From what I’ve encountered in my research, gaming related NFTs fall into the following categories:

1. Profile Pictures

2. Tradeable Game Assets

3. Non-Tradeable Game Assets

4. Composable Game Assets

5. Character as a NFT

Before I start, I want to make it clear that these categorizations have some overlap. For example, some profile pictures might also be tradeable game assets, but for sake of explanation, I’m trying to make some generic categorizations.

The more I research and explore gaming-related NFT collections, the more I feel equipped to answer the web2 criticism: “Do NFTs have any utility? They’re just profile pictures.” The fact that I had to research many hours to get to some of these answers makes it clear that it’s not obvious - even to those who are active in the web3 space.

The way I figure these things out are by simply diving into every Discord I can, going one-by-one through every gaming collection on OpenSea, and talking with other onchain game devs here.

Pricing profile: $$$

Trading Volume: Low

Activity: Peak at launch and then fade to almost nothing

Incentive: Buy early and hold for use in games at a later point for extra perks

This category is the most obvious of them all and is even know to the web2 world. To be honest, profile picture NFTs are the only thing people think about when someone says NFT. To be explicit, profile picture NFTs are collections of chest-up headshots of characters or people.

There are a wide range of uses for profile pictures with the most obvious being… a profile picture that you can use all throughout social media or as your Ethereum Name Service (ENS) picture. By putting your profile picture as an NFT collection, you are signaling to everyone that you encounter onchain that you are deeply ingrained in that NFT collection’s culture. If you are using a gaming NFT, people will know that you love that game. If you are using an art NFT, people will know you are interested in the art space. Again, this is pretty basic stuff, but it’s also the most common form of collection, so it’s worth spelling out.

Some perks of having these profile picture NFTs that go beyond the obvious are:

• Exclusive access to chats

  • networking

• Exclusive events

  • Alpha or beta access

  • Mints

  • Airdrops

• In-Game Benefits

  • Exclusive cosmetics

  • Boosts in experience or loot

• Governance in DAOs

Overall, the perks of profile picture NFTs tend to circle around social aspects - networking, governance, and exclusive group chats. There’s nothing saying you can’t have a NFT of a landscape with the same perks listed above, but it appears that NFT collections that resemble a person tend to have perks associated with the social aspect of being human.

Pricing profile: $

Trading Volume: High

Activity: Constant

Incentive: Buy, Sell, and Trade

Tradeable gaming assets are in-game items that are used to build wealth, power, and also to show off status with cosmetics. For example, these assets would be used in an in-game marketplace like World of Warcraft’s auction house. There are trade goods to build wealth, weapons and armor to increase power, and cool looking pieces of clothing for cosmetics.

Compared to profile picture NFTs, these assets are infinitely cheaper (besides the rarest and most powerful items). The goal of these assets are not to make money off insanely high prices at the launch of the collection, but to encourage everyone to buy and trade constantly, every day. A great example of this is Pirate Nation’s “Items” collection seen below. These are all every day items the player would buy and trade without much financial impact - this is key because finances kill the fun for most gamers. If you can make the cost negligible, then the focus comes back to the game, not worrying about whether or not you are going to make a return (unless your fun is playing the in-game auction house). When looking at the Pirate Nation Item collection, you can see there’s hundreds of thousands of items available for purchase under once cent.

On the topic of lowering NFT prices to below one cents, I think it may be lost on the web3 community that more money needs to go into an ecosystem than what goes out for the studio to make a profit. If we’re not trying to design pyramid schemes like 99% of crypto, then we need gamers to pay money for fun. If they are constantly thinking about the cost, they won’t spend as much money. We want people to spend more than they earn… like most businesses? I can hear someone say, “Well what about gambling? That is all about the money and that’s fun!” My answer is that crypto right now is full of degens who love to gamble, but that’s not what true games are about.

Gambling ≠ Video Games

True games are about bringing unique worlds into existence where people can be free to explore and interact in ways that are not possible in the physical world. It’s about creating engaging combat, stories, and art all in one. It’s about blowing people’s mind when it comes to what’s possible with an infinite imagination! So, let’s stop making web3 games about money all the time. If you look at web2, you can see how a focus on money (micro-transactions) has really put a damper on many people’s view on games. Many beautiful games have been ruined by emphasizing money over gameplay, story, art, and community.

Am I against the idea of play-to-earn? Yes and no. I am against the idea that everyone can make money playing. More money needs to be spent than earned for the game studio to be in business. However, I do believe a much higher percent of people will be able to call gaming a full-time job compared to web2. In other words, the effort needed to be a professional, full-time gamer (streamers, modders, and esports) will be much lower than web2. But I don’t think common sense would allow for everyone to make money without people spending money. This is the same point I made above about pyramid schemes.

