MIP-8 Hotwire x Merit Circle - proposal

[david-hotwire]

Title
Merit Circle & Hotwire Studios

Authors
Merit Circle & Hotwire Studios teams

Summary
This proposal is for an equity investment into Hotwire Studios and a token investment into Game 1, Nitro League. Given the current market cap of Nitro League of 120M fully diluted and the equity investment terms, the equity investment is nearly covered just by the proposed Nitro token holdings.
This proposal will cover the Hotwire Studios game and infrastructure opportunity as well as the Nitro League game and how the Hotwire infrastructure drives in-game value.

Proposition
Hotwire Studio is raising the final $1M of $10M to accelerate title development and to bring on no more than 2 remaining strategic partners who are committed to growing the Unreal Engine of the Play to Earn space. With the team assembled plus strategic investors onboard we will have a genuine shot at being the play to earn unicorn combining gamefi, game infrastructure, play to earn, metaverse, NFT marketplace and NFT standards.

The investment opportunity is to purchase 1% preferred stock in Hotwire Studio at a 100M valuation.

Equity investors get

• First refusal to seed and private rounds for each title
• Max allocation in seed and private is equity proportion to equity holding minus SL2 allocation, so equity holder could take full private and seed minus SL2 share if they hold 10% equity
• Tokens are purchased at a 25% discount

From investors we expect a combination of the following:

• Alignment of incentives to build a gaming unicorn
• Introductions to games, game guilds and ecosystem eg YGG, etc - for all titles
• Access to partners, IPs, customers for each game title
• Access to and use of infrastructure for revenue management and asset management
• Access to project and investor ecosystem for game tie in
• Access to best practice thinking about game economics
• Gameplay feedback
• Identification of and introduction to crypto and trad game ecosystems for game infrastructure product opportunities e.g. scholarship protocol

Studio

Hotwire Studios is a Joint Venture between SL2 Capital,Tkxel and equity investors. Tixel is a global OEM game studio with 500M Android downloads and 500 employees. SL2 Capital is a fund and incubator composed of the Terra Virtua and Holochain founders which has taken over 30 Web3 projects to market in the last 12 months.

sl2 dot capital

tkxel dot com

Prominent participants in the funding round include Woodstock, YGG Southeast Asia, Huobi Ventures, Morningstar Ventures, Axia8 Ventures, Yolo, Skyman Ventures, YGG Global, Double Peak, LD Capital, Calisto Capital, Infinity Ventures Crypto and NGC Ventures. Hotwire Studios has also signed partnerships with guilds such as YGG, GuildFI, Rainmaker Games, PIF, Meta Gaming, Unix and more.

Market and Growth Strategy

The Studio proposition focuses around getting it’s first 5 titles to market by the end of 2023. Games are mobile first to widen adoption, focussed on the frontier markets of South Asia such as India, Pakistan, the developing world and built on Rain Protocol, a set of metaverse primitives we built in-house.

On the Indian market alone Girish Menon, partner, deal advisory and head of media and entertainment at KPMG in India said:

“Simply put, you have the second largest gaming universe in the world outside of China,” he says. “Eighty percent of them have come on board in the last four to five years.”

South Asia has witnessed a growth of 440% in gaming over the past 5 years.

Source: October 21, 2021 Venturebeat dot com

Both SL2 Capital, Tkxel and lead investor Woodstock have over 40 years of experience with offices and a development house in both India and Pakistan with over 250 staff in the region.

Nitro League, first game

Our first game is Nitro League

The first genesis asset sale is hosted on Terra Virtua - More information

The Nitro token is trading on Uniswap and Quickswap Nitro League Price: NITRO Live Price Chart & News | CoinGecko

Multiple genesis NFT assets sold out

The Nitro League allocation for Merit Circle is $25K seed at $0.015 and $250K private at $0.03. The current Nitro price is $0.121919. The current circulating market cap is approx $5M USD and the current fully diluted market cap is approx $130M USD.

In production, first infrastructure play

Nitro League uses our own infrastructure to manage breeding and economic harmony. The Nitro League ‘Factory’ produces and distributes assets, primarily cars. Assets can be claimed through in game credits earned. Credits are allocated by the ‘Factory’ which is actually a Rain Protocol virtual machine with a Nitro Credits opcode pack. This pack allows the game and eventually the game community to adjust credit distributions live which means more or less credits get earned with each action in the game, making it easier or harder to claim a new vehicle.

