#Issue 6 : The Ultimate Case for Web3 Gaming
The rise of Web3 gaming globally has introduced new crypto participants who are gamers by heart and are simultaneously exploring the new financial, cultural and social renaissance that is unfolding in front of us.
This has led to a rise in the number of gamers globally in the Gamefi sector especially when you offer them an opportunity to participate and add value in the growth of the game's economy by using his/her skills and earning through in-game tokens.
The outcome is a perpetually devoted first-class citizen of a network state with the highest levels of property and human rights.
1. Property rights through ownership of digital assets in the game (in-game NFT ownership enable this - eg. ownership of virtual land, virtual items, cosmetics, etc)
2. Human rights by allowing the gamer to earn money by not exploiting their time/skills and giving them a portion of their time invested in the game into real forms of wage/earning.
These digital kingdoms will eventually create new forms of player turned investors who, after having overcome the technical barriers of crypto, will use their game-like curiosity to explore the financial side of the world which will eventually turn them into nuanced investors who develop an eye for spotting good games.
Kookootv is a public and well-known figure whose story got covered by Nasdaily and is a prominent story of a gamer turned millionaire
I reckon there are multiple stories hidden underneath the $23bn Gamefi industry where gamers have emancipated not only in the digital kingdoms but also obtained financial freedom in the physical world and have eventually leveled up in the society/strata as a result of that. Multiple such stories will eventually emerge of folks whose lives have been inverted due to Gamefi in the years to come.
This is the absolute bull case for Web3 gaming where this leads to a snowball effect in the society where they see their friends and relatives obtaining financial freedom, thus themselves diving straight into the Gamefi sector. This would further lead to a catastrophic growth of the Gamefi sector making it an industry multiple times larger than its counterpart Web2 gaming industry which is a $336bn industry, as it becomes the industry of choice for the new youth.
Similar to the positive feedback loop of how a protocol token grows in value, the gamefi sector also creates a positive feedback loop
As the early entrants participate in the gamefi sector and turn into prolific invesors, they attract more gamers to the space thus adding new users to blockchain protocols. These blockchain protocols thus end up having bigger distribution layer, thus attracting more indie game developers to build on them. The surge in interest and success of crypto gaming dapps attract new VC money which fund game devs to ship games faster, and eventually attracting the top AAA game studios to build on blockchains with the biggest distribution layer.
Although there is a lot of speculation at the initial level, the speculation in itself further fuels the growth of the network and turns it into a widespread movement
1. Growth in number of users in Gamefi
The number of gamers in Web3 gaming have grown from a few thousands in early 2020 to ~1.4 million DAU (Daily active users) by end of 2021 according to a report by Blockchain Game Alliance. These users interact daily with dapps, much more than Defi making games the most used category, ahead of Defi and other verticals.
This was largely driven by Axie Infinity establishing a product market fit for shared economies and rewarding players providing input with their time and skill and the emergence of guilds who have become onboarding platforms for players, thus making it frictionless for new players to get introduced to the gamefi sector. Overall, game activity has grown by 4300% in terms of daily users in 2021, compared to 2020.
If you think the industry has matured with 1.5mn DAU, let’s look at the number of gamers worldwide and the size of the traditional gaming market -
According to Statista, there are ~3 billion gamers globally. Crypto gaming currently enjoys around 1.5 million DAU ; less than 1% of the overall gamer community worldwide and is 5% of the actual size of the traditional gaming counterpart which is a $336bn industry, according to a report by Bitkraft and Naavik.
2. Overcoming the technical barrier to crypto
This first batch of users are the early adopters of crypto gaming are no longer confined to the limits of gaming. They have overcome the friction of understanding the nuances required to participate in the crypto industry in general.