Anyways, back to the point of this article :)

Pricing profile: $$$

Volume: Medium

Activity: Whales buy up all land and hold (plenty of room for innovation here)

Incentive: Buy and use in-game for extra benefits

Now since this whole article is about NFTs, I realize that they are all inherently tradeable, but I’m attempting to categorize the assets from the in-game perspective. I’m defining this category of NFTs as something you minted or bought outside of the game, but are not able to trade in-game. The most common version of non-tradeable game assets would be pieces of virtual land. Below you can see versions of NFT land from Pixels.

These assets are used in-game, but are not usually tradeable in-game. Non-tradeable game assets like land tend to have added bonuses to them like a percent share of revenue generated from farming on that land. Because of this, they tend to be more expensive than tradeable game assets… much more expensive. These types of NFT collections are similar to real estate, or other forms of capital in the real world cost more, but have an opportunity to yield better results than without.

Pricing profile: $

Volume: Low

Activity: Used by other developers to build on top of (open-source)

Incentive: Buy and hold as long-term visionary. Many are free to use in projects even if you don’t own the NFT.

This category of NFTs involve using the NFT as building blocks of a game. In web2, Roblox, Fortnite, and Minecraft give the players the ability to use the game’s assets to create other games. This is commonly known as User-Generated Content (UGC) because it’s the users who are building new games, not the game studios. In fact, whole gaming studios have formed to build games within Roblox, Fortnite, and Minecraft. It’s a pretty big deal in web2 and is commonly referred as a form of the metaverse. This same concept has evolved in web3 with composable NFT game assets. While not as mature as their web2 ancestors, they allow much more creativity because they are usually Creative Commons 0 (CC0) which means anyone can do anything with the assets. The concept of openly allowing developers to use composable game assets outside of any specific ecosystem (Fortnite assets must be used within Fortnite) brings up many questions like, “How do you control quality, lore, and inappropriate uses of the assets?” I don’t think I have any insights on this just yet, but remains a very interesting problem to solve. If you have any ideas, please post your thoughts in /delegati.

The most famous example of composable game assets come from a project called Loot:

Loot is a collection of NFTs that anyone can use in their games without permission. This concept is what makes it a composable game asset. You can read more about it here. Loot has also spawned an ecosystem of builders developing composable games at Realms.World. These games share assets and lore with each other - some of it from the Loot project and some of it from Realms’ own projects.

Again, this idea that anyone can use your intellectual property (IP) with composable assets doesn’t always sit right with everyone. A common critique is that people will destroy an IP, like World of Warcraft or Star Wars, by adding it to any stupid game. This would dilute the value of the IP and make it worthless. This argument is valid, but there are valid counters to it. For example, a mod of Warcraft III (WC3) gave birth to two of the biggest games in modern history: Dota2 and League of Legends. Also, PUBG was a mod of Arma2 and PUBG was the inspiration behind Fortnite. All of those are massive games. So the counter to giving up IP is that people will find a way to create mods from your game anyways, so why not explicitly encourage it and be a part of it instead of fighting it? (This ties back to the point of web3 legitimizing grey-market activites like modding for money). Imaging if instead of Blizzard fighting the creation of Dota2, they were a part of the creation process in collaboration with the modders and got a piece of the pie? Blizzard obviously made a mistake here - they even tried to create a version of Dota2 many years later with Heroes of the Storm… which saw no success and is no longer being developed.

Pricing profile: ???

Volume: ???

Activity: ???

Incentive: Aggregate value for a specific character opposed to a wallet, which allows trading of that character and everything it has earned.

Characters as NFTs are when NFTs can act as an identity onchain - trading tokens, engaging with dapps, and holding other NFTs. The technical term for this is ERC-6551, which is adds smart contract functionalities to NFTs, making them capable of owning assets, interacting with applications directly, holding tokens and working as an on-chain identity (source). This is also known as Token Bound Accounts (TBA). I believe this is an extremely important piece of functionality because this is how characters in games will be created in the future. You will no longer attach game assets to your wallet, but to your character that’s in your wallet. This will allow for much better categorization and UX.

Characters in games wear armor and weapons, but how do we associate these NFT items with the character if the character is a NFT? Token-bound accounts enable this functionality by allowing your NFT character to own other NFT items. Why is this important? One use case would be if you want to buy or sell your NFT character that you’ve spent hours on, but no longer want to use. With TBAs, you can sell your character and everything that’s associated with it (gear, gold, mounts etc) gets automatically transferred as well.

The concept of selling geared accounts is not a new thing, people have been doing it forever, but this legitimizes the process onchain. In web2, one could sell an account and then retrieve the password after the sale is complete - in other words, scamming. But with selling character TBAs, the transaction is guaranteed and verifiable onchain. The concept of legitimizing grey-market aspects of gaming will be a major selling point for onchain gaming in my humble opinion: selling accounts, selling characters, selling gear, selling services, selling bots etc. There’s a lot to explore in that space - dm me and let’s jam on some ideas?

But I want to hear your opinion on all of these topics too. Join the Delegati and get access to the exclusive group chat where we discuss these articles.

We also have a Farcaster channel where you can post freely. Post your thoughts on this article there!