But the Nitro Factory can not only price it’s assets in credits, but it can also tier-gate distribution of its assets which means it is a major player in incentivising gamer behaviour. So the Factory controls rewards and behaviours, and what’s best is it starts owned by the Nitro game, but in the future there can be guild and community factories, and factories interlinked with new games.

The foundations of this system are being implemented already in the studio’s first infrastructure play, exclusive for equity holders.

Ecosystem tie-ins

We are building an interconnected ecosystem, for example

• Unique statuses, levels, tiers and experience with Rain Protocol
• Unique scholarship models with Rain Protocol
• Permissionless whitelabel asset marketplaces through Terra Virtua
• Display assets in Terra Virtua spaces
• Raise money for asset creation in Polinate dot io a decentralised fund raising platform
• Permissionless raises for tokens on Polygen, a permissionless launchpad
• Unique ticketing system with Rain Protocol
• Decentralised KYC and verifications

How does this work for a game, for example Nitro League:

• Raised 400K USD on Polygen
• Raising for unique cars on Polinate (multiple cars sold out)
• Launched genesis drop on Terra Virtua within a week of token launch (multiple sold out)
• Factory powered by Rain Protocol

Budget

• $1M equity into Hotwire Studios (terms above)
• $25K seed at $0.015 and $250K private at $0.03 in Nitro League (NITRO)
• Total $1.275M committment

Q&A

• Equity is not as liquid as tokens, is that an issue?

Expect token liquidity in Nitro to more than cover equity investment. Especially as Nitro game unfolds with assets, gameplay, infrastructure.

Equity is considered access into current and future games and infrastructure plays so plenty of liquidity opportunities along the way.

Long term equity play is illiquid relative to tokens, dividends from token sales and revenue expected. IPO or longer term liquidity event uncertain.

So you can see above we have many interim liquidity opportunities to mitigate illliquidity of standard equity.

• What is the risk that goes along with this investment?

General business risks of non-performance of industry, ecosystem, businesses or assets.

Mitigated through teams experience in all dimensions of the ecosystem.

Copyright
Copyright and related rights waived via Creative Commons CCO

[huoguoshen]

Hi, love these types of initiatives and deal sourcing. Thankyou.

Can you share more information about the people/individuals in the game developing team?

I see a general software OEM, Tkxel (Company - Tkxel) and then capital providers. But who are the people in the game design team and what are their credentials with prior games (non crypto that’s fine)?

As SBF put it recently, he is going into games where crypto can be an enabler of new experiences, that would include P2E. His key criteria when evaluating projects are not the crypto experience of the team, but their game design credentials. Would love to learn as much as possible about that for this project.

huo

[tommyq]

Thanks for this proposal.

From gauging the temperature in the investment committee and among core contributors, I think the general sentiment currently is that this proposal should be endorsed. However, I can’t speak for all core contributors and members of the investment committee. I’ve invited everyone with differing views to reply here. Some of us have talked to the team and the team is clearly very competent. We initially had a lot of reservations around the equity part, mostly due to the added complexity around liquidity. I think those have been well addressed in Davids post.

This investment and subsequent partnership have a lot of potential optionality in terms of network benefits and new investments for the Merit Circle DAO. Outside of the equity (that is not likely to be liquid any time soon) and Nitro token investment. Even if you discount the equity and tokens completely, the deal is likely to reap benefits over time.

The risks are minimal and the benefits could be interesing over time.

The amount also seems reasonable, especially since this is more of a basket investment.

[david-hotwire]

@huoguoshen huoguoshen

Here is a little more about TKXEL

A lot of the experience has been OEM games under confidentiality. One of the beautiful things about crypto is the ability to bypass these old paradigms and go direct.

My guess is that P2E games that fly hit that sweet spot between amazing games, amazing crypto economics and connection with user/consumer/zeitgeist. That’s the intersection we are focussing on when building the studio.

At a personal level, working closely with the global TKXEL team over the last few months, the talent is excellent and they have the capacity to work in the rapid, asyncronous, adaptable yet opinionated way that’s needed in the decentralised world. And we have the governance and management oversight that spans the various teams and organisations to ensure everything connects at an operational as well as human level.

Hope it helps.

[yjDeFiance]

Yeou Jie from DeFiance here. We think that it might not be wise for a gaming DAO to invest in equity rounds due to the lack of regulatory framework. This risk should only be undertaken for the best projects.

