The runaway success of Axie Infinity and StepN has convinced a host of entrepreneurs that Web3 gaming, where ownership of game assets is in the hands of users through the adoption of blockchain rather than a platform centralized, is the future.
Some of the biggest hits in the space to date reward users with tokens that can be cashed in on what’s known as a “play to win” model. While P2E games have attracted millions of players and billions of dollars in investors, gaming industry veterans argue that they are fundamentally unsustainable.
These games are the brainchild of financial engineers aiming to get rich quick rather than experienced developers building time-honoured works, they say.
The spectacular rise and fall of Axie Inifity is telling. After peaking at $754 million in November when bitcoin hit an all-time high, the game’s monthly sales volume dropped to $4.5 million in July.
“Most GameFi developers aren’t game developers,” says Maciej Burno, who leads Polish game studio Reality’s new metaverse business.
Burno is one of a series of blockchain-believing gaming veterans around the world who are trying to mainstream blockchain gaming. Their vision is to counter the public impression that web3 games, popularized by P2E, are all scammy and trashy. Instead, they want to create games that are both fun and sustainable, while introducing cryptocurrencies as a new way to incentivize gamers as well as creators.
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 game startup Red Door Digital, is that users have to spend money up front to start playing.
In Axie Infinity, users buy and breed cute blob-like creatures called Axies in the form of non-fungible tokens that are authenticated on the blockchain. Sales of NFTs are then used to fund rewards for those who earn tokens while playing, and the tokens, the game’s native cryptocurrency, can in turn be cashed out.
This means that for the game to be sustainable, it must have a constant influx of new users or it loses its source of funding. This is why critics compare P2E games to pyramid schemes.
Many P2E titles aren’t really games in the strict sense, claims Toong. They are more akin to decentralized finance, or DeFi, products with fun features. Hardcore gamers dismiss Axie Infinity as “simple” or even “boring”, much like the mindless free-to-play mobile games they’ve opposed for years.
But for those living in developing countries, the prospect of doing several hundred dollars per month clicking on a computer screen can be tempting. This is a big part of why Axie Infinity took off in countries like the Philippines during the pandemic when many people lost their jobs. For them, the game is more like work than fun.
“I think there’s a bit of elitism there,” says Simon Davis, CEO of Mighty Bear Games, a Singapore-based Web3 game studio that just raised $10 million in a token sale. , about reviews of Axie Infinity.
“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 particularly at Southeast Asia and in Latin America, and in countries where the income is probably lower, people don’t buy high-end game rigs and consoles, it’s interesting to offer people not only entertainment, but also potential economic benefit.
“I don’t like the term play to win,” continues Davis, a former head of design at Ubisoft. “I don’t think that should be a primary motivation because you’re playing a game for fun. But then someone can decide they don’t want to play the game anymore and get some of their investment back at that point- I don’t see how that’s a bad thing.
Play and win
Although Davis recognizes the value of P2E, like many other experienced game developers entering the web3, he devotes resources first and foremost to refining gameplay. His studio produced conventional games, like an official Disney and Pixar game and Butter Royale, a hit on Apple Arcade, before turning to blockchain. It will soon launch its first web3 title, a third person multiplayer battle royale which integrates the symbolic economy.
Games can be both fun to play and lucrative, some blockchain game developers claim. It’s no news that players are motivated to make money, even in the most 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 farm gold,” observes Toong.
“When you look at a traditional game, people put millions or billions of dollars into the gateway, but that’s the other extreme. They don’t get any value back,” Toong adds.
Burno agrees. “People want to gamble for fun and they are willing to spend money that makes them happy, but there are also those who want to invest, so you can give them a tool to invest.”
Developers are also promised greater rewards from blockchain-integrated games. In free-to-play games, a common monetization model today, developers earn revenue by releasing an update every “six to eight weeks,” Davis observes. “Users are annoyed that you are trying to squeeze money out of them every two months.”
In Web3 games, on the other hand, developers get a small percentage of each in-game transaction, which is recorded on the blockchain. “So the only thing you have to worry about is creating a game that people want to keep playing for a very long time and creating value for player assets that want to trade with each other,” Davis says.
To make a blockchain game sustainable, Toong’s Red Door Digital takes a different approach from Axie Infinity. Users do not need to purchase the platform tokens to start playing unless they want to start earning or have real value in their assets.
When a game maintains a recurring user base, the game’s value will increase and outside investors will join, Toong believes. “All of that increased value then goes to people who play for financial returns.”
Like many Web3 games, Red Door Digital’s platform offers Utility Tokens, which are used as in-game currency to purchase skins, items, and more, as well as Governance Tokens. Users who contribute to the game will receive governance tokens and will be able to vote on critical project decisions. Utility tokens can be traded, while 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 pouring a lot of money into their fledgling businesses. Blockchain Games Attracted Huge $2.5 Billion Funding In Q2, according to DappRadar, a data company that tracks decentralized applications. In the first half of the year, blockchain games accounted for around 30% of all capital raised by private game companies, a report by investment bank Drake Star shows.
Despite the torrent of VC money floating around in Web3 games, some studios and legacy publishers seem to be erring on the side of caution. Tencent, the world’s largest game company, has no development plans for Web3 games that are common knowledge.
“Reputation is an important thing for the company, so if someone who creates this initiative fails, it’s the end of their career. They will have to respond to the board,” Toong explains. “So the only way for them is to invest in a crypto company or two to see how it goes.”
The web3 gold rush also poses challenges for crypto-skeptics in the gaming arena. A gaming-focused fund manager based in Asia is frustrated that the investors he meets these days are extremely interested in whether his fund has a web3 angle.
“If I say no, it’s because they don’t want to invest.”