The Web3 gaming sector is experiencing stricter investment conditions as the flow of capital becomes increasingly discerning, with investors favoring sustainable initiatives over hype-driven fundraising efforts.
In February, Gunzilla Games’ Web3 director Theodore Agranat likened blockchain gaming to a “game of musical chairs,” where the same funds are repeatedly allocated to various projects without any new investments coming in. He further noted that users tend to jump from one project to another to extract value before moving on to the next opportunity.
During that same month, the highly anticipated Web3 game Illuvium announced a significant workforce reduction of 40%, highlighting the need for teams to operate with a leaner structure in today’s economic climate. In October 2024, Trung Nguyen, co-founder and CEO of Sky Mavis, revealed a similar strategy by cutting 21% of its workforce to better allocate its budget for future projects.
Despite these challenges, professionals within the Web3 gaming sector claim that capital is still available and have identified several factors that are influencing this trend throughout the industry.
### Investors are now more cautious with their funding
Sky Mavis co-founder Jeffrey Zirlin expressed that the challenges faced in Web3 gaming are not unique but rather mirror the capital constraints affecting the wider crypto landscape.
He emphasized that the current investment climate is “tight across the board.” However, Zirlin did point to exceptions such as Fableborne, a mobile Web3 game that saw overwhelming interest with a subscription rate of 16,000%, showing that “new capital is indeed flowing into Ronin,” the blockchain platform developed by Sky Mavis. He elaborated:
“It’s not that investment has completely dried up. It’s just that investors are no longer investing without scrutiny, as they previously did with so-called ‘Axie killers’ that ultimately did not meet expectations.”
“Axie killers” refers to gaming initiatives claiming to be the next breakthrough in Web3 gaming aiming to surpass Axie Infinity, Sky Mavis’ flagship title.
On a similar note, Sebastien Borget, co-founder and COO of The Sandbox, challenged the “musical chairs” analogy, suggesting that it implies a level of randomness that he does not agree with. He mentioned that while new investments are scarcer and investors are more cautious, the unpredictability that was once driven by hype cycles is diminishing.
“The success of blockchain games is increasingly reliant on meeting traditional gaming standards. This includes providing engaging content and gameplay, ensuring sustainable user acquisition, creating a solid in-app economy, and fostering a loyal audience,” he remarked.
### Projects can no longer rely on superficial NFT integration
Josh Gier, the chief marketing officer of the gaming tournament platform Coliseum, commented that the era of simply introducing non-fungible tokens (NFTs) to a game and receiving enthusiastic backing from cryptocurrency investors is over.
“Yes, the speculative phase of blockchain gaming—where projects could raise significant funds by merely adding NFTs to a game—has quieted down. However, that does not mean that the availability of capital has vanished,” Gier explained.
He stated that investments are becoming more selective, seeking out projects with robust fundamentals and sustainable economic models.
“Investors now show interest in games that weave Web3 elements into the gameplay in ways that enhance user engagement instead of solely prioritizing financial incentives,” Gier added.
Vineet Budki, CEO of venture firm Sigma Capital, noted that some core investors, such as Animoca Brands, are particularly focused on the blockchain gaming niche. He pointed out that game development takes longer than in other sectors, resulting in a longer timeframe for returns on gaming investments.
Nonetheless, Budki acknowledged that acquiring funding for Web3 gaming has become a more complex process. “The days of simply creating a gameplay video, presenting appealing tokenomics, and successfully raising funds are gone,” he said.
He asserted that teams building high-quality games with a deep understanding of distribution strategies are better positioned to attract capital.