The Worldwide Asset Exchange (WAX) is a decentralized, peer-to-peer marketplace where you can buy, sell, and trade virtual items with whoever you want. That sounds quite niche, so why did it raise so much money with its ICO? And why does it already have so much traction? The article will explore the virtual item market, talk about who founded WAX, go in depth about the platform itself, and discuss its risks and possibilities.
What Are Virtual Items and Why Does It Matter?
Humans like to collect. A jar of sand from that beach in the Philippines, stamps issued during the 1960s, champagne corks you collect in a vase (two vases now). This urge to collect is no different in the virtual world and it’s particularly relevant for games. From a tall totem that gives you +3 strength in World of Warcraft (WoW) to a Halloween costume in Counter-Strike: Global Offensive (CS:GO) that’s purely cosmetic but certainly makes you look cool, nearly all games allow you to collect items. And trade, too.
Trading virtual items really started gaining traction with WoW. With twelve million subscribers at its peak in 2010 and tens of thousands of available items, it comes as no surprise that gamers vigorously traded in-game, but increasingly outside of the game too. Gamers gathered on forums and started trading their virtual items for real money.
The market grew rapidly and was estimated to be worth $52 billion in 2016. That’s right, millions of gamers traded for $52 billion worth of virtual items in a single year. A large percentage of that number goes to so-called “skins”, which make your outfit or your weapons look different. Because games like CS:GO or Player Unknown Battlegrounds (PUBG) are tightly balanced, these enhancements are purely cosmetic and don’t make your digital avatar stronger.
But then again, who wouldn’t want a skin that makes your sniper rifle look like a dragon spitting fire out of its mouth? One of these sold for $61,000 in January this year.
Suffice to say that gamers are willing to shell out hard cash to make their avatars look different. But up until 2015, these transactions were risky and often without the support or consent of the game publisher. The buyer could send money, but never receive the item. The seller could send the item, only to receive a chargeback from the buyer’s payment processor. There was no way to check whether the buyer or seller was reputable, and no way to guarantee a safe exchange of assets. At least, until the arrival of OPSkins in 2015.
What is OPSkins?
OPSkins is a centralized marketplace that allows gamers to trade their beloved skins in exchange for cash. The platform quickly attracted enough users so buyers could search through a large database of items for sale for their favorite game, and sellers could be relatively certain to sell their item if it was priced correctly.
OPSkins moves the risk of fraud from the buyer or the seller to the platform itself. When someone wants to trade their item, they send the item to OPSkins. When a buyer agrees to pay a certain price for that item, OPSkins takes the money from the funds in the buyer’s OPSkins account, releases the item to the buyer, and sends the funds to the seller.
Additionally, OPSkins is available is multiple languages and allows for cross-border execution of payments. And they were the first platform to support buying and selling cryptocurrency collectibles off the blockchain. Suddenly, you could buy a CryptoKitty outside of the CryptoKitties website. And it was a much simpler process too, where you didn’t need Metamask and where you could pay with fiat currency too.
All these factors taken together made OPSkins the largest marketplace for skins and crypto collectibles. It now does over a hundred million transactions every year.
But it’s not all roses and sunshine. Buyers and sellers need to trust OPSkins with their money and their items. Although it’s unlikely OPSkins will shut down and run away with all their users’ money and skins, the company could go bankrupt, decide to ramp up its transaction fees, or lock you out of their platform for whatever reason.
Think of what Cyprus did in its 2012/13 financial crisis, severely restricting access to the money people had stored in the Bank of Cyprus. There’s an inherent risk when you trust any centralized power, and that’s no different for OPSkins. Additionally, account verification on the OPSkins platform takes a long time and there are still scammers on the platform, looking to deceive young gamers.
So the founders of OPSkins decided to be proactive and founded WAX.
What is WAX?
WAX is a decentralized, peer-to-peer marketplace that allows anyone to trade digital and even physical items instantly and securely to whoever, anywhere in the world. Because transactions are now directly between buyer and seller, they don’t need to trust the platform anymore and the platform doesn’t have the risk of the transaction anymore either.
WAX’s token is called WAX too, but let’s call it $WAX to distinguish between the platform and the token. $WAX supports all the activities and functionalities on the platform. All the virtual goods will be listed in $WAX and buyers will pay in $WAX.
WAX raised $9.6 million during its ICO token sale from November 15 to 29 in 2017. At the time of writing, $WAX was hovering around $0.10 per token. The token is divisible to eighteen decimal places, which allows microtransactions to take place.
Visiting the OPSkins website quickly makes it clear that OPSkins and WAX aren’t going to be two separate platforms, but will instead integrate more and more as WAX builds its suite of blockchain-based tools.
