Narrative 2024: Blockchain Gaming
2023 was a rather slow year for blockchain-based gaming. There are many reasons to remain optimistic about the future, but the sector lacks mainstream adoption despite the release of many games.
There are some developments in the industry that we will see, along with market attention that jumped significantly in Q4 recently. Let's see how the narrative continues as we welcome the new year of 2024. Prepare yourself so you don't miss out!
Year 2023 Recap
The combined market cap of 183 gaming projects remained between $4M and $7M during 2023 (86% lower than their ATH in 2022).
Compare this to DOGE, a meme coin with no utility. It's easy to argue that there's still plenty of room for growth in the future.
Backed by more giants in the gaming industry stepping their feet into web3.
Industry interest from existing gaming companies surging into ATH.
Followed by Epic Games Store, which is open to listing blockchain games. Well, maybe to be different, to compete with rival Steam.
Epic Games Store | Official Site
As of this writing there are over 80 blockchain games on EGS, and more are on the way. Not all of them are playable at the moment, and most of them appeared on EGS during the initial promotion.
Android is also more progressive in its opinion towards blockchain integration in mobile games (starting December 7), and the guidelines for blockchain game advertising are more positive (previously it was an outright ban).
But from the US regulatory side, it's just as strict as ever. The SEC's pursuit of the Binance case included several gaming tokens (MANA, SAND, AXS) being highlighted as securities.
Funding blockchain games
2023 was a tough year to receive funding in this sector. There were a total of 133 deals worth a total of $1.18M (without counting this December as it is not yet finalized).
The number of monthly deals has remained stable, at around 15 deals per month, but the amount of funding has continued to decline. Not surprised by this trend since the beginning of the bear market (Q1 2022). VCs are becoming more selective again.
This decline is also happening in the traditional gaming industry, funding is declining just like web3.
The previous high number was due to Covid, liquidity injection so easy money in 2021-2022. Then there was the metaverse hype and P2E craze, until the bubble burst.
This landscape can change drastically if there is a sudden series of bullish announcements or the discovery of sophisticated business models and applications. Who knows, we're already at the bottom of the funding cycle now? Let's look a year ahead!
Key Themes & Future Trends
This is a quick list of the projects that excite us about gaming in the future, and their key challenges over the coming 12 months.
Mobile (Asia)
The mobile market is 50% of global gaming revenue. With its monetization model, more mobile-based blockchain games will be launched. Currently only 26% of web3 games are built for mobile (the remaining 43% for PC and browser).
The mobile-friendly genre is reportedly RPG (22%), followed by Action, Strategy, and Casual.
Finally, there is a new experimental model of gaming with "nano-transactions", based on Bitcoin as the payment layer. Comment below if you're interested in us discussing gaming on Bitcoin and the concept of "nano-transactions"!
Now, in addition to mobile being the largest market, the Asian continent also makes up 50% of this global revenue. The leading markets are the Philippines, Pakistan, Singapore, Vietnam, South Korea, Hong Kong, China, India and Indonesia. All of these have stayed in the top 15 for the last 3 years.
While stakeholders are mostly in the West (including the US), in Asia there is some amazing activity too. The last few months, ZTX and L3E7 are leading the way as Asia-focused projects that have gained social adoption and are close to full launch.All eyes are on Nexon and the release of Maple Story Universe. For the uninitiated, NEXON is the 2nd largest gaming company (by market cap) in Japan, right next to Nintendo. MapleStory is NEXON's biggest IP that has been around for >20 years, reaching over 180JT players, 50JT accounts with >10 years of activity, and $4M franchise revenue.
This year 2023 Nexon outperformed its financial performance quarter after quarter. They have the capital and a great team to make blockchain gaming "legit". But the effect is two-way, if a name this big fails (flop), it affects all web3 gaming projects.
Player Liquidity
Obviously, since web3 game players are limited, there will be a war for liquidity. The industry map alone is more than 76 new networks, consisting of L1, L2, appchain... many are emerging.
That's not counting the Avalanche subnet, the IMX and Polygon zkEVM collaboration, and Arbitrum Orbit.
