Blockchain gaming started to make a splash back in 2021 with Axie Infinity and the coining of the (problematic) "play to earn" concept. Sure, Crypto Kitties started in 2017, but it's really projects like Axie Infinity or The Sandbox that have offered a first visualization of what blockchain gaming could look like.

Gaming quickly had to deal with the same struggles that exist in the blockchain space: value production (the product) Vs value extraction (the token). The token and the product need constant balancing: If you lean too much into the token without a solid and compelling product, your token launch will likely end up in a pump & dump pattern, but if you lean too much into the product and don't work on your tokenomics, you might fail to create liquidity and attract investors interested in that space.

In this blog post, I will first go over some evolutions of the gaming industry and see how they have shaped it. I will then try to demonstrate why blockchain is not the game changer many hoped it would be for gaming, but also why it is necessary that it succeeds and becomes mainstream. Last, I'll explain the current crisis the gaming industry is going through and share why I think there's hope.

A short history of gaming

First, I want to go over some of the main evolutions of gaming through time and how they have impacted game designs.

1. Arcade gaming

   Arcade gaming was king in the 70s & 80s. You had to go out and you had to pay for each play session. The game design of arcade games had to be built with these constraints in mind, but also had to be thought to maximize the probability someone would keep inserting coins to play the game.

2. Home PC & console gaming

   When PC & consoles started entering homes, it was like having an arcade machine in your living room! Once again, the game design had to adapt, because early consoles were drastically less powerful than arcade cabinets. There was no need to think about people spending coins, so you had to rethink the difficulty balance. Lastly, the controllers were also different: hand size controllers for consoles, mouse & keyboards for PC. Game developers had to adapt and build games accordingly.

3. Handheld gaming

   Rapidly after home consoles, handheld devices started to appear, with the Nintendo Game Boy leading the way. Once again, this new hardware led to game design modifications: handheld gaming devices had smaller screens, less buttons, and a limited battery capacity. The gaming experience had to be thought with these parameters in mind.

4. Online Gaming

   The birth of Internet saw the development of online gaming. This gave birth to genres such as mmo-rpg, defining new game designs in the industry. This also opened the door for new business models: if your game is entirely online and you can update it indefinitely, you need to have a recurring subscription model, because a one time fee is not going to cut it.

5. Mobile gaming

   With Smartphones, now you had a device that's always in your pocket, and that you can also use as a handheld gaming device. The main difference was that you didn't have buttons. Instead, you needed to tap your screen to play games. This gave birth to new game designs and also to new business models, such as free to play, that also had a tremendous impact on game design themselves.

What about blockchain gaming?

I wish there was a "6" added to the list above, but as much as I want to believe, so far we haven't seen new groundbreaking game designs that were linked to a blockchain architecture. And for a reason: blockchain is fundamentally a backend technology. Most of the meaningful gaming evolutions have happened through hardware & frontend evolutions, not backend evolutions (outside of online gaming). Hardware has been more important because of 2 things:

• The increase of computing power allowing better gaming experiences came in the form of new hardwares.

• The way people interact with a game is also through hardware: a game controller, a keyboard, a mouse, a smartphone screen...

Now that you have cloud gaming solutions, you could argue that hardware matters less, which is true, but it's also because the improvement of games through sheer computing power increase has kind of plateaued. The experience on a Playstation 5 is great, but it's almost exactly the same gaming experience as with a Playstation 4. The industry is not asking for more computing power to bring its ideas to life: it can already do it.

The promises of blockchains on the other hand are are not in game design evolutions. They are in promises such as decentralization & true asset ownership. You might think that decentralization doesn't matter that much for gaming, but it just means you don't know the origin story behind Ethereum's creation:

Buterin has stated that he was driven to create decentralized money because his World of Warcraft character was nerfed:

I happily played World of Warcraft during 2007–2010, but one day Blizzard removed the damage component from my beloved warlock's Siphon Life spell. I cried myself to sleep, and on that day I realized what horrors centralized services can bring. I soon decided to quit.

(Source)

Decentralization is the kind of thing that only matters when troubles arise. It's like an insurance: most of the time you don't need it, but for the few times you do need it, you REALLY need it. Since we can't have "intermittent decentralization", turn it on & off with a switch, this means we need it permanently because we already know that at some point, in some games, there are gonna be troubles that could be solved had the game been decentralized.

