A large price drawdown tests our conviction.
Adding to that, the entire sector we’re bullish on has been weak relative to the market during the summer chopfest. This is where Web3 gaming stands today. You know us—we say it as we see it.
However, we also understand how people can over-index sentiment on crypto Twitter and mistake it for reality. Currently, Web3 gaming is labeled as "dead" or a "failed experiment" due to many new launches not meeting expectations.
This is the moment to revisit and test your thesis on first principles.
What’s the market opportunity for Web3 gaming? Billions in active players.
Does Web3 actually solve a big problem? Yes, it can shift value extraction to creation, empower players with ownership, and enable novel virtual economies and experiences.
Are we shifting to a reality where more and more people spend their time online inside digital worlds and games? YESS!
That’s it - Web3 gaming has the best shot at onboarding millions! Quiet times can be tough, and markets can be deflated, but they are by no means defeated.
In this article, we will explore why Web3 is the next catalyst for gaming to enter a growth phase again, what’s been developing in the Web3 gaming space in recent quarters, and what it takes to succeed.
Web3 ignites next growth stage for gaming
Gaming is a massive industry. It generates more revenue (~200 billion) than cinema and music combined. We know this. However, the industry’s growth has stalled. The US gaming revenue is only up 7% from 2019. The revenue driven from in-app purchases is down 13%, according to Unity’s 2024 gaming report.
The industry is also unable to expand, making it harder for games to break through. In the mobile category, more than 50% of revenue is from the top 3 games per genre, and 82% is from over two years old games. For PC and console gaming, 66 titles accounted for 80% of playtime (which has been a trend for a couple of years now).
Considering these stats, it is clear gaming across all mediums has become inflexible, limiting the overall potential of the industry. This is why new mediums and paradigm shifts are needed to get the industry back on the growth stage — which we believe to be Web3 gaming.
In the past, new mediums were in the form of hardware changes. From here on, we will see enhancements to the software with new technologies like Web3.
The integration of Web3 into games adds several layers of utility that can be valuable. Firstly, Web3 unlocks true asset ownership for players. As physical and digital worlds converge, people will place the same level of importance on the items they purchase. For example, when gamers purchase physical disks, they can sell them when they get bored of playing the same game.
So why shouldn’t gamers also have the option to sell the in-game items they bought or earned?
Think about it like this: If you are playing a game and spent countless hours progressing your hero, wouldn’t you want to own that character as a digital collectible? And potentially sell it as there is likely interest for it on the secondary market?
In Web3, games can create free and open economies for players. They can monetize their ownership of assets. Furthermore, they don’t have to be at the mercy of a middleman and pay high fees. Owning assets also doesn’t just mean monetization in-game — the NFT can represent achievements, experiences, and things that go beyond the game as well.
Besides NFT assets, players have a chance to participate in economies powered by tokens. We have seen the play-to-earn model go horribly wrong over the years, with emissions not controlled and long-term incentive alignment nonexistent.
But things have changed since the first GameFi retail wave. We are seeing many games embrace the earning aspect, which brings a new dimension to gameplay.
There are many reasons to care about Web3-enhanced games. But don’t people hate NFTs and crypto gaming in general? Yes, the sentiment is bleak, but that’s how it always is when a new trend starts forming. Let’s go back to the free-to-play era to understand this better.
When free-to-play started gaining popularity, it also had an image problem. Developers didn’t want to label their games free-to-play, and gamers viewed them as indefinitely exploitative. The public dislike towards F2P got to a point where the company that was platforming these games (Apple) thought of removing the category itself.
Fast-forward to 2024, and Apple makes tens of billions in revenue off the App Store. What used to represent a drop in the bucket in terms of revenue has now become an important part of Apple’s profitability.
This pattern is not new. Negative perceptions can turn positive in a very short period, changing how the fundamentals are viewed entirely. That’s simply how reflexive these markets are.
What charts don’t tell you about Web3 gaming
People are frustrated that we haven't gone mainstream yet with Web3 games. It’s natural — we have seen billions poured into space and haven’t hit a home run yet. But what we have to realize is that building games and building Web3-enhanced games are two very different things.
