Shrapnel Operator NFT thesis by Slowmad

Published: Sep 2024

TLDR: At the time of this writing (Sep '24), I believe it's worth allocating a small percentage of ones portfolio into Shrapnel Operator NFTs. The downside is -100% while the upside is +600% to +4,000%, a rare and highly favourable risk-reward opportunity.

To understand the thesis, we must answer 3 questions:

1. Why crypto gaming (vs other sectors)?
2. Why Shrapnel (vs other games)?
3. Why Shrapnel Operator NFTs (vs the SHRAP token)?

Let's go through each of them now.

Why crypto gaming?

Crypto gaming was born last cycle, led by Axie Infinity and the AXS token which ripped over 100x in under 10 months. 

It pioneered the "play-to-earn" concept which opened a whole new sector in the industry.

Then came along DeFi Kingdoms which arguably kickstarted the "GameFi" narrative. The idea was to merge online games and decentralized finance, which spurred everyone's imaginations and drove gaming NFT and token prices through the roof.

But that's all history now. Today, the great GameFi experiment is over and all crypto game assets have crashed to a small fraction of their 2021 prices.

The lesson? "Play-to-earn" is not sustainable and "GameFi" doesn't work (yet).

Today, web3 gaming assets are down more than -95% across the board and have firmly fallen out of favour. Many big influencers that used to regularly post crypto gaming content have now pivoted to A.I., memecoins or internet marketing.

The point is that sentiment in crypto gaming is in the dumps.

Qiao Wang posted a chart about this (note where gaming is on the curve):

So the question we have to ask is: Is crypto gaming dead for good? Or will it make a comeback this cycle?

My bet is on the latter.

If crypto goes through a bull market in 2025, I struggle to see how gaming doesn't undergo a narrative boom.

After all, gaming is one of the few obvious sectors that crypto can improve on a practical level. Owning game assets - that you can transfer to other players, or resell - makes perfect sense.

I think some of the best opportunities in crypto today are found in the gaming sector, because:

• Most people have written off crypto gaming as dead (no one is looking into it today)
• Most "web3 gaming influencers" are larping and don't truly understand the subject
• Crypto game asset prices are at historical lows
• If/when the crypto bull market comes around (likely in 2025), I can't imagine a scenario where the crypto gaming narrative doesn't pop off

Now, just like all sectors in crypto 90% of gaming projects are trash and deserve to go to zero.

But at these low prices, there are a few high quality projects that deserve attention.

At these low prices, the risk-reward of buying the right game assets is the best it's ever been, and this window of opportunity will not stay open for long.

Remember this curve?

Gaming sits near the bottom, which is the best place to start looking for asymmetric risk-reward opportunities.

Crypto game assets have crashed so hard that there's not much more room left to fall... and the potential gain is high.

This is why I'm spending my time today digging into the gaming sector in search of assets to buy...

And I believe Shrapnel is where one such asset can be found.

Let me explain why.

Why Shrapnel?

I'll preface this section with an ugly truth: Most crypto games today suck. They're not fun to play.

The open secret of the industry is that the vast majority of games launched in the last 3 years were built by teams with no game development experience and in all likelihood aren't even gamers themselves. They only hopped on the "crypto gaming" bandwagon because they saw the tremendous success of Axie Infinity and DFK and wanted a piece of it.

This is why few people today - even within the crypto industry - takes web3 games seriously.

This being said, I think Shrapnel is worth paying close attention to. The developer (Neon Machine) is staffed by web2 game developer veterans who produced award winning franchises like Halo and Call of Duty before coming to web3.

They know how to make good games because they've done it before. I've participated in their alpha gameplay tests and can affirm that Shrapnel has a thrilling and addictive gameplay loop.

This is crucial because it means people are likely to play - and spend on - the game because they enjoy it, rather than for the purpose of making money (which was the case for Axie Infinity during the 2021 bubble).

I wrote more about why Shrapnel is a good candidate in my original Shrapnel thesis so check it out if you haven't already.

