The Lumikai Latest: Decoding the use cases for Blockchain Gaming

  1. The Asset-ization of Game economies: Games are no longer single point of sale products; and have moved away from being discrete commodities to becoming assets that generate revenue over time. Mass shifts to free-2-play and in-app purchases are a testament to this.
  2. Living Games: As a result of the above, games are now in a constant state of flux, with updates being issued regularly to generate depth and new avenues for players to engage. For example, battle royale games such as PUBG, Call of Duty: Warzone, and Apex Legends, rely on a “seasons” approach to frequently introduce new maps, characters, and in-game purchases.
  3. Community-focus: Given that games (especially multiplayer) need to be in a constant state of flux and innovation, there is no greater way for developers to do this than taking feedback from the community. Studios like Supercell constantly generate insights from their beta community to help develop games.
  1. The Traditional Model refers to the centralized model of developing, publishing, marketing, and distributing games. Herein a publisher (or developer) relies on single points of sale and maximizes the number of units sold (at the highest possible price).
  2. The Networked Model relies on the ability of video games to establish recurrent revenue streams through the monetization of either utility items or vanity items. Such a model ensures that a video game has a near-infinite lifetime and enough depth to engage users on a frequent basis. Almost all F2P titles rely on this publishing model.
  3. Lastly, and most pertinently, is the Decentralized Model. The use of blockchain allows for the creation of (a) real-world, and (b) long-term use-value of in-game items. For example, all those hours you’ve spent farming items on RPGs, or the countless number of loot boxes opened in order to obtain that special skin in a battle royales; can now hold value outside the game. This is done using key units called Tokens, which can either be fungible (common) or non-fungible (unique- commonly known as NFTs). Since these exist on blockchains that are decentralized, these units can be traded outside of the game ecosystem, and at the same time be plugged back into a game’s economy. This is what has led to the inception of the Play-to-Earn (P2E) model (more on this later), where gamers are effectively paid for their time, energy, and skills.
Axie Infinity
Axie Infinity Trading Volumes (from DappRadar)
Dragon, the most expensive CryptoKitty ever sold.
  1. With ownership established, trading and selling of assets become legitimate.
  2. The above point means that price discovery is more efficient. (For further information, we’d encourage you to read more about the economic theory of property rights)
  3. Most importantly, with value tied to the real world, in-game assets will hold that value outside of the game. Most in-game items today have no value outside of a game’s ecosystem. Time for a cliched example. Say you get your hands on a special edition Lionel Messi card on FIFA Ultimate Team (FUT). This card sells for millions in in-game currency on the FUT marketplace but has zero value outside of it. Now, if this were a special edition Lionel Messi NFT, you would have legitimate ownership of this, courtesy of the blockchain. Kind of like owning a real-life Pokemon card- but it's a football player instead of a Pokemon, and it's digital instead of physical, and there is technical trickery involved to prove that it's yours. You can, legitimately, take this NFT outside of the FIFA ecosystem and sell it to a willing buyer who can choose to do whatever they want with it. Another great example is of skins in games such as Fortnite and Call of Duty. One can own these in-game, but cannot trade them legitimately with other players. With blockchain involved, these can be traded outside of their respective ecosystems.
Source:
Steam Community market for Dota 2
God’s Unchained
NBA Top Shot
Animal Crossing: New Horizons
The components of the Metaverse
WazirX NFT Marketplace
  • Game mechanics and quality: As compared to traditional game titles of today, there is certainly room for improvement when it comes to quality and mechanics in blockchain games. Current iterations rely on very basic mechanics such as farming or trading cards. Though early signs of innovation are visible in titles such as Star Atlas.
  • Isolated user-cohorts: So far, the appeal of blockchain games has been isolated to very specific geographies or demographics. For example, 40% of Axie Infinity’s userbase is located in the Philipines, where it is played by low-income groups as a source of livelihood. On the other end of the spectrum, adoption has been prevalent in crypto-native communities in countries such as the US and Germany. Blockchain games registered 754,000 Unique Active Wallets (UAW) in the quarter ended September 2021; compare that to 100M+ DAU’s of Supercell games.
  • Structural barrier to entry: A significant barrier to entry is the time and energy commitment required to even get started on blockchain games. For example, Axie Infinity requires multiple steps involving setting up MetaMask and Ronin wallets, buying ETH, and depositing those in a Ronin bridge. To that end, the first-time user experience (FTUE) is disjointed and time-consuming.
  • Financial barrier to entry: Yet another significant barrier to entry is the financial cost of getting started. For example, getting started on Axie Infinity can cost anywhere between $1400–$1600 (see the economics of axie infinity) depending on the price of the SLP token and ETH. Our sense is that these prices will have to normalize in the long-run to induce en masse adoption.
  • Founders and teams: Teams building blockchain games require some very unique skillsets which lie at the confluence of decentralized tech and game development. Outside of web 3.0 expertise, teams have to be well-versed in elements such as game design, mechanics, loops, level-balancing, etc. This is especially pertinent as the demand for more innovative and high-quality blockchain games rises.
  • Environmental concerns: Most proof-of-work blockchains (such as Bitcoin and Ethereum) consume exorbitant amounts of energy. Annually, Bitcoin’s energy consumption is comparable to the energy consumption of Thailand with an e-waste footprint equivalent to that of the Netherlands. Similarly, a single Ethereum transaction consumes energy equivalent to that of an average US household over 6 days. While only 10% of blockchain games are built on Ethereum, these 10% also happen to be the ones with the highest transaction sizes and volumes (eg. Axie Infinity and Illuvium). Some improvements are underway however, Binance Coin (BSC)- the second most popular blockchain for games- has moved to a proof-of-stake model, which in theory should reduce energy consumption.

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Lumikai

Lumikai

India’s gaming & interactive media venture fund. Early stage is where the magic happens! Contact: hello@lumikai.com