Blockchain games generate on average 23x more onchain transactions than DeFi protocols in 2023. So it will no doubt be an area of focus for many. The number of blockchain games has reached more than 3,500, although only about 5% are actively played with daily players above 100 wallets. Currently the range totals 1.2JT daily active wallets interacting with gaming protocols, and between 15JT to 25JT gaming transactions per day.
An example of a full onchain game, Sage Labs (made by Star Atlas), so far only has 1.5k daily active wallets generating 1.8JT daily transactions (this is about 10% of all transactions on Solana).
Player liquidity will be a rare and valuable resource. Publishers who can bridge web2 world players to web3 players will get "high demand" along with networks like Ronin and Treasure.
An example is Pixels, a web3 social simulation game that saw its daily active players jump from 50k to 100k, just by migrating from Polygon to Ronin.
There are interesting ways to incentivize airdrops. The most GG example is the minting of free NFTs from DigiDaigaku's Genesis collection (up to >20 ETH floor late last year). There are many more cases, the next example is MMORPG BigTime, which yesterday was able to play early access (beta test) to get BIGTIME token airdrop. The token pumped more than 370% in 24 hours!
But it wasn't the only one, there were also Parallel and PRIME tokens. Zepeto (ZTX) and Shrapnel (SHRAP) followed.
This narrative of playing games to get airdrops has been strong lately, and could continue into 2024 if the market remains strong as well. Delphi provides an interesting list of projects with upcoming airdrop potential!
But while airdrops can generate initial hype, they are poor at retaining loyal players. Most airdrop farmers will disappear when the incentive ends. And if the industry abuses incentives too much in the short term, the risks are negative for long-term sustainable growth.
Fully Onchain Games
FOCG essentially relies on blockchain to the core, utilizing this technology for interoperability and composability. Well, the sectors leading this movement are:
- Optimism and OP Stack: Originally born from OP Craft (a Minecraft-like game). Then there was Sky Strife and Primodium.
- Starknet is also a popular infrastructure for FOCG, although it is not compatible with EVMs which have the best liquidity. The Realm ecosystem (along with the Bibliotheca DAO and LORDS token) is leading the growth. Cartridge helps people easily build and discover FOCG games on Starknet.
- As for Arbitrum, it is strong in this sector with the Treasure ecosystem (blockchain game publisher). In 2023, they welcome more FOCG teams. In addition, there is an example of L3 above Arbitrum, XAI who just launched their testnet with $XAI gas token governance.
- There are other names that are still in the early stages of development: Curio, Paima Studios, and Argus Labs.
FOCG is still in the early experimental stage and the thesis is not yet valid. Consumers are relatively small, and capital is concentrated on infrastructure. The app struggled to raise funds, hampering growth. Yes, there are still grants from names like Frontius House (in the Realms ecosystem) that have funded 20 small teams so far.
Let's see! The next few months will see Pirate Nation, Cambria (Dual Arena), Doomsday, Influence, and Citadel. FOCG's timeline will definitely be longer, as it has to connect the gap between devs and hardcore gamers.
Other Emerging Trends
There are some other emerging trends that can be put on your radar. But it's too early for mass adoption in 2024.
GameFi on TON Telegram. This is their core focus for 2024, and there are already less than 100 active blockchain games on the TON platform. The 2 initial publishers on TON are Nakamoto Games and GAMEE. In addition, Animoca Brands (GAMEE's parent company) just became the largest validator on TON, so don't be surprised to see support for gaming initiatives in the future. But they are struggling with distribution and monetization.
Following on from Monday's AI talk, interest in this field was born out of generative art. The Stanford study says AI can drive new game experiences.
Colony will experiment with AI NPCs, becoming the 2nd game in the Echelon Prime ecosystem. Not only NPC AI, but there are also additional utilities to PRIME tokens and Parallel avatar NFTs. The release date of this game has not yet been announced.
There are 2 more different AI game genres: Today The Game and AI Arena. Today is an MMORPG meets farming simulation and city building. AI Arena is interesting because of PvP battles like Super Smash Bros. NFT AI Arena has soared in price because it's a bet on people's gaming narratives at Avalanche. Both will have an airdrop feature during initial testing.
