Interoperability in the web 3 gaming "metaverse": attractive in theory, difficult in practice

Introduction

Interoperability refers to the idea that a single NFT can be used in multiple games or metaverse experiences.

When talking to people about why they think blockchain gaming could be cool, interoperability often comes up. This is because it is something that arguably could only be done with blockchain, thereby making it a unique advantage over web 2 games.

However, so far interoperability is still in it’s infant stages, and very few projects have actually done this. I predict very few companies actually will.

The reason for this is incentives - there isn’t a strong incentive to use another IP’s NFT and integrating it into your ecosystem.

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Types of Interoperability

Let’s start with the two types of interoperability. To a user both of these might feel the same, but technologically they are different.

1. True Interoperability (Single Asset) - this refers to having only one NFT used across multiple ecosystems. For example, imagine there is a ‘Character’ NFT that lets you use a common avatar across Fortnite, Lost Ark and World of Warcraft.

2. Fake Interoperability (Multi-Asset)- this refers to having multiple NFTs used across multiple ecosystems, but in a way that gives the impression of interoperability. For example, imagine you buy a ‘Character’ NFT in Fortnight. At the same time, you get given a free Character NFT in Lost Ark and World of Warcraft. You are now able to use the ‘same’ Character NFT across all 3 games, but in reality there are three different NFTs behind them.

The second type of interoperability is fairly feasible right now. The first is less so.

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How does true interoperability actually work?

In order to understand why the incentives for interoperability are low, it’s probably best to start with how interoperability is actually implemented.

There are two steps at a high level

1. Minting Selection - NFTs have to come from somewhere. Will a game integrate an existing NFT or will they create a new NFT with the expectation that others will integrate it into their ecosystems? Or will it be shared?

2. Technical Integration - Implementing the NFT into an ecosystem, including accommodating the technical standards or even the choice of blockchain.

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Challenges to interoperability

Lack of incentive to not be the minter

The biggest challenge to interoperability is the lack of incentive to actually integrate another IP’s NFT into your ecosystem.

Everyone wants to create a NFT that is used across the ‘metaverse’ (this is one of the go-to pitches of many projects). Very few people want to actually integrate someone elses NFT.

Part of the reason is technical (see below - basically it’s easier to work with a common NFT standard than to accommodate a new standard). Part of the reason is also financial - usually both primary and secondary revenue flows to the project selling the NFT rather than the project integrating it. Why would a project give up $x million in potential revenue and use another project’s NFTs?

This problem is exacerbated more for ‘high profile’ projects. The more successful a project or IP is, the less likely it will want to integrate someone else’s IP into their game, because the more revenue they could make by simply creating an equivalent NFT themselves.

It’s possible for teams to negotiate ahead of time on incentives, but it’s very hard to create an incentive system that automatically rewards anyone who integrates your NFT into their ecosystem.

Technical challenges to integration

Technically speaking, anyone can integrate another projects NFT into their ecosystem. All they need to do is read whether a wallet ‘owns’ a particular NFT, and if so, be able to represent that NFT in their own ecosystem.

However, this work isn’t free, and can in fact get quite complex:

• Games and systems are usually built to just work with their own collections. Integrating, testing and maintaining the ability to work with a single different NFT requires an investment of time and resources.

• Reading ownership can be made technically complex if there are different standards of NFTs being used. For example if a game only uses ERC-721s, it’s going to be difficult for them to also integrate with ERC-1155s

• Cross-chain integration is even more difficult, as it requires games to now work with two different blockchains rather than just one (i.e. Integrating with both Ethereum and Polygon)

• In the scenario that projects want to ‘coordinate’ on minting of a NFT (e.g. being able to earn the same Character across 2 different games), there become even more complications and questions to answer

While possible, the engineering work and potential complexity required to facilitate interoperability makes it difficult to justify.

Most games have big, ambitious roadmaps and ultimately interoperability comes at a trade-off against other implementing other player experiences and systems.

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Where we’ll see interoperability

Given this, there are likely a few different scenarios in which interoperability will actually happen.

1. First is within an owned ecosystem. For example, Immutable Studios owns and publishes both Gods Unchained and Guild of Guardians. It would be easier for the two parties to coordinate for interoperability, given it’s easier to align incentives (i.e. it’s fine if just one project monetises) and that they use the same underlying blockchain technologies.

2. Second is via dedicated interoperability projects. Projects which do not intend to use their own NFTs, but have a business model built around integrating other project NFTs into their ecosystem (or vice versa). An example might be Worldwide Webb or Metakey.

3. Third is is via ‘growth hacks’ - where a project uses interoperability as a marketing tool to gain access to existing audience(s) in the space. We haven’t seen too much of this so far, but it’s possible and could become the ‘NFT’ version of a vampire attack.

4. Fourth, is where projects carefully coordinate, negotiate and align incentives prior to implementing interoperability. This would be like if the League of Legends x Fortnite crossover had been done on web 3. Still probably commercially negotiated, but interoperable.

5. Fifth, and most complex, is if it actually became easy for projects to both implement interoperability AND align incentives with all future integrations of NFTs across additional ecosystems. Regardless of contractual agreement. This seems incredibly difficult to pull off right now, but it’s possible that tools and systems need to be built to unlock mass-market true interoperability.

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Note: Personal thoughts only. To contact me reach out via Twitter