Industry Research

The gaming industry has become a $196 billion dollar behemoth that’s now bigger than the global film and North American sports industries combined. Mobile gaming generated over $100 billion in 2020, making up 52% of all game-related revenue. Garena Free Fire, a popular battle royale game, had over 100 million peak daily active users in 2021. It was the highest grossing mobile game in emerging gaming markets like Latin America and Southeast Asia, while also generating $100 million in revenue in the first three months of 2020 in the United States alone.

This massive growth in mobile gaming can be attributed to the proliferation of affordable smartphones and the rise of the free-to-play model. Over 5.3 billion mobile phone users will be active in 2024, representing 67% of the world's population. 

Most mobile games are free-to-play, meaning the game's core experience is provided at no charge, and players can choose to spend money on in-app purchases to do things like acquire skins and speed up character progression. This traditional free-to-play model employs a closed-loop ownership system in which your in-game digital assets cannot be resold or traded to other players.  

While this more accessible model has greatly expanded the market’s total addressable audience, it has evolved to become increasingly predatory in nature in order to drive more microtransaction volume. As a result, the global online microtransaction market is expected to grow from $76.66 billion in 2023 to $117.95 billion in 2027 at a CAGR of 11.4%. 

Among the 3.24 billion gamers in the world, a small percentage contribute a significant share of the in-game microtransaction revenue in gaming. It’s called the whale phenomenon. Using elements like dynamic pricing and non-transparent loot boxes drop rates, has become increasingly common to appeal to affluent players who statistically spend the most. A 2023 Research & Market Report shows that only 3.5% of gamers spend money in-app, but those users are big spenders, spending 30 times more than the average gamer (paying and non-paying) with $9.39 vs. $0.32 a month per gaming app.  

A new model for creating game economies has emerged from the advances in web3 tech that aims to address this spending disparity and democratize digital worlds. In this model, open market dynamics allow game assets to retain value, creating new incentives for players of all types. Savvy game developers are using web3 tech to empower players to trade their assets, giving them a superior sense of ownership and control.

Addressing Inequitable Payouts & Player Salaries

Events like Dota’s The International keep 75% of their crowdfunded prize pools, categorized as costs for running the tournament and creating the additional in-game content. The 2022 prize pool topped $40 million, thanks to the crowdfunding mechanism which allocated 25% of the proceeds from purchasing of the game’s battle pass to the event’s prize pool.

Such a large prize pool going towards just 1 tournament benefits only top players, ignoring the thousands of semi-pro and pro players who were not the top 16 teams in the world. 

We believe esports leagues can become easier to bootstrap through onchain crowdfunding that enables radical transparency through its decentralized nature, enabling all financial transactions to be documented and auditable through using a block explorer. This will in turn allow for cheaper operational costs by facilitating automated payouts and achieve a wider distribution of payments to more players overall. 

Addressing Player Salaries 

In most traditional sports, player salaries are public. With that information, players can construct their own worth when negotiating and deciding which organization to sign multi-year agreements with. For players who are part of a larger org, their prize money is first sent from the game developer to their team’s owner. 

The entire payment processing time from game dev to org to player can then take weeks or months to complete. For larger leagues where there can be an extensive web of different types of payments, it’s especially crucial to be able to properly and transparently manage league funds. As seen in the past with examples of centralized leagues like the H1Z1 league, it was alleged that significant amounts of league funds were spent on lavish parties with content creators. The league did not progress to a second split and ultimately shut down, failing to pay organizations promised money from the full contract. 

Rise & Fall of Play2Earn

As the mainstream use cases in the web3 industry accelerated in the post-COVID world, a phenomenon in web3 gaming called ‘Play2Earn’ gained popularity that saw millions of gamers earning supplemental income while playing web3 games. 

In theory, the enhanced ownership, liquidity, and tracking capabilities of blockchain gaming tech is intended to empower the player. However, the first iteration of this model came with many flaws, focusing predominantly on the financial aspects while lacking the high quality gameplay experiences that are needed to sustain a game’s community and economy for the long term.

In its purest form, the P2E philosophy aimed to put players' digital property rights at the center of the game's economy. These enhanced ownership features and open game economics have gained traction amongst gamers in emerging economies where the rewards, in some cases, have been significant. Summarizing the good and bad that came from the previous cycle of web3 gaming:

The Good:

The Bad:

The Future of Onchain Gaming

In reflecting on the lessons from the early challenges in web3 gaming, we are poised to move forward into a new era with a refined approach. Here are three fundamental principles that the open economy philosophy of onchain gaming upholds:

1) Digital Property Rights - Players own and control their in-game digital which make them freely tradable with others. Player accounts, hard earned achievements, and the associated in-game assets cannot fully be stripped away from their wallets, and they may even accrue value over time. Web3 gaming business models are focused on creating user-centric ecosystems where players have digital property rights and can build experiences on top of the game’s foundation. We finally have the opportunity to empower the player.

2) Open Game Economies - Game developers foster an open ecosystem where item supplies and most commerce transactions are fully transparent. Composability refers to the ability to combine existing blockchain components in multiple ways and create something new. 

3) Productive Leisure Time - Most importantly, these games must be inherently fun. Web3-enabled games that are both enjoyable and have sustainables economies open up a new category of productive leisure time. Players can opt-in to monetize their time spent gaming, transcending what it means to ‘play’ and offering universal earnings opportunities.