iGaming GGR will eventually account for around 30% of total GGR and that blockchain games will conservatively take around 10% of the iGaming addressable market, a $15b opportunity.

The video game industry has moved from pay-to-play, to free-to-play, and now we have play-to-earn (P2E). DG players earn $DG rewards for playing games in proportion to their wager amount (paid in MANA or DAI). While most online iGaming companies provide free bets, DG rewards users in $DG, in effect a share of the company’s Treasury. With players “owning the house” DG should enjoy a competitive advantage in customer acquisition and retention. Moreover, DG’s ICE Poker, allows the NFT-owning players to delegate their chips to other players, in exchange for a share of the winnings. Much like the success that Axie saw in attracting players, ICE Poker is allowing players to earn an income from playing the game.

The Metaverse is a virtual world where people can socialise in real-time and develop a user-owned, sustainable digital economy. One of the leading blockchain-based virtual worlds, Decentraland, is a metaverse where users can play games, earn Mana, purchase LAND or other collectibles and, in short, generate value for their time spent in-game. Decentral Games owns over 1,000 LAND parcels within Decentraland and operates several casinos on its land. Decentral Games benefits from rising user growth within the Metaverse, in addition to asset price appreciation on its land holdings, which are held in the DaoTreasury.

  • Growth in Decentraland user base
  • New Casino openings and new games leading to rising GGR
  • Adjacent cross-sell opportunities into live events, sports betting etc.
  • P2E driving income generating opportunities, player acquisition and retention

  • Regulation around gaming rights, taxation etc.
  • Decentraland - DG currently only operates within Dencentraland

Project Overview

The casino and gambling industry has long been primed for disruption due to the capital-intensive nature of the real world business model. This explains the dramatic shift to iGaming in countries such as the UK, Australia, and more recently in the US.

Blockchain iGaming solutions, like DG should have three key advantages over traditional iGaming websites: (1) blockchain tokenomics and (2) metaverse and (3) Play-toEarn.

(1) Decentral Games is a DAO-governed metaverse casino powered by $DG. That means that the casino ecosystem is owned, governed, and maintained by its players. The game first launched in 2020 and currently includes poker, blackjack, roulette, backgammon, and slots. Players earn $DG or $ICE tokens as rewards for playing games, while LPs earn $DG for providing liquidity, and holders earn $DG for participating in governance of the casino house funds treasury.

In gambling, it is no secret that the house always wins. By earning rewards for playing games, providing liquidity, and participating in governance, DG is building a casino where the players “own the house.” Simply put, tokenomics drives ownership, which creates engaged players.

(2) By designing a series of venues in Decentraland, where players can socialise and enjoy live music and games, DG created a highly immersive environment allowing them to tap into demand from outside of the traditional iGaming crowd. We expect the DAO to oversee a rapid scaling of the games and events that have a winning formula — profitable for DG and fun for users.

By providing a multi-player and sociable experience, DG’s players are likely to stay in the casino for much longer than web-based browser games, like Poker Stars. ICE Poker is particularly important in this regard, where players tend to play for 2-3 hours, rather than 10-15 minutes for slot machines, roulette and blackjack.

(3) ICE Poker has recently been launched within DG, which offers a similar P2E model as Axie Infinity. Users that own ICE Wearables (NFTs) are able to delegate their chips to other players, creating income earning opportunities. The delegation and revenue sharing agreements are all on chain, with winnings automatically accruing in the correct split to the corresponding party.

The ICE Tokens that are won allow the NFT owner to upgrade his NFT, burning $ICE. The delegated player can also use his $ICE by playing regular DG games to earn $DG. The P2E format of ICE should help DG to onboard thousands of players into the ecosystem. There are currently 2,000 ICE Poker NFTs (all sold out) and the floor price on OpenSea has risen sharply to 1.4 ETH or $6,000. A top poker player can earn around $300 ICE/day (~$35) playing ICE Poker, equivalent to more than $12,000 per annum.


