State of web3 gaming - 1h 2022

Bearish short term, Bullish long term

Acknowledgement: Thank you to IanDao (Game Designer), Aiko (Folius), Wassiecapital (Play), Cloudxgmf (Guildfi), Jon Huang (SEA) and others who provided opinions and making this piece possible.

---

In a latest article Warm Crypto, Richard summarized the state of crypto market,

“Deeply convicted in crypto’s role in empowering opportunity and connection, yet mentally exhausted from the copy pasta of short term money games that dont engender real change. Surely we can do better?” - Richard Kim, Galaxy

the same can be said for web3 gaming in its current state. That’s also the general consensus amongst several gaming focused analysts i had spoken to.

It is disappointing to hear that

a) there are numerous teams that cannot even explain their game in simple english

b) there are teams that do not understand game design trying to raise funds

c) there are teams that do not even know what they want to do (kek) and asking existing game projects for ideas.

On the other hand, there is a growing group of experienced web2 game developers wanting to enter the web3 gaming space to build something sustainable and fun.

There are three groups of game devs entering the space:

1. web2 game devs lacking web3 experience

2. web3 native devs without web2 gaming experience

3. web2 game devs with web3 experience (unicorns & most sought after)

Let us explore some of their motivations, mistakes and shortcomings. Perhaps, even web3 gaming teams planning to or already building their game will be able to have some takeaways from this article.

The current state of web3 gaming

1) web2 game devs lacking web3 experience

Increasingly, there are more web2 game devs that have finally been red-pilled and see the value in that web3 games can bring. While these devs have the experience to build games, most have a rudimentary understanding of crypto and token design. Many of these devs come from AAA studios and just need someone with web3 knowledge to guide them on tokenomics design as well as other aspects of web3 culture.

On the other hand, there are some web2 devs who think along the lines of “Lets’ slap a token for our game, launch it and raise funds”. While that could work in a bull market where everyone just wants a piece of the action, that’s unlikely to happen going forward.

Most commonly discussed amongst analysts are their impression that many web2 game devs just try to launch a web3 game project in hopes of getting rich quick, perhaps some might have missed the previous bull run or they thought it was easy to make it in crypto since there too much money. This only happens if VCs keep letting them get what they want (ie. raising at >100m val with a basic game idea). Perhaps we should focus on helping genuine web2 devs who want to make a difference.

2) web3 native devs without web2 gaming experience

Most web3 native devs without game design experience are just in it for the short term (just force fitting defi → gamefi). While some entered the gaming space to learn and build for real, the latter is rare and should be supported in any and every way possible.

These devs are mostly focused on financialization of the game which totally ignores the fun aspect of games which is what games are suppose to be for anyway. The target audience tend to be lower for these games and may not gain meaningful adoption from gamers. Axie was an exception with this(where up to 2m DAU was achieved due to the P2E element), however, nothing of this sort is ever sustainable as we now know.

3) web2 game devs with web3 experience

These are the teams that all VCs want to invest in given their rare combined expertise in both web2 and web3 worlds. Personally spoken to and know of a few of such individuals, with strong expertise in games from web2 and the expertise in financial mechanisms from web3, they have actionable ideas and a strong roadmap on how to marry the two worlds together.

“We find a process that lets you design both the economy and gameplay in tandem, find a middleground and make it work. Games are special, because so long as they are fun, the mechanisms in which they generate revenue can be massaged, generally either through the relationship of time, entertainment, value and power” - IanDao, Game Systems Designer

As Ian points out, games should be built fun, all other mechanisms can be designed in the game, often hidden from the eyes of users (financial mechanisms are inbuilt into the game, you do not feel or think about it).

Bullish on the long-term future of such teams, yet as a long term bull in the digital assets space, most would agree that we can all help teams with either the lack of expertise in web2 or web3 to narrow their knowledge gap, and this could start with pointing out things that teams can improve on, and we will discuss what is needed to progress in the next part.

Things that project teams can consider to improve on in their web3 game fundraising journey

• Avoid investors who are more concerned about short term gains that will cause you to shorten your TGE potentially or encourage you to design bad financial mechanisms for their own benefit

• Not understanding how to align stakeholders interest in tokenomics design. (If they hate it, they’ll let you know by asking for less than 1 year vesting.. kek..)

• Some teams pitch to do X number of things that require Y capital, but end up doing a small raise and having a shorter runway/roadmap. What does this show

  investors? Surely these teams can do better?

Things that project teams can consider to improve in their game economy designs

Notes: game name has been replaced by placeholder, the purpose is not to put down the game but is to use as a case study for educational purposes.

