Australian crypto start-up Immutable banks $280m at $3.5b valuation

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It is the latest major capital raise in the local start-up scene in a bumper start to the year.

It joins Cyara, Scalapay, Zeller and Employment Hero in having raised more than $100 million this year, while Dovetail, HappyCo, Karbon, Milkrun and Eucalyptus have each raised upwards of $50 million.

Robbie Ferguson, who co-founded the company with his brother James and engineer Alex Connolly in 2018, said the fresh capital will mostly be used to expand the fast-growing team and snap up other crypto businesses.

“In sideways markets in crypto, like right now, there are heaps of opportunities,” Mr Ferguson said, referring to the widespread sell-off in crypto assets over the last six months.

“There are companies who have operated with poor financial discipline or are ready to consolidate, and we’ll look to acquire them for both hiring and strategic reasons.”

As it stands, Immutable has 165 people on staff and plans to hire another 200 over the next 12 months.

Mr Ferguson refused to reveal how much of the $3.5 billion business he and his brother still own.

To date, both of its gaming titles have attracted hundreds of thousands of players and Mr Ferguson said they bring in tens of millions of dollars in revenue each, but the bulk of this round’s valuation doesn’t stem from the video games.

Exploded in popularity

Rather, it is the potential for Immutable to become the global back-end for the trade in NFTs that has investors clamouring to get on board.

An NFT is a tradeable code attached to a digital item, such as an image. A secure network of computers records the sale on a digital ledger, giving the buyer proof of authenticity and ownership.

NFTs have exploded in popularity over the past two years, as people experiment with minting and trading their own non-fungible assets. Because of the “scarcity” of these assets speculators have bid up the price of various NFTs.

“The games have a lot of idiosyncratic risk,” Mr Ferguson said.

“But they reflect our go-to-market strategy, which is how do we use utility-based NFTs where people actually use those assets inside a game, not because they want them to take off in value.”

Immutable X positions itself as an alternative to the sluggish Ethereum network. In recent years, money has flooded into Ethereum, and the system has had to work harder to verify each transaction and keep up.

Secure Ownership

The transaction fees – or gas fees – have risen sharply, making it expensive for developers to build systems and applications on top of Ethereum.

A wave of new, adjacent chains that plug into Ethereum or blockchains that also facilitate smart contracts have emerged. These are called Layer-1 or Layer-2 chains and are designed to help Ethereum scale up as more users transact through it.

Immutable X is a Layer-2 solution, and leverages “zero-knowledge roll-up” technology powered by Israel-based StarkWare.

Otherwise known as “ZK roll-ups”, this technology involves bunching together hundreds of transactions outside the main Ethereum chain before pushing them through together for verification.

Heavily linking

While Immutable X is heavily reliant on StarkWare’s ZK roll-up technology, Mr Ferguson said the nature of these decentralized blockchains ensures the ownership of the digital assets – or NFTs – remains secure.

“The operations of StarkWare might fall apart and the operations of Immutable could fall apart and users’ assets would still be safe,” he said.

The computational power to run ZK roll-ups is much higher than an alternate technology called Optimist roll-ups, where transactions are assumed to be accurate unless the system detects otherwise.

Only then are fake transactions picked up and penalized before re-entry to the blockchain.

Immutable recently signed a deal with “memestock” Gamestop, to build out an NFT marketplace for the video game retailer. The two organizations also agreed to launch a $100 million fund to offer grants to NFT, or non-fungible token, gaming projects.

According to a document filed with the United States Securities and Exchange Commission, Immutable granted more than 56.2 million tokens as part of the deal.

Over the course of the following week GameStop transferred $47 million into their crypto wallet and sold off a minority portion of it.

GameStop will earn their remaining tokens on the achievement of revenue performance-based milestones of $US1.5 billion and $US3 billion.

“That was unexpected,” Mr Ferguson said of GameStop’s decision to move IMX tokens so quickly.

“But they are funding a massive operation, so that might be why they were looking to sell some tokens.”

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