The other promise is in assets ownership. Players spend billions of dollar per year into gaming purchases (184 to be precise), and most of these purchases are actually made to acquire in-game content: packs of digital cards, equipments for your hero etc... In the current traditional gaming landscape, all these assets belong to you the game publisher. Although you've paid real money for them, if you decide to leave the game, you cannot resell the assets you have acquired or transfer them. You bought them, but they don't belong to you. Blockchains change that. Now when you play a game onchain, you own every asset you purchase and are able to sell them or exchange them for something else. Players are finally able to share in the value that is created around games, and that's a huge improvement compared to the current state of things! So why isn't blockchain gaming taking off massively already?

The seeds of discord

The blockchain space has a problem. It's not unique to the gaming vertical, but it particularly hit the onboarding curve of gamers. This problem has a name. It's called "tokens". Tokens are like stocks on steroids: They're liquid immediately, know no restriction regarding trading and their trades settle almost instantly. The comparison with stocks stops here though, because owning a token doesn't mean you own a share of the product behind the token and you're only entitled to what the project has promised you upon buying this token, which ranges from "nothing" to "revenue share and governance rights".

In a world where people believe they have a higher probability to make money by investing & speculating than by working hard at a 9 to 5 job, we see the following speculative cycles:

1. Project A builds hype => issues a token => token pumps

2. Project B builds hype => issues a token => holder of token A sells at profit to buy token B => project B pumps

3. Project C builds hype => ...

This is why we glorify "getting in early", because this is the behavior that offers the highest returns. It's incredibly easier to make a x100 on hype and projections rather than on actual delivered results. Because of that, the blockchain space is plagued with capital moving at a furious speed and in a predatory manner, trying to get in on projects as early as possible, get out at the optimal timing, and repeat this early value capture process with absolutely zero consideration for the product. It also works as a very strong financial incentive for builders to start something new Vs growing an already existing project.

And so why am I mentioning all that? Well, gamers have noticed this. Heavily helped by mainstream media's negative relay of events happening in the blockchain space. They have also seen first-hand what happened to the assets related to early blockchain games: inflated prices, crazy speculation, and people getting interested in these games to just farm them.

This has reinforced an hyper-financialized image of the gaming industry that had materialized because of 2 concurrent phenomenons:

• The players exhaustion after more than 10 years of free to play business models and the normalization of DLCs, giving the impression to players that big game publishers were trying to milk them constantly.

• The very beginning of a video game crisis, with studios having to shut down, M&A going full throttle and many people getting laid off. This once again gave the impression to players that game companies were now only driven by financial results maximization.

When you think about it through that lens, it's only natural that gaming industry workers & players alike saw gaming tokens & NFTs as a way for big corporates to milk them even further, totally missing the decentralization benefits blockchains were bringing.

The video game crisis

I have to give some credits to the players discontent though, because some of the early designs and narratives for blockchain gaming were really bad. Coining a term like "Play 2 Earn", leading people to believe that you play the game to earn something and not for fun, really set the blockchain gaming space on the wrong track.

On top of that, you had poor initiatives from major game companies trying to dip their toes in the web3 industry. Poorly marketed & designed NFT campaigns, creation of in-game onchain assets that were completely irrelevant...These ingredients created the perfect mix for a massive reject from the gamers, which led to an almost equally massive reject from the industry itself, seeing that it was bad PR for them to try doing blockchain gaming. Gaming was going through a crisis, and this was not what players were hoping for.

So what is this crisis all about? There are multiple factors but to me there's one that is particularly strong: It's the shift from pay to play to free to play and consequently, the development of LiveOps Gaming, with games that basically never die. World of Warcraft for example has been around for more than 20 years now.

On mobile, Clash of Clan & Candy Crush are taking that spot. They have both been around for 13 years! And that's the case for a substantial amount of games in the 2024 top 50: Pokemon Go (9 years), PUBG Mobile (7 years), Brawl Stars (8 years), Township (13 years), Monster Strike (12 years). You want another interesting stat? On mobile, the top 1% of game publishers captures 93% of the revenue. Talk about power law distribution! Last bit of statistic for the road? The mobile game market represents 50% of the global gaming market.

So now you have the necessary data to lay down the problem:

In order to make money in gaming, you need to crack the top 1%. However, most of the games belonging in the 1% tranche have huge shelf lives, ranging from 5 years to 15 years. With a gross estimate of roughly 50,000 new games added every year, if you're building in that field, this means you have to compete against games that have "defeated" between 250,000 and 750,000 other games. In other words, 750,000 other games have tried to kick Candy Crush out the top 50 ranking to become profitable, and they all failed. Of course I'm overly simplifying things here, but it goes to show how difficult it is to be profitable in gaming these days for new entrants.

