2020-21 was the biggest on-ramp for web3 games with a lot of capital pouring into this promising new opportunity. Now the markets have turned and low-liquidity is seriously testing the strength of every project in this space.
Most of the crowd in web3 today are seeing their first bear market. As this infant industry evolves out of mostly broken tokenomics, you must be thinking whether this is really a good space.
Of course, during a bull run, things are euphoric, but everyone snaps out during the bear. These are not necessarily bad times; great projects build or iterate during the bear. So if you see anyone hard at work now, they’re probably building something sustainable.
Whatever impression this bear market left on your mind, there are definitely some lessons to be learnt for both developers and end users.
Web3 Gaming should not only be get-rich-quick schemes. Yes, a lot of people make money, but a lot of them lose at the same time. Through great marketing one can leverage the hype around NFTs and other DeFi tricks to form a community around their project. This created the impression of ‘When Lambo’, ‘The Pump’, ‘The Moon’, and more such terms.
This has got to do with the difficulty of building a great project, the money-focused nature of crypto participants and the willingness of people to make ‘greater fools’ investment into degenerate projects. These factors will make scammy projects a short-term reality in this space.
However, through right education and a research oriented mind, we can easily tell a good project apart.
Web3 Gaming is also about great community economics. A great project will host a community that will create an exchange of real value: Time value, skill value, and not just Monetary value. Apart from a fun game of course.
The idea is to enable transactions between participants. We have seen corporations like Valve developing and creating an environment for their community members to exchange assets and ideas. But a web3 game has the tech to build that exchange into the game.
You may have invested into assets that are hyperinflationary. A lot of glamour can be wrapped around what’s essentially an infinite breeding/minting core loop. Such models can create short term income but are not sustainable. The concept of play-to-earn is bad for a community, it is not sustainable. At least not yet.
By now we should be able to tell the difference between a good and a bad game economy. Consider this: Valorent (Popular MMO) has a lot of daily active users. This is because it is a great game and a net spenders economy. This means that whatever money a user puts into the game is an income for the project. The income can be used solely to develop the game as the players do not expect returns from their spending.
If we let web3 games take the same amount of time to build a great gameplay, we will see great games with millions of active users. But the key in Web3 games is economics.
So will a web3 game be successful only if it has great gameplay and a net spenders economy? Mostly yes. What we’re trying to say is that if you are just able to open up a spreadsheet and calculate X hours = X amount of income, it is a net earners economy, which will eventually run out of money to pay out. The income in such projects is created through currency emission. This means that the project is constantly pumping tokens to the system to create that income. But this only works till the capital coming in from new users is more than the emissions. The moment that turns, the whole system comes crashing down.
The only way to generate real value from the economy is to provide real value into it. Value, as we explored earlier, is not just monetary value. There is time value, skill value and more involved. Consider three different types of contributors.
- Monetary value provider: Someone who is willing to invest into the economy.
- Time value provider: Someone who is willing to spend hours providing some value to the economy.
- Skill value provider: In an open economy, these would be the traders. They provide vital market liquidity to ease market actions for other players.
When all this value is utilised to serve all players of the economy, there is value transfer. For example: If you are willing to spend time, someone who is not willing to do that will pay you for it.
CropBytes is a great example of creating a platform for different types of players. With the launch of the upcoming service economy model, CropBytes will cover all different types of players. We will discuss the service economy in another blog.
Most web3 games that popped up during the last bull seem to have derived out of the degen DeFi stuff that we have seen. They pump a yield farm and create temporary high returns from all the capital pouring in. The prices shoot up, but you need to exit at the right moment because the system is not sustainable. Those who understand this, make the exit, dumping onto the new ones joining in.
This is not just a lot of Nay-Say. Unsustainable models like Axie Infinity and others were in many ways great for the industry. They did manage to raise a lot of capital and onboard millions of users to Web3 gaming. So we hope with all that capital and audience, they can now improvise and build something that can last and provide real value.
This hype cycle was there in the previous bull run also. Just like the last bull run saw lot of hype around DeFi, there was an NFT wave back in 2018-19 and a lot of games back then had decided to ride it. CropBytes also leveraged this and did an initial release of game NFTs. After a successful pre-sale, we immediately released the app. But we soon realised the fundamental issue with the NFT model for us. We took conscious economic decisions and moved to an FTs model along with some other changes. Those decisions made sure we survive in the bear market like we did in the bull.
This brings us to economic optimisations. It’s very important for a project to adapt and evolve. We can deep dive or possibly tear down that topic in a later blog.
Since we’re talking about lessons from Bear, let’s see what web3 gaming projects should be doing.
Values: What are some of the values of Web3 gaming? Transparent – Distributed – Irreversible. Even if a project is not 100% on-chain, all developments should lead to a future where all values/promises of web3 are delivered. For example, CropBytes, which has a hybrid model. Assets are off-chain, user wallets are handled by the developers, there is no governance token. But all efforts are towards tokenizing assets, tokenomics for all assets, and eventually a community governed, community owned economy. (Know more about evolution of a web3 game)
Product: Projects need to be product focused. It’s okay if there is no massive funding, the product should generate an income for both the players and the developers.
The VC culture is great. To find capital to build something that’s promising. But there’s a downside. Something that came out of Etherium, IDOs, followed by IEOs and INOs. 1000s of initial offerings boosted initial offerings, but due to a bad product, most of them failed at the turn of the markets.
Metaverse: Let’s look at something familiar to understand Metaverse. Soccer: It’s a simple game. But there is a whole meta around the game itself. It’s culture. There is affiliation, economics, pride, love, hate, and more built around the game. That’s the meta around soccer.
“Meta” means “above or transcending”, suggesting that something is somehow dealing with a higher level of vision or thought. It is, in other words, an archetypal version of reality and the people living there are coming together from many different contexts which are meaningful on their own but become heightened when they get brought together under one umbrella.
Digital spaces may be called “verses.” A phone call, or a text message, or a chat room, or social media, or an online chess game, or a MMORPG – these all let humans interact (in some way). Each one offers its own varied virtual reality!
Developers need to create this metaverse experience and at the same time build community economics that, when strong enough, is handed over to the community to run itself.
Humans creating a revolutionary new tech will not mean that we have all evolved as a species. You can expect to see more intentionally-ponzi nomic games coming up in the next bull run. But if we have learned our lessons from this bear, the next one will keep our spirits high.