The Web3 gaming sector is currently experiencing stricter investment conditions as capital allocation becomes more discerning, with investors favoring sustainable initiatives over those driven by fleeting trends.
In February, Gunzilla Games’ Web3 director Theodore Agranat likened blockchain gaming to a “musical chairs” scenario, where the same funds are shuffled among various projects while “no new money” is entering the space. He further noted that users hop from project to project solely to extract value before moving on to the next opportunity.
That same month, the highly awaited Web3 game Illuvium announced a significant 40% staff reduction, underscoring the imperative for teams to adopt a “super lean” operational approach amid current market conditions. Sky Mavis co-founder and CEO Trung Nguyen similarly revealed in October 2024 that the company would cut 21% of its workforce in order to refine its budget for future projects.
Despite these developments, professionals in Web3 gaming assert that capital is still available and have outlined several factors contributing to the prevailing trends in the industry.
Investors are now more discerning with their funding
Sky Mavis co-founder Jeffrey Zirlin indicated that the challenges in Web3 gaming are not isolated but mirror the broader constraints seen across the cryptocurrency sector.
The executive emphasized that the Web3 gaming field is experiencing a pervasive tightening of investment conditions.
However, Zirlin highlighted notable exceptions, such as Fableborne, a mobile Web3 game that was oversubscribed by 16,000% even amid market difficulties, showcasing that “fresh capital is indeed entering Ronin,” the blockchain network operated by Sky Mavis. He elaborated:
“It’s not that all investment has vanished; rather, investors are no longer pouring funds into projects indiscriminately as they once did with the so-called ‘Axie killers’ that failed to deliver.”
“Axie killers” referred to various gaming projects that positioned themselves as potential successors to Axie Infinity, Sky Mavis’ flagship game.
On the other hand, The Sandbox co-founder and COO Sebastien Borget expressed disagreement with the notion of a “musical chairs” scenario, suggesting it implies some randomness. He argued that while new capital is indeed scarcer and investors are exercising greater caution, the unpredictability driven by prior hype cycles has diminished.
“The viability of blockchain games increasingly hinges on the ability to meet traditional gaming criteria. This includes providing engaging content and gameplay, ensuring sustainable user acquisition, creating a robust in-app economy, and cultivating a loyal user base,” he noted.
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Simply adding NFTs to games won’t attract millions anymore
Josh Gier, the chief marketing officer of the gaming tournaments platform Coliseum, remarked that the era of effortlessly adding non-fungible tokens (NFTs) to a game for substantial backing from crypto investors has passed.
“Indeed, the speculative period in blockchain gaming, during which projects could easily raise millions by attaching NFTs to a game, has subsided. However, this doesn’t mean that capital has vanished,” Gier stated.
He explained that investment is becoming increasingly selective, favoring ventures with a solid foundation and sustainable economies.
“Investors are now gravitating toward games that incorporate Web3 features in a manner that enhances the player experience rather than solely focusing on financial returns,” he added.
Vineet Budki, CEO of venture firm Sigma Capital, mentioned that certain core investors, like Animoca Brands, maintain a specific focus on the blockchain gaming sector. He explained that game development typically takes longer than in other niches, meaning returns on gaming investments also take longer to materialize.
Nevertheless, Budki noted that securing funding for Web3 gaming has become more intricate. “The days of simply producing a gameplay video and showcasing appealing tokenomics to raise capital are behind us,” he remarked in a statement.
He further emphasized that teams committed to creating exceptional games and possessing an understanding of the distribution process are key components in attracting financial backing.
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