The History and Future of Web3 Gaming

7
mins read
October 16, 2023
Jason Loh

Before Bitcoin, there was GP; Gil; and mesos.

Interestingly, the first digital currencies were arguably from early video games.

In the early 2000s, the burgeoning virtual economies of MMORPGs like World of Warcraft, MapleStory, and Runescape planted the seeds for a revolution in digital interactions. Players could not only trade digital assets natively in-game, but often sold them for cash offline.

Fast forward to the present, and the evolution of these concepts has taken a significant leap forward with the advent of Web3 gaming. Web3 technology, with its unique characteristics, is an ideal fit for driving digital economies such as those found in games.

  • Digital ownership: Players can truly own their in-game assets through NFT technology, which is fundamental to these cash assets having a monetary value.  
  • Interoperability - The ability of assets to be used across different games and platforms expands their utility and value beyond a single game's boundaries.
  • Trustlessness - the trustless nature of blockchain and smart contracts ensures secure and transparent transactions not only between game studios and players but also between player-to-player transactions.

The Birth and Growth of Blockchain Games

Huntercoin was the world’s first game that ran on the blockchain.

Credit: PR Newswire (https://www.prnewswire.com/news-releases/huntercoin-the-online-game-that-earns-you-money-246237231.html)

It was released in 2014 as an experiment in testing multiplayer blockchain usage, as well as “human mining” - the mining of cryptocurrencies through human effort.

At a time when all other altcoins were basically Bitcoin clones, Huntercoin received strong initial support from the crypto-native community.

Despite this, the game’s lack of funding and then-day technology resulted in it being overrun by bots and lag.

Between 2014 and 2019, Huntercoin players brought home a total of $1,282,417.

Cryptokitties emerged in 2017, further pushing the boundaries of blockchain and gaming.

No alt text provided for this image
https://www.behance.net/gallery/91454177/CryptoKitties

Unlike Huntercoin’s simpler premise of a game built on blockchain, CryptoKitties took advantage of one of the key features of blockchain - NFTs (non-fungible tokens), representing unique digital assets. The game allowed players to purchase, breed, and trade unique virtual cats, each represented as an NFT on the Ethereum blockchain.

Almost immediately after its launch, CryptoKitties exploded in popularity. In a mere 12 days, the sales volume skyrocketed from 1,500 to 52,000 NFTs. This success played a critical role in Ethereum’s breakthrough moment - with the value of ETH rising from just under $300 to a staggering $1,360 in January 2018.

But perhaps Cryptokitties was a victim of its own success.

Some weeks after launch, it was responsible for over 25% of Ethereum’s entire on-chain activity.

Gas fees - required transaction costs that increase with chain usage - spiked wildly, costing upwards of $100 to $200 per transaction for Ethereum users, including players of CryptoKitties.

Naturally, this was a big problem for the game - especially when gas fees cost more than the digital kitties themselves.

The other issue with Cryptokitties was in its inflationary model.

A research paper analyzing the game found that CryptoKitties saw a surge of players between the 10th and 18th days post-launch, followed by a quick drop-off within the next month.

This change was attributed to a few top players dominating the game and hoarding resources.

Increased media attention contributed to the initial popularity. At the same time, factors such as the oversupply of kitties, diminishing player earnings, growing wealth disparity among players, and inherent blockchain limitations led to its rapid decline.

In other words, the game’s breeding mechanics (where a pair of Kitty NFTs could be used to breed another NFT) led to a strong oversupply of NFTs for sale, leaving their value a tiny fraction of what they once were immediately following launch.

This meteoric rise and fall of NFT value, caused by inflationary mechanics, was prescient of the problems plaguing Web3 gaming for years to come.

Axie Infinity, the king of Play2Earn games

Axie Infinity has arguably been the face of Web3 gaming thus far. Built on Ethereum, it allowed players to earn cryptocurrency through gameplay, and trading of its native token $AXS and NFTs.

In 2021, it took the Web3 world fully by storm - with millions of daily active players and $AXS reaching a peak of $165.37. Players in developing regions like the Philippines and Africa were earning more than their monthly wages in a single day. During that time, many hailed Axie as a true revolution, enabling the narrowing of the global rich-poor divide.

Today, $AXS sits at $6.90. That’s an over 95% crash in value from its peak.

Undeniably, its tokenomics were frankly unsustainable. In Axie Infinity's economic model, tokens are continually generated or 'mined' through gameplay - leading to an inflationary scenario. At the same time, their Axie breeding model led to a flood of excess Axies in the market, similar to what happened with CryptoKitties.

