CoinMarketCap Academy analyzes the state of blockchain gaming in 2023 — and its future potential.
Remember this? Back in March 2022, huge hype and anticipation surrounded Pixelmon — a blockchain gaming slash metaverse project — and its NFT collection. Then, this dropped.
Of course, Crypto Twitter went on a rout.
Despite this, the Pixelmon collection went on to rake in $5.8 million in trading volume a week after launching. Does that mean investors believe in the potential of blockchain gaming, or is this just a game of highly speculative musical chairs?
Widely regarded as a potential path toward the mass adoption of cryptocurrencies and blockchain technology, the blockchain-enabled gaming sphere is one of the most diverse crypto sectors, with many believing in its long-term potential.
Read: 2023 CMC Crypto Playbook: Blockchain Gaming — What Lies Ahead by Naavik
But while early blockchain games initially achieved meteoric success, few have managed to maintain interest in the face of growing competition and a weakening crypto economy.
Now, as the industry continues turning its wheels and developers push to build throughout the bear market, it remains unclear whether blockchain gaming has a bright future or is already burnt out.
Read: The State of Crypto Gaming in the Bear Market
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The Failure of Play-to-Earn
Play-to-earn (P2E) was a key trend in 2021, with literally hundreds of (mostly low ambition) games leveraging P2E game design and tokenomics as a way to incentivize user acquisition and encourage regular participation.
The value proposition is simple — by playing (and/or winning) regularly, users earn rewards in the form of cryptocurrency tokens. These tokens could then be either used in-game or sold via external exchanges to earn a real-world income.
After debuting in March 2018, Axie Infinity began picking up momentum in 2021, when it quickly rose the ranks to become by far the largest blockchain game of all time — with the AXS token reaching a peak market capitalization of almost $10 billion.
Driven by the promise of financially incentivized gameplay, Axie Infinity reached a peak of 2.7 million active users by November 2021, and kickstarted the play-to-earn industry.
With the trail blazed by Axie Infinity, the P2E industry quickly became a hotbed for innovation, and literally hundreds of P2E games launched last year. Though the vast majority of these failed to gain any significant momentum, a handful went on to achieve considerable success — including the likes of Alien Worlds, Splinterlands, and Farmers World.
But given the profitable nature of P2E games, the industry fueled what can best be described as mercenary-like behavior, with a large chunk of players moving between games based on profitability rather than gameplay.
Many of these projects saw their play-to-earn tokens reach outsized valuations before collapsing by more than 95% compared to their all-time highs. Owing to a general lack of true token utility and weak gameplay, just a handful of P2E games have managed to stand the test of time.
Recent Innovations in Blockchain Gaming
Despite the clear attractiveness of play-to-earn games and the benefits that blockchain technology can bring to gaming, few blockchain games have managed to develop a substantial player base.
Indeed, even the most ambitious and successful blockchain games still pale in comparison to traditional games when it comes to the number of daily active players. Alien Worlds currently ranks as by far the most popular blockchain game, with around 207,000 daily active wallets (taken as a proxy for users).
Though this is impressive for a blockchain game, Alien Worlds wouldn’t even rank among the top 100 games by daily active players if it were available on Steam — one of the leading gaming platforms. To put this into perspective, the top 5 most popular games on Steam average more than 200,000 simultaneous active users.
Recently, major players in the Move-to-Earn niche have demonstrated that mass adoption of blockchain apps is possible. This includes STEPN, which clocked in more than 3 million users at its peak. Whereas newer platforms like PRIMAL are beginning to leverage the mass appeal of fitness influencers and celebrities to drive the adoption of its gamified fitness tracking application.
By forming partnerships with celebrities and athletes with over 24 million combined fans, and adding support for popular fitness tracking gadgets like Oura, Fitbit and Apple Watch, the platform aims to onboard 300 million athletes. It would need to achieve just 1% of this goal to become the most popular DApp ever.