Finally there is Avalon, a project that is far in the early stages, making an MMORPG with AI NPCs.
Although AI technology and blockchain games are still developing 3-5 years until they bear fruit, it is possible that there will be hype in 2024 like the metaverse yesterday. It's just not sustainable in the long run.
High Potential Projects
Hytopia (formerly NFTWorlds)
At the end of 2022 Mojang (Minecraft creators) banned NFTs on their platform, so this project had to build its own platform and damage control. A year later, their stakeholders were convinced again and just invested $3JT with Delphi Ventures.
Their bullish scenario is that the Minecraft and Roblox markets have 350JT daily active players. If Hytopia can attract those players with the lure of "true ownership" of assets, and there are economic incentives, the growth prospects are attractive.
Their bearish scenario is that they cannot excel in UX. Then the NFT model for land in Hytopia is seen as old-fashioned and useless. Regulation and potential Microsoft outrage are also risks.
Ronin Chain
Ronin has gotten significant attention over the past few months, and the RON price has risen quite a bit.
Over the past 30 days, onchain activity has increased. I just don't know how many legit players there are. One of the attractions that was mentioned earlier, Pixels migrated from Polygon to here. Maybe many are farming the PIXEL token airdrop which is said to launch soon.
The bullish scenario is that they can welcome more gaming content and have a true group of fans. This ties in with the "liquidity struggle" point earlier. With the previous name Axie Infinity, some say Ronin's value proposition is like "the next Axie". Compared to the market cap of GALA and IMX, there is still room for growth.
Their bearish scenario is if they can't accommodate as many new players as the number of new games. Sky Mavis seems to be trying to advance this "Ronin Effect". Although it's hard to sustain the narrative throughout the year if it's just them working hard.
Another risk is that if there are too many financial incentives, it will suck the value out of Ronin users. In terms of tokenomy, there is still a lot of ununlocked supply and the utility is only limited to gas and staking.
In terms of player liquidity, there are projects that are trying to tackle this with GuildFi, YGG, Treasure, all similar approaches in web3 game publishing.
AAA Games
Lastly, this is the biggest name, because the funding is up to 8 digits and has a AAA claim.
Illuvium, Star Atlas, Big Time, Parallel, Shrapnel, Midnight Society Deadrop, and Gunzilla Games Off The Grid.
Many are already playable, and should be in beta or full launch by the end of 2024. Their social following is strong.
Shrapnel, Deadrop, and Off The Grid are actually rivals to each other, and also to web2 shooters. It's going to be tough.
- Deadrop has already started in the market, beta opens early 2023 (although you have to use tokens).
- Shrapnel has the most X followers, and the team is good at designing narrative-rich experiences. It's also the first to launch tokens, and has seen significant growth in a short period of time.
- OTG has been in development for about 2 years, and has a strong visual design team, while getting the largest private funding of the three. But even $70JT is a far cry from the $200JT it usually takes to build, launch, and promote a AAA shooter game.
It's hard for them to compete with Counter Strike and Call of Duty.
But it's interesting that Shrapnel and OTG use Avalanche Subnets, so there is speculation that AVAX will be the main AAA game ecosystem in the next cycle.
For Star Atlas, Illuvium, Parallel, and Big Time are more advanced in development and have launched NFTs and crypto tokens.
Well many other names are not included like in Trading Cards there are Gods Unchained, Splinterlands, and Cross The Ages. Parallel is included here, but the hype is due to high quality graphics and good marketing.
PRIME and the Echelon Prime ecosystem are very much worth monitoring in the future. BIGTIME also timed its token launch just right with the market starting to pick up.
POLIS and ILV touched ATH during the bull market, but their asset prices are starting to rise slowly too. Just be careful because there are many of them stuck, prone to exit liquidity.
The biggest concern for these 3 main games is:
- Star Atlas is too ambitious in scope and timeline.
- Illuvium's budget is too big for a game with a relatively small market.
- Big Time has difficulty balancing the economy with farmers who are satisfied that airdrops keep disappearing.
