Interview with Chen Yuetian of Firebird Capital: Why Hasn't a Successful Blockchain Game Emerged Yet?
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Interview with Chen Yuetian of Firebird Capital: Why Hasn't a Successful Blockchain Game Emerged Yet?
We see that as a capital market, crypto is well-suited to facilitate the circulation and return of capital. At the same time, we recognize that game teams' unfamiliarity with capital markets requires an educational process.
Navigating Web3 tides with focused insightsEditor: Wu Shuo Blockchain
Chen Yuetian previously led cultural and entertainment investments at Sinovation Ventures and later participated in investments in projects such as IOST, Mask Network, StepN, and Jay Chou Bear. Huofeng Capital is one of the few venture capital firms focusing specifically on the Crypto Game sector. This podcast interview was conducted on November 20, 2023, and some discussions regarding market conditions and data have since evolved. For the full version, please listen to the podcast.
Previous conversation transcript:
https://mp.weixin.qq.com/s/24uqlIyLva4OoL-4-B7xCg
How did your investment activities go in 2023?
In 2023, our investment activity was highly active, with new investments almost every month. Particularly in the primary market, despite relatively fewer investors due to a sluggish secondary market, we continued to actively invest. It's widely believed that bottom-fishing during market lows is a smart strategy, so we've been proactively seeking suitable investment opportunities.
Our main focus remains on the crypto gaming (Crypto game) sector, where we’ve clearly defined our investment scope. After extensive screening and research, we invested in several notable domestic market projects. While there haven’t been many high-quality projects overall, we still identified some promising opportunities.
For example, a foreign gunfight game project I recently mentioned, "Shrapnel," has an estimated valuation of around $500 million after introducing its tokenomics model. Another project, "Big Time," currently holds a valuation of approximately $900 million. These examples demonstrate the significant potential and market interest within the crypto gaming space.
Additionally, we are monitoring certain projects launched during the previous bull cycle, especially those now placing greater emphasis on tokenomics. We’ve found that when presenting these concrete cases to professionals from traditional gaming industries, their understanding and attitudes toward crypto games and tokenomics models are beginning to shift.
Is your investment focus primarily on games, or do you diversify into other areas?
Our investment strategy is focused and consistent—primarily targeting the crypto gaming (Crypto game) sector. We don't broadly diversify because our limited partners (LPs) expect us to specialize. They entrusted us with capital specifically for investing in the crypto gaming market.
Of course, we explore innovative areas like artificial intelligence to a limited extent, but such investments constitute only a small portion of our portfolio. Our core mission remains identifying and backing promising projects in the crypto gaming space.
We fully understand our LPs’ expectations and therefore won’t easily deviate from our core investment thesis. Even if the crypto gaming market experiences volatility, we remain committed to this domain. Ultimately, our goal is to succeed deeply within our chosen field rather than frequently switching between different sectors.
Are you mainly investing in Chinese teams?
In 2023, our fund maintained a strong focus on investing in the crypto gaming (Crypto game) sector. Leveraging my personal network and resource advantages, we hold a competitive edge in identifying and supporting Chinese teams. Our investment rationale isn't solely based on confidence in the sector—it also aligns with LPs’ expectations and validates our strategic vision.
While we invest globally, our concentration lies within China’s gaming industry, which is our most familiar and well-understood market. Our investment strategy considers both LP preferences and broader market trends. For instance, although we made an investment in MyShell.ai within the AI space, our primary focus remains firmly on crypto gaming.
We believe crypto offers Chinese game companies a unique path to capitalization outside traditional equity markets. The liquidity and valuation premiums in crypto markets provide teams with stronger capital reserves and growth opportunities. For example, we’ve observed certain game projects reaching valuations in the hundreds of millions post-tokenomics launch—far exceeding what might be possible in traditional Chinese capital markets.
We see crypto as a capital market ideally suited to facilitate capital flow and returns. At the same time, we recognize that many game teams lack familiarity with capital markets, requiring an educational process. By leveraging more permissive regulatory environments abroad and showcasing successful case studies, we aim to gradually educate and attract more teams to embrace this opportunity. We believe the crypto market provides a valuable platform for game industry capitalization. While bubble risks exist, as long as future business models prove viable, the market will mature over time.
Has the industry's valuation logic for games changed?
Within the crypto fund ecosystem, investment preferences are closely tied to LP backgrounds and positioning in the broader capital markets. Funds specializing in native crypto areas like public chains and DeFi tend to favor cutting-edge blockchain innovations—for example, projects similar to Magic.
