The resounding success of Axie Infinity and StepN has convinced a stream of entrepreneurs that web3 gaming, where the ownership of in-game assets is in the hands of users via blockchain adoption rather than a centralized platform, is the future.
Some of the biggest hits to date are rewarding users with tokens that can be cashed out in what is known as the “play-to-earn” model. While P2E games have attracted millions of players and billions of dollars from investors, game industry veterans argue that they are fundamentally unsustainable.
These games are the brainchild of financial engineers who want to get rich quick rather than experienced developers building time-honoured works, they say.
The dramatic rise and fall of Axie Inifity is telling. After a peak at $754 million in November when bitcoin hit its all-time high, the game’s monthly sales volume plummeted to $4.5 million in July.
“Most GameFi developers are not game developers,” said Maciej Burno, who heads the new metaverse business of Polish gaming studio Reality.
Burno is among a stream of blockchain-believing gaming veterans around the world trying to bring blockchain games to the mainstream. Their vision is to counter the public impression that web3 games, popularized by P2E, are all scams and junk. Instead, they want to build games that are both fun and sustainable, while introducing cryptocurrencies as a new way to invigorate gamers and creators alike.
Is it a game?
The problem with P2E, as seen by See Wan Toong, a former senior technical director at Electronic Arts and CTO of web3 gaming startup Red Door Digital, is that users have to spend money upfront to start playing.
In Axie Infinity, users buy and breed cute blob-like creatures called Axies in the form of non-replaceable tokens verified on the blockchain. The sales of the NFTs then go towards funding rewards for those who earn tokens through play, and the tokens, the game’s native cryptocurrency, can be paid out in turn.
That means, to be sustainable, the game must have a constant influx of new users, or else it will lose its funding source. That’s why critics compare P2E games to pyramid schemes.
Many of the P2E titles are not really games, according to Toong. They are more like decentralized financial or DeFi products with gamified features. Hardcore gamers dismiss Axie Infinity as “simple” or even “boring,” not unlike the free-to-play, mindless mobile games they’ve resisted for years.
But for those living in developing countries, the prospect of several hundred dollars per month by clicking on a computer screen can be tempting. That’s largely why Axie Infinity got off the ground in countries like the Philippines during the pandemic, when many people lost their jobs. For them, the game is more work than fun.
“I think there’s a bit of elitism in it,” Simon Davis, CEO of Mighty Bear Games, a Singapore-based web3 gaming studio that just raised $10 million in a token sale, tells Axie Infinity critics.
“There is a tendency in western countries to reject things that are popular in other parts of the world and not be as respectful as you should be. If you look mainly in Southeast Asia and Latin America, and countries where incomes are likely to be lower, people don’t buy high-end gaming rigs and consoles. It is interesting to offer people not only entertainment, but also potential economic benefit.”
“I don’t like to earn the term game,” continues Davis, a former design manager at Ubisoft. “I don’t think it should be a primary motivation because you play a game to have fun. But someone can then decide that they don’t want to play the game anymore and get a part of their investment back. I don’t see how that’s a bad thing.”
Play and earn
While Davis sees the value of P2E, like many other veteran game developers entering web3, he puts resources primarily into perfecting the gameplay. His studio produced conventional games, such as an official Disney and Pixar game and Butter Royale, a hit on Apple Arcade, before moving to blockchain. It will soon launch its first web3 title, a multiplayer third person battle royale encompassing the symbolic economy.
Games can both be fun to play and lucrative, some blockchain game developers claim. It’s no news that gamers are motivated to make money even in more developed parts of the world.
“Do you remember World of Warcraft? There is already a group of players in the MMO [massively multiplayer online] who hire tons of people in Vietnam and Indonesia to grow gold,” notes Toong.
“If you look at a traditional game, people are putting millions or billions of dollars into the gateway, but it’s at the other extreme. They don’t get any value back,” Toong adds.
Burno agrees. “People want to play for fun and they’re willing to spend money that makes them happy, but there are also people who want to invest, so you can give them a tool to invest.”
Developers are also promised bigger rewards for blockchain-integrated games. In free-to-play games, a common monetization model today, developers earn revenue by pushing an update every “six to eight weeks,” Davis notes. “Users are annoyed that you try to squeeze money out of them every two months.”
In web3 games, on the other hand, developers get a small percentage of every in-game transaction, which is recorded on the blockchain. “So all you have to worry about is making a game that people want to play for a very long time and creating value for those assets of the players who want to trade among themselves,” Davis says.
To make a blockchain game sustainable, Toong’s Red Door Digital takes a different approach than Axie Infinity. Users do not need to purchase the platform’s tokens to start playing – unless they want to start earning or have real value in their assets.
When a game has a recurring user base, the game’s value will increase and outside investors will join in, Toong believes. “All of this appreciation then goes to the people who play to get financial returns.”
Like many web3 games, Red Door Digital’s platform offers utility tokens, which are used as in-game currencies for purchasing skins, items, and so on, as well as governance tokens. Users who contribute to the game receive governance tokens and can vote on critical project decisions. The utility tokens can be traded while the governance tokens have no liquidity to strip them of any speculative value.
While developers are still working to optimize their token economy, investors are already plowing a lot of money into their nascent ventures. Blockchain games attracted a staggering $2.5 billion in funding in the second quarter according to DappRadar, a data company that tracks decentralized apps. In H1, blockchain games accounted for about 30% of all capital raised by private gaming companies, a report by investment bank Drake Star.
Despite the deluge of VC money floating in web3 games, some legacy studios and publishers seem to be cautious. Tencent, the world’s largest gaming company, does not have any web3 game development plans that are widely known.
“Reputation is a big asset for the company, so if someone who sets up this initiative fails, it’s the end of their career. They will have to answer the board,” Toong says. “So the only way is for them to invest in one or two crypto companies to see how it goes.”
The gold rush to web3 also poses a challenge to crypto skeptics in the gaming arena. A games-focused fund manager in Asia is frustrated that investors he meets today are overwhelmingly interested in knowing if his fund has a web3 corner.
“If I say no, they don’t want to invest.”