Web3 games have the potential to become a major player in the gaming industry and contribute a significant market share over the next decade. However, like any evolving innovation, the field of Web3 gaming is not without its challenges. The industry has promised a lot and made progress, but it is important to question whether we are on the right track. Are we heading in the right direction and what steps need to be taken to meet the challenges and deliver the promised value in this new era?
Before we move on, let’s take a look at the current state of the market.
Current status of Web3 gaming
Gaming has been a major force in the Web3 space since 2021, driving excitement, significant funding and innovation. The investment landscape has seen a lot of activity, as evidenced by DappRadar’s 2022 Blockchain Games Report. Investments in blockchain games grew from $27 million in 2019 to $7.6 billion in 2022.
According to DappRadar’s “State of Blockchain Gaming in Q1 2023” report, investments in blockchain gaming and metaverse projects grew by 12.95% to $739 million, suggesting a bright future for the industry.
Source: https://dappradar.com/blog/dappradar-x-bga-games-report-2022-overview & https://dappradar.com/blog/state-of-blockchain-gaming-in-q1-2023
Web3 gaming growth has seen a remarkable surge, posting a staggering 2,000% increase from 2021 to 2022. This remarkable growth has not only caught the attention of avid gamers, but also attracted a multitude of highly skilled developers and surpassed all previous gaming industry records.
In 2022, Web3 Gaming proved its resilience and established itself as a significant participant in the blockchain space. While other sectors on the Web3 experienced a slowdown, gaming continued its global expansion. During this time, investments in Web3 gaming continued, even in the midst of what some would call “crypto winter.”
Gaming activity accounted for nearly half of all blockchain activity across 50 networks, with 800,875 daily unique active wallets (UAW). However, this number is still relatively low compared to the billions of players worldwide, indicating untapped potential. It is important to note that wallet activity alone should not be taken as a measure of Web3 gaming progress.
Currently, most projects have centralized and private active user data, which is insufficient compared to traditional Web2 games. Additionally, wallet activity in 2022 may result in people exiting the industry and cashing out. Therefore, caution should be exercised when using it as a metric for assessing progress. Therefore, it is fair to say that the Web3 gaming industry has not been completely abandoned.
Industry-wide challenges
As the Web3 gaming space evolves, there is no doubt that it will continue to face challenges such as regulatory scrutiny, divergent reactions within the gaming industry, and the sustainability of the game token economy.
Regulatory Control
In a June 2023 lawsuit filed against Binance, the world’s largest cryptocurrency exchange, the US Securities and Exchange Commission identified three individual gaming and Metaverse tokens, including Axie Infinity (AXS), The Sandbox Game (SAND) and Decentraland (MANA). ) than potentially covered by securities regulations.
Still, a judge’s more recent ruling in another SEC lawsuit against crypto payment service platform Ripple Labs is a development that could have a positive impact on the blockchain gaming industry. US District Court Judge Analisa Torres clarified last month that the XRP token does not qualify as a security, but that finding only applies to programmatic sales conducted on digital asset exchanges. Still, projects that incentivize liquidity pools, such as Axie Infinity and DeFi Kingdoms (DFK), could be affected by this definition. Experts point out that treating tokens as investments in liquidity pools raises questions about their status as securities. If gaming tokens are considered securities, game developers can face fines and disclosure requirements.
The SEC is currently working on establishing an official categorization for tokens and NFTs. Given this situation, it is recommended not to use tokens or NFTs as a fundraising mechanism or to distribute tokens as an incentive to hold another token – a process known as staking. Instead, a better approach is to design a distinctive NFT or token that can be freely distributed and used within the specific game, ecosystem, or application.
developer reluctance
The Game Developer Conference’s State of the Game Industry 2023 report paints a revealing picture of game developers’ sentiment toward blockchain technology.
Many developers believe that blockchain technology could have a valuable place in video games in the future. However, many also believe that some current uses are unsustainable or predatory. Around 14% of game developers support the use of blockchain technology in games, while 61% oppose it and 25% are unsure.
