When the Web3 narrative faces a winter, is gaming the "fire" in the winter?

Produced by | OKLink Research Institute

Author | Jason Jiang

After the financial innovation driven by DeFi in the last cycle, the Web3 gaming sector, which has been quiet for nearly two years, seems to be reviving now. Whether it's frequent financing or multiple games entering public testing one after another, the Web3 gaming sector is bustling as it enters 2024. But as the "darling" of the Web3 primary market, is the current "heat" of the gaming sector "real fire" or "false fire"? What changes in Web3 gaming are worth paying attention to in 2024?

1. Web3 Games: Fun is the Hard Truth

Since the decline of P2E (Play to Earn) games, there have been numerous discussions about the future direction of Web3 games. Among them, the following two directions are the most noteworthy: Web2.5 games that aim to improve towards AAA (Note 1) level production and playability, hoping to attract more players through high-quality game experiences; and the full-chain games that emerged in 2023, attempting to enter from a fair, transparent perspective that aligns with the spirit of autonomous worlds.

The debate over which is superior, Web2.5 games or full-chain games, is a hot topic currently. Although the concept of full-chain games is very popular, I believe that Web2.5 games are more worthy of attention in 2024 and have a better chance of achieving large-scale user adoption and conversion for Web3 games.

The most direct reason is that, compared to full-chain games, Web2.5 games resemble the games that should have appeared in the 2020s. The left side of the image below shows the game interface of a full-chain game X; the right side displays the game graphics of the recently popular Web2.5 game Y, and the visual difference between the two is evident. Although both games have their unique features in terms of game worldview, the latter usually has significant advantages in game production, operational smoothness, and playability.

Playability has been a major drawback that limited Web3 games from attracting a large number of players. Monotonous gameplay and rough graphics often make players feel like they are participating in Web3 games from over a decade ago, with the only appealing aspect possibly being the potential to earn money. However, for ordinary players, the hard standard for evaluating a game's quality has always been one: how fun it is to play; Web3 games that overly focus on "Fi" can only attract gold farmers and cannot achieve large-scale conversion of Web2 users.

The fairness, transparency, and autonomy promoted by full-chain games may be the evolutionary direction for future games, but in the short term, technical limitations prevent the construction of complex game scenarios, restricting them to game types that require low computation and no low-latency demands, making it difficult for full-chain games to genuinely attract enough real players. After all, unless they are fervent enthusiasts, most players would typically choose AAA masterpieces over pixel games. Today's full-chain games are akin to DeFi around 2018, where the concept outweighs the reality, still needing time to iterate and accumulate.

So, looking at 2024, if Web3 games experience an explosion, the driving force will still primarily come from Web2.5 games. The Web2.5 gaming track may also see some changes in 2024.

1. Continuing to Align with Web2 in Terms of Playability and Gaming Experience

We have always believed that the best state for Web3 technology to penetrate reality is "subtle and silent." Although, to some extent, the relationship between Web2.5 games and Web2 games is more of a supplement than a replacement, if it can adapt players to the changes that Web3 technology brings to game systems through modifications to the economic system and game backend without affecting playability and gaming experience, it may be a better choice. In 2024, Web2.5 games will continue to accelerate the integration of Web2 games in terms of game content and user experience, gradually incorporating Web3's token model into games, achieving native in-game transactions, and facilitating asset circulation through the integration of internal and external trading platforms.

2. Integration with AI Will Become the Main Narrative for Web2.5 Games in 2024

Whether it's training NPCs based on AI, enhancing game realism through AI, or rewriting game logic with AI to introduce more uncertainty and randomness, all these will create unique sparks between Web2.5 games and AI. As expressed by former co-founder of Shanda Games, Tan Qunzhao, in a media interview, the key to promoting the development of the gaming industry lies in technological transformation. Today, Web3 and AI are disrupting the gaming industry, which will lead to a golden period for the gaming industry in the next two years.