That said, it remains to be seen whether blockchain infrastructure can handle such a load. Even the most scalable layer-1 blockchains have been shown to buckle during times of peak stress or configuration errors — including both Solana and Avalanche.
Other blockchain games hope to go mainstream by simply being more accessible. This includes the likes of My Neighbor Alice, which plans to release its own game launcher, as well as Gala Games' recently announced NFT shooter game known as Superior — which is due to launch on steam. This could help make finding, installing, and interacting with blockchain-enabled games a much simpler task.
The Metaverse Future
The Metaverse is widely expected to power the next generation of gaming, with current and upcoming metaverses set to host games of increasing complexity and appeal.
But even the metaverse is suffering from major growing pains. Despite clocking in around 300,000 monthly active users back in December 2021, it was recently revealed that Decentraland has just 46 unique active wallets interacting with the DApp each day (a proxy for daily active users).
Taking the best-known metaverse, Decentraland, as an example. Its native in-game currency, known as MANA, currently has a fully diluted market capitalization of over $750 million. There are more than 290,000 MANA token holders, out of which just 0.016% actually use the game on a daily basis, whereas just 0.31% of token holders are active each month.
The image looks slightly better when focused on more comprehensive metaverses like The Sandbox, which currently has 400 unique wallets active each day or 12,000 active each month — equivalent to 0.2% and 6% of all holders respectively.
But these figures are still a far cry from what non-blockchain enabled metaverses like Fortnite and Roblox pull in — clocking in an estimated 30 million daily active players apiece.
Meanwhile, the gaming company behind Fortnite, Epic Games, is worth $32 billion as of April 2022, when it last raised $2 billion. This represents a valuation of approx $1,000 per daily active player (ignoring its other IPs). When applying the same methodology to Decentraland, the figure comes out to a staggering $1.63 million per daily active user.
Newer generation metaverses like XANA have more reasonable valuations with a market capitalization of just $5 million. By promising improved accessibility and leveraging a range of popular Japanese IPs to reach a larger player base, it could grow in a more sustainable fashion — but it’s still early days for the ambitious platform.
What Games Need to Succeed
The vast majority of blockchain games today are centered around play-to-earn mechanics, and few are able to attract players by virtue of their gameplay alone.
Unfortunately, this has led to a stark lack of variety in the blockchain gaming space, with most games following the same simple usage model: buy NFT, stake NFT, use NFT to participate in gameplay, claim rewards and use/trade rewards — albeit with various gameplay mechanics layered on top.
As a result, only the earliest movers or most ambitious and differentiated blockchain games have managed to carve out their own niche. To stand the best chance at success, future titles will need to overcome several key challenges plaguing most options today. These include:
- UX issues: Interacting with Web3 applications can be challenging — doubly so when there is a mandatory minimum investment as with most NFT-enabled games. Future titles will likely resolve these challenges by keeping the blockchain technology behind the scenes, using human-readable names as wallet addresses, and implementing a free-to-play option.
- Unsustainable tokenomics: Play-to-earn games almost invariably suffer from incredibly inflationary tokenomics, stemming from team and investor vesting to gameplay rewards, and development spending — this can crush the token price and drive away players. Future blockchain games will dramatically cut token emissions by restricting which players can and do earn rewards.
- Correct infrastructure: As has been shown time and again, massively successful blockchain games have the potential to crash or congest the underlying blockchain. Newer titles will likely need to rely on high throughput blockchains or alternative scaling solutions to support millions of simultaneous players.
- Fun: Despite being technically defined as video games, most blockchain-powered games fall short on gameplay, and most would have few to no users without their play-to-earn mechanics. But the first wave of gameplay-first titles is already in development, including the likes of Star Atlas and Illuvium.
Want to dive deeper? Check out the CoinMarketCap and Naavik: 2022 Blockchain Gaming Report — New Frontiers And The Path Forward.
It is likely that the next generation of popular blockchain games will have successfully tackled most, if not all of these current challenges.
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