Breaking the Impossible Triangle: The Ideal and Reality of Web3 Games

Author: Luke, Investment Manager at Waterdrip Capital

Preface

After the explosive success of "Black Myth: Wukong," as a gamer and a Web3 practitioner, I can't help but reflect on the current and future direction of the Web3 gaming sector. If any of my viewpoints are lacking or biased, I welcome criticism and correction. At the same time, I invite entrepreneurs in the industry to engage in deeper discussions with us to explore more possibilities in this field.

The Pursuit of the Original Intention of Web3 Games

As I just mentioned, you need to pay attention to the team and not be misled by some new directions. I have seen a large number of entrepreneurs in the gaming industry jump into Web3 after its emergence, and I would never invest in those people. Firstly, they do not love games, so how could they possibly create good games? It's a simple truth.

This was the viewpoint expressed by Daniel, the first investor in "Black Myth: Wukong," during an interview with Zhenge Fund, which sparked widespread discussion both within and outside the industry. Is Web3 gaming just a gimmick, or does it represent a revolutionary future development direction?

From the current situation, the main attraction of the Web3 gaming sector seems to lie in its profit-making effect, rather than genuinely driving innovation in the gaming industry. Many people enter this sector with the expectation of earning short-term profits or obtaining airdrops. In the last market cycle, the quality of Web3 games was generally low, with most projects quickly attracting traffic and then engaging in one-time profit-taking. Behind these phenomena lies an excessive pursuit of "short-term profits" by developers in Web3 gaming. As Daniel, the investor in "Black Myth: Wukong," said, many developers do not love games but are instead attracted to the speculative market of Web3. This "make a quick profit and leave" mentality is particularly evident in the P2E (Play-to-Earn) model, often resulting in chaos. The "2Earn" models, despite their grand marketing, are gradually being regarded by the market as gimmicks rather than the core intention of game design.

Returning to rationality, we need to rethink the true meaning of Web3 for the gaming industry. Just as the original intention of blockchain is to "achieve a fair monetary system," what is the original intention of Web3 games?

Vitalik's story about World of Warcraft has been told many times, so I want to share a significant event that recently occurred in a game I play.

"On November 27, 2023, the People's Procuratorate of Xuanwu District, Nanjing, issued a public prosecution statement, which revealed that since August 2022, the defendant Tang used a vulnerability in the personal backpack and warehouse program of the online game DNF, utilizing a script provided by the defendant Cai, to illegally duplicate eight types of game items, including 'Crystallized Contradiction' and 'Distorted Dimension Crystal,' and sold them, accumulating illegal profits of over 91.63 million yuan."

In simple terms, two gamers exploited a game vulnerability to duplicate highly liquid items in the game, including Contradiction, Distorted Dimension Crystals, and Flawless Emeralds, and sold them in the in-game market, ultimately profiting over 91.63 million yuan.

This incident sparked massive player protests, as they found that the equipment and items they had invested significant time and money into quickly depreciated. However, due to the centralized operational model of traditional games, all in-game assets belong to the official, and players do not have legal ownership of their virtual items. Although the official made some compensation measures after the incident, players' rights could never be fundamentally guaranteed. This incident reflects a core issue in centralized games: the centralized system failed to timely prevent asset duplication and struggled to effectively respond to the long-term impact of such events on the game economy. In-game assets do not belong to players but are entirely controlled and managed by the game company. Once issues like asset duplication and economic imbalance arise, players' rights are easily affected, and they cannot protect or manage their virtual assets.

Returning to the original question, what is the original intention of Web3 games? For me, it is a game world that is no less than traditional games in terms of gameplay and graphics, where players have complete control over their assets; it is a community where players have the right to decide the future direction of the game, no longer suddenly facing an official version update and helplessly reading the "Class Revision Notice"; it is a metaverse with a more open and complete cross-platform trading system, where assets can break through the barriers between virtual and real economies, even across games and platforms.

