Insight by: Daryl Xu, co-founder and CEO, NPC Labs
The gaming industry has been experiencing a gradual downturn since the conclusion of COVID-19 lockdowns, but 2024 has proven particularly challenging, marked by layoffs and studio shutdowns even among major developers.
While skyrocketing development costs and a lack of innovation appear to be the primary factors behind this crisis, Web3 gaming has emerged as a potential fix, promising to empower developers and attracting billions in investment.
Nevertheless, despite a growing acceptance of cryptocurrency, Web3 gaming has struggled to garner the attention of mainstream players or tackle the core issues plaguing the gaming world. The problem lies in the fact that initial blockchains catered primarily to financial applications. Game developers had to either adapt to blockchains ill-suited for their needs or create isolated chains, which distanced them from the broader blockchain ecosystem. Both paths resulted in frustrating player experiences and an overemphasis on token economics.
Many developers opted for the latter route, prioritizing control over connectivity. This inadvertently led to enclosed ecosystems that echoed the very factors contributing to the decline of traditional gaming.
A solution that created more complications
A recent report highlighted that over the past few decades, executives in the video game sector have focused on enhancing graphics to draw in players and profits, rather than embracing creativity. Traditional game development is prohibitively expensive, often exceeding $100 million per title, leaving indie developers struggling against the funding and distribution monopolies of large publishers.
Blockchain technology was initially seen as a lifeline for indie studios, offering new ways to secure funding and control distribution. However, early Web3 gaming platforms ended up replicating the same restrictive systems blockchain intended to eliminate. With high costs for acquiring players and a limited Web3 audience, these platforms fortified their barriers to keep users from leaving. As they evolved, Web3 gaming introduced its own set of challenges.
A difficult dilemma for game developers
The fundamental infrastructures of layer-1 blockchains, such as Ethereum and Solana, were constructed with finance in mind and do not align with the specific requirements of gaming. Moreover, layer-2 solutions were also not designed to fulfill gaming’s distinctive needs.
Game developers, drawn to Web3’s funding opportunities and promises of asset ownership and user engagement, find themselves in a bind: either they build on existing blockchains, sacrificing gameplay quality, or they launch their own chains—diverting time and resources away from their ultimate goal of creating better games.
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While dedicated crypto players may consider this tradeoff acceptable, mainstream gamers prioritize captivating experiences. A January report indicated that Web3 gaming had achieved 7.3 million unique active wallets; however, anecdotal evidence suggests that around 10,000 of these belong to genuine gamers who are interested in more than just farming rewards. While this figure could be higher, it is unlikely to exceed 50,000 to 100,000.
A disconnect with gaming culture
What convinces mainstream users to venture on-chain isn’t NFTs or decentralized finance; it is the meaningful ownership of assets within games. Mainstream gamers have invested years in arcade games, Nintendo, or mobile games. When paired with true ownership of in-game assets, this familiarity can create a compelling experience for both gamers and developers.
Although Web3 games promise to revolutionize the industry, many projects fail to listen to the actual gaming community. In practice, they end up vying for the same crypto-native users. Rather than emphasizing engaging and enjoyable gameplay, most Web3 games are driven by crypto technology and tokenomics. Within this ecosystem, success often means attracting crypto users from one another instead of onboarding new players.
With a few rare exceptions, the industry has lost sight of what truly matters: creating enjoyable games that people want to play.
This disconnect also extends to developers who want to transition to Web3 to enhance player experiences and develop sustainable revenue models. Game studios recognize the potential of Web3 but are reluctant to navigate the intricate crypto landscape, which demands the technical ability to construct protocols with sufficient liquidity and user bases while still delivering seamless gameplay.
Focus on fun again
As major studios continue to face challenges, Web3 has a fresh opportunity to fulfill its promise. However, this time, we must reconsider our approach to how games are developed and shared. The emphasis should be on creating accessible pathways for both creators and players instead of erecting new barriers. This requires dedicated infrastructure for Web3 gaming that enables both developer autonomy and cooperation across ecosystems.
The way forward is unmistakable. We need to restore creative freedom to developers and empower players. This requires revenue models that encourage collaboration rather than isolation. Above all, it means returning to the essence of gaming: making games fun again.
The future of gaming isn’t about graphics or token-based incentives. It centers on fostering an industry where creativity and collaboration can flourish. When developers can concentrate on crafting engaging experiences rather than building barriers, everyone benefits.
Insight by: Daryl Xu, co-founder and CEO, NPC Labs.
This article serves as general information and should not be construed as legal or investment advice. The perspectives and opinions expressed herein reflect those of the author and do not necessarily align with or represent the views of the broader community.