For this reason, a lot of gaming companies that have been chewing glass for the past 10 years have been looking for ways to mitigate their risk. Enter blockchain gaming.

The grant scheme of things

When a content distribution platform struggles to attract new users, it needs to acquire exclusive killer contents that will boost its audience. The upper hand is often on the side of the IP holders because If a company can distribute its content on all platforms, why should it choose to distribute it on one exclusively? The answer often is: money.

Struggling gaming companies saw freshly funded blockchain foundations as a way to mitigate the risk of building a game. Blockchain foundations started going after traditional gaming companies for their IPs. For struggling game companies, it was ideal because they would be able to try out a new space without having to bear most of the risk.

This approach was wrong for several reasons though:

• This created a mercenary "grant shopping" behavior where game companies would go from one foundation to the other, asking for how much money they're ready to give them.

• Making good games takes time, and there was no rush to reach out to big names. With 2020/21 basically being the era that put blockchain games on the map, it's only natural that we wouldn't have successful games right off the batch. Case in point with the last 2 years where we've seen mainstream success stories emerging like Sorare or Off The Grid.

• When there is an industry paradigm shift, it's never the incumbents who profit from it. Prime examples for this are companies like King or Supercell: pretty much inexistent before the respective birth of Candy Crush & Clash of Clan, they are now power houses of the mobile gaming industry. The same thing will most likely happen with blockchain gaming.

• The gaming landscape is extremely competitive. Investing in gaming requires a strong expertise. Foundations, who are not gaming investment experts, acting like investment arms distorts the natural selection process that's supposed to happen in free markets, since some games are allowed to survive just because they picked the right chain and got a grant.

Lessons for the future

This whole situation calls for doing things differently. When you're a newly funded blockchain foundation and you want to develop the gaming vertical of the chain you support, you can either choose to spend money on content or you can choose to spend money on users. Although it's usually the default go-to solution, spending money on acquiring content is not a successful solution for gaming & blockchains for the reasons mentioned previously. The other way to spend your money as a foundation is usually under-explored because less straightforward: spending money on users. I don't mean actually giving them money. I mean spending money on the people that will build the community and on the initiatives that will get the community together. Getting people to know the product, understand it, love it, and become part of the community long term is orders of magnitude more important for the chain than sheer content acquisition.

Everybody wants eyeballs on the internet. Attention is the new currency. If you manage to foster a community that wants to see the chain's ecosystem succeed, you have done half of the work, because projects considering building on the chain will know that they'll have a user base to start from. They'll see the dedication, the engagement of the community online, and will want to use this to solve the cold start problem.

As far as I'm concerned, I'm glad I've joined a foundation who understands that It shouldn't be a foundation's role to bear the financial risks for projects to succeed. This is the role of VCs and angel investors.

Moving forward, blockchain games will have to fight on the same plane as non-blockchain games. The only thing that matters for gaming is, "Is your game fun or not?". Case in point once again, although Axie Infinity managed to become an actual source of revenue for many people during the first blockchain gaming boom, it eventually declined. Once the assets price craze died down, people stopped playing the game and started saying it's because it just wasn't fun enough.

In a way, blockchain for gaming, which comes through the angle of true asset ownership, is akin to User Generated Content (UGC): It's interesting, but people will only care and engage with it if the underlying game is fun. They have to have a reason to want to own the asset. No tokenomics will ever make up for the lack of fun.

Closing thoughts

Gaming is now a mature industry that's going through a deep crisis with a double narrative:

• Creativity exhaustion.

• Business Models issues.

I am not sure I can articulate clearly where the end of the tunnel is going to be, but there is going to be an end to this crisis. Gaming is now the number one cultural industry. I believe that just like with other consumer industries, blockchain will become the default technology supporting these products because it's just better. For years, blockchain wasn't able to compete with classic web2 solutions because it was too complex, too slow & too expensive, but we're now reaching thresholds that put the performance of certain chains on par with what's required from a consumer product perspective. A lot of work has also been done around abstracting the blockchain, and it's now possible to have a user experience onchain without noticing that you're actually interacting with the blockchain.

Gaming too, will come around. We'll need to convince players first. We'll need blockchain gaming success stories that are compelling, last in time, and have a strong cultural impact while in the meantime not solely relying on traders speculation for revenues. It's extremely difficult because the gaming space is so competitive, and the blockchain space is full of speculation. But we'll get there. And at the Monad Foundation, we're here to help you take a shot at it.