That said, is it possible to request more details on the following please?

• Details of the background of the team (Strength, compositions & background of the CEO)
• Game design of Nitro League (if there is an early demo)
• Tokenomics: Circulating supply inflation & token unlocks
• Vesting details of seed & private rounds
• Any other materials on a deck etc

Also I am unable to find any details on Rain Protocol. What blockchain is this for Hotwire mobile games to be built on?

Thanks!

[david-hotwire]

@yjDeFiance

• Nitro Tokenomics
• Nitro League youtube channel
• Game design, not sure best way to share schemas and example gameplay, probably not via a public forum but can organise if you would like
• Deck for Nitro & details of some of the team inside it, can share privately
• Rain Protocol, any EVM chain, at the moment Polygon, Reef and Ethereum; comprehensive dev documentation available through links

Let me know what else you need.

[AdmiralErik]

Greetings @david-hotwire ,

This is Admiral Erik von Pumpson of the MC Enterprise. We are currently drifting away into hyperspace as our fuel rods seem to be defective. Hopefully our leading engineer wakes up from his cryo-sleep to do his repairs.

I’ll personally vote ‘no’ if this were to come to a vote. I don’t see a reason to do non-strategic equity rounds this early in Merit Circle’s lifecycle. I am very familiar with a few of the ‘prominent participants’, but while the Hotwire team itself seems to be solid, I’m surprised to many of these names come up.

I’d highly suggest you to revisit at least half of those “VC” firms, to protect your own project. You’re essentially giving away a lot of discounted tokens to a few firms that are known to add next to zero value, not strategically, tactically or operationally. In fact I think they lower the value by a large sum.

I wish you well.

Signed,

Erik von Pumpson
Admiral of the MC Enterprise
Ascending Galactic Federation

[yjDeFiance]

I agree with you and would thread carefully working with some of the VCs participating in this round.

[HoneyBarrel]

Henlo David,

Equity: no
Those VCs: double no
Tokens: maybe it 100-250k seed, no private
Vote: no, unless above fixed

The idea behind our profit-DAO is liquidity at all times, equity is not a thing and not even mandated by default unless of STRATEGIC VALUE which this is clearly not.

Morningstar Ventures, Huobi Ventures, NGC ventures, LD Capital… wow, okay

Honey OUT

P.S. I’m being on my nicest here, Morningstar Ventures are you kidding me? Do you have Moonrock Capital too?

[SadCatCapital]

Meow,

Thank you for your proposal.

On first and second glance, it is our opinion that the intended proposition does not seem to be attractive enough to warrant an investment by Merit Circle. The reason is two-fold:

1. The investor expectations do not equate to the listed benefits, namely in terms of cost on both sides. Full exposure to our (Merit Circle’s) entire line-up and range of projects, advisory, know-how, as well as the use of our strategic infrastructure, revenue management, and asset management - is too large of an ask in comparison to the potential gain. I’d even go so far as to say some of the current and future upcoming infrastructural intellectual property is of strategic value. We wish to protect this, and it will never come cheap.
2. The second reason is one that led us to our final decision, the investor selection. As many here already know, the Sad Cat Cartel takes investment activism seriously. Therefore we try and uphold the quality of Merit Circle, the DAO, and the ecosystem. We do not think it is wise for Merit Circle to join within the ranks of the current investor selection.

Overall, we’d need to see significant changes in matters concerning point 1 and 2 for us to change our current decision.

The Sad Cat Cartel will be voting “no” at this point.

Signed with right paw,
Mr. Bigglesworth

[Mr.alpha]

Hello and thanks for this proposal.

I would like to take this opportunity to remind the authors of SL2 Capital, a fund consisting of Terra Virtua and the notorious Holochain founders. (Holochain denies ICO funds were used for bondage studio - Decrypt).

In my opinion, it is hard for serious investors to approve to this proposal. Not only for the fact the Holochain team is remembered by the crypto community for these previous events mentioned provided in the link, but also because the above mentioned VCs are certainly not cassified in the line of the Merit Circle values.
Values such as: Fight for it, or die with it.

Cheers Mr. α

[JC_MC]

Hello David, thanks for your proposal, glad to see MC DAO is becoming very active and productive over time.

Now, from me, it’s gonna be a “No” this time, I don’t really see this proposal adding positive value whatsoever, and I think the majority of comments already expressed some thoughts I share as well, so be to it.