Web3 Games Amplify the Virtual Economic Issues of Traditional Games

Ideals are always abundant, while reality can deliver a harsh blow to idealists. The original intention mentioned above has been repeatedly centered around "assets," and as the pioneer "P2E" that broke through the barriers, it has now fallen deeply into the abyss.

Why is this the case? Terms like "recoup period," "earnings," "grinding," and "farming" are also topics that traditional gamers enjoy discussing, especially in MMORPGs, where "grinding players" are an indispensable part of the game, exchanging playtime for "gold" to invest in and decorate their characters or engage in RMT transactions. So why is it that only the "play to earn" model in Web3 is looked down upon by traditional gamers? Aren't they all getting some return on their investment through gaming? Is the income from Web3 games dirty money?

We believe a significant part of the reason is that the decentralization of Web3 assets indirectly amplifies some issues present in Web2 games. In Web2 games, developers and operators can flexibly manage the in-game economy through a centralized control system. For example, game companies can maintain economic balance by adjusting the output of virtual items, modifying the currency system, launching new events, or changing drop rates. If inflation or item devaluation occurs in the game, the operators can control the supply and demand relationship in the virtual economy by adjusting resource supply or currency circulation based on actual demand. However, due to the decentralized nature of Web3 games, developers cannot arbitrarily intervene and adjust the economic system, leading to a greater likelihood of imbalance in the virtual economy.

If users play a game solely for profit, that game will quickly collapse. The virtual world is constantly changing and enriching, creating new products, tokens, and markets to meet new consumer demands, along with new supply and demand relationships and pricing models. Indeed, stabilizing game economies is challenging. The price of gold in DNF, which I have played for 14 years, has dropped from 1 yuan = 200,000 gold to 1 yuan = 890,000 gold, but the several crashes in between were largely due to the developers' disregard for player demands, lack of protection for player rights, and insufficient infrastructure like the marketplace, as well as malicious bugs and modifications. It is not solely due to an imperfect economic model design. A more fair and transparent blockchain also needs to design more reasonable token usage scenarios to empower the value of goods.

Currency is a crucial part of both the real world and virtual systems. In games, from single-player games and NPCs, merchants, and shop transactions, to multiplayer games where players interact, various aspects need to be considered. Especially in MMO games, the price of gold to some extent attracts players willing to spend money to enhance their characters. In a liquid gold market, a high gold price indicates that players are willing to spend money to buy gold for decoration and enhancement, while grinding players are more motivated to spend time grinding for profit. A classic saying in multiplayer games is, "After graduation, go to the brick factory," meaning that after reaching the endgame, players start grinding to try to recoup their investment.

In traditional game economic systems, the design of "sinks" is an important tool to ensure economic balance. Players continuously earn gold through various activities, but without a corresponding gold consumption mechanism, the market will face gold oversupply, leading to currency inflation and uncontrolled item prices, negatively impacting player experience. Therefore, game developers create various "sinks" to allow gold to flow out of the game, maintaining the balance of the virtual economy. There are many ways to design sinks, including "items having an expiration date," "items having the possibility of damage or consumption," "allowing items to become outdated or obsolete," "incurring holding costs for items," "limiting inventory quantities," "developer buybacks," "trade-ins," and "exchanging assets for real-world benefits," among others. A good sink not only can be accepted by users but also creates enjoyment for them, becoming a great complement to the game content. In Web3 games, the lack of a well-designed sink often leads to token oversupply and exacerbates inflation issues. How to introduce mechanisms similar to sinks to maintain economic stability is a pressing issue that Web3 games need to address in their design.

In the current Web3 market, although there are occasionally a few games with high-quality content and gameplay, they are often drowned out by numerous games focused on "short-term profits." The economic system of game currency is very important; if it can combine blockchain technology for asset confirmation and provide liquidity support behind gold, it theoretically can offer players a more authentic experience and a more secure game mechanism, preventing players from feeling that game assets are worthless and protecting against destructive impacts from hackers and cheating.

