Going from N00b GameFi Investor to Boss Mode - Blockchain Gaming Part 2

The gaming industry is at an inflection point, as platforms go from fragmented experimentation with blockchain technology to potential mass implementation of P2E, virtual worlds, and NFTs. Who will win - the conventional old guard, or the new crypto challengers?

The gaming market is set to grow from USD 198.40 billion in 2021 to a value of USD 339.95 billion by 2027, with a CAGR of 8.94% over 2022-2027. Any way you look at it, gaming is a growth industry with lots of potential for investors to benefit from solid returns. 

So, it’s clear the gaming industry will grow, but grow where, and grow how. In part 1, I wrote about some of the benefits and potentials that blockchain can bring to gaming. In this piece, I’ll share some perspectives on what to consider when planning long-term investment in gaming. 

The Old Guard

Basically, if you want to manage a standard stock portfolio, gaming is probably going to play a part. Companies like Roblox, Mojang (Minecraft) and Valve (the company behind digital distribution service Steam) already have market dominance and are well positioned to keep building on network effects to attract new generations of players and customers. 

62% of mobile gamers under the age of 13 are responsible for in-app purchases.

“31.1% of parents support their children’s in-app purchasesover 40% of parents who allow their children to make in-app purchases set a monthly budget restriction of $10. On the other hand, 23% of parents allow their children to spend more than $50–$100 per month on mobile games.”

If you are a parent, and know nothing about crypto, blockchain, P2E or NFTs, it’s unlikely that you’ll be setting your child up with a Metamask, a laptop, and a blockchain game anytime soon. That, and it’s possible that NFTs themselves could be age restricted due to the analogies with loot boxes and gamling. So when it comes to the youth market, I can’t see blockchain gaming overtaking the old guard anytime soon. And the younger a customer, the greater the potential lifetime value of their acquisition. 

In July 2022, Mojang, the developer of Minecraft, announced a plan to update their usage guidelines to prohibit blockchain on independent game servers and the use of Minecraft  graphics in NFT projects, “to ensure that Minecraft players have a safe and inclusive experience”. In 2021, Valve also banned NFT games on Steam.

Yet, where Web2 native companies do start incorporating Web3 elements into their business models, the potential for new immersive and engaging player experiences is explosive (for more on this, read Part 1). When Gamestop opened its NFT marketplace, its weekly sales were more than $7M in a week, compared to the Coinbase NFT marketplace, which only had $2.8M in sales from May to July.

In contract to Microsoft and Mojang, Epic Games and Ubisoft have made clear moves to indicate that they are open to bringing NFT games onto their platforms. Epic Games has the Wild-West themed shooter Grit in their pipeline, and has announced that the NFT-powered PC and Mac game Blankos Block Party will also be released on the Epic Games Store.

So, whether Minecraft, Roblox, and Steam come to the party is, for the reasons I shared in Part 1, just a matter of time, customer demand, and the need to stay competitive in a changing market. 

The Chains

It’s OK not to have heard of them before, but the leading blockchain game protocols aren’t BTC or ETH - Wax (Alien Worlds), Hive (Splinterlands), Ronin (Axie Infinity), have been the strong chains to date. Polygon (MATIC) and Binance (BSC) have been solidly growing their ecosystems, whilst Solana (SOL) and Flow are the late bloomers.

Just like popularity for Web2 games can wax and wane, we can expect that blockchain gaming projects will come and go. On-chain activity for Axie Infinity as shrunk over 2022, as the falling token value made P2E grinding less commercially rewarding. 

Image source DappRadar

There’s more than 1500 blockchain gaming tokens now in crypto, but more than 20,000 tokens in circulation. Without insider information (that you get from being on a team or part of a VC network), trying to pick the winners is going to be hard. 

What is easy to know is that blockchain games represent almost 60% of industry’s usage, with 1.1 million daily Unique Active Wallets and $857 millions in transactions. According to DappRadar, in July, “Blockchain games  reached an average of 967,662 UAW per day, an increase of 8% month-to-month (MoM) and an  impressive 98% growth from the previous year.” (source)

So, if you want to get behind blockchain gaming, and don’t know where to start, researching the up and coming protocols popular with gaming - chains that are quick, energy efficient, and secure - is probably a reliable place to start. Whilst projects may come and go, the ecosystems that support them will likely continue to grow. 

Algorand doesn’t even register on the DappRadar reports yet, yet it does have a growing games ecosystem with a lot of VC investment, mostly led by Borderless VC, with major games on mobile and PC launching in Q4 and Q1 2023. So we might see it on the charts next year!

Another upcoming ecosystem to pay attention to, with zero gas fees for NFTs is Immutable X, with projects including digital collectible marketplace VeVe and Illuvium, the Open-world RPG adventure game built on Unreal Engine 5.

