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South Korea's Wemade bets on crypto to revive gaming fortunes

Rivals scramble to follow suit as play-to-earn title draws millions of users

Founder and Chairman Park Kwan-ho expects income from Wemade's blockchain ecosystem "to far outgrow our game revenue once the platform is full-fledged." (Photo courtesy of the company)

TOKYO -- Wemade, a 21-year-old South Korean gaming company, is doubling down on cryptocurrency-based games now that one of its titles has become a global hit, a signal of how conventional companies are racing to go crypto despite business model uncertainty.

In "Legend of Mir 4," an MMORPG (Massively Multiplayer Online Role-Playing Game), players can earn items that can be exchanged for cryptocurrency. Since its release in 170 countries in August, it has reached 2 million monthly active users. On one day in October, 1 million users were playing the game at the same time, according to the company.

"I'm very happy about the success that we're getting," said founder and Chairman Park Kwan-ho, who has been developing the "Legend of Mir" series for more than two decades. "We made additional efforts to connect the blockchain technology. And, frankly, we were lucky in terms of timing."

Park was speaking to Nikkei Asia over a video link.

The frenzy has driven up Wemade's stock price by over 400% since the game's launch, giving the company a market capitalization of about $4.5 billion. The stock's explosion has made a billionaire of Park, who owns about 45% of Wemade.

The game has also rippled across cryptocurrency markets: Wemix, a token issued by Wemade, has become one of the most actively traded on some South Korean exchanges. Rival game developers are now racing to launch cryptocurrency-based games of their own.

Wemade's venture into crypto will be a test of whether gaming companies can break into the fast-growing niche, one that is mostly driven by startups. While the outlook for Mir 4 and its impact on Wemade's earnings remains uncertain, Park is betting the company's future on cryptocurrency. Fees generated from the exchange of Wemix tokens account for a fraction of the company's overall revenue; the company also generates revenue from selling in-game items.

Wemade has vowed to add cryptocurrency features to all of its upcoming games and onboard 100 titles to Wemix, its blockchain gaming services arm, by the end of next year. If the effort to expand its cryptocurrency ecosystem is successful, the company's business model will shift dramatically from selling in-game items to charging fees on token transactions.

"We expect the blockchain ecosystem-related income to far outgrow our game revenue once the platform is full-fledged," Park said. "That should happen within the next five-year window."

Common industry practice is to entice players into making in-game purchases, but cryptocurrency-based games let users convert digital assets into hard cash on exchanges. Dubbed play-to-earn, this new category has grown in popularity as an accessible gateway to the world of cryptocurrency. Several play-to-earn titles have become hits, but Mir 4 is unique for its conventional gaming background.

Park, who founded Wemade in 2000, initially focused on creating a game for the Chinese market. The idea was to differentiate itself from rivals who had established popular titles in South Korea. "Legend of Mir 2," set in an ancient world where warriors battle dragons, captured China's emerging generation of internet users and became a hit. But the company struggled to maintain its popularity with subsequent releases and became embroiled in copyright infringement problems.

In 2018, Park moved into cryptocurrency, setting up a new unit to develop blockchain technology. "The way I saw the role of blockchain was that it will connect the virtual world with the real world that we live in," he said. "Our plan was never to just launch a couple of games with blockchain -- we would have done that using other existing coins -- but to create our own ecosystem, and that is why from the very start we had a plan of developing our own blockchain."

In Mir 4, players can mine an item called dark steel, which is used to make weapons but can also be converted into a cryptocurrency called Draco when they reach a certain level. Using the Wemix wallet, a separate smartphone app, they can exchange Draco into Wemix coins, which are traded on several exchanges.

Along with the surge in popularity of Mir 4, Wemix has become one of the most heavily traded cryptocurrencies on Bithumb, a major South Korean exchange, often above peers like Bitcoin and Ethereum. The price of Wemix has been volatile: It climbed from below $1 in late August to $24 in November, before falling back to $11 on Dec. 6. Wemade charges fees on conversions made through the Wemix wallet.

Rivals are scrambling into the space. Shares of NCSoft, one of South Korea's biggest game developers, temporarily jumped in November after the company announced plans to adopt blockchain technology for its games next year. Gamevil, another local gaming company, recently changed its name to Com2us Holdings to "focus on building the future of blockchain gaming."

"Wemade's success with Mir 4 has boosted expectations for play-to-earn massively multiplayer online games," said Moonjong Lee, an analyst at Shinhan Investment. "Large game companies such as NCSoft will issue their own tokens and [switch to] the play-to-earn ecosystem with time. For small and medium-size game companies, entering the ecosystem of game companies that have already excelled is the way to go."

The game maker is planning to stay ahead by adding more games and related services, such as a marketplace for non-fungible tokens, which are designed to lend authenticity to digital assets. Mir 4 players above a certain level will soon be able to "tokenize" their characters as NFTs and sell them for Wemix coins. Buyers can use the characters in the game, Park said, making the NFTs something more than a speculative investment.

Wemade has also invested in related businesses, taking stakes in a major shareholder of the Bithumb exchange and a venture capital fund focused on blockchain companies. Park said Wemade plans to make additional investments in potential partners, including by using its reserve of Wemix coins.

The race to grab a slice of the cryptocurrency gaming industry is heating up despite uncertainty over its business model. Wemade reported 526 million won ($440,000) in revenue from Wemix in the third quarter, less than 1% of the company's consolidated revenue of 63.3 billion won. The company reported a net profit of 17.9 billion won in the third quarter, driven by its conventional mobile gaming business.

Park said blockchain-related games will experience an "explosive rate of growth" as bigger games are released. "Those that are being launched within the next one- to two-year window will be games that are either smaller scale or have only been partially modified for blockchains. To have a large-scale game that is developed from scratch to optimize for the blockchain opportunities, it will take a bit more time."

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