Although the crypto gaming industry remains below its 2021 peaks, it still pulled in substantial venture funding last year. But looking to the future, the subsector may look outside of tokenomics to grow and sustain itself for the long haul.
“Tokens are a fantastic way to share ownership of economies. I’m very supportive of tokens and think they’re a brilliant invention and have done a lot,” Robbie Ferguson, co-founder and president at Immutable, said to TechCrunch. “But we will definitely see increased retail skepticism and diligence where they want to see traction on these games.”
For Immutable, which raised $200 million at a $2.5 billion valuation last year, the most important element is “to build a fantastic experience for players — the economy has to be sustainable and user experience has to be fantastic,” Ferguson said. “From there, everything will flow.”
Since the beginning of 2022, the top 10 blockchain gaming projects by market capitalization fell as much as 95% due to the inability to maintain sustainable in-game economies and player bases, according to Delphi’s The Year Ahead for Gaming report.
For example, the token price for Axie Infinity, one of the biggest web3 games to gain traction, hit all-time highs of $160 in November 2021 but has since declined 92% to less than $12, according to CoinMarketCap data.
“We believe that most projects shouldn’t have live tokens in the market until the bulk of their core game loops are established, which can immunize them against speculation and inflated expectations,” the Delphi report stated.
There will be a much higher standard for how effectively and efficiently a foundation uses its tokens and the direct return on tokens spent, Ferguson said. “I think a lot of tokens are spent poorly at the moment.”
There were fewer than 700 blockchain games as of November 2022, and 143 of them have announced over $1 million in funding, the Delphi report said. “Game development usually happens on multiyear timelines, and diminished downstream financing prospects could place projects that failed to raise sufficient runway in the bull market at risk,” it added.
But there are a number of massive web3 gaming-focused grants circulating through the crypto ecosystem that are deploying capital to support the space. In December 2022, Polygon collaborated with Game7, a web3 gaming DAO, to pledge $100 million in grants over the next five years to gaming teams. Separately, in June 2022, Immutable launched a $500 million fund to boost web3 gaming adoption.
“We want to support any excellent teams with sufficient funding that are focused on building excellent trading experiences but more importantly gaming experiences,” Ferguson said. “We are less interested in exploitative primary sales or cash grabs but we’re more interested in how people build long-term economies and games where a percentage of players are trading in the economy every day.”
The real volume that’s going to emerge this year won’t be hundreds of millions of dollars in a week, Ferguson said. “It’s going to be sustained volume where we see players spending on average $5 or $20 or $50 in trading volume a week.”
Looking to the future, web3 or blockchain-based games also need to expand incentive alignments between publishers and games to grow the industry, Ferguson said. “We can’t just be selling NFTs; we have to sell a fun game. What will differentiate games in the future has to be a sustainable, valuable economy.”
But the true winners will be games that use blockchain technology to “create real value,” Ferguson noted. The winners are going to be incumbents who realize this is a better model for players and still have a healthy business while doing so, he added.
Many traditional gaming studios aren’t interested in implementing web3 elements — and it makes sense, Ferguson said. “Did we need the cab industry’s permission to create Uber? No. Any form of disruption has winners and losers.
“Equally, there isn’t a massive incentive for a company earning tens of billions of dollars in profit off exploiting players with zero redeemable value to switch to web3 right now,” Ferguson said. “They’ll experiment, build small teams to stay ahead with trends, but the biggest winners are going to be midsized studios that fully commit to leveraging web3 to grow their player base and create more value, which ultimately makes multibillion-dollar games.”
In order for web3 gaming to go mainstream, there has to be a tipping point — perhaps a high-quality game with 50 million players that leverages web3, Ferguson said.
“That will be a Schelling point for the industry — to see you can make incredibly viable games and for players to see this is the value they’re getting rather than being told it,” Ferguson added. “The future isn’t shouting to gamers why they should love NFTs; it’s showing them with a product they want to play.”
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