Paradigm's Latest Research: The Unique Value and Development Trends of Full-Chain Games

Authors: Charlie Noyes, Doug

Compiled by: CaptainZ, Deep Tide

The intersection of gaming and cryptocurrency is filled with infinite possibilities. Vitalik's inspiration for creating Ethereum came from Blizzard nerfing his character in World of Warcraft. While World of Warcraft is not "critical infrastructure," we anticipate that virtual worlds will become critical infrastructure: containing trillions in assets and millions of job opportunities. It is hard to imagine they would exist under the control of centralized platforms.

Of course, in theory, decentralized applications sound appealing. In practice, the most attractive applications are those that can only be realized through Crypto: applications that can only exist on-chain. Despite strong narrative momentum, it proves challenging to precisely identify what unique features on-chain games possess.

Why put games on the blockchain?

This article reflects our current thinking on this question.

Designing for "Emergence"

Some games achieve long-term engagement by providing creatively rich user tools that allow them to generate new content ("UGC"). The two main sources of UGC—mods and open economies—are the breakthrough directions we believe on-chain games might achieve.

Mods

Mods allow third-party developers to create content that exceeds the original developers' expectations. Many groundbreaking games (like DoTA, LoL, PUBG) originated from mod versions of other games. Others, like Roblox, have transformed from games into mod development platforms. While game studios typically focus on production value, engaged mod communities bring diversity and novelty: akin to the comparison between Netflix and YouTube.

Minecraft is a great concrete example. Its simple game mechanics facilitate adjustments. Mods that expand these mechanics can recombine to create new functional experiences. Many popular Minecraft servers are entirely different from the original (like jailbreaks, battle royales, etc.).

However, even Minecraft has a limitation: players cannot contribute new mods to existing servers. They must start a new server to introduce changes. Thus, Minecraft's "universe" is fragmented across many parallel, mostly non-interactive private servers.

Modern games achieve modding like Minecraft primarily through instantiation (new servers) rather than scripting (existing servers) for good reason. Ensuring that player-contributed code is compatible with the native rule set is difficult (especially when leveraging this is particularly challenging). Updates to the rule set can break mods built upon it. Limited computational resources require intelligent allocation.

However, instantiation leads to fragmentation. Each mod that spawns a new server competes for players' attention with other servers. Mod developers must consider not only what is fun to add to a world but also whether it is worth opening a new server for it.

Given that many potential mods may only make sense in context—i.e., added to an already existing world. For example, suppose you run a restaurant on a Minecraft server and want to add a new item to the menu. Starting a new server to achieve this makes no sense, as you would need to persuade all your customers to switch to the new server, which they may not do because they have their own commitments and customers on the existing server.

Those fragmented game worlds lose the ability to expand gradually.

Open Economies

In-game economies represent another dimension of nearly limitless creativity. We will use EVE (the first game to employ a full-time economist) as a teaching example.

In the informal combinations of game systems and external infrastructures, EVE players produce and trade goods; declare, lease, and contest territories; and organize everything from industrial collectives to warring pirate factions. Even simple tasks like transporting resources have fully player-operated companies dedicated to completing them—complete with customer service, service level agreements, and employee benefits.

Players have come to EVE for over two decades, not because of new content from developers but due to the rich social and economic world driven by other players.

However, even EVE's economy has some significant limitations:

1. Limited in-game primitives. Any transaction beyond the set of primitives defined by the developers (e.g., loan agreements) must rely on informal, unenforceable trust networks. This trust limits the complexity and scale of economic structures.

2. Regulatory constraints. Due to compliance issues, the vast majority of games (including EVE) simply prevent players from transferring any assets or exchanging in-game goods or services for fiat currency. Those that allow this have large compliance departments and maintain it under strict terms.

On-Chain Games

There are many different potential forms of chain games. Our focus is on the most crypto-native one: fully on-chain games, whose state and logic exist entirely on open smart contract platforms.

Equally important, on-chain game mods can be deployed as their own contracts alongside the base game logic without permission. Users can choose which mods to participate in simply by selecting their client (rather than having administrators make decisions for them).

So, why put games entirely on the blockchain? We believe the strongest reasons are based on two points:

Composable modifications. Players can add mods to fully on-chain games without requesting permission or splitting their state. The on-chain infrastructure and smart contract developers are already prepared for the challenges of allowing players to upload code without permission: security audits, access control, resource metering, etc. Traditional games do not adapt to this environment and are unlikely to reorganize around supporting composable mods.

Permissionless open economies. Players can use smart contracts to create an economy for a game rather than being limited to a set of game primitives defined by the game's developers or having to rely on informal and unenforceable agreements. Additionally, players' sovereign custody of game assets eliminates compliance costs.