Game A

• Their NFTs decay based on number of use -> Users needed to win 9/10 matches to earn -> Most players would not be able to do that → This turns off users → Low retention of players

• There were no recurring gold sinks in the game → Players would not buy their skins because they do not care -> Because their NFTs will be lost after several games

Game B

• Purely P2E gameplay like game b is not sustainable → Requires more player onboarding than those leaving → Eventually led to unsustainable economy → Low player retention

Things that project teams can consider improving on in launching, community management and gameplay

Game C

• The team sold mystery boxes at high price -> Secondary traded higher -> Then the team had a discount event after people bought secondaries as they wanted more players -> Early buyers disappointed -> Guess what happened next?

Game D

• Staking for the Gov token was turned on while game is not live yet -> Is it necessary? -> Game is not live yet and people are just in limbo -> This invites speculative short-term capital i.e. yield farmers instead of permanent long-term users. Will this be good for player onboarding when game launch? → In most cases, this will lead to less anticipation for the game (no hype leading up to launch)

• While the graphics look fantastic, the gameplay doesn't show much complexity, ie, lack of attack speed differentiation was observed from trailer (this was a feedback from some game designers)

What is needed to progress

“In the near-term (time horizon matters), blockchain may not necessarily drive a revolution in gaming, but instead more of an evolution — the former is a step-function change while the latter is a marginally incremental one. Yet, none of these will come into play until a web3 game can stand on equal footing against traditional web2 games in terms of entertainment value and successfully compete and cannibalize web2 games’ market share. Web3 games need to be gameplay-first, web3/crypto/blockchain-second, and most important of all, categorically fun.” - Jon Huang, Sea Capital

Jon’s article, The Crucible, spoke about the need for web3 games to be gameplay-first, which is required for the evolution of web3 games.

While the sector is still in an experimental stage, each and every incremental improvement is a step closer to the success of web3 gaming.

Let us explore some of the improvements we can consider taking to progress

1) When is the most ideal time to launch TGE?

Most games launch their TGE way in advance of the game’s MVP launch. While this may give the team more funding to work with, maybe some exit liquidity for early investors, but this dampens the attention cycle of retail investors and gamers.

2) Can marketing be done differently?

Most web3 gaming teams launch their white/ lite paper, while that is common in web3, it is not in web2. Do gamers want to go through a whitepaper? Doubt so. In web2 games, they launch a gameplay trailer/teaser and some general blog posts on the game.

Perhaps web3 gaming teams can adapt this style of marketing. Breakdown whitepaper into a series of blog posts or bite size content. This is what Everseed has done.

In addition, could teams consider using content pillars to create content that could hold the attention of different groups of gamers? For example, a blog post or AMA could be broken down into gifs, memes, short video clips (highlights of AMA) and many more.

This provides more content to be shared based on a pillar content (AMA). Using this method could help ensure the attention/hype cycle has narrower gaps.

In the following articles, will study how existing game projects have done their marketing and how they can be improved.

3) Studying existing DeFi mechanisms that can be used in GameFi

Crypto Raiders turned to Protocol Owned Liquidity (OHM model) for their $raider and $aurum tokens, this allows protocol to earn trading fees which over time can be used to fund game development.

Adding to that, the BLOG model by Kydo and Aiko serves as a framework for game devs to study and even potentially implement the DeFi ve(3,3) model into ve(NFT) in games.

There will be many other iterations of these, for the space to move forward, we need more DeFi natives to study the use cases of these mechanisms and how it they can be integrated “naturally” into GameFi.

In the following articles, we will discuss some use cases and frameworks that can be considered.

4) Using game design simulation tools

Teams like Blast Royale publicly announced that they are working with service providers like Machinations to map out game design, simulate outcomes and improve overall gameplay.

Teams that are serious about the outcomes of their gameplay should consider using such services to reduce the guesswork since once the game is launched, it is tougher to tweak and even harder to retain players.

The end of the beginning

We can agree that crypto has definitely gone through its 0 to 1 moment. The next phase of 1 to 100 has just starter and we now hold the pen.

Will web3 games have more fun, stickiness (maybe due to player ownership) and entertainment value (games are Netflix’s biggest competitor) than web2 games? I am optimistic about the future, most of the investors i spoke to are bullish about the future.

What we can do better is to support our builders with more resources, expertise and persuade web2 talents to cross the web3 chasm, because that is where the future is. Reduce funding to low quality projects and increase resources to strong teams that will be able to navigate the challenging task of building our virtual world/nations.

Bearish short term, Bullish long term. Sums up the current state of web3 gaming.

Author’s notes: The above points that game projs can improve on are based on the particular period that some of these issues occurred, most issues have their solutions, hence i believe that eventually these games will improve their gameplay, design, tokenomics and many others. The above insights are crowdsourced from various stakeholders and are laid out in the article for education/learning purpose.