Web3 games don’t need to lure players with profit – TechCrunch

Top crypto VCs keep highlighting 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 firm’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” by people to web3.

Axie, the highest profile play-to-earn video game, suffered one of the biggest crypto heists to date in March when the North Korean hacking organization Lazarus Group drained ~$625 million from the game’s Ethereum-based Ronin sidechain. Since then, the crypto markets as a whole have gone through a severe price decline and a subsequent recovery in the last month. So where does that leave web3 gaming and the play-to-earn business model?

TechCrunch spoke with Justin Kan, co-founder of Twitch and more recently, Solana based game NFT marketplace Fractal, to get his thoughts on what it will take for this sub-sector of web3 to live up to the hype. Can say that web3 games have a long way to go – while there are approx 3 billion players worldwideincluding those who play mobile games, he noted, far fewer have purchased or interacted with any form of blockchain-based gaming assets.

May sees this gap as an opportunity for blockchain technology to fundamentally change how 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 games were built in response to the success of games like Fortnite that were able to unlock a lucrative monetization avenue for game studios through microtransactions from users purchasing custom items such as outfits and weapons. Web3 game developers hope to take this vision a step further by enabling players to take their custom digital assets between different games, turning games into an interoperable, immersive ecosystem, Kan explained.

Kan has made about 10 angel investments in web3 gaming startups, including in the studio behind NFT-based shooter BR1: Infinite Royale, he said. Still, he admitted that building this interoperable ecosystem, which he sees as the future of video games overall, doesn’t require technical blockchain technology at all.

“Blockchain is just the way it’s going to happen, I think, because there’s a lot of cultural momentum around people equating blockchain with transparency and trust in things that are decentralized on the blockchain.”

The vision of interoperability has yet to be realized in the traditional gaming world, because many established studios are loathe to encourage third parties to build on top of their APIs, Kan said. He attributed their reluctance to an “innovator’s dilemma”, where large gaming companies with business models that already work are hesitant to take new risks.

Players, however, seem to value the transparency and financial participation offered by blockchain-based startups, Kan said. Still, he added, the appeal of an open gaming ecosystem is more about principle than it is about making a living.

“I actually think people are equating NFTs and games with this play-for-earn model where people make money and do their jobs [by gaming]and I think it is completely unnecessary,” Kan said.

“Having digital assets in the game can work and be valuable even if nobody is making money and there is no speculative appreciation or price appreciation of your assets,” he added.

It is common for popular games to attract new development on top of their existing intellectual property rights. Kan shared the example of Counter-Strike: Global Offensive (CSGO), a video game where custom “skins” have sold for as much as $150,000 each.

“I funded a company that builds on top of the CSGO shells,” he said. “CSGO changed the rules of what was allowed and actually confiscated over a million dollars from this company – so yeah, I don’t want to build on top of these non-open platforms anymore.”

Many prominent studios disagree with Kan’s thesis that an open gaming ecosystem that monetizes through 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 that it would not support NFTs on its platform, citing concerns about the “speculative pricing and investment mentality” in web3 and arguing that NFTs would go against fostering an inclusive environment for players.

Despite drawing the line at NFTs, Minecraft currently monetizes microtransactions in its in-game marketplace. The decision leaves existing companies that were already selling Minecraft-based NFTs and developing games to make money using open source code.

May sees blockchain-based games as just a “more financially immersive” version of the marketplaces that already exist in video games. However, he doesn’t think users will flock to blockchain games just to make money.

“Play-to-earn became associated with people doing this kind of rote, menial work in third-world or developing countries,” Kan said. “I don’t particularly think the model is sustainable, so I think interest will wane.”

Instead, he believes the growth of web3 games will be driven by developers building genuinely fun games on the blockchain rather than focusing on creating financial incentives under the play-to-earn paradigm.

“I think web3 games are just more open and say that instead of this being a black market, we’re going to make this a real market and people’s financial participation will vary to different levels. There’s going to be people who just play the game and never buy things with money there are going to be some people who make some side money because they are really good at the game and they get some things in the game they sell [or trading].”

Can predict that the space will develop in the same way that mobile gaming did, with a handful of startups taking off at the start. Their success will inspire major gaming companies to leverage their existing IP to enter the fray “five years later,” despite their initial concerns about the technology, he added.

Still, the nascent blockchain gaming sector has miles to go before it can attract much attention.

“For this market to actually be large, it will require regular people who want to play games for fun to play these games. It doesn’t exist yet. I think most of the market today is people who are crypto natives,” Kan said.