Composable mods are not "uniquely enabled" by fully on-chain games but are an innovation dependent on pathways. While traditional games could theoretically support composable mods, they currently do not and have no incentive to change this. This model will only be explored out of necessity (i.e., in crypto).

The combination of composable mods and permissionless economies could create large on-chain game worlds. Mod developers will build upon a simple rule set base and expand with new mod content. They will be able to use real currency, approach DeFi markets, and have the freedom to experiment. The resulting economy could be very complex and reflexively incentivize the creation of cumulative content. Once it is clear that there is money to be made, activity could explode, just like the speculative-experimental cycles that birthed other crypto application ecosystems.

Most discussions of fully on-chain games delve into this more detailed optimistic future. We are more interested in specifically understanding the factors that hinder this future: open questions that need to be addressed for large-scale game worlds to emerge.

Open Questions

Technical limitations constrain game design.

It is widely believed that the primary reason no fully on-chain game has emerged is that the technical infrastructure is not yet ready, leaving most games in the proof-of-concept stage: simple gameplay, buggy clients, and limited engagement from players and mod developers.

Existing infrastructure and developer tools are limited. In particular, the EVM is slow and clunky, and the existing Solidity data model is not conducive to complex game development, with no mainnet chains suitable as deployment targets for games (given high costs and low scalability).

Fortunately, we have already seen pathways to address these issues. The scalability and cost-reduction progress of Rollups has been widely accepted by the crypto community. Many teams are also developing infrastructure specifically for games. For example, Lattice is developing a system that combines the Solidity framework with compatible tools (indexing, state synchronization, etc.) to simplify EVM game development. Teams like Dojo, Argus, and Curio are also developing infrastructure platforms.

Other issues relate more to the nature of fully on-chain games. In particular, certain properties of permissioned chains hinder support for mainstream game design mechanisms:

1. Incomplete information: A key mechanism in many games. Existing solutions have unacceptable flaws (e.g., DarkForest's cryptographic fog of war devolving into a hardware mining race).

2. Automation and collusion: Fundamentally unpreventable. It is impossible to distinguish between bots and real players, nor can it be ensured that players are unique. Developers must build games that are not undermined by bot strategies or collusion.

3. Timing: Blockchains are driven by asynchronous transactions. Most traditional games are built around timing game loops that are unrelated to player interactions.

It is possible that these limitations will inspire creativity and game types we have never seen, just as MakerDAO and Uniswap emerged from DeFi without borrowing from traditional finance models. However, traditional games face fewer technical and legal constraints than traditional finance—they have already been able to explore more domains—so the likelihood of novel fully on-chain games emerging from unknown territories seems low. We believe that to provide a breakthrough opportunity for fully on-chain games, it is necessary to improve upon these limitations.

Research Directions

1. TEE. Although cumbersome for tasks, Trusted Execution Environments (TEEs) are the only practical option for performing permissioned private computation on public blockchains.

2. MACI. This is a mechanism originally designed by Vitalik Buterin to enhance the anti-collusion capabilities of on-chain voting systems; MACI could be adapted for on-chain games and further improved through close integration with related game systems.

3. Custom Rollups. Modifying rollups to include global timing as part of their state transition function (without gas costs) seems possible to achieve some form of traditional timing game loops on-chain. Other game-specific modifications may also be interesting.

Using ZKPs to enable private state is another existing research direction. However, we are skeptical about whether the non-programmable privacy they offer can unlock meaningful game mechanics. The current difficulty of writing circuits also limits their practicality.

Composability Inherently Has Financialization Characteristics

In a system open to the entire world, incentives are not merely suggestions. Incentives are more like physical laws, such as gravity or entropy. If some aspect of the system does not align with the compatibility of incentives, it is only a matter of time before it is exploited.

------ Nikolai Mushegian

Smart contract blockchains are highly adversarial, financialized environments. This is not a product of the path dependency of decentralized culture: it is the mechanical result of permissionless composability. As primarily composability-based applications, fully on-chain games will be exposed to these incentives at a fundamental level.

In a vacuum, before considering the impact of modularity, fully on-chain game developers must contend with the inevitability of real currency markets, MEV (Miner Extractable Value), and economic exploitation. Designing a fully on-chain game that is compatible with incentives may have a high barrier to entry; it may be akin to designing a secure DeFi product.

Secondary issues are trickier. Fully on-chain games are designed to be modifiable, and modularity will bring its own emergent incentives. Even if developers skillfully manage core game incentives, they do not know what upper layers will build—or what incentives they will introduce. (In fact, allowing such unpredictability to emerge is their goal.)

To draw another analogy with DeFi, consider an oracle. In a vacuum, an oracle may be economically secure (not prone to manipulation). However, oracles cannot predict which applications will integrate or combine with them. If a lending protocol uses an oracle to trigger liquidations, the oracle inherits manipulation incentives—often fatal. Similarly, when a Minecraft mod introduces MEV incentives to mine a block first, it affects the gameplay of all players, even those clients that do not explain this mod.

