Happy new year in what promises to be a very exciting year in the blockchain gaming and metaverse space! Things have been quiet recently, which gave me time to focus on other things, most notably the real job, other crypto projects, and my family. I hope all of you had a safe, happy holiday season and new year!
For Illuvium, 2022 will be a huge year! While 2021 featured the start of staking, numerous leaks and connection points with the development team, and the gameplay trailer, 2022 will be when the rubber hits the metaverse road.
While there have been speculation and even stated dates for Illuvium’s timeline, there has yet to be a concrete schedule. I’m invested because the Illuvium team is pursuing quality over speed, and I’m okay with delays, partially because like the founders, I intend to be here for the long run. I’m also a longtime player of Blizzard games, and used to Soon™ as a timing. Illuvium has the added complication (and benefit) of being developed for the blockchain, versus trying to make a system fit into a crypto environment. As such, it is all the more critical that the various sales and games launch in a more finalized, bug-free state, making delays both essential and expected to ship quality products. With that, I give you my first prediction of 2022.
I do think the number of upcoming events mean we will likely have frequent news, starting with Staking V2. Depending on who you are, this could be considered FUD or optimism, but I’ve been bulletin board material before for the Illuvium team. Here's my "schedule" for Illuvium 2022.
My Predictions (based on no actual knowledge or insider information)
- Staking V2 - late January 2022 roll-out
- Illuvitar sale - February 2022
- Land Sale (& Illuvium Zero Launch) - March 2022
- Open Beta of Illuvium - June 2022
- Illuvium Mobile version - Q4 2022
The team continues to impress me by being able to grow, form, and be effective in the ongoing and challenging global environment, and as long as they continue to execute the founders’ focus, I’m excited to follow the project. However, we need to expect delays to enable a quality product in an incredibly busy 2022.
So what does this timescale mean for those of us who are already invested in the project, or are looking to invest? How does this align with the token unlock schedule? My next prediction:
Expect a Price Drop
This isn’t FUD, this is math. While we will have news, there is unlikely to be a revenue generating product by the time early investor tokens begin to unlock in March 2022. Combine that with the fact that early investors are holding 2 million ILV at a token price under $5, we inevitably will see profit taking. This isn't FUD or weak hands on their part - this is life. Remember, people can sell for any number of reasons, though people only buy for one reason, to make money.
The unlock schedule is available in my Staking Dashboard (unlock chart), with the ILV token increasing in circulating supply from 635k today to 1.27 million by the end of May, and 2.7 million by the end of September. In order to hold the current ILV token price, circulating market cap must quadruple over the six month period from March until September. While I do expect the game to launch during this time, I don’t expect start up to completely counteract this sales pressure.
Given the unknowns of the broader crypto market, I’ll give my price prediction in terms of ETH. At the beginning of October 2021, ILV was priced at 0.167 ETH. Today, it sits around 0.275 ETH. With the token unlock starting in March, I predict that the price will drop to 0.13 ETH by May 2022. My rationale for this is simple - I don’t expect the main title to be in open beta yet, and the number of circulating tokens will double by the end of May. Rather than a negative signal for the project, to me, this presents a potential buying opportunity just before a major event, the launch of the game and likely start of incoming revenue.
These newly circulating tokens are likely to have another significant impact, leading to my next prediction.
Expect Significantly Lower Staking Rewards
As I write this, the APY for Illuvium staking rewards are ~31% for the ILV pool, and ~340% for the Sushi Liquidity Pool when locked for 12 months. This equates to about $0.73 per day per $1000 in ILV staked and $10.74 per day per $1000 staked in the SLP. It remains >14 times more lucrative to stake in the SLP at the moment, though you are susceptible to impermanent loss and other risks, which I'll discuss below. If you believe my price prediction above for ETH/ILV, expected impermanent loss would be only around 10%, and I do believe the ETH/ILV ratio will return to a more neutral, potentially even higher ILV price once the main title launches and proves successful.
However, something that sets the team and seed tokens apart at the moment is that they are not eligible for yield farming rewards. Once they unlock, whether from a seed investor holding long term, or new circulating tokens bought on the open market, I expect a majority of those tokens to be locked up in staking protocols, decreasing the rewards for everyone. Yield farming lasts through mid-2024, with a 3% decrease in rewards every two weeks. Presuming these tokens are staked as I expect, here’s what that will do to yield farming rewards.
