The Three Reversals of Web3 Gaming
Web3 Games are Back...but Are Things Different This Time Around?
I had written about skepticism of web3 games from the DICE conference, so was understandably surprised to see a much higher attention to web3 at the Game Developers Conference (GDC). Booths from WeMade, Avalanche, and Polygon were present, and I caught buzzes of conversation nearby discussing on-chain activities, NFTs, and interoperability. The enthusiasm extended beyond the conference as Square Enix, Nexon, and other companies announced initiatives around web3.
With the recent implosion of web3 around gaming (NFT crash) and finance (FTX and others), it made me wonder what was different this time around. Was this a repeat of 2021 or had gaming truly changed? After several conversations with developers, game designers, and other founders in the space, it seems like there have been real shifts in web3 games. I call these changes the Three Reversals of Web3 games.
The 1st Reversal – Web3 Dropping from Player Level to the Infrastructure Level
In 2021, games were very overt about their use of Web3. Games billed themselves as “web3 games” – pitch decks focused on tokenomics, NFT sales, and other crypto-focused metrics. This ran into a problem as onboarding into web3 (wallet setup, setting up NFT marketplaces, etc.) introduced considerable friction, scared off many people skeptical of web3, and limited the total audience. This time around, games focused on “hiding” web3 elements from their players. The rise of “Web 2.5 Games” saw the underlying web3 elements hidden from the player. One individual gave the analogy that web3 was like public cloud – no user cared which cloud a SaaS product ran on, as long as the experience was good. This reversal combats skepticism in web3 and creates a smoother player experience.
The 2nd Reversal – Switching from Turning Web3 Natives to Gamers to Turning Gamers into Web3 Users
Related to the first Reversal, the first wave of web3 games focused on starting with web3 natives and converting them into gamers. This led to two problems. The first was TAM size – there are many more gamers than web3 users, and as a result, it stayed a bit of a niche product. The second was adverse selection – web3 users were interested in making money and flipping NFTs versus staying in a game long-term. As a result, the gaming experience wasn't fun for the vast majority of users, as initial users flipped their assets and left the majority of players holding the bag. The current wave of games focuses on appealing to gamers and slowly introducing them to web3 elements that have in-game utility, contributing to a much more sustainable, long-term business model.
The Third Reversal – Refocus on NFTs from Financial Gain to Gameplay Experience
The first wave of web3 games pitched NFTs by focusing on financial upside. The environment was overheated, and more risk-taking web3 natives were confident that if they were early enough, they were practically guaranteed to earn a return on their NFTs. Gaming companies leaned into this, selling early adopters on financial returns. Social media and Youtube were full of videos where influencers gave opinions on the most lucrative NFTs for gains as if they were investments. NFTs had very limited to no use in the game, but they told investors they could figure that out later. Today, NFTs are the reverse – trying to apply in-game use first, with financial upside being a bonus. This approach is better and more long-term sustainable.
In summary, it seems like gaming companies have truly learned the lesson from the last wave and are iterating quickly. While this seems like a reason for optimism, it's important to remember that it's still early days – no true big winner for web3 games yet. Whether or not these Three Reversals will translate into actual success for the sector remains to be seen, but at least in theory, there seem to be signs for optimism this time around.
