🗝️Introduction

A brief look at Web3 gaming

In 2021, the online game Axie Infinity proved that a new kind of Web3 gaming model—play-to-earn—had the potential to disrupt the entire gaming industry. The model is simple: by combining blockchain, crypto assets, and gaming, it’s possible for gamers to earn crypto assets that can then be converted into fiat currency. After Axie’s success, it didn’t take long for the number of play-to-earn games to skyrocket.

The potential for disruption is real. On one hand, some 40% of the world’s population plays video games. Serious gamers, those that play more than 10 hours a week, make up 10% of that total. On the other hand, the traditional gaming model—play-to-win—has become somewhat outdated in the face of Web3 gaming. Traditional games are closed-loop ecosystems where players invest their time, effort, and money to earn rewards that can only be used in the game or sold on informal secondary markets.

Web3 gaming enables monetisation by design, both in terms of the rewards earned for playing and the future value potential of the in-game non-fungible token (NFT) assets. The requirement of NFT assets as a means to play Web3 games has also produced meaningful opportunities for those who owned the assets: leasing them to gamers who could not afford to buy them outright. This has become known as the scholarship system.

It was around this scholarship concept that game guilds began proliferating. By bringing gamers together, not only could NFT assets could be pooled and leased at scale, but earning potential could be optimised. Scholars even had the potential to level up and become NFT asset lenders themselves.

Finally, with the integration of decentralised finance (DeFi) concepts such as staking, liquidity provision, and borrowing, gamers are able to use their Web3 gaming assets to access a variety of decentralised financial services. It’s this piece that will ultimately accelerate wealth accumulation and begin levelling the economic playing field.

Limits to Web3 Gaming Expansion

While the potential of Web3 gaming is clear, some obstacles remain before the model begins to truly disrupt the gaming industry.

Low Game Quality

Perhaps the key factor preventing the mainstream adoption of Web3 gaming is the low quality and complexity of games compared to their traditional counterparts. The first play-to-earn games were created by crypto entrepreneurs, not by traditional game developers. So while these games may have been successful as crypto-based projects, the gaming experience in terms of complexity, engagement, storytelling, and graphics was simply not good enough to attract traditional gamers.

Unproven Economic Model

As Axie Infinity grew in tandem with a prolonged bull run across the crypto industry, news stories spread about the level of earnings in the Philippines and Indonesia. When the bull run ended and the SLP price dropped from $0.36 to $0.01, questions were raised about the sustainability of the play-to-earn economic model as a whole. The situation became so acute that Axie announced it would be reforming its economic model to, among other things, control inflation. This has been seen as a positive step for the industry as a whole, while at the same time we’re seeing projects like The Sandbox and Alien Worlds offer more refined and, hopefully, sustainable economic models.