1. Metamask wallet setup
2. Security practices of storing funds
3. Active participation in Defi (using Dex, staking, LP etc)
4. Engaging in crypto communities and getting exposed to the underlying crypto culture
5. Ownership of ingame NFT (for games they are bullish on)
6. Developing a special eye for games which can get mainstream adoption and becoming early investors in it
3. New income streams for gamers
Most gamers are confined to earning through pure grinding initially when they enter the sector, with most P2E economies running simple economies where the input is the gamers time/skill and the output is the in-game token. This is obviously a renaissance period for gamers who have been diehard gamers as they have never been earlier rewarded for their time/skill.
In the traditional Web2 gaming space, only the top 1% gamers are able to generate income from video games through other forms of income generation such as -
1. Esports - competitive video games tournaments
2. Live game streaming which turns gamers into influencers and is becoming the preferred medium of entertainment for budding streamers. Live game streaming turns gamers into content creators which further opens up new sources of income generation through -
a) Virtual tip/gifting
b) Ad/media revenue
c) Brand sponsorships
d) Merchandise sales
Enter crypto gaming which removes the barrier for the remaining 99% of the gamers to earn from video games. Here are multiple income streams for participants in the crypto gaming ecosystem -
1. Capital appreciation through ownership of in-game NFT
2. Earnings through PVP and PVE mode in the game
3. Ownership of governance tokens of games they are bullish on
4. Airdrops for being early adopters in game economies (average airdrop for early adopters of Axie Infinity was ~6000 USD)
5. Participation in Defi
6. Spillover effect from the best crypto investors, thus turning gamers into prolific investors
4. First class citizen in Digital kingdoms
Most gamers have always been looked down upon by the society. Playing games is not considered a desirable profession by the society - its hailed as a waste of time, money and efforts. They are looked down as second class citizens.
Frictionless onboarding of gamers to Web3 combined with their desperation to break free from the societal stigma, will lead to gamers actively participating in the game economies.
These games treat gamers as first class citizens where they are treated with utmost respect with access to both property and human rights, thanks to the nature of blockchain economics.
5. VC money flushing into crypto gaming
Seeing the surge in users in the Gamefi sector will attract top VC’s who will fund builders in the gamefi sector.
According to Footprint analytics, 2021 alone saw a total of ~$4bn invested in the gamefi sector, in ~161 games. The number of VC rounds flowing into games in 2021 has grown by 1400% compared to 2020 where only 11 games were able to garner VC interest
The month on month growth in fundraising rounds in crypto gaming grew from an average of $64mn in Feb 2021 to an all time high of $1.1Bn in Sep 2021.
Crypto gaming was a huge area of interest in Web3 funding rounds with Defi capturing 31% of overall funding, followed by Gamefi capturing 19% of the total funding round in 2021.
6. Enter AAA Titles in Gamefi
The Gamefi industry is very nascent at this stage with limited games, limited immersive experiences, experimention in sustaining game economies and limited actual game like experience. Most games at the current juncture are wrapped under Defi as game products.
From an economics standpoint, players burn 1 type of resource (time/skill) and earn 1 type of reward (in-game token). This can easily be calculated into an APY figure, thus making today’s games earnings a simple yield generating opportunity.
From a gaming standpoint, the current games are very basic in nature which are going through the 1st wave of blockchain gaming. The industry is yet to mature with more immersive gaming experiences and more solidied economies, that is seen today in the Web 2 Gaming world.
With the entrance of AAA titles in Web3 gaming, a new wave of gamers will enter the space who play games not to earn but as a means of leisure. Gaming economies will also become more multidimensional with the input and output components becoming more complex and solidified which cannot be traced into a simple APY figure.
Under the leadership of the top crypto gaming funds and all the play to earn veterans in the space, I see this playing out max over the next 5 years as we start to see more AAA titles enter the economy which attracts a new batch of gamers and the first and the early adopter batch of gamers to web3 graduate to being prolific and sound investors having attained financial freedom
This is the utimate bull case for the socio economic and cultural shift in the society.
Until then, we continue building.