Now. Just because a game is good/fun, doesn't mean it's worth buying into. The price has to be low enough for the risk-reward to be worthwhile.

And this is where things get interesting. A recent controversy gripped the Shrapnel community when when a popular crypto gaming influencer posted this video exposé shedding light on the ongoing lawsuits between Neon Machine and a major shareholder:

This is undoubtedly bad news for the community and existing investors. There's a material risk of everything shutting down and going to zero.

Response from the Neon Machine CEO was swift but vague and unsatisfactory:

Naturally, sentiment in Shrapnel has cratered.

The SHRAP token continues to fall and Operator NFT prices nuked below mint price as holders started selling at major losses.

After that video was posted, crypto gaming influencers started listing Shrapnel/the SHRAP token as "Rekt" and "Rug":

So sentiment on crypto gaming is at the lowest its ever been, and within that context sentiment on Shrapnel has sunk to rock bottom.

Understandably, many have written off Shrapnel as "dead"... but to me, this presents a rare "blood on the streets" opportunity to be buying.

The risk is high, of course. But I think people are overestimating the chance of the project going to zero, and if it doesn't... the potential return will be enormous.

There's one caveat here however, and that's to buy the right asset.

You see, the right asset to pay attention to is not the SHRAP token... it's the Operator NFT.

Here's why.

Why Operator NFTs?

When investing in a crypto game, the first - and often only - thing people consider is the token.

And the truth is that the SHRAP token is cooked.

I bought into it last year but sold my bag above $0.30 and shared my updated thoughts about it early this year:

In the private group:

Since then, the SHRAP price has dropped -90%:

And that's not all. 

The entity tasked with managing the SHRAP token (Radon Network Guidance, RNG) has done a piss poor job of providing any clarity or accountability regarding the token and its distribution.

Notably, some uncertainties have arisen about the SHRAP circulating supply and market cap:

CoinMarketCap and CoinGecko show a vastly different circulating supply and all attempts to clarify this discrepancy in the RNG discord has been met with some version of "we'll get back to you on that".

Community members (me included) have waited months to be told the actual number and RNG continues to deflect and delay their answer. There's no reason to take this long unless something has gone wrong behind the scenes.

So, common sense says be extremely cautious of the SHRAP token, especially since their chief blockchain officer resigned in August with no announcement other than a cryptic tweet:

This is all to say: Avoid the SHRAP token until there is at least clarity about the state of its supply and distribution.

For now, the token side of things is a giant black box (and possibly in a mess) and RNG's refusal to answer simple questions is concerning to say the least.

---

The good news is that the game development side of Shrapnel (Neon Machine) operates independently from the token side (RNG) with minimal overlap.

People shit talking Shrapnel because the token is down bad don't seem to know the two entities are largely unrelated.

This confusion is a source of alpha for those who understand the development structure behind Shrapnel.

So now that we've covered why not to buy the SHRAP token, let's go over why the Operator NFT is worth considering.

For one thing, unlike the SHRAP token there's no uncertainty about the supply and distribution of the Operator NFTs. We know exactly 10,000 of them exist, and in which wallets they're in.

They provide the following benefits:

1. Token rewards for missions, quests and events
2. On-going periodic in-game rewards such as skins and decal packs
3. Digital comic books (NFTS)
4. “it is our genesis, membership collection”

I'll be the first to admit: This list is quite lame. The rewards for Operator NFTs are uninspiring.

It's no surprise then - especially with the recent lawsuit controversy - that the floor price has tanked to the lowest it's ever been at $50 today (from an ATH of $900).

So why should anyone consider investing in the Operator NFTs then?

Here's the interesting bit: I think Neon Machine will give Operator NFTs a new, highly valuable use case.

Before I reveal what it is, you need to first understand the context that led to this prediction.

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1. Shrapnel has limited monetization options

With gaming tokens down so bad over the last 3 years, developers have come to realize that they cannot rely on selling tokens to fund operations.

Also, Shrapnel's skin sales and marketplace fees are - at this early stage of the project - to small generate meaningful amounts.