This is a challenging problem to solve. Attempting to permit or otherwise restrict who can develop mods for fully on-chain games directly contradicts the maximization of emergence (the very reason for building on-chain in the first place).

We suspect that the compatibility of incentives will be a decisive challenge for fully on-chain game design. Some traditional games avoid real-world currency markets because they are compliance headaches; many more simply think they are not fun. Fully on-chain games need to figure out how to leverage financialization pressures without being consumed by them.

Research Directions

1. Antifragile Design. Core game mechanics can influence but not determine what kinds of mods will emerge on top of them. To what extent can fully on-chain games encourage social mods is an open question, as well as which game designs are least likely to be corrupted by N-th order incentives.

2. Permissioning. Directly attacking financialization means controlling who can play fully on-chain games and who can deploy new code for them. There are clear trade-offs with emergence, but it may be necessary to experiment with games in a closed garden before exposing them to strict permissionlessness. Moreover, we can cleverly implement permissioning (not just simple whitelisting).

3. Order Flow Auctions. We might try to leverage them rather than prevent emergent incentives. For example, by forcing all game transactions through an order flow auction, returning the proceeds to the game's economic faucet. Any value created by mods would be reinjected into the game's economy (e.g., through repurchasing scarce goods). The downside is that underlying behaviors may still harm gameplay (e.g., players mining coal to fund solar energy).

Meta-Gaming Tends to Stagnate

Fully on-chain games will inevitably have longer release cycles than traditional games. They hope to maximize novel experiences, while frequent disruptive updates may deter creators from investing in these worlds. Updates also require new audits. Many fully on-chain game developers view permissionless "autonomy"—no admin keys, no updates, infinite persistence—as a goal in itself.

Thus, for both technical and philosophical reasons, fully on-chain games will exist within a range of autonomy from "never updating" to "not updating often."

The best-case scenario for maximally autonomous fully on-chain games is that the right rule set can inspire an active mod community and endless novel experiences. It may even be experiences that could only emerge after decades of uninterrupted existence.

However, most games are managed to prevent meta-gaming stagnation. Players have become very adept at finding optimal strategies for traditional games; now MEV will provide additional clear incentives. These strategies tend to be static and uninteresting. A truly autonomous world loses the ability to control meta-gaming at any level—Vitalik may have been wrong to worry about his Warlock's issues.

Rather than being an inherent design goal, we suspect the key question will be: to what extent can successful fully on-chain games possess autonomy?

Research Directions

1. Seasonality. Many traditional games deploy upgrades on cycles of months to years (like WoW expansions). The main trade-off is that players lose the motivation to build complex mods because they may become obsolete in future seasons. We believe this is one of the most promising approaches to iterative experimentation.

2. Automatic Feedback. Just as Bitcoin automatically adjusts its difficulty to respond to hash power, fully on-chain games can build redirection against stagnation into their core game mechanics. This is not specific to fully on-chain games—centralized games have a much stronger ability to do this—but they may innovate out of necessity.

3. Novel Governance Mechanisms. While we are generally governance minimalists, exploring non-token-based systems may present an interesting space. The ability to create new rules could even become part of the core game loop (e.g., the game Mao). There are already some early attempts; for example, Topology tightly integrates a custom governance system into their fully on-chain game Isaac.

Should Games Be Fully On-Chain?

There may be some accessible on-chain game designs that cleverly leverage permissionless composability. These worlds may thrive due to open economic incentives continually driving new content and could persist indefinitely on a censorship-resistant and neutrally governed blockchain.

But at the same time, there may not be enough uniqueness to justify the challenges posed by these open questions (which are no small matter). Again, compared to traditional finance, games have always been highly experimental. So, standard fully on-chain games should prove their value of existence to be greater than that of DeFi—the latter solves a previously closed market.

If fully on-chain games are not a viable approach, then the reasons to be excited about them may be expressed in less "on-chain" ways. Viable games may simply minimize their use of smart contracts or not use them at all. GameFI games (Web2.5 games) with NFT assets and interoperability with DeFi may be the right practical focal point. Especially if certain elements of non-fully on-chain games (Web2.5 games) are controlled by on-chain assets, the smart contract-based coordination around assets may still be very powerful.

Ultimately, whether games are fully on-chain or not, the patterns they explore—especially composable mods—may drive innovation in traditional game design. Traditional studios may see the potential and be willing to invest substantial resources to redesign off-chain engines to support composable mods. They may coexist with, surpass, or spiritually succeed fully on-chain games.

Conclusion

We see many difficult questions, but still intuitively believe that fully on-chain games can leverage blockchain to create peculiar, novel outcomes.

We are excited to explore all the frontiers of crypto-native gaming alongside other builders. We are more interested in building games than infrastructure—the games we would play ourselves.