The Future of Crypto Gaming

Emerging at first as a strong use case for crypto and NFTs, crypto games promised to build a completely new landscape of video games that would grant ownership to players rather than just companies.

However, the mass exodus of value from the once most popular games (e.g. the market cap of AXS plunged from $9.8B in Nov ‘21 to $1.2B as of Jun ‘22) is a symptom of many underlying pain points and issues that remain to be resolved if crypto gaming is to flourish.

In this blog post, we will explore what value crypto games could provide, the limitations of today’s “play-and-earn” games, and some thoughts on the future of Web3 gaming.

1. What is crypto gaming?

Simply put, crypto gaming leverages blockchain technology to reinvent gaming experiences and revolutionize in-game economies. In-game currencies become fungible tokens with various utility designs (e.g., governance), while in-game assets (such as skins, weapons, and land) become NFTs — all of which now (1) confer verifiable ownership to the user and (2) are easily tradable on public marketplaces and exchanges. These attributes uniquely connect in-game ecosystems to real world assets, and empower gamers (and developers) with a newfound alignment of incentives.

User-owned assets and unlocking value: The application of public blockchain rails to in-game assets establishes digital scarcity and verifiable ownership without needing a privately maintained database. These same blockchain rails open up the in-game economy to liquid real-world marketplaces, enabling individuals to easily realize the value of their in-game NFTs or currencies.

A public record of in-game items also establishes its proven rarity to provide increased transparency, which further facilitates the creation of formalized secondary markets and organic price discovery for game items.

Onboarding into existing DeFi infrastructure: The composability of NFTs in crypto gaming also provides an on-ramp to the world of developing crypto infrastructure like DeFi. As crypto gaming economies mature, players can port their in-game assets into DeFi platforms (such as taking a loan using an in-game item as collateral, or loaning a coveted item out to an aspiring player in exchange for a fee).

Governance and ensuring the community is heard: Recent crypto gaming projects have also issued tokens that allow its community to vote on proposals determining the future direction of the game (e.g., updates and added features).

2. The current state of crypto gaming

The crypto games of today most commonly fall under the term GameFi (“game” and “finance”), or play-to-earn games (P2E). These games focus on giving players the opportunity to earn an income. While GameFi’s financial incentives have undoubtedly been a driver of the category’s initial success, time has shown that playing to earn in its existing form may not be a sustainable model. This is driven by several factors:

Inadequately-designed tokenomics

• Inflationary tokenomics rely on new players joining to keep the game profitable for existing players, which raises concerns around long-term viability.
• For example, a turn-based card game Axie Infinity allows players to collect and breed tradeable Pokemon-like Axies used in PvP (player vs. player) and PvE (player vs. environment) battles to earn SLP, which are tradeable tokens that can be used to breed additional Axies. Axie Infinity was wildly popular but has recently come under scrutiny due to concerns around the sustainability of its in-game economic model which has resulted in limited potential value gain for its players.

Focus on “earning” rather than player experience

• As potential earnings decrease, players leave the game once it’s no longer profitable, because the focus and motivation for playing has always been earning rather than playing for entertainment (this happened with Axie, and signs point to popular move-to-earn game STEPN may follow shortly as well).
• Crypto games today are lacking in quality when compared to traditional games such as World of Warcraft, Call of Duty or League of Legends.

Ultimately, play-to-earn games need to be repositioned as play-and-earn games, and should prioritize player entertainment with sound tokenomics that can support sustainable communities. Developers are already starting to think about how to build fun experiences that not only attract new users, but also maintain high retention by constantly improving gameplay and designing sustainable game economies without pay-to-win mechanics that discourage new players and alter the motivation of the player community.

3. Where does crypto gaming go from here?

Despite rapid and widespread adoption, crypto gaming is still in its infancy, and full-fledged/mature models are still in development. Play-to-earn is transitioning to play-and-earn, as developers internalize the groundwork laid by early traditional and crypto games. While opinions are divided on what the future holds for crypto games, success may largely depend on the following:

Growing pains:

• Developers are struggling to design crypto games that deliver on the “play” (low entertainment value) and the “earn” components (unsustainable tokenomics) alone, much less delivering a product integrating both of them. Real gamers have proven hesitant to play crypto games for fun, showing that yield farming is not the path to success in Web3 gaming.

Massive potential and opportunities:

• The potential addressable market of crypto gaming is huge. Existing crypto games have been the best drivers of user growth for blockchain ecosystems despite not being very fun for most players (it was the inaugural CryptoKitties launch and subsequent mass adoption that sent Ethereum’s gas fees skyrocketing). Considering that billions of dollars have been invested into crypto gaming, the next generation of games is very likely to produce at least a few titles that are significantly more fun than the current generation.
• Well-funded teams are learning from the mistakes of this recent boom, and actively improving both game design and economics to shift the paradigm from play-to-earn to play-and-earn. The Illuvium devs, for example, are approaching their product as “a game with Crypto elements rather than gamified crypto” and focusing on delivering an entertainment-first experience. As traditional game developers with a wealth of experience dive into crypto, crypto gaming is well positioned to remain the number one driver of user adoption in crypto.

Closing thoughts

Given the sheer size and quality of talent and developers entering the space, we believe that the mainstream gaming and crypto gaming will sooner or later converge, and that massive opportunities in this dynamic corner of crypto are yet to be realized.

Legal Notice

This blog post is being distributed by Amalgamated Token Services Inc., dba “CoinList,” or one of its subsidiaries. This blog post and use of the CoinList website is subject to certain disclosures, restrictions and risks, available here.