Additionally, players weren’t playing for fun but rather looking to make a profit. Millions of “scholars” rented the required NFTs from existing players, essentially injecting no liquidity into the game but only extracting value. It was only a matter of time before the liquidity ran dry.  

Axie set the stage for the hundreds of Play2Earn games that flooded Web3 up until 2021, most of which suffered a similar fate (if they even took off at all).

The shift away from the Play2Earn model

P2E has been a controversial topic. While they deserve credit for taking Web3 gaming into the spotlight, it’s debatable whether they’ve done more harm than good reputation-wise. After all, millions of dollars have been lost by P2E players and some have been labeled as Ponzi schemes (perhaps rightly so).

On the bright side, P2E has paved the way for the future of Web3 gaming. In every new frontier, there must be experiments and lessons learned. Here are the takeaways that the Web3 gaming community has taken to heart:

  • The game itself must be fun

P2E is premised on player incentives, rewarding players for their participation. But gaming doesn’t need that.

For decades, gamers have already been willing to pay for video games with no expectations of recouping their money. What they want is the fun they derive through amazing gameplay.

What P2E has taught us is that trying to attract profit-seeking players doesn’t bode well for the longevity of a game, both in terms of player retention and maintaining a stable in-game economy.

  • Digital economies must be well-designed

In both Web3 and traditional online games, in-game economies must be managed well.

In-game currencies and assets are subject to the forces of supply and demand, and it is up to the developers to maintain this balance. They do this by balancing the issuing of these assets alongside spending (or “burn) mechanisms.

The issue here for game developers lies in the fact that they are game developers, not economists or tokenomic experts. When making Web3 games that have tokenization of assets as a core component, paying attention to managing digital economies is critical.

Moving Forward: Can We Expect Better Web3 Games?

Drawing on these lessons, the future of Web3 games looks extremely promising. The space is poised to witness the launch of an array of high-quality games, from Illuvium to Gods Unchained and many more. We also predict that the mobile gaming market will soon be dominated by Web3 games, like Yeeha Games’ Oath of Peak.

But it would be grossly inaccurate to say that great games are only coming out because of our learnings from the P2E model.

When we look at the future of Web3 gaming, it all goes back to the fact that game development is a resource-intensive affair.

What does this entail? Let’s break this down.

Time

It was only in Q1 2022 that Web3 game funding hit its peak. It’s unrealistic to expect the instant release of amazing games with top-notch gameplay mechanics and graphics.

Development of true AAA titles may take years, and games need to be further optimized through updates and patches post-launch.

We need to be patient - but we also rest assured that the quality of Web3 games will only get better and better.

Human skill/knowledge

For Web3 games, there are broadly two components - game development, and Web3-relevant skills and knowledge.

Game development is an art; a skill honed over many years. It’s not reasonable to expect these game devs who devote their lives to this skill to also be expert blockchain developers and tokenomists.

In order to onboard highly skilled game developers into the Web3 space, we must provide them with the necessary support and allow them to focus on what they do best.

This can be done perhaps through hiring Web3 experts (an extremely costly affair) or building the infrastructure that seamlessly allows them to leverage Web3 technology.  

Money

At the end of the day, it all comes back to money. It’s already a huge barrier to making Web2 games. Add in the costs of integrating Web3, and it’s clear why making Web3 games aren’t feasible for many highly talented devs.

It’s a chicken-and-egg situation here. While one aim of Web3 integration is to provide these game developers with highly-effective monetization methods, the startup costs are often extremely high.

Game developers can seek funding from VCs, but fundraising is a full-time job in itself. The alternative is, once again, providing infrastructure that automatically handles monetization using blockchain technology - giving these developers all the benefits of Web3 with none of the trouble.

Acxyn - Building The Road For A Better Web3 Gaming Future

The Web3 gaming space will only thrive once great games are made. And it’s hard for great game developers to enter the space, because of the resource challenges highlighted above.  

That’s why Acxyn exists - to close the gap between Web2 and Web3 gaming by empowering these developers.

Our recently published litepaper dives into how Acxyn does this:

  • Unlocking a completely new channel of liquidity access for game creators, by realigning incentive mechanisms to reward game creators for doing what they do best - making great games.
  • Through Acxyn's proprietary algorithm and valuation framework, we enhance the investability of games by accurately assessing their economic momentum.
  • Introducing the groundbreaking concept of Intellectual Property Tokenization - valuable video game IP can be assigned a real-time index price for the first time in history. IP tokens enjoy strong use cases - they can be used as collateral, licensing tools, integrated into DeFi ecosystems, and more.

Find out more about how Acxyn makes it easy for developers to monetize their games - read our litepaper here.

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