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Justin Kan's Fractal raises $35M for game-focused NFT marketplace | VentureBeat

Justin Kan’s Fractal raises $35M for game-focused NFT marketplace | VentureBeat

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Twitch cofounder Justin Kan’s Fractal has raised $35 million to build out its marketplace for gaming non-fungible tokens (NFTs).

San Francisco-based Fractal has opened a marketplace for video game players to discover, buy, and sell gaming NFTs. Fractal recently released Fractal Launchpad, a new product that helps game companies sell their initial NFT collections to the public.

Paradigm and Multicoin Capital led the round with participation from Andreessen Horowitz, Solana Labs, Animoca, Coinbase, Play Ventures, Position Ventures, Zynga founder Mark Pincus, Crossover, Shrug Capital, TerraForm CEO Do Kwon, and Tim Ferriss.

Paradigm’s Matt Huang will be joining the company’s board. This financing round comes two months after launching Fractal to the public on December 30, 2021. The new funds will be used to hire more engineers, recruit and support game developers, and grow a vibrant ecosystem of GameFi participants.

Fractal vets web 3 games for quality, accepting only 5% of applications to Fractal Launchpad, Kan said. Games that have launched on the Fractal launchpad include real-time strategy games (House of Sparta), multi-mode games (Tiny Colony), racing games (Yaku), and massively multiplayer online role-playing games (Cinder and Nekoverse).

“I wanted to partner with the coolest games out there,” said Kan. “We’re building great experiences.”

NFT resistance

One of the reasons for being selective is that NFTs have run into a buzzsaw of resistance with some hardcore gamers and game developers. Ubisoft discovered this when fans reacted poorly in December to its NFTs for Ghost Recon: Breakpoint, and others such as Troy Baker, Team17, GSC Game World, and more have encountered resistance.

Fractal also suffered a security breach back in December. A scammer hacked the announcement bot for the startup’s Discord community, which then sent out a fraudulent link to thousands of users. It asked them to pay for a new NFT. Fractal had to pay $150,000 to deal with the losses. The crypto world can be a scary place, as Sky Mavis discovered this week when hackers stole $624 million worth of Ethereum cryptocurrency and U.S. dollars from the Ronin Network that supports the popular Axie Infinity game.

Better communication

Part of the key is communicating with players, and Fractal has done that with its Discord community, Kan said.

“While the NFT world is rife with scams and rug pulls, our goal is to build Fractal into the trusted marketplace for the best blockchain games and triple-A titles that are coming out,” Kan said. “What we’ve learned is that the best gaming companies want to be on a marketplace that is dedicated to serving their needs.”

The marketplace opened in February. Every game that has launched with Fractal has sold out their NFT collection, with Tiny Colony raising over $2 million from their initial sale. Peak traffic hit over 33,000 buyers for a single game NFT collection release, Kan said. The community has more than 100,000 members.

Kan said the unwelcome mat for NFTs is like the reaction to free-to-play games 15 years ago. Games like FarmVille really annoyed hardcore gamers, who decried the games as scams with poor gameplay.

“Fifteen years later, we have League of Legends, Free Fire, Fortnite. Almost every big game is free to play,” Kan said. “That’s a dominant model because it turns out that players will pay. With blockchain, people are saying the same things. It’s a scam. The games suck. But we haven’t had the time to get really good games into the market. Behind the scenes, there are all these guys from the traditional gaming industry coming in and making really incredible games.”

He said that 10 years from now, we’ll see blockchain games as a better model for games.

“The reason why I think it’s going to win is it’s better for both the game and for the game developer and for the players. And for the game developer, the reason it’s when you’re basically making an economy from a closed economy to an open economy. And when you make an open economy, I think it’ll be proven that it’s just much more robust,” Kan said. “The more people build on it, you know, with other people building games on top of your entities, the better it becomes.”

And he thinks the makers of user-generated content will come if they have a stake in the game through things like NFTs.

“For the game companies, there is a sacrifice of control in exchange for making an open ecosystem that ultimately is much more robust in the long run and then they will collect. They will get a percentage of all these NFT trades. That’s potentially much more valuable to them,” Kan said. “Then on the player side, I think it’s just more valuable because you own your assets. And you will have, when you’re done with it, the ability to trade them. You can sell them instead of just buying them.”

