Game Changers: Confronting the Hurdles of the Web3 Gaming Revolution

Welcome to today's interview on the adoption of Web3 in gaming! We are here to explore the challenges faced by the gaming industry in embracing Web3 technologies and integrating them into existing gaming platforms.

With the rise of blockchain, decentralized finance, and smart contracts, Web3 has the potential to revolutionize the gaming landscape, offering new opportunities for player experiences, ownership of virtual assets, and innovative monetization models. However, this transition is not without its hurdles.

Today, I am speaking with Adrian Krion, CEO of Spielworks, to delve into the complexities and obstacles faced by game developers and industry stakeholders as they navigate the integration of Web3 into the gaming ecosystem.

Through thought-provoking questions, we aim to uncover the key challenges, potential solutions, and the transformative impact Web3 technologies can have on the gaming industry. So let's dive into this exciting exploration of Web3 adoption in gaming!

What are some main challenges the gaming industry faces in adopting Web3 technologies?

Most underlying blockchain technologies have been built to be secure and trustless but not necessarily easy to understand or use. Therefore, the industry has struggled to develop abstraction layers for easier use. 

If we think back to the rise of the internet, we had similar challenges, dial-up modems, no browsers, no search engines, etc. It simply takes time to figure out the major patterns for user experiences with Web3.

Another challenge is the quality of games and how hard it is to make great games. AAA titles take years to develop and are at high risk of failure, so it's expected that even after the large wave of investments into the Web3 Gaming industry in 2021 / 2022, it will take a few years for excellent titles to be launched.

As an additional aspect, the added complexity of Web3 economies has meant even more struggle for Web3 game developers. Not only do they have to figure out entertaining and engaging game mechanics, but they also have to design an economy that's balanced and doesn't result in pure pay-to-win or "ponzinomics," economies which by design break when too few new players come in.

How do you see Web3 technologies changing the gaming industry in terms of player experiences and interactions?

Web3 has the potential to alter player experiences in three major ways:

Firstly, early adopters become "investors" in a game, holding assets that might accrue value as the game becomes more popular. This can generate a solid core of community for a game, much more robust than in traditional games.

Secondly, exiting a game gets easier for the average player, as they can monetize on some of the assets they've generated in a given game with their time and money spent in a game. This avoids a lot of frustration with gamers when they don't feel like they can stop playing a particular game as they would lose all the assets they had played for.

Finally, on a social level, Web3-based assets can transcend the borders of individual games. This allows others to glance at a player's track record and identity by just looking at this player's wallet. Entire social networks could be built on top of game asset interactions.

What are the potential benefits and drawbacks of integrating Web3 technologies into existing gaming platforms?

Many drawbacks circle the difficulties of balancing economies when moving them into Web3. Business models that rely on selling a particular product to each paying user will collapse if the same product is suddenly available for secondary trading. 

Existing games and platforms are unprepared for that, meaning any commercially successful game would refrain from integrating Web3.

The benefits, conversely, can range from diversification of revenue, e.g., by including secondary trading royalties into the revenue mix, to higher CLVs due to increased basket sizes based on the re-saleability of the purchased assets or improved retention.

How can the gaming industry ensure the security and privacy of players when implementing Web3 technologies?

Biometric wallet solutions can help with securing assets to a large extent. They make it harder for users to forget their wallet seed phrase or store backups in insecure places. The privacy part hasn't been getting as much attention. Still, the technical solutions have already been developed (e.g., using Zero Knowledge mechanisms). 

They are waiting to be used, e.g., to allow users to hide certain assets in their wallets from the general public and only have them displayed to people they've explicitly allowed to do so. This can be handled on a trustless level without intermediaries handling the process, so Web3 also offers solutions to improve protection from data leaks and 3rd party exploitation of data.

What technical barriers do gaming companies need to overcome when integrating Web3 into their platforms?

Some of the significant issues for companies looking to integrate with Web3 are the poor reliability of Web3-based platforms, including APIs and sometimes even base infrastructure. 

