Acquire Malta Entity/Gaming License

Background

Web4 Ltd., the BVI entity responsible for issuing DG and ICE tokens and funding Decentral Games development, has the opportunity to acquire a majority (90%) stake in a Malta entity holding a Malta Gaming License. This license is highly regarded in the online gaming industry, surpassing those of Costa Rica, Curacao, and various others available.

In the past, Decentral Games offered Metaverse wager-based games under a Costa Rica Gaming License using a non-custodial architecture, allowing players to play with tokens on the Polygon blockchain directly from their wallets. At its peak, these games generated $250k - $300k per month in revenue for the treasury. However, this revenue was drastically offset due to Polygon gas fees (typically $100k - $150k per month) and the DG rewards (~$150k per month). Although novel and decentralized, our prior non-custodial gameplay design ultimately proved to be costly and inefficient.

We paused these wager-based games in January 2022 for the reasons outlined in passed governance proposal #QmQ4hDk. In summary:

• The Polygon POS network became more congested as it gained popularity throughout 2021. This caused our monthly MATIC gas bill to increase drastically as we paid all player gas fees in our non-custodial architecture. Each blackjack hand/roulette spin was two transactions — a funding transaction and a payout transaction. Over time, these fees ended up severely eating into our gameplay revenue.
• Block reorgs and RPC outages caused gameplay delays, resulting in a bad player experience. Although infrequent, this became more of an issue as the Polygon POS chain gained wider adoption.
• The growth that play-and-earn blockchain gaming projects were able to achieve in such little time was attractive to us given our DAU numbers remained in the hundreds. Focusing our brand and resource allocation on this appeared to be most lucrative for the project at the time.

The setting we find ourselves in today, in April 2023, is drastically different from where we were back in January 2022. Amidst both a crypto- and marco-economic bear market, speculative demand on blockchain game assets has flatlined, new user growth has proven to be exceedingly challenging and expensive, and sound unit economics and revenue are paramount for survival.

Metaverse Team Roadmap

Decentral Games consists of two product and engineering teams — the Metaverse team and the Arcade Team. The Metaverse team in general has been in charge of improving the gameplay of the ICE Poker Metaverse gameplay experience. This team has most recently shipped a slew of bug fixes, Player Leveling integration, Assigned Seating algorithm improvements, and Metaverse SNG. On the other hand, our Arcade Team has shipped Player Hub, Onboarding funnel optimizations, Multiple game modes, Player Leveling Metaverse SNG, Prize Marketplace revamp featuring custom prizes, NFTs, tokens, etc, to name a few.

We’ve already completed the majority of the work in adding support for Banked ICE wagers in both Metaverse Blackjack and Roulette. This would serve as a proof of concept for adding ICE and other tokens as the gameplay will be very similar (offchain). Acquiring this license would allow us to plot out a highly lucrative Metaverse Team Roadmap to leverage our work from the last 3-4 years of Metaverse development to ultimately bring maximum value to the ICE ecosystem and the DG treasury.

Proposal

We propose for Web4 Ltd. to acquire the Malta entity and its gaming license, establishing Decentral Games as the first Malta-licensed, metaverse casino. The costs involved in this acquisition include:

• $100k for acquiring a majority stake (90%) of the entity holding the license.
• Approximately $40k in additional one-time fees for Gaming Audit, Blockchain Audit, and initial contract with KYC partner.
• $80k in annual recurring costs for license renewal, minimum gaming duties, Financial Audit / Malta Tax Return, retaining a local law firm, and Data Replication in Malta.

The total expenses would amount to around $220k throughout Year 1 and $80k annually thereafter.

Fees in ICE generated from the games would be burned, acting as a material force driving up our ICE burn-to-earn ratio, leveraging our Metaverse Blackjack and Roulette games to deliver value to the ICE Ecosystem. Should we decide to offer gameplay in other tokens such as DAI, MANA, ETH, etc, these fees will accrue to the DG Treasury.

Rationale

As we look toward the rest of 2023 and beyond, adapting our existing Metaverse games to support ICE and potentially other tokens appears to be the highest yielding allocation of our Metaverse Team resources to bring maximum value to our ecosystem. While we remain focused on our goal of the Arcade/web product onboarding 1M+ users, this is not possible yet in the Metaverse due to the technical limitations; we’ve realized that it’s best to focus Metaverse development on bringing in the maximum amount of value given smaller player numbers.

Adding support for ICE and potentially other token wager support in our existing metaverse games, adds a defensible ICE sink and revenue stream for the DG Treasury. The play-to-earn offering acts as a powerful player acquisition and growth tool while the wager-based games capture revenue to drive value to the ICE token, which ultimately brings value to the wearables. The result is a very powerful symbiotic relationship that delivers more value than the two parts individually.

With the completion of necessary audits, a new deposit/withdrawal processing method, and onboarding a KYC partner for withdrawals over a threshold to be compliant with Malta law — we can launch ICE wagers under the new Malta License in Q3 2023, and other token wagers soon thereafter with minimal development lift. We anticipate the wager-based games becoming highly profitable and adding considerable value to both ICE and the DG Treasury over time and we are excited by the prospect of launching the first Malta-licensed metaverse casino under the DG brand.

A custodial gameplay approach parallel to that of Banked ICE wagers addresses issues we previously faced with high gas fees and transactional inefficiencies. While some brand concerns may persist, we will completely separate and differentiate the ARCADE and CASINO brands:

• Decentral Games Arcade (Shine/Banked ICE gameplay, available for everyone)
  • ICE Poker Arcade
    • Free Play
    • SNG
  • ICE Poker Metaverse
    • Challenge Mode
    • SNG
• Decentral Games Casino (ICE/Token gameplay, available only to players in permitted jurisdictions)
  • Metaverse Blackjack
  • Metaverse Roulette
  • Metaverse Slots
  • Metaverse (Cash) Poker

Players residing in jurisdictions where wagers are illegal would only have access to the Decentral Games ARCADE, while players residing in jurisdictions that permit wagers supported by the Malta license would have access to both the Decentral Games ARCADE and CASINO. This would be enforced with geogating and KYC for withdrawals greater than the permitted threshold.

Acquiring a Malta license from scratch would likely be similarly expensive and take significantly longer (1-2 years). The acquisition opportunity before us comes with valuable connections to the gaming authority, auditors, legal counsel, and a KYC provider, making it a more efficient and beneficial option for our ecosystem.

Given current market conditions and the valuable IP that we hold, we believe that acquiring the Malta Gaming License presents an excellent opportunity for Decentral Games to expand its gaming offerings and bring significant value to our ecosystem and community.