Building trust

Players will be more excited once they see they own them, he said. It’s like using skis to ski on any mountain, rather than renting them for use on just one mountain, he said. As for the games being terrible, he said players need to give it time and embrace some experimentation.

“Fractal is building a trust layer in the web 3 gaming ecosystem,” said Kan. “NFT marketplaces are still the wild west right now, with many teams failing to deliver on their promises. We are working with the best triple-A gaming studios with large communities to bring the coolest game experiences to players. The transition to blockchain assets is a new business model for gaming, and in 10 years will be an even bigger shift in the gaming world than Twitch was. Fractal hopes to onboard the next 100 million crypto users through blockchain games.”

Selling digital, in-game assets has become a huge industry in recent years, as blockbusters like FIFA and Fortnite have raked in tens of billions from selling digital items. Today, greater numbers of games are moving to listing their virtual items on public blockchains, giving players complete control over those assets, and allowing them to own and resell them later. Gaming NFTs are the fastest-growing category of NFTs, and have recently surpassed one million active crypto wallets holding gaming NFTs last month. Blockchain games generated more than $5 billion in sales in 2021.

“Game companies want to list on a marketplace that focuses on and supports the gaming community,” said Bill Karamouzis, CEO of Addicting Games, the gaming studio behind blockchain game ev.io, in a statement. “The Fractal team has been a great partner for us as we ramp up towards our initial launch.”

That’s a little payback as Kan said he can remember times when he was addicted to Addicting Games.

Getting off the ground

The seed financing comes two months after the company came out of stealth in December, and a month after launching to the public. Games that want to list their NFTs on Fractal can now apply through the company’s website. Goat Capital previously led Fractal’s seed round in January.

“We’re in the middle of a generational shift in gaming, powered by crypto, where players expect a greater degree of ownership and control of their digital items,” said Huang, co-founder and managing partner at Paradigm, in a statement. “Justin and the Fractal team understand this shift better than anyone else, and we’re excited to invest in their vision to better serve players.”

The seed of Fractal came out of a brainstorming session with Kan’s cofounders, David Wurtz (Fractal CEO) and Robin Chan.

“We were all redpilled on crypto and were looking for opportunities to build,” Kan said. “David was excited about NFTs, and the ways that value would evolve as NFTs continued to gain utility. To us, the obvious next step was gaming: as a gamer, I’d already been spending real money on digital assets for years. Putting them on a blockchain to certify real ownership was clearly going to happen.”

“The Fractal team is supporting games that are creating truly open, decentralized economies,” said Mable Jiang, partner at Multicoin Capital. “Just like free-to-play games launched a new business model for gaming over a decade ago, we believe that blockchain will enable a paradigm shift to the models for games of the future.”

Kan said It’s better for game studios because as game studios will find out, when they make their economies and assets open and programmable by putting them on the blockchain, they will create ecosystems that other people are much more willing to invest in with their time and money.

He said we will see the biggest games become open economies that support other developers building businesses on top of. Kan predicted that the business model of minting digital assets, building a massive ecosystem, and taking a royalty on those assets as they trade, will be demonstrated to be a very lucrative business model in years to come.

“It’s better for game players, as true ownership of digital assets on a blockchain will let players participate in the success of the game, as well as make the decision to trade out of the assets of a game if they want to move on to something else,” Kan said.

Kan’s company has about a dozen people and it plans to hire more.

The Fractal marketplace is like a secondary market where players can sell things they have bought in games. But the Fractal Launchpad is a place where people can buy NFTs dropping for the first time. The launchpad helps big game companies mint their initial NFT drops.

“We do that for them, full stack,” Kan said.

Fractal is working with the Solana blockchain now, which has low transaction costs, low environmental costs, and high transaction speeds. Kan wants the games being launched to be great game experiences.

“We’re using the money to continue to build out the team and do marketing for our game partners,” Kan said. “We’re trying to help them have the biggest impact possible or the largest audience possible.”

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This content was originally published here.