ICO Investors are about to experience something that’s almost never happened in the brief history of the $3 billion market: An offering by a company with an actual product.
Bloomberg Businessweek has managed to find the one ICO being launched to solve the rare problem that could actually benefit from decentralized, monetized tokens. The company is called OPSkins, and it’s the largest skins site in the $50 billion market. The company has raised $41 million in an ICO it launched last month, and hopes to raise another $7 million before the sale ends on Nov. 28. For those readers who aren’t avid gamers, Bloomberg explains that a “skin” is a decoration for the virtual guns and knives found in video games like CounterStrike: Global Offensive. While the concept of building a company around these products might seem silly, some buyers will pay thousands of dollars for the rarest skins.
The two-year-old company has raised about $41 million by selling what it calls WAX tokens, a virtual currency that will become the default way to buy and sell skins on its intercompany skins exchange, the Worldwide Asset eXchange, which will allow buyers to connect to dozens of disparate marketplaces. The idea is to simplify purchases for gamers from different countries and give everyone a clearer sense of what a particular item is worth, using the same kind of digital-ledger system as the cryptocurrency bitcoin.
Previously, the market for these virtual items was highly fragmented, and wealthy buyers would often play intermediaries a premium to root out the best deals on their behalf.
The company bets that making its exchange accessible to rivals, who can then make a broader catalog available to customers, will expand its audience beyond the limitations of an individual website, says Chief Information Officer Malcolm CasSelle, who’s helping lead the WAX effort. In theory, there’s lots of room for new skins buyers, says Chris Grove, managing director at researcher Eilers & Krejcik Gaming LLC. About 200,000 new people buy virtual items through OPSkins each month, but the site sells gear for online games with more than 125 million regular players.
“This could be the perfect on-ramp,” says investor Scott Walker, who helped fund the “initial coin offering,” or ICO. Early investors are getting more WAX tokens for their money, but their value will become another variable once the exchange goes live in December.
OPSkins doesn’t disclose its financials, but its revenue is growing at double digits annually, says CasSelle, previously chief technology officer at Tronc Inc., the former Tribune Co. Partly, he says, the WAX token strategy is a way to stave off competitors. Over the past few months, rivals including DMarket, KyberNetwork, and SkinCoin have held ICOs to launch or expand their services. So far, though, no other trader has the muscle to create the kind of intercompany exchange OPSkins is building. Starting next year, websites that install the WAX widget will get as-yet-undetermined fees for resulting sales.
However, before you rush out and buy WAX tokens purely for the sake of speculating, It’s worth considering the fact that OPSkins entire business is essentially at the mercy of the giant video game studio that produces many of the games whose wares Skins sells on the secondary market.
The volatility of the WAX token price may make it a poor place to hold money not being used for short-term item buying and selling. But OPSkins’ biggest potential roadblock is the maker of the games. Industry leader Valve Corp., which publishes Counter-Strike: Global Offensive and the other big hits OPSkins exploits, has the power to ban sites from trading skins. Last year, Valve sent cease-and-desist letters to 23 online gambling sites to prevent them from using skins as collateral, a move aimed at reducing teenage gambling on professional video game matches. “Valve has certainly left the door open to an action in the future,” says Grove, the Eilers researcher.
However, the company’s technology chief says it doesn’t need Valve Corp.’s cooperation to build a successful business.
CasSelle says that the new exchange can work without Valve’s help, including as a way to acquire other virtual goods, and that OPSkins is looking to raise an additional $7 million in WAX tokens before it finishes its ICO on Nov. 28. (The company initially sought a total of $63 million but lowered that goal because the flurry of interest around bitcoin and its spiking value has diverted attention from ICOs.) Alexander, the personal shopper for virtual goods, says he thinks the exchange will be good for people like him in the short term, swelling the overall market for skins. “It makes the entire process effortless,” he says. “It is a massive pain dealing with the payment methods available at the moment.” But he’s hedging his bets, having returned to college to finish his degree in economics. He says he eventually wants to get a job in finance or start his own business.
OPSkins doesn’t disclose its financials, but its chief technology officer - who was previously the CTO at Tronc Inc. - explained that the WAX token strategy is a way to stave off competitors. Over the past few months, some of OPSkins rivals, including DMarket, KyberNetwork, and SkinCoin have held ICOs to launch or expand their services. So far, though, no other company has the muscle to create the kind of intercompany exchange OPSkins is building.
If it succeeds in being the first platform to capture a dedicated customer base, maybe - just maybe - the WAX token might have a future.
Unfortunately for investors, most of the other 799 tokens trading on one of hundreds of exchanges scattered across the Earth, probably won’t.