Best Regards,
Nuki God “JC”

[david-hotwire]

Thanks guys, let’s address strategic value (@yjDeFiance @AdmiralErik @SadCatCapital @HoneyBarrel @JC_MC)

We’ve spent the last 14 months building tooling suitable for P2E, guilds, metaverse spaces to operate permissionlessly.

We’ve been speaking to plenty of guilds, games and funds, and this tooling is missing in all cases.

Perhaps I haven’t been clear in my writing, but the strategic equity investment is a bet in this tooling paying off. You can investigate the code and documentation on the Rain Protocol website.

What are some problems with solidity today?

• One of the main pain points in the industry as a whole that leads to a new form of custodian/gatekeeper, the auditor
• Users of decentralized protocols have learned helplessness, that they cannot hope to understand the contracts themselves so they face an impossible choice, to “ape in” or to miss opportunities waiting on auditors/lindy to kick in after months/years
• Auditors often don’t understand code they are auditing
• Applications end up centralised rather than decentralised

How are we addressing?

• The idea of eval is not new, it’s how the EVM itself works.
• Exposing the EVM directly to users in a limited capacity as DSLs and building infrastructure around it to allow end users to self-audit deployed contracts
• This is part of our core philosophy of pushing things back to end-users, not as DAOs who vote, but as individuals who are empowered to not only review each other’s deployed contracts, but also create their own contracts without being developers, and to create and fund their passions in the process.

Why does this matter?

• People don’t even want to talk about this, it’s assumed to be an unsolvable problem
• People think we are being unreasonable to even suggest that users would look at code - very smart, motivated and rich people are throwing their hands up and giving up on understanding solidity before putting 5, 6, 7 figures into things (even worse sentiments on understanding rust)

Build at the lowest layer possible…

• For us the difference is the level at which the “lego-ness” kicks in
• For where the industry is at right now, the legoness is at the interface layer between contracts and a lego block is a whole contract
• The issue with that is that the interface tells you nothing about the behaviour of the function being called
• Absolutely nothing about balance or transfer as function names guarantees that the thing on the other side of that function call will do anything in particular at all, so we rely on audits just to tell us that the contract is implementing the interface

This results in high profile high value hacks all the time e.g.

• Protocols hacked by incorrectly implementing approvals
• AMMs hacked due to re-entrancy concerns or mints/burns/balances breaking pricing algorithms
• Rug pulls are a whole class of badly behaved token that correctly implement an interface

Use factories

• However a child of a factory does tell you what a contract does, so that brings a lot of safety to the lego bricks produced by the factory, it also makes every child contract a carbon copy of each other with little room for creativity. Factory lego blocks are safer but the legoness is lifted to the protocol layer

So, back to RainVM, which Hotwire is using to bring solutions to market for games, guilds, it’s own game, metaverse spaces:
So we’re introducing the idea of opcode lego blocks, which uses both factories and interfaces to provide a middle ground, it’s a new type of lego brick

What might this open up in the P2E space?

• Configurablly access gated minting of tokens and assets, space / land sales
• Sales of pre-minted NFTs with any sale curve and gating
• Sales of off chain assets with any sale curve and gating
• Metaverse marketplaces
• Permissionless scaling of guilds and asset coordination

In other words, the tools for others to write their tools on. Now of course these things may not get adopted, which is the risk, but they also don’t need fundraising to tokenise. So by participating in equity you are a participant in any adoption or tokenisation of these infrastructure pieces.

This seems pretty uniquely aligned with Merit’s mandate and approach. Equity is a better mechanism than a token for this because it ensures the infrastructure at the Rain level is designed without perverse or distorted incentives e.g. no admin keys, no token etc; but is still able to create and capture value through the use of the protocol.

[BSide]

Hey,

Like the proposal, and greatly appreciate the detail.

I share sentiment with Yeou and Honey, however.

[Maven11]

We agree with most of the aforementioned points brought up by others.

Currently, the main issues making us hesitant about the proposal are regarding the lineup of parties indirectly associated with the proposal (as pointed out by multiple respondents) and the salient point made by @yjDeFiance about the undesirability of equity investments for the DAO in terms of regulatory issues.

Furthermore, we’d like for the DAO to be able to digest more in-depth and formalized information on the Rain Protocol and RainVM, in order to form a better fleshed out opinion on the proposal. To summarize, we’re currently too hesitant about these factors to confidently vote ‘yes’ on the proposal - as it stands.

