Web3 games shouldn’t attract for-profit players – TechCrunch

Top crypto VCs are constantly touting the potential of video games as one of the most compelling use cases for blockchain technology. Andreessen Horowitz partner Ariana Simpson, for example, who led the firm’s investment in crypto game Axie Infinity, has given countless interviews citing the “play to win” model as a key catalyst for attracting “hundreds of millions” to people on web3.

Axie, the most popular play-to-earn video game, suffered one of the largest crypto thefts to date last March when the North Korean hacking organization Lazarus Group drained ~$625 million from the game’s Ethereum-based Ronin sidechain. Since then, crypto markets as a whole have gone through a major price drop and subsequent recovery over the past month. So where does that leave web3 games and the play-to-earn business model?

TechCrunch spoke with Justin Kahn, co-founder of Twitch and recently, Solana based NFT Fractal gaming marketplace, to get his thoughts on what this sub-sector of web3 will need to justify the hype. Kahn said web3 games have a long way to go – while there are approx 3 billion gamers worldwideincluding those who play mobile games, he noted, far fewer have bought or interacted with any kind of blockchain-based gaming asset.

Kahn 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,” Kahn said.

In some ways, web3 games were built in response to the success of games like Fortnite, which were able to unlock a lucrative monetization avenue for game studios through micro-transactions from users buying customized items like gear and weapons. Web3 game developers hope to take this vision a step further by allowing players to use these custom digital assets between different games, turning games into an interoperable, immersive ecosystem, Kahn explained.

Kahn has made about 10 angel investments in web3 gaming startups, including 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 as a whole, technically doesn’t require blockchain technology at all.

“I think blockchain is exactly the way it’s going to happen because there’s a lot of cultural momentum around people equating blockchain with openness and trusting things that are decentralized on the blockchain.”

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

Gamers, however, seem to value the openness and economic involvement provided by blockchain-based startups, Kahn said. Still, he added, the appeal of an open gaming ecosystem is more about the principle of the matter than making a living.

“I actually think people equate NFTs and gaming with this play-to-win model where people make money and do their jobs [by gaming]and I think that’s completely unnecessary,” Kahn said.

“Having digital assets in your game can work and be valuable even if no one is making money and there is no speculative appreciation or appreciation of your assets,” he added.

It is common for popular games to attract new developments in addition to their existing intellectual property. Kahn shared the example of Counter-Strike: Global Offensive (CSGO), a video game where customized “skins” sell for $150,000 each.

“I funded a company that upgrades CSGO skins,” he said. “CSGO changed the rules of what’s allowed and basically confiscated over a million dollars from this company alone – so yeah, I don’t want to build on these unopened platforms anymore.”

Many prominent studios disagree with Kahn’s thesis that an open gaming ecosystem monetized 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 “speculative pricing and investment mentality” in web3 and claiming that NFTs would go against fostering an inclusive environment for players.

Despite drawing the line at NFT, Minecraft currently makes money from microtransactions in its in-game marketplace. The decision leaves in motion existing companies that were already selling Minecraft-based NFTs and developing for-profit games using the open source code.

Kahn sees blockchain-based gaming as simply a “more economically absorbing” 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 is associated with people who do this kind of manual, menial work in third world countries or developing countries,” Kahn said. “I don’t particularly think the model is sustainable, so I think the interest will kind of wane.”

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

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

Kahn predicts that the space will evolve similar to the way mobile gaming has, with a handful of startups growing initially. Their success will inspire big game companies to use their existing IP to enter the fray “five years down the line”, despite their initial misgivings about the technology, he added.

Still, the nascent blockchain gaming sector has a long way to go before it can gain widespread attention.

“For that market to really be big, it’s going to take normal people who want to play games for fun playing those games. That doesn’t exist yet. I think the majority of the market today are people who were born into crypto,” Kahn said.