Top crypto VCs constantly tout the potential of video games as one of the most compelling use cases for blockchain technology. Andreessen Horowitz partner Arianna Simpson, for example, who led the company’s investment in crypto game Axie Infinity, has given countless interviews citing the play-to-earn model as a key catalyst for attracting “hundreds of millions” from people to web3.
Axie, the most famous play-to-earn video game, suffered one of the biggest crypto heists to date last March when North Korean hacker organization Lazarus Group deflated ~$625 million of the game’s Ethereum-based Ronin sidechain. Since then, the crypto markets as a whole have experienced a severe price drop and subsequent recovery in the past month. So where is that with web3 gaming and the play-to-earn business model?
TechCrunch spoke to Justin Kan, co-founder of Twitch and more recently, Solana-Based Gaming NFT Marketplace Fractal, to get his opinion on what it takes to make this subsector of web3 live up to the hype. Kan said that web3 gaming still has a long way to go – while there are about 3 billion gamers in the worldincluding those who play mobile games, he noted, far fewer have bought or interacted with any form of blockchain-based gaming assets.
Kan sees this gap as an opportunity for blockchain technology to fundamentally change the way video game studios operate.
“I think the idea of creating digital assets and then taxing everyone for all the transactions around them is a good model,” Kan said.
In some ways, web3 gaming was built in response to the success of games like Fortnite that were able to unlock a lucrative monetization path for game studios through microtransactions of users purchasing custom items such as outfits and weapons. Web3 game developers hope to take that vision a step further by enabling players to use those custom digital assets across games, turning gaming into an interoperable, immersive ecosystem, Kan explains.
Kan has made about 10 angel investments in web3 gaming startups, including in the studio behind the NFT-based shooter Bravo Ready, he said. Still, he admitted that building this interoperable ecosystem, which he sees as the future of video games in general, doesn’t technically require blockchain technology at all.
“Blockchain is exactly the way it’s going to happen, I think, because there’s a lot of cultural momentum around people equating blockchain with openness and relying on things that are decentralized on the blockchain.”
The vision of interoperability has yet to be realized in the traditional game world, as many established studios hate encouraging third parties to build on top of their APIs, Kan said. He attributed their reluctance to an “innovator’s dilemma,” in which large gaming companies with business models that already work are hesitant to take new risks.
However, gamers seem to appreciate the openness and economic participation offered by blockchain-based startups, Kan said. Still, he added, the appeal of an open gaming ecosystem is more about the principle of the business than about making a living.
“I actually think people equate NFTs and games with this play-to-earn model where people make money and do their job [by gaming]and I don’t think that’s necessary at all,” Kan said.
“Having digital assets in your game can work and be valuable even if no one is making money and there is no speculative valuation or price increase for your assets,” he added.
It is common for popular games to attract new developments on top of their existing intellectual property. Kan shared the example of Counter-Strike: Global Offensive (CSGO), a video game in which custom ‘skins’ have sold for a whopping $150,000 each.
“I’ve funded a company that builds on top of the CSGO skins,” he said. “CSGO changed the rules about what was allowed and even seized over a million dollars from this company alone – so yeah, I don’t want to build on these non-open platforms anymore.”
Many prominent studios disagree with Kan’s statement that an open gaming ecosystem that monetizes blockchain technology is the future of the video game industry. Minecraft, one of the most popular games of all time, made waves last month when it announced it would not support NFTs on its platform, citing concerns about the “speculative pricing and investment mentality” in web3 and arguing that NFTs would run counter to promoting an inclusive environment for players.
Despite drawing the line at NFTs, Minecraft currently monetizes microtransactions on its in-game marketplace. The decision moves existing companies that were already selling Minecraft-based NFTs and developing play-to-earn games using the open source code.
Kan sees blockchain-based games as just a “more economically immersive” version of the marketplaces that already exist in video games. However, he does not think that users will flock to blockchain gaming to make money.
“Play-to-earn has been associated with people doing this type of routine, menial work in third world countries or developing countries,” Kan said. “I don’t really think the model is sustainable, so I think that interest will diminish a bit.”
Instead, he thinks the growth in web3 gaming will be driven by developers building really fun games on the blockchain rather than focusing on creating economic incentives under the play to earn paradigm.
“I think web3 games are just more open and say, instead of this being a black market, we’re going to make it a real market and people’s economic participation will vary at different levels. There will be people who only play the game and never buy things with money. There will be people who make some extra money because they are really good at the game, and they get some things in the game that they sell [or trading].”
Kan predicts that space will evolve in the same way as mobile gaming, with a handful of startups initially taking off. Their success will inspire major gaming companies to use their existing IP to compete “five years later” despite their initial misgivings about the technology, he added.
Still, the burgeoning sector of blockchain gaming still has miles to go before it can capture widespread attention.
“To really make this market big, it will take normal people who want to play games for fun to play these games. That doesn’t exist yet. I think most of the market today is made up of people who are crypto-native,” Kan said.
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