[david-hotwire]

Ok, I’m getting feedback that I’m not addressing the fundamental question which is that of the named investors. From reading the comments my preference is to address the strategic value which I believe is there. Hopefully that is addressed to satisfaction now.

Onto investors. Firstly, the investors named pretty much all broke mandate to invest in equity, facing similar concerns to Merit (albeit not exactly the same given the nature of a DAO) about an equity investment, liquidity etc. So regardless of personal gripes with named investors, they have all made a committed to invest funds into something they cannot pump and dump.

Secondly, anyone who invests into something that has had this much love and care and belief, well it doesn’t feel great to see them trashed, because they are committed to what we are doing through their capital that is locked in equity.

Thirdly, I try to stay away from the they did they didn’t merry-go-round because in our world everyone has an opinion about everyone else.

But, let’s go through some of the concerns more deeply.

We’ve had long-standing relationships with members of almost all of the funds invested in equity over a number of years. While there might be concerns over behaviour of the funds as a whole we haven’t experienced dumping, rugs, scams, or no value contributions from anybody invested in the past. Nor do we expect to in this investment. Weirdly some of the names called out above have been incredible helpful so far in the Hotwire journey and with Nitro.

No equity investor has more than 1.5% except for Woodstock who are the lead and who are known for being long-term convinction holders and have been known to the team since their inception. 50% of the seed and private round is allocated for equity investors, and a majority of the rest is held by those who simply could not break mandate to do equity but are onboard for the long term.

This means that 1% equity gets approx 0.75% of the game tokens, not really enough supply to pump and dump or to coordinate with other equity investors to do same.

30% of the supply is held for the ecosystem, as in, earned out by gamers to be used to lock in our tier contracts which unlocks emissions (credits) powered by Rain which can be then used in combination with Reputation, Experience and other in-game incentivised activities to claim assets produced by the factory to use or sell in game.

The way the game economy, plus infra, plus gameplay is designed to work is to utilised the fixed supply Nitro currency as a locked subscription tool using our tier contracts, which opens up the P2E gameplay. Various variable supply currencies (either in form of fungible or non-fungible tokens) are distributed based on gameplay trusting the game to make these awards. The asset supply is connected to the token supply through the factory described above which is a series of RainVM wrapped NFT contracts which tier-gate minting based on how the economy wants to incentivise asset claiming at the time.

So the major driven of Nitro demand will be memberships, with different tiers unlocking different features at the player, manager or guild level. For example a guild or DAO may want to purchase a race track and earn fees on all races on that track, and to do that may need to be a certain tier locked for a period of time.

The Rain infra is a crucial part in scaling developer skills to build this out, keeping the Nitro economy as decentralised as possible and crucially increasingly decentralised over time and making it easy to replicate and connect for other titles meaning we can manage our economies with asset production and distribution rather than tinkering too much with variable or fixed supply currencies.

Hope this addresses the investor questions. Pls follow up with additional concerns or if this doesn’t address.

[HoneyBarrel]

Dear David-hotwire,

I appreciate your efforts, but you’re likely facing a wall of resistance. Those associated funds, are just not going to make it. I’m happy to give you a write-up on all of their actions in the past and present, and with who they are associated with, but I think everyone already knows.

I wish you good luck in the future.

Still voting no.

Honey

[sanat-spartangroup]

Hi Merit Circle Community,

This is the Spartan Group team. While we recognise that there is potential upside in this deal, we share some of the concerns outlined by other community members.

We agree that South Asia is an untapped market in the P2E and crypto gaming ecosystem, and we agree with David’s claim that there is huge potential in developing games for this market. Thus, we believe that if the games being developed are successful, the upside from access to tokens may adequately cover the risk of owning equity. We also like that TKXEL has already developed mobile games with 500mn+ downloads.

We do agree with Maven 11’s suggestion that the team share some more in-depth and formalised information on the Rain Protocol and RainVM specifically.

[freekiebreakie]

As the discussion period has been going on for quite a while, we felt the best way to decide the future of this proposal is by putting it up for voting!

https://vote.meritcircle.io/#/proposal/0xd15551329fa3e83c68ec4dabd885ff17e8c26a20e1d44899510765d16a0cacf4

[HoneyBarrel]

Henlo,

The issue is their direct bad VCs. They are destroyers of the community, and destroyers of the good VCs.

Nobody wants to mention this that roughly to not lose face but this is how it is.

@ David, remove those bad VCs for the future of your company.

Honey