Considering OPSkins has millions of users slowly being moved over to WAX and will soon have millions of transactions going through it (if not already), it comes as no surprise that WAX is being built on a variant of EOS and not on Ethereum. The EOS network is much more scalable than Ethereum, because it uses Delegated Proof-of-Stake (DPoS), which only requires 21 nodes to verify and produce a new block of transaction.
This does mean, however, that EOS is more centralized than Ethereum, but it’s a necessary tradeoff if you want a platform that can handle millions of transactions. And technically, the WAX team forked the EOS code and is building extensions around governance, just to make sure WAX is as decentralized as can be while also allowing lots of transactions to go through securely, without crashing the platform.
WAX In Depth
There are four parties on the WAX platform. Firstly, you have the users, who have a single private key and a corresponding address that they can use to sign and create transactions on the WAX platform.
Secondly, there are the Guilds, which are the confirming nodes on the WAX platform. They’re elected by DPoS through WAX users. These Guilds form blocks of transactions and verify their authenticity. Doing so gives these Guilds a fee, which they can periodically transfer to the users who pledged their support for the Guild.
These fees will be redistributed in proportion to the delegated stake amount of each user. Each user is only allowed to pledge for a total of eight proposals and one proposal per game or server. This will prevent users with a lot of WAX to single-handedly influence a game.
Guilds will need to submit a proposal that includes information on the game they’ll dedicate themselves to and the percentage of fees they’ll share to pledged users. The WAX platform will support 64 guild positions on its public launch (set for Q1 2019), but this can be increased as new games and servers are introduced to the platform.
Guilds are also responsible for assigning and monitoring Transfer Agents. This is the third party, and they’re responsible for the in-game transfer of virtual assets between users. They have two private keys, one which allows them to accept and transfer virtual goods and WAX tokens, and the other that allows them to accept messages from users.
Transfer Agents are expected to communicate with buyer and seller to arrange pick-up and delivery of an item, take control of the item, verify it’s real, sign contracts, and deliver the asset. They can only be a Transfer Agent for one game or sever and must put up a bond of their WAX tokens to prevent bad behavior.
The fourth party are the contracts stored on the WAX platform, which are executed by the other three parties (or by external parties building on the WAX platform).
What Are the Risks?
As with any crypto project, there is a genuine possibility WAX never gains the traction it wants and fails. For example, WAX (and OPSkins) relies quite heavily on gaming distribution platform Steam for most of the games it supports. Although it’s rare for Steam to make big and sudden changes, Steam can still control how items are collected, exchanged, and how third parties can access its platform.
Additionally, WAX’s Transfer Agents are still people that you need to trust with your item. Although these people are incentivized for acting correctly and punished if they don’t, they could still run off with the knife skin you just paid $15,000 for. WAX will eventually offer buyer and seller protection, but up until that point, there’s still a slight risk.
$WAX also has no functionality outside of the gaming community. You can use $WAX on the WAX platform to buy items, and that’s about it. Outside of the platform, it has no value. But that’s inevitable when you service a niche, and it’s arguably much better to serve a specific niche than trying to appeal to all and make your token do everything.
But the largest risk could be the general future of item trading. The market size of virtual items will depend on the willingness of developers to create games where items can be traded. Some games don’t have many items to gather or even none at all. And some games do, but the developers don’t like skins or tradeable items and don’t support trading them. The success of WAX and OPSkins depends on future games agreeing to tradeable items and skins.
What Are the Possibilities?
Although above risks can curb the success of WAX, the odds very much seem to be in favor of the platform. First of all, OPSkins is already a highly reputable marketplace with millions of users. Being able to move those users onto WAX quite easily is a huge plus.
And WAX is surfing on an almost unstoppable wave. Thousands of people already watch gamers on Twitch. YouTube personalities playing games have millions of followers. The virtual item industry is growing substantially year-on-year, and since CryptoKitties exploded in popularity last year, non-fungible tokens (NFTs) or digitally tradeable items are now on every indie developer’s mind.
If a decentralized app (DApp) becomes incredibly popular, WAX is set to capitalize on that success by allowing users to buy the items of the DApp on its platform. But if the killer DApp never arrives, WAX can still profit greatly from mainstream games that allow their items to be traded.
It’s great for those mainstream games too, because they don’t need to adopt to the blockchain. WAX can work with the existing ecosystem, and developers can keep on coding the way they’ve been doing for years.
WAX wants to remove all the friction between buyer and selling when trading virtual items. It sees a future where your virtual assets hold real-world value and where it’s easy to sell and buy those items. If you’ve spent hundreds of hours grinding for a particular item, you can sell it for real money. Twitch streamers can sell their items while they’re streaming, instead of relying on ads or tips. Gamers can sell the guns they won a tournament with.
Just like AirBnB allowed people to do something with the rooms in their house and Uber allowed people to monetize their cars, WAX will allow gamers to monetize the items they gather in the games they love.