Will 2023 finally see an explosion of crypto gaming? The signs are mixed, with former play-to-earn darling Axie Infinity falling out of favor and hemorrhaging players, while mainstream gamers report that Web3 games still have playability issues.
The bright spot is that AAA games are finally starting to emerge in Web3, with projects like Illuvium garnering attention. And there’s a ton of runaway, considering that Web3 gaming raised $4.5 billion in 2022. For comparison, metaverse projects raised $1.9 billion.
The thesis is compelling for crypto gaming, but the way forward could be more precise. Do tokenomics help immerse gamers in a game, or do they distract from the experience?
“I think the first big win will come from a game with tokenomics that don’t explode and implode in six months, and that also doesn’t feel like a ‘crypto’ game,” Geoff Renaud, co-founder and chief marketing officer of Web2-to-Web3 creative marketing agency Invisible North, tells Magazine.
StepN showed a ton of promise for easy onboarding and user experience but needed better economics. Once there’s a game model that feels frictionless — where you don’t even know you’re on the blockchain — and has sustainable user incentives, there will be a massive follow-on effect. Blockchain gaming needs to have one big win, and I have a feeling that’s more likely to be from a simple mobile game that looks like Candy Crush than a AAA title out of the gates.”
Getting it right will help unlock mainstream crypto adoption. Illuvium founder Kieran Warwick tells Magazine that blockchain gaming is the “best case of onboarding the mainstream to crypto, as it’s easier to onboard the masses through a game than a complex DeFi product.”
Despite compelling numbers, commercial success is hard.
Many believe the GameFi sector has a bright future. According to a report by consulting firm MarketsandMarkets, the global blockchain gaming market will grow from $4.6 billion in 2022 to $65.7 billion by 2027. Naavik and Bitkraft Ventures predict blockchain gaming to grow to a $50 billion market by 2025.
Are these projections plausible? Perhaps. GameFi accounted for 49% of all DApp activity in 2022, according to DappRadar. And there are 3 billion gamers worldwide, about half of which are in the Asia-Pacific region, and mobile gaming is a phenomenon in developing countries.
Yet, the problems facing mass onboarding for blockchain gaming are diverse and complex, including that no one seems to know how tokenomics should work. Many gamers are also aggressively skeptical of crypto games, perceiving them as scams or selfish efforts to monetize gaming and increase profit margins. Moreover, crypto gaming has yet to pin up success stories outside relative successes like Axie Infinity and MIR4.
Despite its many critics, Web3 can fit well into gaming culture. Consider existing freemium gaming models (with paywalls). While gamers must buy or grind for the skins (clothes and accessories) and often pay at every turn in these Web2 games, the Web3 model argues that gamers should benefit from secure ownership of their in-game assets.
One goal of Web3 gaming is to let gamers sell or trade unused assets with earning potential and keep their assets if games are discontinued or go offline. Improved player experiences are also possible, such as players being rewarded for being early or loyal players, meaning they can acquire rare items as new games become popular.
As it was for crypto’s cypherpunks, open-source culture is also part of gaming history. Game publishers sometimes relented to fans hacking their games to make them more challenging and replayable.
As told in Netflix’s docuseries High Score, college students hacked and boosted Atari’s Missile Command in the 1980s to make the game harder to beat, creating a booming black market arcade in their dorm room and booster kits for the arcade machine. Atari legally settled with the students — but only if they agreed to work for Atari. In this conception, gaming IP hacking can escape punishment if you’re a true fan helping to improve the game. So, the idea of fan ownership of games makes sense in both crypto and open-source culture.
Similarly, what’s happening in Web3 today is an example of “a decentralized remix culture where there is a utilization of assets or traits related to those assets,” says Kishan Shah, chief operating officer of B+J Studios, which raised $10 million in September 2022 to bring its Raindrops Protocol NFT super app to life for blockchain-based gaming solutions.
Where will the winners come from?
Which games will be the most successful among all the projects currently comprising GameFi? With indie games, the audience is usually looking for something different, which creates an opportunity for blockchain gaming. Smaller publishers are also more likely to develop player-owned or interoperable game economies, as this is outside the interests of a big studio currently making a fortune by owning everything.
“The video games industry does about $120 billion per year in sales, a significant portion of which is virtual goods,” noted a16z general partner Chris Dixon, adding that “most video games have 100% take rates [commissions for sales]. Web3 (aka crypto) games reduce the take rate dramatically.” That is, Web3 gaming can change the whole economic model of the gaming industry.
So, the future looks bright but getting there will be challenging. Game-making is very hard and highly specialized, and just because crypto firms want to make games doesn’t mean they should. “Blockchain companies building games is stupid. Game design is a very specialized profession,” David Hong, an American based in Taipei who is the gaming lead for Red Building Capital, tells Magazine.
Games should be coming out of gaming studios recruiting blockchain experts.” The big studios also have existing distribution mechanisms and a waterfall cycle for their release schedules. Issues like whether the game will appear on consoles or PC and third-party retail sales can be set years before release, making a newbie upstart challenger subject to numerous obstacles. Then add tokenomics as another complicating factor.
