This article is reproduced from Unitimes
Original link: https://mp.weixin.qq.com/s/TjLY48VrWcw9LJOn7uaojA
Written by: Joel John & Siddharth
Editor: Nanfeng
Web3 games are often criticized for poor game graphics and user experience. In this article, we will analyze the reasons why Web3 games will continue to exist in terms of economic changes, changes in game business models, and the evolution of the labor market.
It's easy to bash Web3 gaming in its current form. They have a crappy experience. Users need to store a key, go through the on-ramp, and then spend thousands of dollars to experience the fun of the game. Why bother with traditional console games when players can get a better experience at a fraction of the cost? When players are losing money on a crappy Web3 game product, who wants to face a group of Web3 game fans screaming WAGMI (We will make it)? Well, I won't. I love Grand Theft Auto V and Red Dead Redemption, and it's too far-fetched for today's Web3 games to compete with them.
But as an investor who spends a lot of time in games, I think there are aspects of Web3 games that we just don't notice. So today I want to take a moment to explain why this field is not a passing fad that is likely to die out in the next few years. This topic aroused my interest when I was looking at the Nansen platform's industry NFT index. I noticed that this 50-game index has dropped 65% since the beginning of the year (as shown in the chart below). In comparison, the S&P 500 fell 17%. Bitcoin fell 37%. Fortunately, we have StepN to help people make a living through walking.
why no one cares
Sarcasm aside, the argument against Web3 gaming is relatively simple. First, there are high barriers to entry in terms of technical skills and capital. When you start getting into Web3 games, you'll find that their graphics are far different from traditional AAA games. Assuming game graphics can be ignored, these games also often lack storylines. But who plays games for story these days? Maybe, there is a strong community for Web3 games? Maybe not. The Web3 gaming community can be filled with users looking to make money quickly. Well, maybe there’s a lot of money to be made? Probably not. The market is saturated, and capital revenues in the play-to-earn (P2E) gaming economy have declined since the second quarter of 2021 .
The weird thing about Web3 games is that we create financial instruments out of something historically "interesting". Generally speaking, no one cares about virtual lands being sold for exorbitant prices in the Metaverse, because historically speaking, regular people would walk in real parks on the weekends and not use their digital avatars in digital Hang out in the space. However, according to the Financial Times, this situation is changing, and people are partying in "virtual nightclubs" in the "Metaverse".
Ubisoft originally planned to launch NFT in the game.
However, the plan had to be abandoned due to low support.
If we raise the price of visiting local amenities (like parks) through the use of digital devices and somehow call it a good and reasonable future, then people will naturally get angry. This is what happens when studios like Ubisoft try to hardcode NFTs into gaming experiences (support is low). However, this commercialization is in the digital realm rather than the actual physical space. Historically, business was an expression of skill, talent, and dedication; today, business has dirty and disingenuous hands. The game’s “Pay-to-Win” model stifles equality and fairness and makes people angry (note: in this pay-to-win model, players can spend money to purchase items or skills to gain access to gain an advantage in the game).
Don't worry, this isn't a lengthy article about why the current state of Web3 gaming sucks. I think the reason a lot of people hate Web3 games is because we always look at them from a traditional perspective. But these new types of games will be important because they focus on (1) ownership and (2) asset liquidity . They are not reinventing the wheel but innovating on it.
Why you should care
Restrictions brought by Steam, the centralized secondary market in the traditional gaming field
Image source: Crypto game enthusiast @Ancient001
Speech given at a gaming conference last month
I learned about the importance of ownership in gaming from a talk by crypto gaming enthusiast @Ancient001 . This basically boils down to three factors – verifying the scarcity of an asset, the source of the asset, and the user’s ability to actually “own” the asset . When a traditional game studio releases a limited edition in-game asset, it's difficult to verify the claim. In the ticketing world, it has become common for issuers to purchase concert tickets and sell them on the secondary market at a markup. Today, there's nothing stopping game studios from doing that.
In comparison, when you buy an NFT today, it is very simple to verify the historical ownership of the NFT through Ethereum's distributed ledger . Now try it on Steam, the traditional secondary game market: you can see the records of people who purchased a certain game item in the past, but it is almost impossible to verify and verify this. Why is this important? Because incidents of fraud and money laundering using in-game assets are very frequent. This is a problem that Valve (an American video game company) recently admitted.
Finally, there is the concept of ownership. What makes digital assets running on immutable blockchain ledgers interesting is that they are difficult to confiscate without due process of law. One might argue that USDC can now “blacklist” addresses, but this would only happen in the event of a major incident such as a hack or ransomware. Allowing users to own digital assets without the risk of asset failure allows groups of society that have historically been underbanked to participate in ways that were previously impossible. The gaming market has been around for more than 20 years, but the ability to withdraw gaming earnings to an account that won't be blocked by PayPal or banks has only recently emerged.