However, our LP base differs somewhat. Most joined through personal connections—longtime friends interested in gaming or actual gaming industry executives looking to explore the Crypto Game space. These external capital sources prefer understandable business models, mature products, and experienced teams—exactly the kind of projects our fund and LPs are inclined to support.
This reflects two distinct types of teams and investment philosophies. The market segment we participate in offers clear advantages compared to traditional finance. There's openness toward this form of capitalization. Whether funded via Web2 equity structures or Web3 crypto mechanisms, the underlying talent and capabilities in game development are often comparable. Modern game teams need not only innovation in business models but also deeper fluency in the crypto domain.
Do your portfolio projects face difficulties during bear markets?
For us, 2023 was another year of active investment in the crypto gaming space. Although few funds maintain our pace of deployment, one advantage of the crypto market is the willingness for co-investment. Even in bear market conditions, teams we back have successfully raised $5–10 million—a rare feat in today’s environment and notably larger than typical single investments in China’s 2023 equity market.
Our LPs are mostly individual friends or gaming industry founders interested in exploring crypto gaming. Since they prefer transparent business models and mature teams, our investments naturally gravitate toward ventures they can understand and endorse.
On the capital side, the crypto primary market remains active with ample funding available. However, fundraising cycles may lengthen, and terms may become more investor-friendly—meaning potentially less favorable conditions for founding teams. That said, game development costs are relatively predictable, driven mainly by team size, labor expenses, and outsourcing. Once adequately funded early on, teams rarely face sudden cash shortages.
Conversely, we’ve encountered teams we ultimately chose not to back—often because they couldn’t secure lead investors, leaving them unable to raise capital over extended periods, a common issue in the current market. As a primary-market-focused fund, we continue investing actively even in bear markets. We adjust our terms accordingly—for instance, while accepting three-year token unlock periods in bull markets, we may demand shorter lockups during downturns.
Do investors hold a stronger position relative to project teams during bear markets?
Indeed, relatively few funds in the current crypto market continue investing with available capital. Many funds operate across both primary and secondary markets, reserving capital to buy assets like Bitcoin (BTC) and Ethereum (ETH) at opportune moments, hoping to time a market bottom. In contrast, our fund focuses exclusively on primary-market project investments—a rare specialization.
Regarding valuations, we’ve seen opportunities across tiers—from $10M, $20M, $40M up to $90M. However, we avoid overvalued projects; only one in our portfolio exceeds $90M. We prefer targets valued between $10M and $20M, which better align with our investment criteria.
Is there a trend among VCs to avoid Crypto Games?
One defining feature of crypto capital markets is their heavy emphasis on narrative. In this space, a compelling story can propel a project to success even without a tangible product or proven results. This highlights a core characteristic of crypto capital: narrative often outweighs fundamental analysis.
Comparing different project types: developing a quality game may require 40 people—or even 70 to 80—over two years. In contrast, a team of about 10 could build and tokenize a project within six months to a year. Given this, many financially active VCs may lean toward the latter option, which offers shorter development cycles, lower risk, and faster paths to capitalization and returns.
This preference reflects a broader trend in crypto markets: capital tends to favor fast-moving, quickly monetizable projects over those requiring long development timelines and large upfront investments.
Is GameFi development significantly constrained by regulation?
When discussing regulatory standards, it's essential to assess whether a given activity is suitable for operation. First, teams involved in such ventures should not limit their operations to domestic markets. Once entering the gaming space, a company should inherently view itself as global—not just technologically blockchain-based. If a team and its primary market are concentrated in China, risks increase significantly.
Take large-scale Chinese-origin projects like STEPN’s GMT—they haven’t faced major regulatory issues and continue launching new games like Gas Hero. Companies operating at the intersection of gaming and blockchain must adopt a global perspective from day one, including corporate structure, team composition, employee status, and product design. This includes implementing measures such as restricting access from Chinese IPs.
From a business standpoint, I believe innovation is foundational. Laws and regulations typically lag behind innovation—that's the nature of commercial progress. Judging new developments using existing legal frameworks often leads to two outcomes: either it's incomprehensible, or it's deemed illegal. The latter is straightforward: if something is clearly illegal, simply don’t do it. But incomprehensibility implies gray areas. At the frontier of rapid innovation, regulation will always trail behind.