By the end of March, daily yield farming ILV will decrease by 17%, while the number of circulating tokens will grow by 33%. Additionally, in conservative times, the pool growth has been around 10% per month even without new circulating tokens. Combining this together, I’ll predict that by the end of March, yield farming rewards will be reduced by a little more than half. This gives me the Predicted Rewards Factor above. For example, if you’re currently earning 1 ILV per day in yield farming, I predict that at the end of March, you’ll receive 0.45 ILV per day. Applying the same math, by the end of May, I expect rewards will drop by half again to 0.21, and by the end of September, rewards will be around 5% of what you’re receiving today. In short, now and the past six months were the golden times of ILV yield farming, for those of us who had faith and invested early.
This gets more interesting in my next prediction.
Expect the Illuvium Staking Pool “Flippening”
From my above predictions, it looks like staking becomes far less valuable over the next year. While this is true from a yield farming perspective, presuming the project is successful, staking can remain incredibly valuable thanks to revenue distribution. Through the first six months of yield farming, the Sushi Liquidity pool has been far more lucrative thanks to the 80/20 split in rewards along with the lower participation in the riskier pool. Additionally, the growth of the ILV pool has been consistently higher, with claimed ILV automatically diluting rewards. Even as of today, rewards remain around 14x greater for the SLP than the ILV pool. The SLP has maintained an average growth of a little under 10% monthly recent, though all of this is added value to the pool.
The ILV pool has continued to grow a little above 10% per month, though most of this growth is actually from claimed ILV rewards rather than new tokens added to the pool. In fact, the number of circulating tokens in the ILV pool has decreased over time as they slowly migrate to the SLP yield farming pool.
As time goes on and tokens unlock, I expect the discrepancy between the two pools to continue to decrease. Once the unlock begins, we will see in which pool those newly circulating tokens end up, and I expect the SLP to be the destination until something magical happens.
Presuming the project is successful, one of the most impactful elements of Illuvium’s design is revenue distribution. I have covered revdis elsewhere, so check those out if you would like more information.
I expect following the game launch and the migration of unlocked tokens, the ILV pool will become the more lucrative pool at some point in Q3 2022. Since only the ILV portion of SLP staking is eligible for revenue distribution, if revenue takes off, particularly if the token price is somewhat depressed due to token unlock selling, the ILV pool will temporarily become more lucrative. Given the added risks (impermanent loss) of the SLP, the market forces will likely shift the equilibrium back to the ILV pool, until a final equilibrium is established between revenue distribution received by the ILV pool and Sushi swap fees received by the SLP stakers.
Secondary to tax implications, this is one of the biggest reasons I’ve avoided the sILV-to-SLP strategy, as this approach reduces revenue distribution at a time when it may be most critical.
By the end of 2022, the yield farming rewards will be around 5% of what they currently are with revenue distribution and liquidity pool fees becoming a more significant value source for both staking pools.
Expect Great Things
While my predictions may seem to paint a pessimistic financial picture of 2022, that’s only on the backdrop of an incredible 2021 for Illuvium and the crypto space in general. We’ve been focused on the token and staking, but 2022 offers an entirely new chapter in the P2E space, the chance to play AND earn. We will be getting land with an actual use case and a robust city builder game in Illuvium Zero. We’ll explore the amazing world Grant’s team has designed as we hunt our first Illuvials. We’ll battle in the arenas, understanding the dynamics and complex synergies Aaron’s team has developed. And we’ll realize the hype and excitement driven by Kieran’s passion come to life in an already robust community that is Illuvium.
We may not expect 600% APY yield farming returns or 1000x token gains, but we’ll find ourselves immersed at the beginning of a new universe with numerous ways to play, and exciting new opportunities to potentially make money while having fun. Here’s to an exciting 2022!
Thanks for reading, and thanks for your support!
This article is for entertainment purposes only, with the thoughts and opinions of the author not intended as an endorsement of any investment or financial advise. The author is invested in ILV and ETH, and is a participant in both the Illuvium core staking pools.