HashKey Capital’s Jeffrey Hu: The Evolution of On-Chain Gaming Through TON Blockchain.

In this interview, Jeffrey Hu , a Research Analyst at the HashKey Capital Jeffrey Hu explores the exciting world of Telegram-inspired gaming inside the TON blockchain network. He outlines the strategic advantages posed by Telegram’s vast user base, the upward trend of casual gaming, and how innovative ventures like Catizen are setting new industry standards. Moreover, Hu shares insightful investment advice and predicts emerging trends in this dynamic space.

What first drew you to the TON blockchain, and how has this shaped your investment approach within the on-chain gaming landscape?

We've been attentively following TON’s progress for several years now. The recent introduction of mini apps on Telegram marked a significant turning point. With 900 million users, Telegram presents an exceptional opportunity for game developers and investors alike, drastically cutting down on user acquisition expenses.

User engagement on the platform is notably high. Telegram hosts a dedicated user community that actively participates on a daily basis. This robust engagement creates numerous avenues for game discovery and fosters continuous player enthusiasm.

Telegram's built-in crypto functionality makes it one of the simplest platforms for users to dive into the Web3 space. This significantly lowers the entry barriers for newcomers to cryptocurrency and ensures a smooth transition for those already acquainted with blockchain.

As the platform consistently attracts both users and creators, it evolves into a vibrant ecosystem brimming with innovation, fresh experiences, and original ideas. We are always on the lookout for applications that can leverage the inherent strengths of the protocol, like Telegram's extensive user engagement and integrated crypto capabilities.

In light of the rise of gaming on Telegram, how do you assess the likelihood of these games capturing mainstream audiences compared to conventional mobile or console gaming?

When assessing the prospects of Telegram-centric games reaching a wider audience, we analyze multiple factors. Accessibility is vital; these games enjoy the advantage of instant access due to Telegram’s extensive user base, eliminating the necessity for separate app installations. The platform's integrated crypto features also facilitate easy transitions into Web3 for users.

We cannot overlook the significant trend toward casual gaming, anticipated to soar to nearly $27 billion by 2029. Games on Telegram, typically casual in nature, are well-positioned to seize a share of this market. The platform's engaged users enhance opportunities for discovering new games and maintaining player interest over traditional app stores.

As we evaluate specific projects, we concentrate on the team's ability to bring their ideas to fruition, a comprehensive product plan that doesn’t fade after initial excitement or airdrops, and a creative, adaptable approach. Early monetization is essential, with some Telegram games successfully starting to generate revenue while simultaneously expanding their user base, leading to higher profits and extended player engagement.

Even though games on Telegram might not directly rival high-end console or PC games, they possess immense potential to capture a significant slice of the casual gaming market. Their ease of access, low barriers to entry, and capacity for viral spread within the Telegram ecosystem make them prime candidates for mainstream popularity.

What innovative features or advancements sets Catizen apart in the Telegram gaming arena? 

Catizen stands out for several reasons. Primarily, it focused on monetization from the beginning, incorporating in-game purchases while still expanding its user base. This strategy allows the team to gain insights into user spending behaviors early on, paving the path for a sustainable game in the long run.

Thanks to this monetization strategy, Catizen's gaming ecosystem boasts higher margins and average lifetime values compared to many projects of similar size. This positions them well to build on early success, evidenced by their recent introduction of the Game Center.

The Game Center exemplifies Catizen's holistic approach, aiming to create not just a singular game but a multitude of playing experiences. Its launch has been met with enthusiasm, bringing in hundreds of thousands of new users while ensuring that current players are spending more time immersed in the Catizen universe. This indicates that Catizen is developing a comprehensive gaming ecosystem rather than merely a standalone game—a key criterion we seek when investing in gaming studios.

From what we've observed, we recommend that other gaming developers contemplate early monetization while still prioritizing user growth. This dual approach can result in healthier financial outcomes and a more sustainable overall business model. Striking a balance between expanding the user base and executing monetization strategies is crucial. Furthermore, branching out beyond a single game to forge a larger gaming ecosystem can enhance user engagement and open up additional revenue streams.

Could you elaborate on the specific trends you're noticing in Telegram gaming? Are there particular genres or gameplay mechanics that appear to be gaining traction or profitability?

Tap-to-earn (T2E) games are gaining popularity, though the market for them is becoming increasingly crowded. There’s also an uptick in interest for broadening Mini Apps to include more than just gaming, indicating a shift toward diverse applications within the Telegram framework.

Casual gaming remains a focal point, with blockchain-integrated reward systems frequently mimicking traditional in-game currency mechanisms. The merging of crypto features—secured by Telegram’s connection with the TON blockchain—is spurring the rise of these on-chain gaming methodologies.

Additionally, we are witnessing a shift towards multi-game ecosystems, with studios like Catizen crafting brands that encompass multiple games. Although it's challenging to highlight specific genres or mechanisms gaining popularity or profitability, we stress the importance of focusing on retention and engaging gameplay that rewards players in captivating ways, transcending mere financial incentives.

From an investment perspective, what critical elements do you consider when assessing a new game or initiative within the Telegram gaming landscape?

In our assessment of new games or proposals in the Telegram gaming arena, several key factors come into play. We lean towards projects that can secure early monetization while concurrently expanding their user base, as this approach typically yields higher margins and enhanced lifetime values. User retention is equally essential, focusing on maintaining player interest beyond initial incentives or token distribution.

The capability to foster long-term engagement through enjoyable gameplay and inventive reward systems is also highly regarded. The project team’s ability to execute their vision effectively is paramount, including their talent for identifying fruitful business models and realizing their ideas successfully. Resiliency and creativity are critical traits, enabling teams to adapt and adjust as market dynamics shift. We favor projects with long-range product plans that extend beyond the initial excitement phase and possess aspirations to build brands instead of standalone games.

Are there specific investment opportunities that HashKey Capital currently identifies as particularly promising within the TON ecosystem?

The most appealing projects within the TON environment are those that concentrate on delivering quality gameplay that attracts an engaged player base willing to invest rather than merely seeking free options. While the challenge is considerable, Catizen exemplifies that such success is attainable.

We prefer to see initiatives that cater to native Telegram users rather than solely focusing on attracting external audiences. Additionally, we are keen on studios that envision curating a variety of games that not only cultivate a following but also establish a community. We seek projects that are smart and innovative, harnessing the strengths of Telegram’s gaming ecosystem, including its vast, integrated audience and its built-in Web3 and crypto functionalities via the TON blockchain.

What can you tell us about the user demographics of Telegram games? Are certain regions or age demographics particularly represented?

Telegram boasts over a billion active users from nearly every corner of the globe, rendering it a vibrant and appealing ecosystem for gaming startups. Similar to mobile gaming trends, casual games resonate with a wide array of demographics across different age groups.

What do you foresee as the next significant trend or evolution within the Telegram gaming sphere?

Interconnectivity is beginning to take shape in the realm of Telegram gaming. There’s tremendous promise for games to collaborate and create utility for assets that transcend individual brand boundaries. Furthermore, we’re observing remarkable creativity in projects developing intricate games for Telegram, which is not something one would typically associate with a social messaging platform.

What excites you the most about the forthcoming developments in Telegram gaming and its potential ramifications for the overall gaming industry?

Jeffrey Hu from HashKey Capital: The Evolution of On-Chain Gaming Through the Lens of TON Blockchain