Setting the Stage
In the previous article we have explored the rise and fall of the first wave of on-chain gaming by focusing on the core concepts and mechanisms that led to its demise. If you haven't read it yet, it’s best for you to check it out before reading any further. It would give you the necessary background knowledge as to why the lessons discussed here are of such huge significance.
You can find the article here - The First Wave of On-Chain Gaming - Recap
Now, let us dive deep into the lessons learned from the first iteration of web3 games and identify the solutions necessary to bring back blockchain gaming in its full glory.
Tl;DR
- Changing economic paradigm based on cryptocurrency projects
- Leaving no space for Mercenary Capital
- Focusing on quality competitiveness
- Introducing proper monetization
#1st Lesson - Faulty Economy
When creating a game, the first and most crucial consideration is establishing the in-game economy. In the early days of web 3 gaming, inspiration was drawn from the cryptocurrency industry to shape in-game economies. Models similar to those used in the world of digital currencies were adopted. This led to the widespread use of token-based systems, where the primary objective was earning in-game currency, such as tokens. While this approach made it easy to attract new players and generate revenue for the game and its creators, it ultimately proved to be a limited perspective, contributing to the downfall of many web3 games.
From the outset, games have often employed a strategy of initially limiting the availability of resources to encourage player engagement. This approach closely mirrors a concept well-known in the web2 gaming world, referred to as the "Soft & Hard currency model." In this model, players are provided with in-game currency that gradually loses its value over time, mainly due to inflation, which essentially drives the entire in-game economy.
In the context of web3 games, the soft currency took the form of tokens created within the game. These tokens were intentionally inflated to maintain player engagement and attract mercenary capital looking to capitalize on short-term hype driven by financial speculation. As a result, token holders found themselves in a situation where they needed to either spend their earned tokens or invest them to ensure continued profitability over the long term. Furthermore, we often see the introduction of the primary incentive for engaging in the game, which is the promise of financial rewards. The introduction of financial incentives is not necessarily a bad choice, as many forms of competition often rely on such rewards. However, when the in-game economy prioritizes financial rewards for participants over quality gameplay and competition, it becomes a tempting target for various groups primarily focused on extracting value, gradually undermining the gaming experience.
As the game progresses, the gap between incentives and value widens, leading participants to shift their focus towards speculation, while the game's appeal diminishes concerning risk and reward. This situation results in only a handful of individuals who genuinely remain interested in the gameplay, as value extraction and speculative behavior, stemming from this misalignment of incentives, dominate the landscape.
To recap the major problem in one sentence: on-chain games were just another form of altcoin projects disguised as games, with the target audience being market speculators and not gamers themselves.
#2nd Lesson - Mercenary Capital & Value Extraction
The second lesson is closely connected to the first, as it addresses the influx of mercenary capital driven primarily by the desire to maximize profits before moving on to the next promising project. Recognizing that misaligned incentives and poorly designed economies are the core issues that attract speculation, it can be inferred that the majority of users in the first wave of web 3 gaming were primarily motivated by financial gain. This heightened the negative response from the traditional gaming world, as only a small number of individuals were genuinely interested in playing games built on blockchain technology. This approach is not only detrimental to the game itself but also creates an unfavorable situation for genuine players and creators who are truly committed to shaping the future of gaming. As highlighted in Delphi Digital's Gaming Report:
“[...] it seems that many of the “players” in the current crypto gaming space are mercenary in nature. Just like yield farming, users appear to be attracted to where the incentives are strongest instead of a genuine passion for the games on offer."
While gaming guilds don't necessarily have to be driven by profit-seeking motives, they have evolved into central hubs for mercenary capital, further emphasizing the idea of value extraction. It's essential to recognize that the original concept of gaming guilds is not inherently linked to extracting value; rather, the mercenary approach is a result of misaligned incentives. Guilds can, in fact, play a vital role in enhancing the incentives within specific gaming economies, serving as places where players can come together to elevate their game mastery and competitiveness.
Just as professional players and teams have risen to prominence in the world of esports, guilds can serve as the catalyst for the competitive evolution within the web3 landscape.
#3rd Lesson - Quality Competition
The ultimate lesson revolves around the overall gameplay, which had little, if anything, to do with genuine competition at the heart of multiplayer gaming. In the initial phase of web3 gaming, there was often a disconnect in merging the realms of gaming and blockchain. The prevailing assumption was that cryptocurrencies and their mechanisms had to be integral, which, as we discussed earlier, led to the problems we've outlined. This created a flawed foundation on which the first wave of on-chain gaming was built, dooming it to failure.
When we examine on-chain games like Axie Infinity, DeFi Kingdoms, or STEPN, we can easily spot mechanisms where financial investment can influence the final outcomes. In Axie Infinity, this often meant acquiring more expensive creatures (Axies); in DeFi Kingdoms, players could purchase more desirable lands, and in STEPN, it revolved around owning sneakers with superior boosts, which came at a significantly higher cost than average ones. These hidden Pay-to-Win mechanisms became the accepted standard that nobody seemed to question, as they proved to be highly profitable for both mercenary capital and game developers.
However, these Pay-to-Win systems effectively impeded the organic growth of in-game competition by shifting the rules of competition from skill-based game mastery to another iteration of financial market games. Consequently, the environment transformed from one that welcomed players who sought healthy competition and new gaming experiences to one overly focused on extracting value, unwelcoming to those seeking entertainment. Instead of embracing the new frontier of gaming, players found themselves in a world of market-driven games orchestrated by seasoned mercenaries.
The competition was flourishing among mercenaries and not among skillful players, which led to the demise of games once the value extraction practices ceased to be profitable.
#4th Lesson - Monetizing Competition
Another issue closely tied to the failure to provide quality competition for players is the emulation of cryptocurrency economies, which not only attracted mercenary capital but also lacked adequate monetization methods that could, at the very least, reward players uninterested in engaging in value extraction schemes. The implementation of Pay-to-Win mechanisms effectively limited monetization to extracting value by spending fiat or cryptocurrency assets on in-game items that could be either sold at a higher price or generate higher returns over time. For instance, players could lock a specific in-game asset in exchange for a yield paid in a game token that could then be sold on the market. The primary emphasis was on locking tokens or in-game items to extract value in the form of a game-specific token, contributing to overall selling pressure and in-game currency inflation.
This situation left little opportunity for players who aimed to monetize their skills and earn tokens purely based on their game proficiency. Regardless of how hard someone worked, it was nearly impossible to compete with players who had invested their real-world money to boost their in-game earnings, granting them a value extraction efficiency hundreds of times greater. Essentially, while one player might have to win a hundred games to accumulate a certain number of tokens, another player would only need to win a single game to achieve the same returns. This recurring pattern was widespread in most games created during the initial wave of on-chain gaming and continues to be a prevailing model even today.
That is why one of the core components of Elympics is the focus on monetization via skill and game mastery, which you can read more about here - Paid Competitive Gaming.
Final Words
The first wave of on-chain gaming sparked interest because of its value-extracting mechanisms that attracted mercenary capital, causing a significant surge in attention and positive sentiment as valuations skyrocketed. However, this approach was a short-term strategy with a mounting long-term risk of failure. Drawing from the experiences and insights of the first wave of on-chain gaming, we believe that the world of blockchain gaming is emerging from the challenges it faced to become what early on-chain games aspired to be. The future looks promising for those who learn from the past and apply the lessons to create a brighter tomorrow.
One day, blockchain technology will become an integral part of every data processing system worldwide, and gaming stands at the forefront of this transformative evolution.
