Insight by: Daryl Xu, co-founder and CEO, NPC Labs
Since the conclusion of COVID-19 lockdowns, the gaming sector has been experiencing a notable downturn, with 2024 proving particularly challenging, resulting in widespread layoffs and the closure of even major studios.
The root causes appear to be unsustainable development expenses and a crisis of innovation, yet Web3 gaming has surfaced as a promising remedy, aiming to empower developers and attracting billions in investments toward this goal.
However, despite a persistent growth in crypto adoption, Web3 gaming has struggled to engage mainstream players or address the core issues within the gaming industry. This raises the question: why? Early blockchain technology was primarily tailored for financial applications, leaving game developers with the dilemma of either using blockchains ill-suited for their needs or creating isolated chains that disconnected them from the broader blockchain ecosystem. Both choices resulted in subpar player experiences and an excessive focus on token economics.
Many developers opted for the latter, valuing control over connectivity. This inadvertently led to the creation of digital silos reminiscent of those that contributed to the decline of traditional gaming.
A solution that created more problems
A recent report demonstrated that, over the course of the last 30 to 40 years, executives in the video game industry have favored enhanced graphics over creativity as a strategy to attract players and boost profits. The costs associated with traditional game development often exceed $100 million per title, making it difficult for indie developers to compete against larger publishers who dominate funding and distribution.
Blockchain appeared to offer a viable solution for indie studios, unlocking new funding opportunities and control over distribution. However, early Web3 gaming platforms ended up recreating the same closed ecosystems that blockchain aimed to overhaul. Consequently, with high player acquisition costs and a limited number of Web3 gamers, these platforms fortified their barriers to prevent users from leaving, leading Web3 gaming to create its own set of challenges.
An impossible choice for game developers
The technological foundations of layer-1 blockchains like Ethereum and Solana were designed with finance in mind, making them ill-equipped for the gaming industry’s specific requirements. Moreover, layer-2 solutions similarly fell short in meeting gaming demands.
Attracted by Web3’s funding prospects and the promises of ownership and user involvement, game developers find themselves in a bind: they can either build on existing blockchains and sacrifice gameplay or create their own chain, diverting focus and resources away from their primary goal of developing better games.
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Although crypto enthusiast players may consider this a worthwhile tradeoff, mainstream gamers seek immersive experiences. A January report from DappRadar indicated that Web3 gaming has attracted 7.3 million unique active wallets; however, anecdotal evidence suggests that only about 10,000 of those users are genuinely engaged in gaming rather than simply farming rewards. While this figure could be slightly higher, it does not exceed 50,000 to 100,000.
A misalignment with gaming culture
The factor that draws mainstream users to blockchain isn’t non-fungible tokens (NFTs) or decentralized finance but rather the genuine ownership of in-game assets. Mainstream gamers are accustomed to arcade games, Nintendo, or mobile experiences. When combined with true ownership of in-game items, this familiarity can pave the way for compelling experiences for both developers and gamers.
Despite Web3 games claiming to be transforming the industry, most projects haven’t engaged actual gamers. Instead, they compete for the same pool of crypto-native users. Rather than emphasizing entertaining and immersive gameplay, many Web3 games are dominated by crypto technology and tokenomics. Within this bubble, success in Web3 gaming has meant vying for crypto users instead of attracting new players to the ecosystem.
With few exceptions, the industry has lost sight of the most critical factor: creating enjoyable games that people want to play.
This disconnect extends to game developers wishing to harness Web3 for improved player experiences and sustainable revenue models. While they recognize the potential of Web3, many are reluctant to navigate the complex realms of crypto, which necessitate technical expertise for building protocols with the necessary liquidity and user bases while maintaining seamless gameplay.
Make games enjoyable again
As leading studios continue to face challenges, Web3 has an opportunity to fulfill its promise. However, this time, it’s essential to rethink the interaction between games. The focus should shift toward enhancing access for creators and players rather than constructing new digital barriers. This will require Web3 gaming-specific infrastructure that encourages both developer autonomy and cross-ecosystem cooperation.
The way forward is evident. We must restore economic freedom to creators and empower players. This entails establishing revenue models that reward collaboration rather than isolation. Above all, it requires a return to the essence of gaming — making games enjoyable once more.
The future of gaming is not about superior graphics or token rewards; it hinges on cultivating an environment where creativity and collaboration flourish. When developers can concentrate on delivering captivating experiences rather than erecting barriers, everyone benefits.
Insight by: Daryl Xu, co-founder and CEO, NPC Labs.
This article is for informational purposes only and does not constitute legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of any affiliated organization.