Carlos Pereira, a partner at BITKRAFT Ventures, said it best: “Building Web3 games is like building an airplane while flying it, but you also have to figure out where you’re going and how you’re going to get there.”
Unlike traditional game builders, Web3 builders have to deal with blockchain infrastructure, new user acquisition approaches, and a live token economy.
Constant iteration is needed to make the game more appealing while also adjusting the game economy. If things go out of balance, it can disrupt the entire project.
That said, Web3 gaming has made tremendous progress over the last few years on all fronts. Let’s explore some of the changes that indicate we are heading in the right direction.
Policy Change
One of the biggest hurdles for game builders was distribution. Apple and Google did not allow crypto games to launch on their app stores with full functionality. Developers had to limit certain features, and players had to pay a 30% fee on NFT sales.
Since then, we have seen a refreshing change in policy, with the Google App Store providing clear guidelines for developers to enable blockchain-based experiences. Even game launchers from publishers like Epic Games feature over 70 blockchain games. This shows that distribution and discovery are getting stronger.
Blockchain UX
For years, people complained that blockchain UX sucks, and rightfully so. Creating wallets, securing seed phrases, and signing multiple transactions — what a nightmare for a gamer! Fortunately, this onboarding and player experience has improved significantly.
Games are now using Web2 onboarding methods with social logins. You can connect your Gmail or Twitter account to get started with the game. With account abstraction, developers can optimize the player experience and remove entry barriers. For example, games are sponsoring gas fees for players. Additionally, session keys allow the game to sign transactions on your behalf, providing uninterrupted gameplay.
https://x.com/argentHQ/status/1806336016455762359
Outside Validation
70% percent of top Web2 game studios are exploring Web3 and allocating significant resources and capital to start new ventures, according to a report by Helika and Pantera Capital.
These are not companies that pop up during a bull market to ride the wave. It is too risky for a gaming giant with billions in revenue to step into a new, unproven landscape. However, the opportunity cost of being left behind is even riskier.
The creators of FarmVille, Zynga, are building an original IP called Sugartown. They have launched two mini-games and NFTs called Oras so far. Ubisoft is also betting big on Web3 with its own title, Champions Tactics, a tactical RPG. Many other top studios are launching Web3 ventures, including Neowiz, Krafton, Netmarble, Nexon, Bandai Namco, and Square Enix.
New Metas
We have seen multiple new metas take form in Web3 gaming. First, we saw the play-to-airdrop (P2A) meta, where games create campaigns, similar to points programs, to reward players and speculators alike.
A well-crafted P2A campaign has increased project revenue and sustained player engagement even post-airdrop. We saw this with a game called Kuroro Beast, which made $250k during its P2A campaign.
Recently, Pirate Nation concluded its initial airdrop campaign, and players received good rewards. The NFTs associated with these campaigns usually drop in value after the airdrop, but in this case, they actually hit a new all-time high (ATH).
Secondly, we are seeing a growing number of projects being built at the intersection of AI and Web3 gaming. AI offers more immersive experiences for games, helping with retention and player engagement. Some notable projects include AI Arena and Parallel’s Colony.
Lastly, we are also seeing new metas on a technical level. Games are now launching their own chains using L2s and L3s with different blockchain stacks like Arbitrum Orbit, OP Stack, Avalanche Subnets, etc.
Recipe for success in Web3 gaming
Games are hits-based, so most projects fail. In Web3, it is even harder as there is no proven playbook yet. However, certain ingredients help projects stand out in a rapidly growing market. Let’s dive into what they are by looking at a project that’s been making waves with an exciting rebrand: Zentry.
Grand Vision
Web3 unlocks novel game economies and experiences. Therefore, a project’s vision shouldn’t be doing the same things as Web2 games with Web3 integration. What makes Web3 games special must stand out, meaning game economies must play a big role in gameplay.
In Zentry's case, the vision is to create a Metagame layer that encompasses a game of games unified by a one-play economy. With Zentry’s vast partner network, their world will feature many IPs, offering players exciting activities at all times.
