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Trends and outlooks in the blockchain gaming industry
The blockchain gaming landscape is changing. The overall macro and industry conditions, the investment and human capital entering the space, and the ‘meta’ of gaming models is probably going to result in a shift.
Wanted to write up a short piece on where we were and where we’re going.
Where were we?
The blockchain gaming space since 2021 has gone crazy.
Massive amounts of VC investment
Since the beginning of 2021, we’ve seen around $8 billion of capital invested in blockchain gaming startups. Most of these are at inflated valuations vs their web 2 counterparts, mostly due to the massive potential of crypto.
This is HUGE.
Assuming at least half of this goes to hiring employees over a 4 year time period, and the total cost per employee is $200k / year, that means there are 5,000 people right now building blockchain games.
More teams means more and better games. But building games takes time, so we are still in a ‘lag’ period right now before we will start seeing these games hit the market
Best talent flocking to web 3
Ignoring capital, there is also a massive inflow of talent. Blockchain and web 3 is probably one of the most interesting places in the world to work right now, and is sucking up talent from Silicon Valley and the like.
NFTs was word of the year in 2021, and it’s accompanying job profile has gone from ‘super high risk and dodgy’ to ‘cutting edge’.
This means that we have some of the brightest minds now working on blockchain games, with many more wanting to join
New business models are converting web 2 teams
Web 3 has unlocked 2 unique business model differences to normal games:
First, as alluded to above, was the premium in valuations and thus fundraising that a blockchain game would receive vs a web 2 game.
Second, is the ability for blockchain games to run ‘pre-sales’, which enable them to make revenue up front and de-risk development
These two conditions have motivated a lot of strong ‘web 2 ‘ gaming studios to try their hand at building web 3 games, meaning we will see more free-to-play influences in upcoming blockchain games
Where are we now?
Market conditions: the ‘bear’ market
In the recent months we’ve seen a some shocking events in the crypto industry alongside a major reduction in prices. The collapse of UST, bankruptcy of 3AC and the alleged domino effect on other institutions results in a grim outlook on the market.
Funding rounds by VC’s have gone from ‘when do I sign’ to ‘we need to do more diligence’, and capital looks like it’s going to be harder to come by.
Similarly we’ve seen a major reduction in NFT prices, and the saying “99% of NFT projects will fail” looks like it’s already come true.
What does this all mean for gaming?
Capital looks like it will be tightening, which means game developers now have to prepare for a multi-year bear market and have to return to ‘fundamentals’ to drive demand
The death of ‘play-to-earn’
The blockchain gaming market has evolved over the last year, and we’ve now seen the rise and fall of multiple game economies.
The market has gone from FOMOing over the idea of play-to-earn and has now backtracked towards the notion that games should be fun first, earning second.
This has been accompanied by the fall of many ‘play-to-earn’ guilds, who are now pivoting their business models to no longer to be extractive and instead be value adding.
Blockchain and economy design of most games is now pivoting to focus on sustainability over growth, meaning that the next wave of games to kick-off will likely be those which focus on ‘fun’ first, not rewards
Due to the bear market, industry insights into unsustainable economies, and the breadth of experienced free-to-play game devs entering the space, I expect the focus of the next ‘wave’ of games will return to fundamentals - building great games that players love, rather than gamified ponzi-schemes.
Most of these games will probably lean heavily on the free-to-play side - making blockchain a ‘side feature’, hidden, or copying an existing game and making some skins tradable.
Fewer teams will risk innovation, and actually design games from the ground up that can ONLY succeed with blockchain.
In a years time, we will probably see 10-20x more titles announced, but most of them still in the early prototype or demo phases. Until then, it looks like the next 6-12 months will likely be a reconsolidation period, as the industry focuses on building.