And since Shrapnel is free to play, there's pretty much only one path left for monetization.

More on this later.

2. Game devs want to reward real contributors, not speculators

The 2021 GameFi bubble taught the sector one thing: When game assets are primarily seen as 'get-rich-quick investments' rather than instruments of fun, speculators will ultimately ruin the ecosystem.

To remind you of what happened last cycle, here's the token charts of AXS and JEWEL:

These tokens got pumped to the moon by speculators who had no real interest in the game and who caused prices to crash once they extracted 95% of the financial value and left. Meanwhile, real players who bought the token got rekt because they held with the intention of using it to play the game.

In the end, sincere players got rinsed as pure speculators walked away rich, leaving behind a devastated ecosystem and a mob of angry bagholders.

And when the majority of players see their game assets/tokens fall -95% like this, it's over for the project.

Today, smart game devs have learned the lesson. They know pure speculators will destroy their game ecosystem and are taking every precaution to minimize price speculation of their game assets (especially tokens). They want their game assets to be an instrument of enhancing the game experience, NOT an instrument of "getting rich quick".

By the way, this is why the SHRAP token is designed to have no reliable means of profit. Unlike AXS (which was used to breed Axies to make money) or JEWEL (which was used in the gardens to make money), there is no direct way to make money with SHRAP.

The only sure way to make money with SHRAP is if the game becomes a hit and a lot of people participate in the UGC aspect. In this way, the price of SHRAP is aligned with the project fundamentals, NOT whether people can "make money" with it.

Study the tokenomic structures of the biggest upcoming games and you'll find a similar theme. Game devs today do not want speculators to ruin their games, and understandably so.

Imagine you're a crypto game developer who spent the last 3 years grinding through the bear market with your blood, sweat and tears while the whole sector is continuously dunked on. You've endured tremendous pain, stress, doubt, ridicule, and the fear of going bankrupt the entire time.

By some miracle you beat the odds and create a game that people love to play as the bull market comes around and the price of game assets starts going up.

Which group of people would you rather reward?

Your team, seed backers, players and content creators who contribute to the game ecosystem?

Or the pure speculators who contribute nothing and just want your token to pump so they can dump it and get rich, and destroy your game ecosystem as a result?

The answer is blindingly obvious.

As a game developer, you want to reward those who provide ongoing, real contributions to your game ecosystem; Not to mercenary capital who just want to pump and dump your game assets.

This may seem like common sense but I can assure you - this way of thinking was not common at all back in 2021.

---

The above points are what led me to make this prediction:

(If you don't know what a battlepass is, read this.)

I'm betting Neon Machine will:

1. Monetize Shrapnel with seasonal battlepasses, and
2. Give Operator NFTs the utility of free access to all future battlepasses 

*Note: There is no guarantee of this and I have no inside information. This prediction is simply an educated guess based on my experience as a gamer, extensive digging, and how I see the crypto gaming industry evolving.

This makes sense because, as I explained above, the devs want to reward real participants of the ecosystem (NOT speculators)... and what better way to do this than to offer them priority/preferred access to the game? This is something only real players will want, after all.

It costs the devs nothing to reward Shrapnel's biggest fans this way, AND it pretty much guarantees thousands of players (NFT holders) will keep playing and keep the matchmaking pool thick.

It's win-win and makes perfect sense.

Extra clues that led to this prediction:

Currently, the Operator NFTs have crashed in value due to the lawsuit controversy and because there's no strong utility for it.

But if they're given the utility of unlimited battlepass access (AND the game continues to be good, of course), then there will almost certainly be a major re-rating of its value.

---

Update!! Just as I was about to post this thesis, I received information that the devs are indeed looking to give Operator NFTs unlimited battlepass access.

Listen to this AMA at the 28 min mark:

This is good news and it tells me my intuition is on the right track.

Not many people attended this AMA (fewer than 10 showed up) so this info is not widely known yet.

A new crypto gaming narrative

An unlimited battlepass NFT might seem quite ordinary, but it unlocks a fundamentally new use case.