Is Simply Adding Tokens to Web2 Games a Viable Direction?

Projects like "MIR4," which are very well-known in Web2, have gained astonishing user numbers and revenue after integrating the P2E concept. However, it is important to note that these models do not entirely rely on tokens. Even without Web3 elements, such games can still succeed through "currency exchange" functions. Sinjin | MAYG (https://x.com/SinjinDavidJung) pointed out that simply adding tokens to a successful Web2 game will not guarantee success; Web3 games require a complete overhaul of the entire design and monetization approach. Traditional game design experience may become an obstacle in this transformation, as it relies on existing distribution channels, stable currency systems (such as fiat currency), and player account-bound assets. Web3 introduces new variables such as token economies, asset trading between players, and token circulation, requiring designers to adopt entirely different ways of thinking. In Web3, similar transformations also require deep adjustments to each game mechanism, especially regarding the generation and circulation of tokens.

Can AAA Games Ignite a New Flame?

With the explosive success of "Black Myth: Wukong" in China, various media and articles have labeled it as "China's first AAA masterpiece," promoting it extensively. But what exactly is a "AAA game"? In the gaming industry, AAA (Triple-A) refers to high-quality games developed by large manufacturers, with substantial investment, excellent production quality, and large marketing budgets. These games are typically known for their outstanding graphics, vast open worlds, and complex game mechanics. AAA games are regarded as the pinnacle of the industry, representing the peak of production scale, quality, and technology.

During the development of the Web3 gaming market, many Web3 game projects have also begun to frequently use the "AAA game" label in an attempt to attract the attention of investors and players. However, I personally am not fond of this concept. As an investment manager, AAA implies that the team must be large, with an excellent background and rich experience, while both development and marketing require significant financial investment. Regardless of the risks involved in pursuing this in the emerging field of Web3 gaming, where infrastructure is not yet complete, the projects that meet my psychological expectations in terms of team background are few and far between. As a gamer, I categorize games into two types: fun games and unfun games. The "AAA" label holds no significance for me; it does not determine the true quality of a game. If I don't enjoy playing it, I simply don't enjoy it. Many so-called AAA games, while visually and technically impressive, may not meet expectations in terms of gameplay and player experience.

Indie Games

Many indie games produced by small teams can win players' affection through creativity and gameplay. These indie games often lack the budget of major titles but can provide unique experiences and bring new joy to players. Similar to the new protocols continuously emerging in the DeFi sector, the Web3 gaming field is also facing a trend: more and more projects attempt to package themselves with flashy labels and grand concepts while neglecting the most important aspect—the core fun of the game. What we hope to see is not just superficial "AAA masterpieces," but more innovative small game developers who can break through traditional game production frameworks and, leveraging new paradigms like "full-chain games" and "ServerFi," truly bring unique experiences to players without losing game creativity and gameplay. Just like the continuous innovation in the DeFi field, small developers can play a significant role in the Web3 gaming sector. Compared to those pursuing large productions and luxurious promotions under the AAA label, this sector needs more small teams that dare to experiment and innovate. They may lack the resources and funding of large companies, but they can break the established patterns of the gaming industry through creative design, profound narratives, and unique mechanisms, delivering richer and more diverse gaming experiences.

Breaking the Impossible Triangle of the Web3 Gaming Ecosystem

In the book "Virtual Economics" by Willy Leyton-Vita and Edward Castronova, it is mentioned that if we were to design a virtual balanced scorecard for the gaming economy, it would be divided into three ultimate goals: content, attention, and profitability.

• Creating Content: Refers to the virtual economy being able to form interesting single-player content or constitute a production framework for player-generated content. The attributes of the virtual economy can also communicate a direct incentive, promoting players and third-party developers to create new content. The attributes of the virtual economy—especially under the reasonable definition of virtual property rights and markets—can ensure that scarce resources, such as game content and player attention, are utilized to the fullest.

