Web3 games don’t need to entice players with profit – TechCrunch

Top crypto VCs constantly tout the potential of video games as one of the most compelling use cases for blockchain technology. Andreessen Horowitz partner Arianna Simpson, for example, who led the company’s investment in crypto game Axie Infinity, has given countless interviews citing the play-to-earn model as a key catalyst for attracting “hundreds of millions” by people in web3.

Axie, the most well-known play-to-earn video game, suffered one of the biggest crypto heists to date when North Korean hacker organization Lazarus Group last March ~$625 million withdrawn from the game’s Ethereum-based Ronin sidechain. Since then, the overall crypto markets have seen a severe price decline and subsequent recovery over the past month. So where is the Web3 gaming and play-to-earn business model?

TechCrunch spoke to Justin Kan, co-founder of Twitch and recently, Solana-based gaming NFT marketplace Fractalto start thinking about what this subsector of web3 needs to live up to the hype. Kan said that web3 gaming still has a long way to go – while it’s still around 3 billion players in the worldincluding those who play mobile games, he noted, far fewer have purchased or interacted with blockchain-based gaming assets.

Kan sees this gap as an opportunity for blockchain technology to fundamentally change the way video game studios work.

“I think the idea of ​​creating digital assets and then taxing all transactions around them is a good model,” Kan said.

In a way, Web3 gaming was developed in response to the success of games like Fortnite, which were able to open up a lucrative monetization path for game studios through microtransactions from users purchasing custom items like outfits and weapons. Web3 games developers hope to take this vision a step further by allowing players to use these custom digital assets between different games and turning gaming into an interoperable, immersive ecosystem, Kan explained.

Kan has made around 10 angel investments in Web3 gaming startups, including the studio behind NFT-based shooter game BR1: Infinite Royal, he said. Still, he admitted that building this interoperable ecosystem, which he sees as the future of video gaming overall, technically doesn’t require blockchain technology at all.

“Blockchain is exactly how it’s going to happen, I think, because there’s a lot of cultural impetus that equates blockchain with openness and trusting things that are decentralized on blockchain.”

The vision of interoperability has yet to be realized in the traditional gaming world, as many established studios are reluctant to encourage third-party providers to build on top of their APIs, Kan said. He attributed their reluctance to an “innovator’s dilemma” where large gaming companies with already working business models are reluctant to take new risks.

However, gamers seem to appreciate the openness and economic participation that blockchain-based startups offer, Kan said. Still, he added, the appeal of an open gaming ecosystem is more about principle than making a living.

“I actually think people equate NFTs and games with this play-to-earn model, where people make money and do their jobs [by gaming]and I think that’s totally unnecessary,” Kan said.

“Having digital assets in your game can work and be valuable even when no one is making money and there is no speculative appreciation or price appreciation for your assets,” he added.

It is common for popular games to attract new developments on top of their existing intellectual property. Kan gave the example of Counter-Strike: Global Offensive (CSGO), a video game where custom “skins” sold for up to $150,000.

“I funded a company based on the CSGO skins,” he said. “CSGO changed the rules about what was allowed and actually confiscated over a million dollars just from this company – so yeah, I don’t want to build on these closed platforms anymore.”

Many prominent studios disagree with Kan’s thesis that an open gaming ecosystem monetized through blockchain technology is the future of the video game industry. Minecraft, one of the most popular games of all time, made waves last month when it announced it would not support NFTs on its platform, citing concerns about web3’s “speculative pricing and investment mentality” and arguing that NFTs would run counter to promoting an inclusive environment for gamers.

Although it has drawn a line on NFTs, Minecraft currently makes money from microtransactions on its in-game marketplace. The decision leaves existing companies in flux that were already selling Minecraft-based NFTs and developing play-to-earn games with their open-source code.

Kan sees blockchain-based gaming as just a “more economically immersive” version of the marketplaces that already exist in video games. However, he doesn’t think users will flock to blockchain games just to make money.

“Play-to-earn has been associated with people doing this type of grunt work in third world or developing countries,” Kan said. “I don’t think the model is sustainable, so I think interest will kind of wane.”

Instead, he believes the growth of Web3 gaming will be driven by developers building genuinely fun games on the blockchain, rather than focusing on creating economic incentives under the play-to-earn paradigm.

“I think that Web3 games are just more open and say that instead of this being a black market, we will make this a real market and people’s economic participation will vary at different levels. There will be people who just play the game and never buy things with money. There’s going to be some people who make some money on the side because they’re really good at the game, and they get some stuff in the game that they sell [or trading].”

Kan predicts the space will evolve in a similar way to mobile gaming, with a handful of startups launching first. Their success will inspire major gaming companies to use their existing intellectual property to enter the fray “five years later” despite their initial concerns about the technology, he added.

Still, the burgeoning sector of blockchain gaming still has miles to go before it can garner widespread attention.

“For this market to really grow, regular people who want to play games for fun have to play these games. That doesn’t exist yet. I think most of the market today is made up of people who are crypto-native,” Kan said.

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