Barring clear illegality, we must create compliant solutions. For example, many Chinese teams still contribute to exchange development—but they position themselves as global entities from the outset. They may have developers in China, but contracts aren’t traditional employment agreements—they’re project-based. Their operations don’t target the Chinese market. If questioned, these teams can challenge how someone accessed their service despite blocked Chinese IP addresses.
How do you respond to criticisms of certain GameFi projects—such as poor gameplay or flawed economic models?
First, we need a precise understanding of finance and Ponzi theory. We shouldn't hastily label projects, as oversimplification breeds misunderstanding and bias. Consider China’s real estate market—many don’t see it as a Ponzi scheme but as legitimate financial activity. Similarly, look at unprofitable chip companies on China’s ChiNext board that maintain high market valuations despite years of losses. Are these bubbles? Even after listing, are they still Ponzi-like?
In my view, to avoid being labeled a Ponzi scheme, a company should generate positive annual cash flow and net profit while maintaining a reasonable market cap. Otherwise, asset prices are largely determined through trading. Controlling supply is a common practice in finance to boost market value. For instance, if Shanghai implemented housing purchase restrictions reducing circulating inventory, prices would rise more easily. Banks would recognize these properties as collateral, enabling more lending—effectively increasing total credit exposure backed by real estate.
We discussed whether specific games qualify as Ponzi schemes, but looking at the entire crypto market, its biggest issue may be the lack of positive cash flows from underlying assets. To some extent, this suggests inherent risk. Nevertheless, I believe gaming represents one of the closest domains within crypto to high-quality assets capable of generating sustainable cash inflows.
Is there a conflict between a game’s financial attributes and its playability?
Yes, tension exists between a game’s financial features and its playability—this is a central challenge for development teams. Games aim to deliver engaging experiences, but overemphasizing in-game financial mechanics like trading or speculation can undermine enjoyment. Players experience two overlapping stimuli: entertainment from gameplay and excitement from asset value fluctuations. These feedback loops are hard to separate, often disrupting the core game loop.
For example, rising in-game asset values may attract many players. But when values drop, players may lose interest and forget the original fun. This places immense pressure on product design. Teams must strike the right balance between gameplay and in-game economics—or build systems that seamlessly integrate both.
Take "Dream Westward Journey" as an example—it achieved excellent balance. It avoided extreme asset volatility while preserving strong gameplay. In-game items held value, and player collaboration systems emerged—some players specialized in crafting materials, others in different roles. This created a mini-society, effectively blending entertainment and financial elements.
Why haven’t any truly sustainable crypto gaming projects emerged yet?
There are two main reasons why no enduring crypto gaming projects have emerged. First, the market doesn’t require complex games to generate profits. In crypto, simple financial instruments and speculative behavior alone attract capital, reducing incentives to develop deep, sophisticated games. That’s the first layer.
The second reason is that true experts who understand how to merge game design with economic systems are generally unwilling to enter crypto gaming. These are seasoned professionals from the traditional gaming industry with deep expertise. For example, most current game designers and producers grew up in free-to-play ecosystems and may lack familiarity with economic models from early MMORPGs like "Legend," "Dream Westward Journey," or "Chinese Paladin." Different business models and design approaches—like MiHoYo’s character-based monetization system—require entirely different skill sets. Returning to MMORPG-style tokenomics means the current mainstream talent pool is mismatched.
Solving this requires time. Gaming professionals must first recognize crypto as a powerful capital opportunity. Without this realization, top-tier creators won’t join. Without elite talent, all the challenges we discuss—product development, operational hurdles, business model design—will remain unsolved. But the key question remains: why would these top talents choose to enter this space?
What’s your take on major Chinese companies experimenting with Web3 projects?
Major Chinese firms exploring Web3 projects reflect a classic pattern of internal corporate innovation. Success or failure cannot be generalized—each initiative must be evaluated individually, depending on numerous specific factors.
Successful internal innovation in large companies requires several key elements: leadership commitment from the top, particularly the CEO; accurate understanding and genuine support from senior management; and precise execution at the operational level. Only when all these conditions are met does meaningful innovation become possible.
However, common pitfalls exist. For instance, spreading resources too thin—allocating efforts across ten different innovation initiatives instead of focusing on one critical area—can result in unpredictable outcomes. Additionally, some companies may talk about innovation while internally lacking conviction, often motivated more by short-term financial gains than genuine transformation. Such disingenuous efforts rarely yield substantial results.
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