3. Web2.5 Game Projects Will Accelerate the Evolution Towards Platformization and Ecosystemization

Every game has a lifecycle, and the lifecycle of Web2.5 games is influenced not only by the games themselves but also by the overall trends in the Web3 market. Compared to individual game projects, gaming platforms and ecosystems have stronger risk resistance, longer lifecycles, and thus greater room for trial and error and development potential. Many Web3 gaming platforms are actively building gaming ecosystems and transitioning to gaming platforms to reduce reliance on single games. This trend can also be seen in the financing market of 2023: nearly 40% of the invested projects in the Web3 gaming sector are game studios and gaming service platforms, with investment in single games becoming more cautious.

Perhaps in the future, full-chain games will become mainstream in Web3 gaming, but from the perspective of 2024, we believe that Web2.5 games are the answer we are currently looking forward to.

2. Narrative "Cold Spell Arrives, Can Web3 Games Become a 'Fire' in Winter?"

Setting aside the debate between Web2.5 games and full-chain games, let's look at the basic landscape of Web3 games from a data perspective and evaluate the current intensity of this "fire."

After the P2E (Play to Earn) innovations like Axie and Stepn sparked a wave, the Web3 gaming sector has remained lukewarm over the past two years. However, from on-chain data, whether in terms of active addresses or transaction volume, gaming remains the most active area in Web3: the daily average of unique active wallets (UAW) hovers around 6 million, with daily on-chain transaction volumes around 100 million USD, far exceeding DeFi and other sectors. Since August 2023, the UAW in the gaming sector has seen significant growth, exceeding 12 million by February 2024, an increase of over 142.44% compared to the same period in 2023.

In the primary market, Web3 games also perform well. According to incomplete statistics from OKX Venture, in the first three quarters of 2023, there were 923 financing events in the Web3 industry, with 91 of them in the gaming sector, accounting for 9.86%. Although financing amounts have significantly decreased compared to the previous two years due to market downturns, the financing proportion remains relatively stable at around 10%. The active participation of top investment institutions indicates a long-term optimism in the capital market for the Web3 gaming sector.

However, compared to the impressive performance of on-chain data and the primary market, the market is more eager for Web3 games to experience an overall explosion in 2024. Compared to other sectors, we believe Web3 games have the potential to become a key area of explosion in the new cycle. The reasons are:

From a narrative perspective, the narrative of Web3 games is sufficient to carry the hope of breaking boundaries and growth. BitMEX co-founder Arthur Hayes recently stated that in the crypto market, the importance of narrative often outweighs the technology itself. We do not fully agree with this view, but we acknowledge the importance of narrative. The Web3 industry is entering a "cold spell" in narrative, with funds and projects more concentrated at the infrastructure level, lacking new growth points in the narrative of large-scale user adoption and conversion. Whether through Web3 technology reshaping the gaming industry or through games penetrating the market with Web3, the nearly 3 billion Web2 gamers and nearly 600 million Web3 users globally provide a strong narrative foundation for Web3 games.

Although P2E games represented by Axie Infinity and StepN have failed due to their Ponzi-like economic models after a brief explosion, overall, more native Web3 project teams are standing on the shoulders of their predecessors, actively exploring game products that better meet market demands; an increasing number of traditional gaming giants with rich experience are gradually entering and starting to create AAA blockchain games, which may bring a qualitative leap in playability for Web3 games: all these make the gaming sector hard to ignore. According to a previous report by market research provider Markets and Markets, the global blockchain gaming market was valued at 4.6 billion USD in 2022 and is expected to grow to 65.7 billion USD by 2027.

From a practical perspective, as an industry that is extremely capital-intensive and time-consuming, the explosion of the gaming sector requires the joint promotion of multiple factors such as capital, time, and technology. As we move into 2024, these elements seem to be gathering. The improvement of technological infrastructures such as modular public chains, AA wallets, ZK, and L2 has provided stronger support for Web3 games, and the impressive performance of Web3 games in the primary market over the past few years has also given many project teams enough capital and time to refine and test their game products.

Of course, these also make the market more expectant of Web3 games' performance in the new cycle. After all, after years of accumulation and multiple rounds of financing, many Web3 games seem to be at the point where they need to present their "report cards."