The Web3 game Axie Infinity is controversial because we have never before had a mechanism for the most sophisticated financial institutions to interact with retail participants . While we have Robinhood and Citadel, these interactions are within a single region of the world and focused on regulated and historically precedented assets. How do you evaluate which NFTs in Web3 games will soar in price?
Axie's assets soared because the game connected a low-wage labor market, organized largely through gaming guilds of sophisticated traders and hedge funds. Web3 gaming is simultaneously a gateway to leisure and financial engineering, where the motivational factors are no longer just community, entertainment or recreation, but access to life-changing funds or livelihoods is now part of the equation. This changes the dynamics of traditional games and how users interact with them.
Capital markets act as sculptors
According to a report from the Blockchain Gaming Alliance (BGA), approximately $4 billion was invested in Web3 gaming infrastructure in 2021, and in the first quarter of 2022, approximately $2.5 billion entered the field. What we don’t realize when we talk about this industry is that founders have an incentive to transition from the old ad-driven model to a token-based model because they have access to ready capital and higher valuations .
To put the scale into perspective, in 2021, gamers in the United States spent a whopping $30 billion on hardware, streaming donations, subscriptions, and game purchases. According to a report by Ernst & Young (EY), Indian players will spend approximately US$1.5 billion on online games in 2021. So we're in an environment where almost as much investment is flowing into the gaming ecosystem every quarter as gaming revenue is coming in every month. In the long run, this is unhealthy.
Above: Changes in total monthly video game revenue in the United States
Unit: billion U.S. dollars
Depending on the resources you use - some of the largest Web3 games today have around 1 million users. According to results queried from the Dune Analytics platform, there were a total of 4 million DeFi users at the time of writing. As a benchmark for NFT adoption, OpenSea had approximately 500,000 monthly active traders at its peak. In other words, we are still exploring how the user base of blockchain-based applications can reach the 100 million mark.
The advantage for large game studios is that they have the potential to be the first retail-focused app with tens of millions of users. By default, "Free-to-Play" requires a large user base to continue to operate (Note: Free-to-Play games often provide players with complete game content and sell virtual game items such as skins and emoticons. make money) . If these studios can convert a portion of their user base into Web3 native users, they may achieve extremely high valuations. They have an incentive to focus on how to generate revenue and what will help them deliver the most value to their shareholders.
Games as a platform
Another reason why Web3 games are likely here to stay is that they unlock a completely different theme of economic behavior - traders, speculators, and guilds can help create self-sustaining ecosystems that benefit both Web3 game publishers and players. Ideally a game should evolve into a platform rather than just selling items once. Independent third-party users will be able to create services, develop experiences and sell them. You think this is far-fetched? Check out the interaction on Twitter below:
Tim Sweeney, founder and CEO of Epic Games, publisher of the Fortnite game
The reply read: “Fortnite is primarily a game.
But with every update and every creative map,
It's getting closer and closer to becoming a platform. 2021 is going to be a very interesting year. "
Tim Sweeney is the CEO of Epic Games, the company behind the Fortnite game. When I opened the game recently, I discovered that it is like an NFT-driven world, where independent artists sell clothing props, game maps, and optimization of the game itself. The path to this goal already exists. Games such as Grand Theft Auto V, Battlefield 2042, and Age of Empires have custom servers or mod-based game add-ons. The changes to these games currently do not allow creators to receive fee income. Ideally, Web3-based games should allow both studios (such as Epic) and their mod creators to receive rewards.
An example of user-generated content on Fortnite
Why will games become a platform? First, it reduces the studio’s efforts to keep users engaged. Players can find new experiences developed by other players and maintain a vested interest. Second, the promotion of large-scale games means that independent and creative developers can make money without having to worry about finding a user base. Third, this paves the way for generating more revenue from in-game subscriptions and purchases. Games becoming platforms means that we will see more user-generated content . This in turn keeps players (and viewers) engaged for longer.
Financial primitives for Web3
Web3 native games sit at the intersection of financial infrastructure and gaming experiences. If the independent community is able to use tools such as DAOs (Decentralized Autonomous Organizations) and multi-sigs, or collect in-game assets as payment, this will open up new channels for users that were previously unavailable. These communities also use unconventional incentives. For example, users no longer pay with cash, but instead reward each other with in-game assets.
In essence, Web3 game-related DAOs can abstract away the "boring" aspects of DAOs and show ordinary people the importance of other alternative collaboration tools. DeFi has rebuilt financial markets. Web3 games essentially gamify financial markets, allowing 8-year-olds to trade with veteran Wall Street traders. It's both elegant and adventurous.
