Web3 games: A step forward in digital worlds
What web3 games are missing and what they can bring to the videogame industry.
Video games have become an essential part of our culture. From the first Arcade console games like Pacman or Donkey Kong in the 70s to the creation of digital worlds like World of Warcraft or Fortnite, the gaming industry has expanded beyond its predictions and possibilities.
Video games were originally just a hobby. Pacman, for example, had a very simple interface and mechanics. But in the last years, video games have become digital worlds where we interact with other users and grow on a social scale.
These digital worlds function like real-life economies. Until now, all video game activity was controlled by developers and formed closed economies(more on this later). However, new technologies have introduced other economic systems to explore. Blockchains serve as a public ledger on which game assets can be registered and reviewed by anyone. Video games with assets and currencies run in blockchains become open virtual economies where users trade, socialize and create value.
In this article, I am going to explain the economic changes that games will suffer from moving from a closed economy to an open one, the first consequences of this change and what web3 games are missing to expand their potential and attract the traditional gaming users.
Traditional games
We can distinguish between 2 types of economies in traditional games: a fully closed economy where players are not allowed to trade between them (ex: Fortnite) and a semi-closed economy where players can trade between them but they do no own their assets and cannot sell their achievements besides black market(WoW).
Fully closed economies: Players cannot interact between them, they just interact with developers. Usually, this model fits games where developers sell cosmetic items to the players, like the cases of League of Legends or Fortnite. Developers can also sell gameplay items like weapons but they risk turning the game into a pay to win.
Scarcity in cosmetic items is achieved by designing a special design, a higher price or limiting the time available to buy the cosmetic.
Semi-closed economies: Players can trade items and resources between them. The game is composed of a currency or several currencies to allow trade inside the game. These games are typically MMOs(massive multiplayer online games) or card games with auction markets like FIFA or NBA2K. These games have a greater challenge than closed economies when it comes to designing their economies.
Developers face challenges like Fighting bots that destroy the economy, preventing the game from entering an inflationary/deflationary spiral of currencies and items, and adapting the game so that new players are not abused by old players…
Popular solutions to reset the economy in these games are offering new expansions to the players (like World of Warcraft), offering a new game each year (like FIFA), or limiting the daily time that players can interact with the economy.
As we can see scarcity is key in both types of games. Games are social experiences and players want to achieve goals that other players are not able to achieve or do not have. Having a specific skin of a particular champion that is just available during 1 month of the year may be something special for a League of Legends player. Being part of an alliance that is building a super spaceship that can defeat all enemies in EVE online may be a super achievement for the player. Scarcity is part of the socialization of games.
Web 3 games
Web3 games use blockchains open databases to store their assets and the transactions that happen in the game. In web 3 games, users own their assets and they can freely trade and transact with them in a permissionless manner.
This ownership and free trade of assets and currencies mean that games move from a closed economy to an open one. The first effects of an open economy in video games come in the form of new ways of monetization and the financialization of the game.
Monetization models: Until now the way videogames earn money comes from a direct transaction from consumers. Selling games copies, expansions, microtransactions... In web3 games players interact between them with real value assets and currencies, creating a real market. Developers can take a fee from all the transactions that happen on top of the game to earn money.
For example, let’s suppose that I harvest a stone that you need to create a weapon that will make your character stronger. I can sell this stone to you at a price of 100GLD(gld as the game currency). The developer can get a 3% of the total value transacted.
Another way of earning money for developers is selling items and resources of the game as NFTS like can be characters, weapons or land. The negative part of this model is that it can become a pay-to-win game.
Financialization of the game: The creation of real value assets and currencies also implies the possibility of speculation and other financial activities(like lending and borrowing). The first generation of web3 games has been characterized by purely financial games where players try to earn money(known as play-to-earn games), leaving aside the traditional social part of games. The social part of games is what makes players grind their characters, fight for scaling the ladder, becoming a more important people in the virtual world. This is the part that web 3 games are missing.
FINANCIALIZATION-SOCIALIZATION
We can organize a small sample of games in a graph based on their level of financialization and socialization:
As we can see in the graph, web3 games like Axie and Crabada are located as the most financialized games. I consider Axie as a less financial game than Crabada because they are moving away from a pure play-to-earn game with the new version of the game(origin) and they have a better ladder system that incentivizes players to grind with their team of Axies. Sky Mavies is also pushing to create an Esports infrastructure for the game. These games' main characteristic is that players play the game for the sake of returns.
At the other extreme of the graph, we have Instagram. I know that Instagram is not a traditional game but I recognized it as a social game and there are characteristics of Instagram that can be useful for game design:
Instagram has become a social app where users spend a ton of hours and try to grind followers by showing their lifestyle. More followers mean you are cooler.
Some users give value to others in the form of content and gain attention.
These are two mechanics that are typical in games: people grinding to become more important and people doing activities that others demand. I consider Instagram as a purely social “game” because it has no currency or method of exchange. All the money comes from outside via advertisement.
Then we have a traditional example of a fully closed economy like League of legends where players just interact with devs. The purpose of a League of Legends player is to grind to scale on the ladder. There is no interaction with other players or market mechanisms. It's a purely social game but with transactions between players and developers.
The last two cases are MMO games where players can interact between them but the assets and currencies do not have a real monetary value and players do not own them. I consider Eve Online a more financialized game than WoW:
In World of Warcraft, the devs renew the economy of the game by offering new expansions and storylines.
On the other hand, Eve Online is the best example of a well-designed virtual economy where user generated content runs and maintains the economy. In Eve Online, player-to-player transactions are the base of the economy. Players can specialize in different roles depending on their preferences creating a huge amount of interactions and economic activity that move around the virtual world.
In the top-right part of the graph, we can also see a question mark. This for me is the position that web3 games can occupy if they improve their game design creating a social part on top of them.
WEB 3 POTENTIAL
Eve Online can be a good model for web3 game designers. It has a perfect combination of a well-designed economy and a fully immersive experience where players grind, collaborate and specialize to become stronger in the world. Web 3 can improve this model by adding a layer of complexity: Digital ownership(using the shared database of blockchains) + DEFI infrastructure.
The main advances provided by these improvements are:
Creation of value inside the game: assets and currencies have real value. Through specialization, players will be able to give value to other players (like what happens on Instagram).
Free movement of capital: Defi protocols will serve as financial services for players for the free movement of capital
More fun & immersive experience: real ownership of assets can lead to users valuing more their in-game activity There have been popular cases of people selling famous NFTs and regret doing it because they considered it part of their identity. New gameplay mechanics will appear around ownership and the shared database that blockchains offer.
Conclusion
Web3 games can bring a new generation of virtual worlds using blockchain technology, creating digital ownership.
How these worlds are designed will be key to creating immersive experiences where players decide to spend time, grind and collaborate creating value.
The first generation of web3 games has been purely financial games where people look for returns. New web3 games have to create games where achievements are highly valued by players, increasing the social part of the game.
Despite everything stated in this article, I have some doubts that traditional crypto users will be attracted by a game that does not bring short-term/easy returns for them.
Great article!