You see, a traditional battlepass is purely an expense. If you like the game you buy the battlepass to enjoy the benefits for 30 - 60 days, and then the battlepass becomes useless and you have to buy a new one, over and over again.

With an unlimited battlepass NFT (like Shrapnel Operators) you enjoy the full benefits of a traditional battlepass AND have the option to sell it.

This makes a HUGE difference.

If you don't wish to use the battlepass any more you may sell the NFT and get your money back... or even better, at a profit if the price goes up!

This turns an ongoing expense into an investment.

Instead of "throwing away money" on a battlepass, you're "investing" in one. A similar analogy to renting an apartment versus owning one.

This is a new and highly appealing narrative that could run in the crypto gaming bull market.

Price Talk

With the crypto industry being as speculative as it is, people will one day, inevitably, bid up the price of such "unlimited battlepass" NFTs, especially during a bull market.

So how much of a price gain can we expect?

Let's do some simple math.

In practice, unlimited battlepass NFTs will likely come with exclusive perks (such as special skins, etc) so the price will command a premium over just the battlepass utility value.

But let's be conservative and go with $120. This is the expected cost of an unlimited battlepass in web2.

Now let's include the option to re-sell this battlepass. How much would a player pay for an unlimited battlepass they can sell and - partially or fully - get back their initial investment, plus the potential of getting a profit?

No such thing exists in the gaming industry so we have no point of reference. My best guess is 2x - 4x the price of a battlepass without this benefit. So $240 - $480.

Nobody knows if Shrapnel will survive the lawsuit, but if they do, the upside of buying Operator NFTs now at $50 is exceptional.

And that's before accounting for a potential crypto gaming narrative boom in 2025. In that situation, these NFTs could easily go for $1,000 - $2,000 each.

Risk Management

Let me be very clear: Buying Shrapnel Operator NFTs is a gamble. The downside risk is -100%. If Neon Machine loses the Shrapnel IP, the NFT goes to zero.

So this is a high risk, high reward play. Downside is -100%, upside is 6x - 40x or more.

It's a gamble, but a highly asymmetric one and - in my opinion - worth the risk of a small allocation.

I've therefore allocated a single-digit percentage of my portfolio to these Operator NFTs.

⚠️ Warning: Even if you agree with this thesis I do not recommend allocating a large portion of your portfolio to these NFTs. This is NOT a "safe" play. There's a real chance it all goes to zero. Please act responsibly for your portfolio.

Summary

• Shrapnel is one of the only triple-A crypto games with a playable version that's actually fun (most other "games" are either just trailers + marketing, or are not fun to play).
• Dev team is experienced and capable of delivering a good game. CEO appears tough, shrewd.
• Whole crypto gaming sector is down. It's a matter of survival for everyone.
• SHRAP token is rekt and will probably stay rekt for a while.
• Gameplay is great so far (imo). This is what matters most.
• Gameplay is not affected by the token or its price.
• Lawsuit revelations have led Operator NFT holders to sell for big losses which cratered the price.
• I believe this presents a good opportunity to be buying in.
• Prediction: I think Neon Machine will eventually introduce seasonal battlepasses and will give Operator NFTs unlimited access to it. (Update: Now confirmed by team)
• At these prices ($50), the downside of Operator NFTs is low.
• Potential upside is substantial (6x - 40x), especially if the gaming narrative pops off during the 2025 bull run.
• Biggest risk is Neon Machine loses the Shrapnel IP.
• This risk is well known and largely priced in - exactly why the floor is so low today.
• But most people still don't know that the NFTs will be given unlimited battlepass utility.
• This is a high risk, high reward play. Risk-reward is exceptional. Worth considering allocating a small portion of portfolio.

 Thanks for reading

I hope this has been useful.

If you'd like to hear more about my views on crypto and gaming, join my free newsletter and follow me on Twitter.

Cheers 
Slowmad

P.S. If you have any questions or feedback, let me know at: chris[at]digitalslowmad[dot]com