In contrast to traditional gambling where the house is pinned against the player, the DG model aligns all parties through the distribution and appreciation of the $DG token that governs the DAO treasury. Casinos are highly profitable businesses, and with this token model structure, everyone involved in the ecosystem can benefit from the upside of the platform.

The DAO controls the entire ecosystem of $DG. The DAO is essentially acting as an asset manager, with the casino feeding the dgTreasury’s balance sheet. So far the Treasury has amassed over $10m from in-game winnings and also controls all of the Decentraland LAND (>1000 parcels), NFTs, and other liquidity management tools. As the balance sheet expands, the funds will likely be directed to expansion of the metaverse and creation of new revenue streams.

The $DG ecosystem revolves around the dgTreasury, which is an open and transparent casino house funds treasury, which bankrolls the games. It requires sufficient funds in order to cater for mathematical variance in the odds offered by the casino games. All fees collected from players will be collected in this treasury (in MANA and DAI), and it would also pay out players' winnings.

$DG is a non-refundable functional utility token and the medium of exchange between participants within the ecosystem. $DG provides the economic incentives to encourage users to contribute and maintain the ecosystem, thereby creating a win-win system where every participant is fairly compensated for its efforts.

$DG is awarded to players to incentivize early adoption of the games ecosystem. $DG is awarded for wagers on the games in proportion to the amount staked. It is also awarded for referring new players (affiliate rate) and to encourage multiplayer games (players sitting at the same table enjoy bonus mining rewards). The play-to-mine rate (or mining difficulty) will increase as more $DG is mined to target a 6 year distribution period.

$DG can also be earned for providing liquidity in market making pools and also for participating in the governance of the DAO.

$DG Allocation

Following the December stock split, 1 billion $DG have been minted and locked at genesis. The tokens will become accessible over the next 6 years:
  • 62% [620m DG] to the community
  • 20% [200m DG] to team
  • 18% [180m DG] to early participants

Revenue Model

The dgTreasury grew from $1m at the start of 2021 to over $50m in December 2021. The dgTreasury contains all of the assets of the game, including the Game Profits, earnings from the Polygon Validator Node and the Decentraland Land (1,000 parcels).

Over time as value accrues in the dgTreasury, the DAO can decide how to allocate that capital. So the total value of DG’s holdings grow, while gameplay profits are periodically divested into liquidity positions, yield farms and other assets, to become productive. The total value of the Treasury now stands at $50m, reflecting growth from in-game earnings, NFT sales, LAND inflation and other recurring revenue streams.

In order to value the $DG, we are most interested in how much money accrues from the casino operations. Currently these game profits stand at $10.6m, although this can be a volatile number from week-to-week (the house sometimes loses).

In terms of valuing $DG, the Game Profits reflect the earnings power of the Casino. This year, the casino has generated around $10m in earnings. Given that there are currently around 250m tokens in circulation, the earnings per token comes out at $0.04/token. With $DG is trading at $0.31, the implied earnings multiple currently stands at 7x. That is incredibly cheap compared to the underlying growth in the business and significantly cheaper than listed global gaming companies, which tend to trade around 15x.

We have projected a simple illustrative income statement to highlight the potential valuation of DG as the business grows and matures. Our projections take into account the inflation in the supply of coins. In ten years time, we think that DG could be pulling in a handle of over $15b (total bets placed) and a GGR over $3b. Currently, there are around 6,000 daily active users connecting with DG via Dececentaland. Over the next decade, we think this could grow to over 600,000 DAU.

In conclusion, we think that $DG (post split) could be worth over 40x the current price, or around $12/token. If we are right, $DG is a $12b business - that doesn’t sound too rich for the premiere Casino in the metaverse.
Disclosure: 3Commas Capital members may hold Decentral Games (DG) and/or hold advisory roles. This statement is intended to disclose any conflict of interest and should not be misconstrued as a recommendation to purchase any token. This content is for informational purposes only, and you should not make decisions based solely on it. This is not investment advice.
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