• Attention: Attracting and retaining users. The attributes of the virtual economy can be used to provide players with completely free content to attract their attention while retaining some better content to sell to players willing to pay. If a player is willing to recommend the game to friends or continues to play the game, they can be rewarded with virtual goods or virtual currency. Virtual goods typically serve to retain users because once a player leaves a game, the time and money they spent in the game will be wasted.

• Achieving Profitability: Earning real currency by selling virtual goods and virtual currency to players. The attributes of the virtual economy can also convert game content and user attention into revenue. For some online services that use other profit models, such as point card fees and advertising fees, by adjusting the costs players need to pay to obtain new content, the virtual economy can also generate profits for designers. If game content updates too slowly, players will become bored and leave the game. However, if game content updates too quickly, the new content will be consumed too rapidly, which is also detrimental to retaining players.

In Web3 games, the three major goals of content, attention, and profitability have gradually formed an "impossible triangle," making it challenging to achieve perfect balance in all three areas simultaneously. The traditional gaming industry has long faced similar challenges, and the decentralized economy and asset ownership concepts of Web3 further amplify these contradictions.

1. Diversity and Depth of Content

The scarcity and sustainability of game content are often difficult to maintain. If players only obtain short-term profits through tokens or NFTs, their motivation will tend toward maximizing the game economy rather than content innovation. This leads to many Web3 games having shallow gameplay, designed merely to "make a quick profit." How to make games both creative and incentivize players to participate long-term is a significant challenge.

2. Difficulty in Attracting and Retaining Users

Players in Web3 games face issues that go beyond simple gameplay. Overly complex economic systems, the volatility of tokenized assets, and potential market speculation can confuse ordinary players and even cause them to lose interest. As more and more Web3 games flood the market, it becomes increasingly difficult to attract and retain players in a competitive environment. Especially since the lifecycle of Web3 games is typically short, players can easily churn after initial experiences. Developers need to create gameplay that is both fun and easy to grasp, avoiding excessive reliance on token and NFT economies.

3. Profitability and Sustainability

The profitability model of Web3 games is often closely tied to the token economy. Games that overly rely on tokenized economies typically focus on short-term profits, neglecting long-term development plans. Players participate in games to earn profits, but once token prices drop or the game economy collapses, players will quickly withdraw, leading to a rapid breakdown of the game ecosystem. Traditional games achieve long-term profitability by continuously updating content and maintaining a balanced economic system, while the economic volatility of Web3 games makes this goal more challenging. Additionally, excessive reliance on external market fluctuations makes it difficult for game operators to maintain economic stability through simple content updates. To achieve long-term profitability, developers must design more stable economic systems, reduce dependence on external market fluctuations, and ensure the sustainability of the game ecosystem.

Conclusion

Although Daniel's views on Web3 games may be biased, he points out a crucial issue: those who only focus on short-term profits and forcibly latch onto the Web3 concept are injecting poison into the entire industry. These projects not only disappoint players' expectations but also make the "breaking the circle" we have longed for increasingly difficult. Players desire not just games labeled with Web3 but works that can fundamentally disrupt tradition and bring unprecedented experiences. Just as "Black Myth: Wukong" allows countless players to personally experience the legend of "The Monkey King" in the gaming world, Web3 games should provide players with a new sense of immersion and creative release.

Developers of Web3 games will inevitably encounter setbacks and confusion in their exploration of new territories and breaking traditional rules. This is precisely the process that the Web3 gaming industry must undergo—breaking old frameworks and forging new paths. Despite various challenges in the short term, these explorations prove that we are moving toward the future.

Every developer and player who persists in this revolution is a hero of change. Challenges and setbacks are not symbols of failure but marks of progress. Just as "Black Myth: Wukong" brings players a long-lost excitement and anticipation, Web3 games also need truly moving innovations and experiences. Only those who bravely step onto new paths can leave a profound mark in the exploration of this industry.

"Oh, are you feeling lost? As the saying goes, only those who have a path to walk will feel lost; this is proof of your heroism."

Looking forward to meeting again in the future gaming world, see you in the game.