Whatever Happened to Web3 Gaming?

CRYPTODAY 148

As the major alts begin to re-heat this month, one category that isn't being discussed as much is the web3 gaming tokens that were so critical during the 2020 cycle. I'm talking about Immutable, Sandbox, Decentraland, Illuvium, Bigtime, Gods Unchained, latecomers like Hamster Kombat, and of course Axie Infinity.

Most of them are down about 95% from their ATHs. Immutable is up almost 30% since July began, but that still puts it at -93% from the ATH it printed in November 2021. It's the same story for most of these gaming tokens and their associated brands.

As someone who worked in this corner of the industry for 2 years during its peak, I wanted to share my thoughts on the phenomenon.

🧐 In my opinion, the games industry didn't actually need crypto as much as we thought, and blockchain-specific innovations like NFTs only had a marginal impact.

Let me explain.

Not all games need mainstream success: there are tons of traditional indie games that do well enough on Steam to support a small dev studio. If you sell 10,000 units at $25 each, you've got enough to produce the next one and keep yourself alive. And if you don't have enough capital to produce your game, you can even offer "Early Access" and start accepting money from your future gamers up front. Maybe you get a couple thousand Early Access supporters and their money keeps you going until your game is ready for launch. That's fine too.

📈 The problem with web3 games is that the crypto hype machine inflates expectations to such a point where the only way to win is to be a global best-seller. Consider that at its peak, Axie Infinity’s marketcap was almost twice as big as Square Enix, the makers of Final Fantasy. That’s not necessarily bad – the market was truly excited about the potential of play-to-earn – but eventually you need to deliver something incredible to justify that $15B valuation.

⚡Aside: This is the kind of theater that Tesla is very good at. At $1T valuation, they’re worth more than the 9 other biggest automotive brands combined (Toyota, BYD, Mercedes, Volks, etc). Tesla’s stock is currently trading at a price-to-earnings ratio of 170, which basically means that their marketcap is 170x greater than what their earnings can justify. Why is that? Because Elon is spinning a futurist narrative where Tesla is both a robotics and automated-transport company, and the crowd is hyped.⚡

I think the web3 game industry’s biggest problem is that the improvements it can make to the existing game industry are pretty modest. Yes, NFTs do allow for real ownership over game assets, but this is not a thing that gamers have been clamoring for. On the list of top gamer concerns in 2025, I’d say “wen GTA VI” is probably way, way higher than digital ownership.

💰 Much higher on their list of priorities though is the dream of being able to earn as a gamer. Of course, not every player is good enough to win tournament cash, or entertaining enough to make a living on Twitch. That’s why the play-to-earn hype was so great … and just as disappointing when it proved to be unsustainable. I’ve seen enough variations on the P2E tokenomic model to say that no one has cracked it for a sustained period of time.

So where does all that leave us? Like many other innovations from previous cycles, NFTs and web3 games will have their own place in the overall landscape. (NFTs are useful in other high-value scenarios, like representing your equity in a liquidity pool, and games will always have some entertainment value.) But I don’t think the web3 games category will grow substantially in market cap, or occupy much mindshare anymore.

For now, that game is over.