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2023 Predictions: The Year of Web3 Pets

source-logo  coindesk.com 04 January 2023 17:37, UTC

Crouched at the ocean’s edge, her skeletal figure was a rude juxtaposition against the idyllic scenery of Seven Commandos Beach, a tiny island skirting the west Philippine archipelago. Once a tourist hotspot with hundreds of visitors dropping delicious pizza crusts and burger scraps daily, none had stepped foot there since the country closed over a year earlier. Just a 10 minute boat ride from the place where my boyfriend and I had bunkered amid the pandemic, we’d headed there for an afternoon for snorkeling and sunsets only to find a hungry old dog instead. Kneeling to meet her, I traced my fingers over her dirty, straw-like fur and nubby ribs. The animal was starving to death but somehow she mustered a tailwag, and in that moment, we knew we weren’t leaving that island without her and her two babies in tow.

Leah Callon-Butler, a CoinDesk columnist, is the Director of Emfarsis, a consulting firm based in Southeast Asia that represents play-to-earn sector clients including Animoca Brands, Yield Guild Games, Blockchain Game Alliance and others. This piece is part of CoinDesk's Crypto 2023 package.

Over the next year we treated them as our own. We fed them only the best food, got them the veterinary attention they needed, and spoiled them silly with squeaky toys and bones from the butcher and all the things that doggy dreams are made of. The whole exercise cost a bomb, but we didn’t care. It was high-COVID and they provided us with much-needed respite from the digital grippings of lockdown life. Between tummy rubs, new tricks, and those little things they do to let you know how much they love you… The time we spent with them was priceless.

It was always the plan to get them adopted out. Whilst we would have preferred to keep them, sadly, pet ownership does not gel well with a career that calls for constant global travel; I’m sure crypto people can relate. And now, with borders open, we are rarely at home. So, of course, I’m grateful that we were able to find forever-homes for our rescue dogs, but saying goodbye was immensely difficult, and now there’s a giant gaping hole in my life where my pets used to be. Which may offer a clue as to why I’ve become increasingly obsessed with my Crypto Unicorns.

Built on Polygon, Crypto Unicorns is a farming game of which I was first a player, and then later, an investor and advisor. I don’t know how many people care to hear my stories of farming nail seeds and picking up rainbow poop — but I tell them anyway. Every chance I get, I’m whipping out my phone to bring up OpenSea to show off my collection of these adorable NFT pets. By now, I’ve collected way too many corns to remember each one by name, but I have my favorites. Like Pinstripe Atticus, a baby Double Mythic that I bred all by myself. In the game, they do the cutest things; like yesterday, Minty Raja was licking his crotch with his leg over his head, just like a cat. I’d never seen him do that before; devs must have pushed an update. I rushed to open QuickTime so I could capture the precious moment but I wasn’t quick enough.

Read more: It’s Been a Year Since NFTs Exploded. Where Are We Headed?

Digital pets are obviously not new. Released in 1995 by video game developer P.F. Magic, Petz was the world’s first. I got the PC game from Santa for Christmas that year and spent much of 1996 utterly petrified that my Chihuahua might run away if I didn’t give it enough attention. Then came Tamagotchi, and while classroom teachers were pushed to the limits of their patience with the beep-beep-beeping that kept kids hooked to their little egg device, others saw the benefit in learning about the responsibility that goes with caring for a living creature.

Starting out simple, later versions of these games allowed customization, training and breeding. With the advent of the internet, it was also possible to socialize virtual pets with other virtual pets and their meatspace owners. Massive online communities formed, run mostly by women, and they initiated all sorts of events external to the game, from art competitions to pet shows.

Recalling the reason as to why they felt such a deep connection with their pixelated pets, countless articles, tributes and forum posts cite “a sense of ownership.” But this ownership was imaginary at best; these pet owners never owned anything at all, for their animals existed only within the confines of the platform on which they were built.

To put this into context: Imagine you bought a puppy from the pet store, but you can’t take it home. You can play with it anytime you like, you just have to go back into the pet store and interact with the animal inside its permanent enclosure. Most people will scoff at this, as they should! It’s ludicrous. But it underscores the difference between the web2 and Web3 experience of ownership. Web2 pets never get out of the pet store, while Web3 pets are free to roam.

Read more: Jeff Wilser, Xinyi Luo - 10 Predictions for the Future of Crypto in 2023

Web3, as a collection of blockchain-based tech including cryptocurrencies and NFTs, facilitates the decentralization of internet-based platforms in a way that wasn’t possible before, so that digital pet owners can take personal control of their pets. As per our pet store analogy, an NFT pet lives in the owner’s self-controlled crypto wallet instead of being stuck inside a game.

Now, with your web2-pet-owner-hat still on, imagine you showed up to the pet store only to find that it was closed. Or worse, there’s a sign on the door saying the store has shut permanently with your puppy inside. No matter how much time you spent together, no matter how many tricks you taught them… All you have left are memories. This is the frustration and devastation experienced by players of web2 games that go down for extended periods of time or shutter altogether, and the graveyard of games past is strewn with tombstones of virtual pet titles. Like Club Penguin, a Disney-owned social network that had 200 million users in 2013, but didn’t allow any of them to port over their game items or coins when a new site was launched in 2017.

The concept of ownership is fundamental to our relationship with pets. You give it a name. You are responsible for it. It relies on you for food, shelter, medicine and love. You protect it. You are its owner. And wherever property rights are critical, there is an excellent use case for Web3. So it isn’t surprising that there are already loads of pet projects popping up with NFTs at the core.