The idea of using the same NFT for multiple games has certain flaws. I don't think interoperability of game assets will happen as quickly as we'd like. Today's studios have little incentive to make in-game reputations and assets interoperable. A closed ecosystem means that users who enter the game stay in the game for a long time because they can no longer move all their assets elsewhere.
This is why GTA V hasn't seen a major upgrade in a long time. Developers understand that users who have spent hundreds of hours playing the game won't jump elsewhere, even if they only upgrade incrementally. The chart above is proof of this trend. Even though Rockstar Games (American game publisher) hasn't released a new game, viewers continue to flock to streamers related to the game.
So how will user transition happen? In my opinion, interoperability is not the way forward. Liquidity is. Remember above when I said that games have an incentive to introduce financialization to attract traders? Games could benefit by charging a percentage of transactions, just as OpenSea charges a fee for NFT transactions on its platform today. If game assets use token standards (such as ERC-1155), then it is only a matter of time before the market for these assets emerges.
Gamers would trade these assets instead of trying to move them. Price discovery will lag because the data on the scarcity and utility of these assets is not clear at first. For example, when a game comes with new characters and weapons, players need to go through a learning curve to evaluate the cost and attributes of the weapons, and try to play the game with different character-weapon combinations. In Market Mode, these types of weapons will become very rare and expensive, rather than having their costs arbitrarily specified by the game developers. Imagine that the efficient market hypothesis would apply to digital economies in games.
Community & Identity
So far, we have analyzed the reasons for the existence of Web3 games from the capital market and business perspectives. We believe there’s another reason, and that’s people. I have always said that the P2E (play and earn) model has become popular because it provides higher returns. But the idea of money alone as a motivator can be flawed. Digital-first forms of labor, such as those brought about by the P2E model, also bring a sense of community, dignity, and choices that traditional jobs do not allow today .
The idea that making money from games will solve all of today’s labor market problems is utopian and I don’t support it. But it’s fair to say that digital-first forms of labor, like in-game “grinding,” paves the way for people to master key skills like communication, collaboration, and coordination. In an increasingly digital workforce, traditional forms of education may not equip students with these skills.
Guilds like IndiGG allow players to find people with similar tastes to their own and connect them with potential opportunities to generate revenue. This is reflected in their collaboration with Skyweaver. The game itself is free, but players who play through the guild can receive monetary benefits from a $100,000 prize pool. This may not seem like much to the average knowledge worker reading this, but if you come from a small town with no immediate economic opportunities around you, this could be life-changing.
Players often have a hard time finding the right guild. Even when it comes to gaming, economic exploitation of labor is possible. It takes 7 to 12 days for a person to join the guild. According to research by Respct.co founders Utsav Singla and Srijan Jain, only 1 out of every 1,000 applicants is accepted. The learning curve for new users is steep, including how to set up a wallet, how to join Discord, filtering for suitable games, and ultimately how to join a guild. Respct.co has built a platform that allows players to be supported throughout their lifecycle, from discovering games (just like you do on Steam) to getting earnings paid into your bank account.
What we haven’t yet realized is that digital workplaces like gaming are the richest source of data when it comes to hiring employees. For example, the average age at which esports players retire is approximately 26 years old. But they've invested a lot of time in the gaming ecosystem over the years, and the footprint they've left behind is usually verifiable. The time they play, the partners they play with, and the levels they unlock in the game can all be verified and stored digitally. As long as privacy issues are properly handled, this can be very useful when recruiting.
Web3 native games will eventually lead to rich on-chain identity layers. Unlike LinkedIn, many claims in Web3 are instantly verifiable. In the future, employers will look to these data sets as a reference for college degrees. If you were to hire a community manager – what would be more valuable? Is it a degree, or thousands of hours of experience working as a game community coordinator? I think I know what to choose.
write at the end
Looking at Web3 games solely from a game graphics and user experience perspective is like taking a peek into the ether. You have a limited view of the possibilities. Instead, we must look at the macroeconomic factors that bring people to these games: shrinking labor markets, the growing ambitions of young people in emerging countries, the rise of parallel financial infrastructure, and the challenge of monetizing existing games.
The vast amount of funding that Web3 games attract means that founders will continue to develop these games, although the vast majority of them will slowly die, like most VC-backed startups. They will create an alternative way for us to look at the game. They are not only avenues for leisure but also economic ecosystems capable of sustaining distinct user configurations. This may involve traders, streamers, researchers and service providers. In my opinion, Web3 games are the Trojans that will bring the most users to the crypto space. They focus on younger users who are tech-savvy and comfortable with digital-first asset ownership.
The challenge for studios and developers creating games is to balance economic activity with fun. Make a game too complex and users will avoid it. Without ownership and liquidity in games, users would continue to play traditional AAA games. Balancing the two is necessary to bring 100 million users to Web3 through games.
**This article only represents the views of the original author and does not constitute any investment opinions or recommendations.