Sustainability of game token economies
After discussions with dozens of game developers and economists, the concept of developing sustainable token economies poses extreme challenges in adopting an open and free economy. In game development, developing solutions for heavily used digital currencies and digital collectibles should be prioritized over adoption of NFTs and tokens before developing a product.
While it may be acceptable to initially mint NFTs to boost a community through engagement and novelty, much like games are launched on Kickstarter today, game developers should first establish a game, then test digital versions of tokens and design them to are sustainable for the blockchain-based, free economies. This means that existing digital currencies and collectibles cannot be easily ported to the blockchain, as the conception in a closed economy is incompatible with that in an open and free economy.
Mixed support from gaming companies
Despite these challenges, there have also been positive developments. The Epic Games Store has already brought several Web3 games to its marketplace, including Blankos Block Party, Defimons and Gods Unchained.
After 20 years of founding and another six years of evolving the concept of Fortnite, Epic Games released its Battle Royale mode, which attracted over 400 million users and prompted the company to launch the Epic Games Store to gain market share and become a distribution platform .
In June 2022, Epic officially shared its position on Web3 gaming versus Steam, and despite initial skepticism from some traditional gamers, Epic Games remains committed to exploring the possibilities of Web3 gaming experiences. This is evident when we see that games like Gods Unchained perform well on their platform. Since launching at Epic Games, GODS, the currency used in Gods Unchained, is up 50% since its June 2023 bottom.
But not all companies are equally enthusiastic. Sega, one of the largest game developers in Japan, recently backed down from its announcement of moving forward in Web3 gaming, with one executive stating, “The action in play-to-earn games is boring.” What’s the point if Aren’t games fun?” This viewpoint may be related to the slower pace of success in the Web3 gaming industry, with the most successful title, Axie Infinity, only attracting a few million users. This is a modest number when traditional game studios expect tens of millions of dedicated gamers to consider a game successful.
The Web3 gaming industry needs more people who dedicate their time and skills to drive improvements and innovations in this area. It is discouraging to see people leaving this promising field. Nonetheless, at Earn Alliance we remain optimistic that there are developers who continue to develop and release new games in this space.
Overcome obstacles
There are many things the web3 gaming industry can do to address the headwinds.
Web3 game developers should focus more on developing quality gameplay content that provides players with truly enjoyable experiences. Cloning similar gameplay content mechanics does not guarantee the same success as their predecessors.
Also, it’s important to remember that creating content for a game is a time-consuming process that can take years. For example, EatMe.IO went through three iterations before reaching more than 10 million downloads, and the makers of Angry Birds faced financial challenges before launching their blockbuster game.
Beyond developing fun games, it is important not to over-incentivize users. Even in gaming competitions, where rewards are often the focus, the primary motivation for players should be enjoyment of the game and not external incentives.
Games that bring something new, fresh and unique to the table evoke a deep magical feeling in the user. This sense of “fun” comes from the originality of the game, and people often share this genuine joy with others and draw them into the experience. That’s why it’s crucial to innovate and launch niche experiences that haven’t had a chance to reach a wide audience before.
Therefore, researching and unlocking the potential of Web3 gaming requires significant dedication. While web3 gaming might not seem exciting at the moment, it’s important to remember that it’s still in its infancy and full of potential. The right mix of good gameplay content and effective use of blockchain technology will undoubtedly unlock this potential.
learning for the future
Web3 games have tremendous potential to become a major player in the gaming market, contributing to a significant market share in the coming decade. While the industry faces challenges and uncertainties, it’s also important to note that it has made significant strides and attracted avid players since its inception. It is crucial to take a critical look at the development of this very new industry and take the necessary steps to fulfill its promise.
By prioritizing fair and user-centric gaming approaches and encouraging a player-centric mindset, we can create a more enjoyable and valuable gaming experience for everyone. As the Web3 gaming space continues to evolve, embracing positive change, overcoming regulatory challenges, and working hard to create new and fun gaming experiences will pave the way for a vibrant future in this new space.
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