Burcin Oztuna, Dynasty Studios' Lead Blockchain Strategist, offers an in-depth analysis of the future of web3 games, highlighting the transformative potential of blockchain technology in the gaming industry. As the traditional gaming sector faces revenue stagnation and significant layoffs, web3 games present new opportunities for innovation and growth.

In this article, we break down his analysis to explore current market dynamics, investment trends, and the promising developments within the web3 gaming market, suggesting that second-generation blockchain games could revolutionize the industry much like mobile games did previously.

The Potential of Web3 Games 2.0 by Burcin Oztuna (Dynasty Studios' Lead Blockchain Strategist)

Market Dynamics and Growth

Since 2020, the gaming industry has experienced a notable stagnation in revenue growth. Factors such as inflation, increasing development and marketing costs, and heightened player expectations for high-quality games have contributed to this slowdown. Game studios face the dual challenge of rising costs and high consumer expectations, leading to significant workforce reductions.

In 2023, the gaming industry witnessed record layoffs, with 10,500 game developers, artists, testers, and other game workers losing their jobs, surpassing the 8,500 layoffs in 2022. This trend has continued into 2024, affecting major companies such as Sony, Riot Games, EA Games, Epic Games, and Unity.

The Tremendous Yet Troubled State of Gaming in 2024 by Matthew Ball

Economic uncertainties and rising development costs have made investors more cautious. In 2023, consumer spending on video games increased by only 1.1% compared to 2022, indicating a stagnant growth rate. Despite these challenges, there are promising signs for 2024.

According to the Konvoy Ventures Gaming Report Q1 2024, venture capital funding in the gaming sector reached $594 million in the first quarter of 2024, a 94% increase from the previous quarter. This marks the first quarterly increase in gaming investments since 2022 and 2023, indicating that the gaming industry remains an attractive investment area supported by new technologies and innovations.

Gaming Industry Report for Q1 2024 by Konvoy

The State of the Web3 Gaming Market

The web3 gaming market gained significant traction in 2021, exemplified by Axie Infinity's success with over 2 million active players and an annual revenue of $1.3 billion. This success highlighted the potential of blockchain technology to revolutionize the gaming industry. However, creating high-budget, high-quality games that meet player expectations requires substantial creativity, effort, and dedication.

Despite the progress, high-quality web3 games have yet to achieve widespread adoption. Projects like Illuvium and Star Atlas have garnered significant support from players and investors, but economic uncertainties and a downturn in the crypto markets have impacted investment in web3 games. In 2023, nearly 30% of game companies had to shut down their projects. However, some significant projects have managed to secure enough financial support to continue, suggesting potential for future growth.

Axie Infinity Logo

$988 Million Invested Amid Market Changes

In April 2024, the industry received $988 million from venture capitalists (VCs), the highest amount since January 2021. Despite a less impressive $108 million raised in May, the current quarter could still close as the best since Q1 2021. These investments highlight a growing interest in the underlying infrastructure of GameFi rather than specific game titles.

Over 43% of the funds were directed toward infrastructure development, while only 24% went to specific web3 games. The remaining 33% was allocated to metaverse projects. This trend suggests that investors see long-term potential in the foundational technologies supporting web3 gaming.

This record-high funding comes at a time when over 20,000 employees in the gaming industry have been laid off in the past 18 months. VCs remain confident that their investments in this still experimental domain will pay off, potentially leading to a significant influx of talent from traditional industries into blockchain gaming.

Investments in Blockchain Gaming by DappRadar and BGA

All-Time High in Daily Active Wallets

Blockchain gaming is experiencing rapid growth. In May 2024, decentralized applications (dApps) maintained a level of 10 million daily unique active wallets (dUAW), with one-third involved in blockchain games. The GameFi segment reached 3.13 million dUAW, setting a new all-time high. This growth is supported by new releases and technological innovations.

Pixels, the most popular gaming dApp, which has over 20 million monthly UAW. It recently released its second chapter, featuring updated gameplay and tiered rewards. Similarly, Immutable, a network designed for web3 games, saw a 274% increase in dUAW following the launch of Guild of Guardians, a highly anticipated game with over 1 million pre-registered players. The game quickly ranked in the top 10 on Google Play Store and App Store, highlighting the increasing popularity of GameFi.

Industry Dominance (%) by UAW by DappRadar and BGA

Second-Generation Web3 Games and Mobile Dominance

Second-generation web3 games have the potential to create a significant impact, similar to the revolution brought by mobile games. Mobile games expanded the gaming market with technological innovations, broad accessibility, and new revenue models. Likewise, new-generation web3 games could transform the industry through blockchain technology.

Mobile games rapidly reached a broad audience with easy access, user-friendly interfaces, and low-cost entry barriers. Blockchain games could attract players with a deeper, more enduring gaming experience by offering real ownership and decentralization. NFTs and blockchain-based economies could further integrate the gaming experience by allowing players to realize the value of their in-game assets in the real world. The recent success of Fableborne is a prime example.

Fableborn Cover Banner on X

Final Thoughts

The future of web3 games appears promising amidst the current challenges faced by the gaming industry. Despite economic uncertainties and stagnation in traditional gaming, the advancements in blockchain technology and increasing investments in web3 games offer a glimpse of transformative potential. As projects like Pixels and Providence continue to innovate, the gaming industry could see a shift reminiscent of the mobile gaming revolution.

With careful planning, innovative strategies, and sustained investment, second-generation web3 games are poised to offer deeper, more engaging experiences, real ownership, and integrated economies, ultimately revitalizing and expanding the market. This article was inspired by an original blog post by Burcin Oztuna (Dynasty Studios' Lead Blockchain Strategist) you can read the original write-up here for more information.