No one gets the in-game tokenomics
One major problem is that sustainable crypto gaming tokenomics have yet to be proven.
“Everyone just copied Axie’s two-token economics,” notes Hong. No one knows yet what the best practices of in-game tokenomics are. Most now argue that “pure Ponzi schemes of 99% speculators and 1% players are unsustainable. It is because game-playing enthusiasts know that game mechanics are very intricate, and degens and power gamers will always break the system,” Hong says.
Warwick says he “called Axie Infinity a Ponzi a couple of years ago, as it required more users to keep entering the ecosystem. Axies were identified as having inflationary properties due to the breeding feature, which resulted in a significant decrease in the value of assets. The abundance of assets created a lack of scarcity, contributing to the devaluation of these assets.”
It seems unlikely that Axie’s developers set out to build a Ponzi scheme, and many pay tribute to their hard work to create what would become a beta test of metaverse gaming. What’s more likely is that they couldn’t make the token economy work without new gamers, like any startup pivoting to find a product-market fit.
Warwick is keen to explain why his game, Illuvium, has learned to avoid falling into those traps and how the game’s story and lore create a scarcity for its NFTs. Illuvials are the game’s equivalent creature to an Axie.
Fusing three Illuvials of the same game stage means burning NFTs and creating one Stage 2 Illuvial. Making the most powerful creature in the line requires burning nine NFTs.
Sets of Illuvials are also limited. Gamers can collect Illuvials until a series ends when they can no longer capture that set and are forced to purchase them on the open market. A bonding curve also increases the difficulty of capturing the creatures, meaning that they gradually increase in cost over time. In the game, this means that once an Illuvial is caught, it is harder to find it in the Overworld where it lives.
Furthermore, the concept of “real yield,” or sustainable revenue for gamers, is also emerging in blockchain gaming. Warwick says:
“Baked into our tokenomics is a system called revenue distributions, which means all of the in-game fees generated are distributed back to stakers in the protocol. We’re the only game currently utilizing this method (to my knowledge).”
Finally, classes of elements such as wind, water, and fire may change in popularity from series to series, so previously undesirable elements may later become desirable. “Like Pokemon, you want to capture the most powerful,” says Warwick.
While those things create scarcity and help the tokenomics, the game must appeal to emotions. Like Hong, Warwick believes a game’s success “depends on its ability to tap into the psychology of collecting and creating a connection between the characters and the audience.”
For example, Axie Infinity was inspired by Pokemon and Tamagotchi in creating its creatures. Elsewhere, building a universe of characters that players can connect with — like with Nintendo’s Mario, for example — and contrasting them with lesser-known characters — like Bowser and Wario — who are also beloved by players for their distinct personalities helps create a compelling ecosystem. It’s important to make characters that players can relate to, even for those who pick Wario, because they see themselves as the villain.
Then the main issue for any developer, though, is the exceedingly tricky task of making a good game.
What makes a good game?
We all have our favorite game, from retro classics like Space Invaders and Mortal Kombat to Fortnite, Grand Theft Auto, and Halo, depending on our age and tastes.
The story, characters, and gameplay are essential, as are games with enticing reward systems that make your hard work worth it — unlocking new levels, characters, weapons, secrets, and achievements. Gamers are given a reason to keep playing, and blockchain aims to provide them with digital ownership of their efforts’ rewards.
Good graphics help a lot, too, say most gamers — but not always. Some arcade games still captivate new generations of players. Gaming VC Hong is obsessed with one basic game, Torn, for a simple reason: He plays against his brother-in-law. “The social element is important,” he says, and the community must be authentic. Edgy, colorful, pixelated indie games can offer something AAA publishers with high-quality graphics cannot.
Difficulty beating the game is another key to a successful game. However, in online games — arguably the most popular these days — it’s about ranking up, improving skill levels, progressing, getting better gear and cosmetics, and playing with friends.
Like many, Hong argues that Web3 gaming needs incremental changes. “It must be palatable for Web2 gamers. What makes you think anyone wants to use a new platform? I still use Word and Excel. There should be value for time spent in the game, but everything else should be the same as Web2 games.”
Still, finding a winning crypto game to invest in is hard because Web3 games have yet to gain traction. “I don’t get into the details of the game, and I don’t invest in some drawings and a storyboard. Nobody knows what the market wants. I can only look for good quality teams that understand gaming psychology and good token models,” muses Hong.
Hong is meeting with as many teams as possible daily to find that magical tokenomics model.
Some intriguing experiments are going on. For example, Racer Club Labs is creating a blockchain-based “BYO” (bring your own) tokens racing game for 2,500 NFT communities. In each Racer Club, ten heroes are created via the IP assignment of existing NFT holders from the collections of those communities.
https://cointelegraph.com/magazine/2023-is-a-make-or-break-year-for-blockchain-gaming-play-to-ownDisclaimer
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