Several game publishers are building the games. They recently acquired the Maxion studio and announced that the first IP will be Ragnarok MMO. As these games exist within the same ecosystem, there are so many exciting possibilities for collaboration and to unlock new player experiences.
Zentry’s Radiant product will be the gateway to these games, where players can quest, trade, and fight. The games can be Web2 or Web3, and the platform can be accessed on mobile, browser, etc.
The games are the beginning of a larger adventure that Zentry aims to build. One of the main products is Nexus, Zentry’s social gateway. They are trying to transform social interactions into new gaming experiences across Web2 and Web3.
Nexus users are rewarded with Nexus shards based on their social interactions. The goal is to bring all types of content creators into crypto.
Besides gaming and social, Zentry is also tapping into AI agents with a product called Azul. Azul will help elevate gameplay and make other activities inside the Zentry universe immersive and productive.
Radiant System
Robust Treasury
In gaming, especially Web3 gaming, you need multiple shots at the goal, and that requires capital and resources to iterate. Many teams raise money with a grand vision but abandon the project in a year or two. This is because projects haven’t raised enough capital and don’t generate revenue from their treasury in a sustainable way.
This is where projects like Zentry stand shoulders above the rest of the Web3 gaming space. Zentry has over $150 million in treasury holdings, comprising stablecoins, ETH, seed and strategic investments, and NFTs. They have built this war chest by creating sustainable growth through staking and yield farming. Zentry expects to make at least $10 million from yields alone.
What’s even more impressive is that they actually did the first TGE in 2021, close to the end of the previous cycle. Despite this, they managed to survive only through the 2022 bear market, but they also grew their treasury. Most teams in similar situations simply paid themselves big salaries and bonuses, time-rugged the project, and eventually went off to some remote island, leaving their community in tatters.
If they can survive 2022 in the way they did, they can survive anything.
Incentive Alignment
Aligning incentives with your community of users is crucial for the long term. If rewards are not given to the right people who are adding value to the game, the game can eventually break.
With Zentry, users are rewarded in a meaningful way with long-term alignment in mind. The incentives depend on how much value the user is adding to the Zentry universe. Token holders will get a piece of the revenue Zentry generates, which was not the case when it was GuildFi.In addition, there are additional sources of rewards, such as users' being able to restake their staked ZENT or stZENT with Sophon to earn additional yield.
Compounding Narratives
Some of the best-performing projects in gaming this bull cycle have had compounding narratives that helped capture the attention of diverse audiences. This changes how people view the project and raises their expectations of what’s possible.
At the same time, this doesn’t mean a project should hop from one narrative to another. Building at the intersection of multiple hot narratives should be complementary and bring the project closer to its larger goals.
Zentry is one of the projects that people see and think about beyond a single game. They have a game publisher onboard to release multiple games that comprise a significant part of the Metagame layer. T
hey invest across the ecosystem, giving users exposure to some of the best projects as the value is driven back to token holders. They use AI agents to improve gameplay and other gamified experiences inside the Zentry Universe.
Most importantly, as the game of games, they provide efficient interoperability between multiple games, the digital and physical worlds, as well as the Web2 and Web3 worlds.
All of these different narratives open up interesting possibilities for Zentry that can be pivotal in moving the space forward.
Closing thoughts
When done right, Web3 and gaming make the perfect marriage. One example is Zentry. With a massive treasury and a sustainable revenue strategy, it is well-positioned to keep innovating on the Metagame layer and onboard the next wave of retail users.
The same applies to the entire space. Projects with enough capital to iterate multiple times, embrace crypto-powered economies, and ensure long-term incentive alignment stand a chance of creating a mainstream hit title.
However, it is highly unlikely that creating a Web2 clone and adding some Web3 elements will work. So, we have to be selective when choosing which horse to bet on.
In conclusion, games are going to be one of the most important consumer-facing apps in crypto. Many games have recently gone live, and many more are ready to launch in the coming months. Don’t let this chopfest get to you; see the bigger vision of Web3 gaming.