The Lightning Network is a layer-2 payment protocol on top of the Bitcoin network that allows for fast, cheap transactions, will provide the micropayments for Zebedee.

Zebedee recently acquired a $35M investment round from Square Enix, the producer of the Final Fantasy. So we’ll be seeing more BTC action in gaming too - which will make the maxis happy.

The Challengers

Most gaming studios in blockchain gaming would be classified as Indie - less than 20M in investment for games development. However, what they lack in funding, they often make up for in creativity, passion, and community driven development. 

It’s impossible, even for someone in the industry, to keep up with all the projects and advancements in technology. If you would like to have exposure to promising opportunities, the best way to do that, whilst minimizing your risk, is to join a games investment DAO. 

A substantial use case for DAOs is to operate as a decentralized VC. Investors are naturally wary of projects that have been funded by centralized VCs - having pre-sale tokens concentrated in a few wallets makes the community vulnerable to being rug pulled - a process where wallets that acquired tokens that were acquired for zero or little cost, take advantage of the post launch boom, only to dump their tokens or pull their LP from a DEX, killing the token value. 

With a decentralized community, projects can spread the risk of being funded prior to their token launch with private token sales. Rather than just a few big wallets investing in them, a community of investors have come together (usually via a DAO) to each put in a small investment in return for low price tokens. 

One such DAO is PathDAO. (source) By joining a gaming investment DAO, you can benefit from the wisdom of the crowd - with many experienced eyes reviewing the projects - and also from the VC network, who often have access to projects at a much earlier stage than the public. 

If you are thinking of going it alone, here’s some angles to consider. 

1. Project Scope

Being able to make it successfully down the development runway often means not biting off more than you can chew. So many projects start small - with one game as their major draw card. 

However, if you want to grow as a company, you need to consider efficiencies of scale. That’s why these big marketplace platforms, like Epic, Steam, Ubisoft, do so well at attracting and keeping their customers - they are like the supermarkets of gaming. 

So consider whether the game is part of a wider, supportive ecosystem, whether it has interoperability with the metaverse across its roadmap, or the team has plans in the roadmap for the development of their own metaverse system. A project stuck on its own will always have a harder time competing against the network effort of big platforms, and will likely always be Indie if it doesn’t have a bigger vision. 

Image source Teamwork Memes

2. Team

In crypto, it gets a bit old to hear people say to look at the team before investing. We’ve seen plenty of projects, with Doxxed teams, implode, get hacked, or not have adoption. In crypto, people often start projects, make their money, get bored and start something else only to leave the original investors holding worthless bags. 

In games, it's important to check whether the team has experience shipping games in a meaningful way. Does the project have the full suite of experienced game developers, designers, marketers, and business people? 

People are attracted to blockchain development because they want to do new things differently - perhaps the traditional gaming industry wasn’t a fit for their big plans. So it’s unlikely that they are going to be an executive from a Triple A ($20 - $200M) game studio. 

Google them, check their LinkedIn, try out their past games, join the community and chat with them, and if you still aren’t 100% sure that the project is WAGMI, wait for the product to ship and evidence of gameplay. 

Image source Teamwork Memes

3. Product-Market Fit & User Experience

Blockchain has been boasting about big plans since at least 2017, and finally, through the process of bear markets and BUIDL, we are seeing platforms starting to realize their massive potential with projects like Sandbox (SAND) and Decentraland (MANA).

However, to get on these platforms, and NFT games like Blankos, players still need to download the program on their PC, as well as integrate their crypto wallet.

That might not seem like much, but if you are wanting to bring on the 3 Billion video gamers, who may not have any crypto experience, may be afraid of NFTs, and just want to flip the switch on their XBox or PS5 and have the intuitive experience of their handheld game controller, that’s a lot of friction to overcome. 

It’s also completely missing the potential, overlapping market of 2.6 Billion mobile gamers. 

There are blockchain games in development for the mobile gaming market, and likewise PC blockchain games do have mobile apps in their roadmap. So look for projects that plan to be interoperable across platforms from the get go. 

One last thing. The crypto industry is infamous for being male centric - for a long time, the main investors were male, and even now you will still see panels, teams, and even entire conferences that only feature the male species. 

Image source Meme Generator

This is in conflict with general gaming demographics. Globally, 45% of gamers are women and girls and 55% of players in the US are women. More than two thirds of mothers play mobile games, and around 74% of gamer mothers play every day. They even start earlier (5AM compared to 8AM) and end later.

In the blockchain gaming world, there are two main potential customers - your token holders (testosterone-filled crypto degens) and gamers (a highly inclusive demographic encompassing more than a third of the world population. 

It makes sense that projects that are inclusive from the top level management all the way down to their community building are going to be the ones that develop worlds with diverse, relatable characters. 

That was Part 2, the final installment, Part 3, will look at the potential impact of virtual worlds and an interoperable metaverse in the future of gaming.