2023 is a make-or-break year for blockchain gaming: Play-to-own – Cointelegraph Magazine

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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 is unclear. 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 was marred by bad eco­nom­ics. Once there’s a game mod­el that feels fric­tion­less — where you don’t even know you’re on the blockchain — and that has sus­tain­able incen­tives for users, 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.”

Illuvium’s new game. Would you play a game that reminds you of Avatar?
Illuvium’s new game. Would you play a game that reminds you of Avatar? Source: Illuvium

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, mean­while, 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 the toke­nomics should actu­al­ly 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, there are no pin-up suc­cess sto­ries for cryp­to gam­ing out­side of 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.

Atari’s Missle Command circa 1980
Atari’s Mis­sile Com­mand cir­ca 1980. Source: Retromobe

As it was for crypto’s cypher­punks, open-source cul­ture is also part of gam­ing his­to­ry. At times, game pub­lish­ers 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?

So, among all the dif­fer­ent projects cur­rent­ly com­pris­ing Game­Fi, which games will be the most suc­cess­ful? 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 not real­ly in 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.

Crypto game Illuvium. Looks a little like Axie Infinity Mark II?
Cryp­to game Illu­vi­um. Looks a lit­tle like Axie Infin­i­ty Mark II? Source: Illuvium

So, the future looks bright, but get­ting there won’t be easy. 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. 

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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 real­ly 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 not sus­tain­able. This 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 the hard work they put in to build what would become a beta test of meta­verse gam­ing. What’s more like­ly is that they just couldn’t make the token econ­o­my work with­out new gamers, like any start­up piv­ot­ing to find a prod­uct-mar­ket fit.

Illuvium’s Axolotl. Cute and mysterious
Illuvium’s Axolotl. Cute and mys­te­ri­ous. Source: Illuvium

War­wick is keen to explain why his game, Illu­vi­um, has learned how not to fall 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 stage of the game means burn­ing NFTs and cre­at­ing one Stage 2 Illu­vial. Cre­at­ing 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, at which point they can no longer cap­ture that set and are forced to pur­chase them on the open mar­ket. There’s also a bond­ing curve that increas­es the dif­fi­cul­ty of cap­tur­ing the crea­tures, mean­ing that they grad­u­al­ly go up 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 that are gen­er­at­ed are dis­trib­uted back to stak­ers in the pro­to­col. We’re the only game that is 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 ulti­mate­ly also needs to 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 cre­ate 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 key, as are games with entic­ing rewards 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 give them dig­i­tal own­er­ship of the rewards for their efforts.

Axies do look like Tamagotchis
Axies do look like Tam­agotchis. Source: Axie Infinity

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 cur­rent­ly obsessed with one very 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 that AAA pub­lish­ers with high-qual­i­ty graph­ics cannot.

Dif­fi­cul­ty beat­ing the game is anoth­er key to a suc­cess­ful game. How­ev­er, in online games — which are 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 not gained trac­tion yet. “I don’t real­ly get into the details of the game. 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 still meet­ing with as many teams as pos­si­ble every day to find that mag­i­cal toke­nomics model. 

There are some inter­est­ing exper­i­ments 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, there are 10 heroes cre­at­ed via the IP assign­ment of exist­ing NFT hold­ers from the col­lec­tions of those communities. 

So, say that dur­ing the club cre­ation phase, a Mutant Ape Yacht Club NFT hold­er assigns their unique 2D NFT to be immersed as a 3D hero char­ac­ter in an MAYC Rac­er Club. When this hap­pens 10 times, the MAYC Rac­er Club becomes a 10-set club license, and it can be held, trad­ed or sold individually. 

By using exist­ing NFTs and tokens rather than issu­ing new ones, the idea is to cre­ate scarcity.

“To date, gam­ing still has no proven toke­nom­ic mod­el. Esports is the start-off bridge to the main­stream. My pre­dic­tion is that who­ev­er does it right wins the race this year,” Rac­er Club Labs co-founder Matt Ng opines. 

While Rac­er Labs is built around using NFTs from else­where, there seems to be lit­tle chance that the major com­pa­nies will adopt this mod­el. War­wick says it’s a pipedream: 

“The inter­op­er­abil­i­ty con­ver­sa­tion is bull­shit. Wide­spread inter­op­er­abil­i­ty is a lofty goal that is like­ly decades away. The idea of hav­ing char­ac­ters like Mario from one game appear­ing in anoth­er game like Call of Duty is unre­al­is­tic. There are many tech­ni­cal and logis­ti­cal fac­tors that need to align for interoperability.”

How­ev­er, he believes inter­op­er­abil­i­ty will begin to occur with­in games in the same fran­chise or from the same studio.

The move from play-to-earn to play-to-own to play-and-develop

Life­long gamer Elis­a­beth Hare tells Mag­a­zine that gamers need more — and that blockchain can give it to them. “We need a par­a­digm shift where the pow­er comes back to the peo­ple. One rea­son blockchain gam­ing is need­ed is because of the state of gam­ing today. Gamers don’t own what they are buy­ing, and they con­stant­ly need to buy things.”

She con­cedes that poor behav­ior by game devel­op­ers, like releas­ing bug­gy games built around mon­e­ti­za­tion, has soured the appetite for blockchain gaming.

“Take Over­watch, for exam­ple. Activi­sion Bliz­zard essen­tial­ly gut­ted the game, rere­leased it as a sequel and heav­i­ly mon­e­tized it. The actu­al ‘new’ ele­ment of the game has been delayed at least a year. This is one of the rea­sons why I’m not sur­prised gamers are skep­ti­cal about monetization.” 

Hare believes that games need game­play mechan­ics that are not just based on earn­ing. She is wait­ing for one or more great Web3 titles to prove her ideas right. “The per­cep­tion in the gam­ing com­mu­ni­ty is that NFTs pro­vide more ways to extract mon­ey from the con­sumer. It’s a mon­ey grab.” 

This makes edu­ca­tion impor­tant, along with care­ful design. For exam­ple, when AAA stu­dio Ubisoft released NFTs, there was a resound­ing back­lash from gamers. Ubisoft respond­ed that gamers didn’t under­stand NFTs.

“With emerg­ing and con­tro­ver­sial tech, gam­ing com­pa­nies need to clear­ly demon­strate the ben­e­fits of that tech, or imple­ment it in a way that’s appeal­ing or essen­tial­ly invis­i­ble,” Hare says.

There needs to be a “shift in the way NFTs and Web3 con­cepts are com­mu­ni­cat­ed to gamers, in that the Web3 parts should be hid­den in the prod­uct,” says the life­long gamer.

And while a Fort­nite skin NFT in Minecraft might still be a while off, the search for the Web3 gam­ing gem continues.

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Max Parasol

Max Parasol

Max Para­sol is a RMIT Blockchain Inno­va­tion Hub researcher. He has worked as a lawyer, in pri­vate equi­ty and was part of an ear­ly-stage cryp­to start up that was over­ly ambitious.



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