The Crossroads of Web3 Games: Traditional IP or Start from Scratch?

Original Title: My (Short) Web3 Gaming Thesis

Original Author: TENG YAN

Original Translator: 深潮 TechFlow

People often ask me what I think about Web3 gaming. Therefore, I want to outline my current thoughts in writing.

Let me clarify first: I am not an expert. This is not a comprehensive analysis that delves into fine metrics of the gaming world like MAU or D14. Please consider this as a reflection of my focus in the gaming field based on personal interactions and research.

Why gaming?

Recently, I have come to realize that gaming is one of the few areas in cryptocurrency that has the potential to be a game changer.

What I mean is that, in the next two years, gaming will attract over 10 million to 100 million daily active blockchain users. Gaming has the potential to achieve this because (1) it is inherently social— not just multiplayer games, even single-player games like Elden Ring and God of War become social through online communities and content, and (2) they have a real tendency to spread (remember Flappy Birds?).

• The financial sector is undoubtedly crucial— it will integrate with our financial infrastructure backend and benefit everyone— but most people are not interested in finance.
• Art has found a good product-market fit through NFTs. However, art is ultimately a niche market serving a wealthy audience. Its market growth and path to broader acceptance may be a slow process.

And gaming… is fun, engaging, and most importantly, everyone loves it. The numbers don't lie:

• In 2023, there are over 3 billion active video game players worldwide. Mobile gaming is the most popular platform, with over 1.7 billion mobile gamers globally.
• The global gaming market is valued at approximately $385 billion.
• The Asia-Pacific region is the largest gaming market, accounting for nearly half of global gaming revenue, followed by the United States and China.
• In 2023, the average age of gamers is 36, and most have been playing games for 15 years.

A killer Web3 game could lead the trend.

Is it about making a Toyota Camry or building a spaceship?

I see two different approaches to Web3 gaming.

• Making a Toyota Camry— first creating fun games and then adding blockchain and NFTs;
• Building a spaceship— fully supporting NFTs and blockchain from the very beginning of the game design process.

I will elaborate on these metaphors in the following explanations.

Toyota Camry— Traditional Game Studios

Legendary venture capitalist Vinod Khosla once said, "Startups drive the vast majority of innovation, not institutional legacy companies."

But my good friend Kiet from thecoreloop observed that making good games is more of an art than a science. To succeed, you need a deep understanding of the complexities of the industry. This is a skill that traditional studios have honed over the years.

So, I focus on what the giants of the gaming industry are doing in the Web3 space because they have successfully created great games.

Making cars is straightforward; we know how to do it and have done it many times. The Toyota Camry stands out in the crowded car market due to its reliability and performance, carefully designed to excel. It debuted in 1980 and has since launched 8 generations of Camry. Each new generation of Camry takes about 3-5 years of research, design, testing, and manufacturing coordination from start to finish. It is the fifth best-selling car in America, selling over 300,000 units annually.

Like making a Camry, gaming giants focus on what they have excelled at for years— creating engaging games— and then add blockchain and NFTs as value-added features. Here, crypto is not the main selling point, but it’s like adding a turbocharger to your Camry. It can enhance performance and provide a boost.

Some major game studios are actively venturing into the Web3 gaming world, often by adapting their existing successful titles. This approach makes sense: developing Web3 games requires studios to master two key elements simultaneously. (1) They must create an engaging and enjoyable gaming experience, (2) they need to handle the in-game digital economy correctly.

By leveraging established IPs that already have a strong player base and a track record of engaging gameplay, these studios effectively reduce the risk of (1). This allows them to primarily focus on (2), optimizing the economic gaming experience.

Let me give you four examples of traditional game studios entering Web3:

• Take-Two/Zynga → Sugartown (this is a new IP);
• Square Enix → Symbiogenesis;
• Nexon → Maple Story N;
• CCP Games → EVE online

In contrast, Square Enix's entry into blockchain with Symbiogenesis feels a bit stuck in the past, as if it was conceived during the NFT bull market when royalties were still significant, and there hasn't been much change since then. I have been a fan of Final Fantasy since childhood. Yes, I bought a PS5 to play the recent FF16.