Building great User Experience based on Ethereum-compatible technologies is also reasonably complex from a technical standpoint, as many abstraction layers don't exist or aren't unreliable.

On top of that, developers often struggle with choosing the base technologies they want to build on and all the related, potentially unforeseeable consequences: If I mint my assets on one blockchain, will they ever be interoperable with other chains? Will the history and provenance of these assets be preserved? Which technical solution will exist for inter-chain operability? If I use a bridge, will that be secure?

Many of these issues can be solved by providing the correct type of mature middleware. In the Web3 gaming space, there are probably 20 or more companies building and offering developer and deployment solutions to help with the Web3 integrations for games; however, many of them are still in their earlier stages.

How can blockchain technology be leveraged to enhance in-game economies and ownership of virtual assets in the gaming industry?

I believe gaming companies building in Web3 must ensure they enable non-custodial, interoperable wallet solutions and generally focus on potential interoperability. Only this will allow the actual benefits of Web3 to permeate the gaming space.

This means that fully centralized and closed ecosystems should be avoided. They only add as much "blockchain" to gaming as there's some traceability. However, suppose a single entity controls all of the infrastructure and tooling. 

In that case, we're back to the situation we've had in traditional gaming - reliance on large companies, arbitrariness in decisions, and loss of all investments, e.g., in the case of a user ban.

What are game developers' key considerations when designing games incorporating Web3 features?

Since their inception, Web3 games have had a track record of launching relatively simple gameplay, which - ideally - would evolve. However, many of the games have been overshadowed by poorly designed economics, leading to very steep bell curves in their economic development. 

Focusing on "play-to-earn" and generally making money has been one of the symptoms of such games, despite knowing that such schemes cannot be sustainable.

Going forward, the focus needs to remain on creating fun and engaging games with long-term oriented economies that - similarly to games in the free-to-play space - avoid pay-to-win mechanics as much as possible.

How do you see Web3 technologies impacting game developers' monetization models and revenue streams?

In the relatively short history of Web3 games, revenue per user and Customer Lifetime Values were up to 30 or 40x on average compared to traditional, free-to-play games. 

However, these games mainly cater to a small and elite audience with a high willingness to pay and larger budgets: crypto holders. 

In the long run, there is no reason to believe that the net spend of the average gamer would be so much higher than in traditional games, meaning there'll be a strong convergence towards the historical levels.

However, on a per-game basis, Web3 can potentially improve monetization, especially for more minor games. Traditionally, small game creators have struggled to make ends meet with their games. Still, a higher spend per user and especially a higher install-to-paying conversion rate can drive unit economics to sustainable levels without a large user base.

On top of that, NFT secondary trading royalties allow games to generate revenue from players exiting the game or merely looking to upgrade their equipment, meaning that so long as the assets remain attractive, the revenue will be generated from them.

What role does decentralized finance (DeFi) play in adopting Web3 technologies in the gaming industry?

DeFi is one of the primitives required for Web3 game economies to work efficiently. Swaps, yield farms, lending, and derivatives can generate a lot of extra depth for players when considering the usage of their in-game assets. 

However, these functionalities must be presented in very gamer-compatible ways without much financial jargon so gamers don't get put off. Similar concepts like savings for in-game currencies have been employed by traditional games on both mobile and desktop alike before, so the entry barriers for gamers should be really low.

How can game developers address the potential resistance from players unfamiliar with or hesitant about using Web3 technologies in gaming?

We shouldn't try to make an actual separation between "Web3 games" and "Web2 games" or whatever terms we might be tempted to use, at least when speaking to gamers. Eventually, mainstream gamers will likely treat the Web3 component of a game as a feature of that game, not a different type or genre.

Similar to what happened in the free-to-play space where premium games started implementing in-game purchases despite players having paid in full to purchase the game, I expect mixed modes to emerge. We're likely to see games that look like traditional, free-to-play game that appears in a "Web3 mode" with potentially an earning component. 

Employing patterns like this will make it much easier for game creators to overcome resistance from players, especially when directly bundled with tangible benefits for them.