In Crabada, a game on Avalanche, you can be a keeper of fierce, fighting crustaceans. In Nyan Heroes, an upcoming Battle Royale Shooter on Solana, you can own an adorable kitty and its deadly guardian robot and feel good about it, since the game’s developer plans to donate part of its revenue to animal charities. And then there’s NFT games like Petaverse and Digital Dogs that combine blockchain with other tech such as AI, AR and extended reality (XR) to deliver new ways of interacting with virtual pets. Many PFP projects have pet-like qualities too, such as Pudgy Penguins, Cool Cats, CrypToadz, Sup Ducks and Moonbirds to name a few.

So if digital property rights are so important to digital pet owners, why haven’t they demanded them before? Virtual pet communities were always tech-forward. Taking the Petz community as an example, members went to lengths to learn and hand code HTML to build their own sites (with blinking and marquee scrolling text and all) to display their virtual floofs. This is remarkable because it was just everyday enthusiasts with the passion and drive to create. There was no drag-and-drop; it was pre-WordPress, pre-Facebook and MySpace, even before GeoCities.

Super zealots even learned to reverse engineer their pets, playing into the binary code of the project to edit their hexadecimal codes and alter everything from body shape to coloring to fur texture. Sometimes, hexers on-sold their modified breeds but there was no way to protect or prove the uniqueness of a digital pet, and no way to prevent its .pet files from being freely shared for anyone to download. If you wanted a one-off, you just had to trust that it wouldn’t be re-sold. But realistically, there were countless Petz clones proliferating all across the world.

NFTs could have solved this problem of authenticity and provenance but they only took off over the past few years. Virtual pets have been around for nearly three decades.

The earliest advocate for NFT pets that I met was Jeffrey “Jihoz” Zirlin, co-founder of Sky Mavis and Axie Infinity. Sky Mavis just launched Axie Core, a new in-game experience designed to strengthen the emotional connection between owners and their Axies. This has been a long time coming. The first chat I ever had with Jihoz, in August 2020, he talked a lot about his vision for Axies to be thought of as virtual pets. He had a strong rationale too, pointing to the amount that people spent on real-world pets — the global pet care market is projected to grow from US $222.93 billion in 2021 to US $325.74 billion in 2028 — and how part of that spend could be captured by the virtual pet market since people were living more and more of their lives online.

But at the time, few people knew what an NFT was, let alone owned one, and most who got into Axie from 2020 onward (me included) thought of Axies less like pet ponies and more like workhorses meant for hard labor. We were coming off the back of DeFi summer and everyone was all about yield farming. Then COVID hit, destroying livelihoods, particularly for those in countries where government relief was limited, and millions were left desperate for income. So play-to-earn (P2E) ended up being the thing that catapulted Axie into the mainstream.

In hindsight, the original P2E model was unsustainable. Players were incentivized to extract more from the game than they put in, leading to hyperinflation of the game’s currency and eventual collapse of the virtual economy. Opportunistic players cleared out once there were no more easy gains to be made, and developers refocused on building fun-first blockchain games to attract players who could spend big (as opposed to seeking payouts). Add to this the reckoning that crypto is down bad (as is global macros) and will be for a while. Anyone who was in it purely for financial gain has fled for greener pastures and the only NFT folk still holding are either long crypto or subscribed to the “would you still love it if it went to zero” mantra.

Jay Chang, co-founder of Genopets, a move-to-earn game on Solana where players nurture their very own NFT spirit animal, told me he’s observed that players of his game are motivated to invest in upgrading their virtual pets. To level up and evolve a Genopet, players complete daily quests like taking their mobile phone — I mean, virtual pet — out for walkies. A pedometer counts the number of steps and converts them to energy points in the game. According to Chang, the majority of players opt to reinvest those points into improving their pet.

“Since our beta started, around 65% of our daily active users (DAU) consistently choose to use their daily energy earned to upgrade their pet rather than taking an on-chain action to convert it to a token and be ‘paid to play’ like with typical Web3 games,” Chang told me via Telegram DM, adding that petcare games are a nostalgic game loop that are proven to appeal to a very wide demographic. “NFT pets are just a modern twist in that players can own the economy,” he said.

Web3 pet owners tick all the boxes: They care about property rights, they put more value in than they extract, and they’re not abandoning their beloved NFTs just because of a dip in the market. For these reasons, they will also place significantly higher expectations on the projects that they back and they will not hesitate to air their pet peeves over the current lack of true ownership, security, transparency, good governance, interoperability and composability in this space.

Right now, we’re in an awkward transition phase where there’s lots of big claims going around about Web3’s ultimate utility. But in reality, NFT ownership is flimsy and each one of our virtual playgrounds is a self-contained silo. Add to this, what “utility” we’ve seen so far is non-scalable web2-esque partnerships and permissioned integrations that don’t exploit Web3’s true potential.

Big strides in innovation come about when there’s big enough groundswell to demand it. Like when CryptoKitties broke the Ethereum blockchain or when Axie Infinity made more revenue in protocol fees than Bitcoin, Ethereum and the 11 next dapps combined. Virtual pets have mass market appeal — more than skins, weapons, or art — and pet owners will drive Web3 forward by putting their money where their NFT is. Like when BAYC flipped CryptoPunks because the former delivered better IP rights, allowing the IP of each NFT to be managed by its owner.

In Web3, we talk a lot about earning rewards but the premise is almost always financial. This is a missed opportunity because the most rewarding experiences of our lives tend to be driven by emotion, not money. If something of financial value is lost, in theory it can be replaced or compensated for. The same cannot be said for things of a non fungible nature with which we have a relationship. Like a rescue dog. Or a Crypto Unicorn. Where this type of connection exists, we care about the concept of ownership because we recognize these creatures as a part of ourselves. And, as we look back on a year of carnage and heartbreak throughout the crypto industry… I think we could all use a friend to keep us company throughout the long, cold winter.

Thanks to Nathan Smale, Nico Odulio, Chris Verceles and Owl of Moistness for their help to review this article.