Maple Story N is an interesting example. It enhances ownership, where in-game items are NFTs, making them inherently scarce and combinable. Additionally, they are promoting user-generated content, allowing players to create their own in-game items and push them to the market, introducing blockchain assets or lines into games with a large existing active player base, like Maple Story N or CSGO, which can add value through more meaningful player loops or additional revenue streams…

…NEXON is best positioned to continue developing the Maple Story Universe and set a benchmark for how to better leverage blockchain, rather than just seizing cash opportunities. ------Delphi Digital/JACL, "Why Asia Will Lead Web3 Gaming"

As more experiments unfold, the first studio to successfully find the right formula may find itself sitting on a pot of gold.

Spaceship: Fully On-Chain Games

A friend who manages a large gaming guild once told me, "If you only lightly integrate NFTs or tokens into Web3 games, you are not fully tapping into the potential. You might as well make regular games. The successful ones will be those who are fully committed to blockchain."

Thus, we have fully on-chain games, or what can be called "Autonomous Worlds" (AW), which are to the gaming industry what SpaceX was to early 2000s space travel.

Building rockets/spaceships is a complex engineering task that requires years of research, development, and testing. The Falcon 1 rocket took over 7 years to develop before its successful launch, costing over $100 million and nearly bankrupting SpaceX.

From fuel to life support systems, every element is crucial to the journey and requires complex engineering and precision. They need to undergo thorough testing and refinement to withstand the harsh conditions of space. Developing propulsion systems is one of the most challenging aspects of this process. It requires innovative solutions to generate the necessary thrust to escape Earth's gravity.

Similarly, AWs are doing things we have never done before. They are fully committed to the blockchain stack. They use blockchain to store all data, and smart contracts execute game logic and rules in a client-agnostic manner.

Why do we want to put these games on the blockchain? I can think of three reasons:

• Eliminating platform risk: One of my friends was a top Overwatch player in China. She played for 7 years and was familiar with the entire game. However, when Blizzard terminated its 14-year licensing agreement with NetEase, her gaming career came to an abrupt end. AWs can mitigate this risk. As long as the blockchain network is operational, the game will continue to exist, free from the whims of central authorities. That friend? She later transitioned to establish her own fully blockchain gaming studio.
• Endless user-generated content: UGC is a buzzword today for good reason. People love to be part of the creation process. Games also benefit from having new content constantly. In AWs, the community is not just passive consumers; it is active participants. Players can create tools and enhancements— modifications without permission— effectively blurring the lines between players and developers. This collaborative ecosystem can enrich the gaming experience.
• Skyscraping (composability): The modular nature of AWs is another highlight. Developers can focus on building new things without having to reinvent the wheel, using modules that have been created and used in previous on-chain games (e.g., on-chain upgrade modules or quest modules). Imagine the possibilities of integrating different universes— like Marvel and DC Comics— into a single gaming environment. While there may be licensing issues, the technology itself will not be a barrier.

Games still need to attract audiences through engaging gameplay. However, when these three elements come together, it heralds a new original form of gaming with immense future potential.

Apix seems to hold a similar view:

The potential market for this new form of gaming is still unknown (just like the early space market for SpaceX). Will it only attract today's crypto-native users, or does it have the potential to enter the mainstream market? Only time will tell. And it may take a while.

One thing is certain: I love this new original form in the crypto space. While the road ahead is filled with uncertainty, early adopters may capture significant value if the field thrives.

Pro tip: I am closely watching Pirate Nation.

In Between

So what about Illuvium, Parallel, and other crypto-native game studios? Making Web3 games is difficult. It requires two very different skill sets:

• Crypto expertise: Not only technical knowledge of blockchain but also an understanding of crypto-native behavior, token economics, and economic design.
• Game design and distribution: This field is largely dominated by Web2 practices. The complexities include designing engaging incentive loops, optimizing player spending, and mastering performance marketing.

Today, many Web3 native game teams are very strong in (1) but have questionable competitive advantages in (2). Especially considering they face powerful, well-capitalized Web2 studios that have strong existing IPs. Teams with rich experience in Web2 gaming and sufficient funding may succeed.

Crypto-native Web3 game studios often need to build new IPs from scratch, which is a challenging task. Some of them have already launched tokens with market caps in the 8 to 9 figures, which already includes a significant amount of user adoption.

In summary, Web3 gaming is at a critical crossroads. We have current giants with mature IPs and a deep understanding of game design and distribution. We also have crypto-native teams pushing the frontier of on-chain gaming. One thing is clear: those who can master the combination of the new and the old will be the ones to achieve great success in the future.