Web3 Gaming: A Passing Fad or the Future?

By Arnold Mutunga

A Deep Dive Unveiling the Dynamics of Web3 Gaming

Gaming is slowly migrating to blockchain technology with the advent of play-to-earn models, and now Web3 gaming. This shift in the gaming scene comes about because gamers are now understanding how they ought to get compensation for their time and skill investment. Because of this, developers are incorporating token rewards into new games, giving rise to a new genre called play-to-earn games. This feature ensures Web3 gaming could provide a full-time income for gamers. Some notable Web3 games revolutionizing the gaming ecosystem include The Motorverse (a product from Animoca Brands), Nifty Island, Space Nation, and Axie Infinity (shifting from a P2E model to a Web3 game), among others.

That being said, Web3 games already have a shaky track record. Their appeal is easy to see with the extensive gaming audience in both the decentralized and centralized worlds, and most of them do it without any monetary incentive driving them.

In theory, Web3 games give power and equity to the players as now they don’t have to spend countless hours and their cash to create content that grows the gaming field for nothing while gaming companies take a large chunk of revenue. This was witnessed during the last bull cycle with the leading play-to-earn games such as Axie Infinity creating new economies and lifting players from hardship. However, in a few months, the prices dipped and games crumbled. Now the question under scrutiny is whether Web3 gaming will make a comeback or if they are just a fad.

History and Evolution of Web3 Gaming

Interesting fact: The first digital currencies ideally mushroomed from early video games.

The early 2000s saw the burgeoning virtual systems of MMORPG Video Games like Runescape, MapleStory, and World of Warcraft which brought in a new perspective of digital interactions. Gamers had a chance to trade in-game digital assets and often sell them for cash offline.

Fast forward to the 2020s and we are witnessing an evolution of these 2000s concepts with the advent of Web3 gaming. Possessing unique characteristics, Web3 technology is slowly turning into the ideal fit that drives digital economies such as those seen in games like Axie Infinity which rely on the use of next-gen tech (NFTs, Blockchain, VR, AR, etc) to function. Web3’s unique characteristics include:

• Trustlessness  – Blockchain technology is trustless with smart contracts that ensure transparent and secure transactions between both game studios and players and also within player-to-player transactions.
• Digital ownership: Allows for true ownership of in-game assets by players through NFT technology, which is essential to these cash assets having a monetary value. This kind of ownership allows gamers to have value tied to their in-game items and potentially transfer them from one game to another or even sell them on NFT marketplaces. Digital ownership adds a new level of interaction and value to the gaming experience.
• Interoperability: An asset’s ability to be used across different platforms and games, which expands its value and utility beyond the bounds of a single game. The interoperability feature comes in handy in Web3 gaming as blockchain gamers now have access to fully immersive worlds and top-notch graphics across a range of platforms, including PC and mobile devices, with the potential for console integration in the future.

It is worthwhile to note that the play-to-earn (P2E) model is what paved the way for Web3 gaming. P2E turned into a controversial topic as debates rose on whether they’ve done more harm than good regarding their reputation. After all, P2E players have lost millions of dollars as many play-to-earn projects have been labeled as Ponzi schemes. However, in every new frontier, experiments and lessons learned are a must-experience and that is how Web3 gaming came to the forefront.

Size and Growth Trends of Web3 Gaming

Assessing the Web3 gaming market by its numbers reveals that it could do better. This is because after the last bull run monthly game volume declined significantly, coupled with the challenge of launching quality games by developers. Despite this, the future remains bright for the industry with innovations and game refinements occurring yearly.

As of the last market assessment of August 2023, Web3 gaming had more than 2,500 active game projects and a $5.6 billion market capitalization. The user base is also expansive with 820K daily active users. This dynamic sector holds a lot of potential for growth with investments flowing into the industry as evidenced by big players like Myten Labs raising $300 million in funding to help bring to market high-performing games and experiences at scale on the Sui metaverse. Sui is uniquely designed as a decentralized, proof-of-stake blockchain designed from the ground up to enable creators and developers from gaming to social media to finance to build experiences that cater to the new wave of users in Web3.

In this rapidly evolving realm of Web3 gaming, it is important to distinguish between a gaming project’s potential for longevity and mere hype since only some trendy projects can sustain themselves over the long term. A Web3 game’s growth is defined by its solid fundamentals and lasting potential. As an investor, long-term potential is found in Web3 games possessing a strong foundation, a track record of continuous innovation and updates, and growing user engagement. This is what differentiates P2E games and Web3 games as the latter look beyond the current hype and have substantive characteristics that make them promising for the future.

Web3 Gaming Adoption and Challenges

2023 was an epic rollercoaster ride for Web3 gaming as revealed by the downfall of sketchy NFT projects, disruption of the royalty system, and major exchange setbacks. Towards the end of the ride, only those who adapted and innovated managed to stand tall.

Adoption of Web3 games is feasible but to this day, crypto games still need to work on coming up with a sustainable ecosystem for players, outside what P2E games offer. The main battle is against vague regulations, multi-accounters, botters, protective distribution platforms, and extractable economies. Other factors that make Web3 games fail include inadequate user adoption, technical challenges, market saturation, lack of innovation, regulatory uncertainty, misaligned incentives, insufficient community engagement, and failure to adapt to changing trends and technologies. If a Web3 game wants to survive, it must constantly innovate and address the challenges listed above with novel solutions. Some Web3 games with initial promise that later declined in 2023 include:

• ConDragon: Players could catch, upgrade, or trade dragon-themed NFTs.
• Phantasma (SOUL): Peaked at $3.97, currently trades at just above $0.22. Features “SmartNFTs” that can evolve based on conditions.
• Play Today: A blockchain-based golf game; its X account is no longer active, affecting social media engagement.
• Splinterlands (SPS): Reached a high of $1.27, now trades around $0.03. Peaked at over 490,000 active users but has since lost over 90% of them.
• MetaCash: A virtual world game with an extremely low market capitalization ($1.7e-10), leading to negative-powered expressions on CoinMarketCap.
• Gods Unchained (GODS): Peaked at $8.83, now trades at around $0.39. Removed from the Epic Games store due to an “Adults Only” rating from the ESRB (Entertainment Software Rating Board).
• League of Kingdoms Arena (LOKA): Peaked at $5.37, now trades at just over $0.30. Raised $3 million in a funding round in 2021.

Adoption is not a pipe dream but a goal that developers can realize since as Web3 gaming matures, old patterns fade and Blockchain technology opens opportunities for more gaming innovations that make gameplay frictionless and sustainable for players. More about Web3 gaming adoption to come in our future piece on our ongoing Web3 gaming series.

Conclusion

To answer our initial question on whether Web3 gaming is here to stay, or it is just another passing trend, there’s no denying that a few things need refining over time before it achieves widespread acceptance. Looking at its countless benefits, Web3 is changing the way we play games, experience ownership, and earn rewards. It won’t take long before the gaming industry migrates to Web3 completely. The gaming industry is excited to see dev teams building unique and engaging experiences that bring sustainability into gaming, so, yes, Web3 gaming is the future.

We will keep this series running to help answer all your questions on Web3 gaming and Decentralized Finance, stay tuned.