An in-depth look into the gaming industry of 2023: Web3 revolutionizing the landscape
The Blockchain Gaming Alliance (BGA) has released its annual State of the Industry Report, revealing promising prospects for the web3 gaming industry, but also highlighting a gender imbalance among players.
On December 13, 2023, the BGA shared its report with crypto.news, which aimed to gauge the state of the emerging blockchain gaming sector. The report covered various aspects of the industry, and some key takeaways were that nearly 80% of respondents believed they would continue to be involved in the industry in the coming year. However, the report also revealed a concerning statistic: only 16.9% of participants in the sector were female.
The report also showed that asset ownership was seen as a significant benefit of web3 games by over 76% of blockchain gamers. In contrast, nearly 38% predicted that traditional web2 game studios would be the driving force behind the industry. Additionally, 52.1% of respondents expected at least 20% of the gaming industry to adopt blockchain technology in some form.
One of the main challenges mentioned by over half of the respondents was onboarding, or the process of getting new users into the industry. Another challenge mentioned was the widespread misconception that blockchain gaming is a scam, which 70% of respondents pointed to. User acquisition was also mentioned as a pressing challenge by about 35% of participants.
Despite the crypto market downturn over the past two years, web3 games have seen nearly 800,000 unique active wallets. However, these games still don’t receive as much attention from the wider gaming community as more mainstream titles like GTA VI, which was announced recently.
Nevertheless, web3 games are gradually gaining traction in the mainstream market, with companies like Square Enix and Ubisoft working on new blockchain games.
Now, let’s delve deeper into the evolution of the sector.
Overview of web3 gaming investments:
According to a survey by Game7, web3 gaming projects have received over $19 billion in investments, with the Asia-Pacific region leading the way in blockchain gaming activities.
The research conducted by Game7 showed that in the first half of 2023, blockchain gaming projects received around $1.5 billion in investments, with $800 million specifically going to web3 games. Investment in gaming content surpassed the amount dedicated to infrastructure by $375 million during this period. However, these figures represent a significant drop compared to the $3.3 billion invested in 2022.
While the blockchain gaming market has faced some challenges, it is still considered to be performing well. In 2022, the industry reached a valuation of $4.6 billion. The first quarter of 2023 saw a significant upward trend, with a growth rate of 45.60%. This indicates that blockchain games have continued to advance and attract users and investors, despite the broader market experiencing a prolonged crypto winter.
Data from DappRadar, cited in the BGA’s report, shows that in the second quarter of 2023, web3 gaming projects received approximately $973 million in investments, a 31% increase from the first quarter. However, in the third quarter of 2023, blockchain gaming projects collected $600 million, a 60% drop from the previous quarter. By the end of August, the total investments in web3 gaming reached $2.3 billion, which is only 30% of the total reached in the previous year.
Furthermore, the BGA report also highlighted a slight decline in the number of people playing web3 games. According to the data, there were about 2.2 million monthly active users in 2023, down from an average of 2.6 million in 2022. However, the report suggested that many companies in the industry were using this period to develop game-enhancing solutions to improve onboarding and overall gameplay experience.
Geographical distribution of web3 gaming investments and developers:
The report by Game7 revealed the distribution of investments received per region. The USA led the funding activities with about $4.2 billion, followed by France with $0.9 billion, Canada with $0.68 billion, Singapore with $0.67 billion, Hong Kong with $0.66 billion, and Australia with $0.36 billion. Other countries like the UK and Germany also made significant contributions.
The funding trends have been strongly influenced by the rise of sports and metaverse-related massive multiplayer online (MMO) titles. Since 2018, sports web3 gaming projects have received about $1 billion, MMOs $989 million, role-playing games $728 million, and action games $341 million.
In terms of web3 game developers, approximately 30% of newly formed teams are based in the United States. However, South Korea has also seen significant growth, accounting for 27% of new teams, almost double its contribution compared to the previous year.
The BGA survey revealed that Europe (38.8%) and Asia (29.1%) had the highest number of respondents, indicating that these regions are the major hotspots for web3 gaming activities.
However, the survey also highlighted that the shift from web2 to web3 is particularly prominent in Asia, where gaming companies are leveraging their established IPs and market influence to explore the possibilities offered by blockchain and NFTs.
Emergence of the Middle East and North Africa (MENA) as a destination for blockchain game developers:
According to the BGA report, the Middle East and North Africa (MENA) region has emerged as a destination for blockchain game developers. The region represented 5% of the survey respondents and has gained traction due to improved regulatory clarity regarding crypto, particularly in places like the United Arab Emirates (UAE). There has also been increased investment in web3 in the region.
In 2022, Dubai pledged $4 billion to metaverse development over five years. Saudi Arabia, through its special economic zone in Neom, invested $50 million in Hong Kong-based blockchain game developer Animoca Brands to create a web3 services hub in the Middle East.
Most popular blockchain gaming network:
According to Game7’s research, there has been a significant increase in game migrations between networks in 2023. A total of 65 migrations were recorded, a 35% increase from 2022, indicating a growing interoperability among gaming blockchains.
Polygon (MATIC), Immutable (IMX), and Arbitrum (ARB) received the most web3 games from other blockchains, while Oasys and Ethereum received the fewest. The research also showed that 57% of games that migrated from layer-1 (L1) blockchains moved to layer-2 (L2) solutions, 41% chose another L1, and 2% moved to L3 networks.
Among the blockchain networks, those with Ethereum Virtual Machine (EVM) services were the most popular choices for web3 game developers, with 68% opting to move from non-EVM to EVM networks.
Polygon remains the most popular host for web3 games in 2023, with over 250 titles utilizing the sidechain. Binance Chain (BNB) and Ethereum (ETH) are the next most popular choices.
However, several blockchains, including BNB, Solana (SOL), Hive, Ronin (RON), WAX, Avalanche (AVAX), Immutable, and Tezos (XTZ), have seen a decline in game activity.
The most affected blockchains were Hive, which experienced a 75% drop in gaming activity, and Solana, which saw a decrease of over 69%. BNB and Ronin also experienced reductions of 47.6% and 40.9%, respectively.
The report suggested that the decline in game activity on these networks was a sign of innovation, with users shifting their wallet activity and transactions to networks like ZkSync, which were perceived to have better utility, ease of use, and newer gaming projects.
Preferred blockchain frameworks for web3 game developers:
When it comes to game development, most creators prefer using open-source networks like Unreal Engine to create games across various networks and genres. Game7’s research showed that Optimism’s OP Stack framework was the most popular choice for new games.
The OP Stack is an open-source development framework for the Ethereum and Optimism ecosystems. It provides comprehensive software components that power Optimism, enabling developers to focus on cutting-edge advancements and simplifying the process of creating their blockchains.
In terms of the number of projects developed, StarkWare emerged as the dominant blockchain framework. The company’s framework model was primarily leveraged by projects on Immutable X and WAX.
Major hurdles in web3 gaming adoption:
The BGA’s report highlighted two major hurdles in the adoption of web3 gaming. Firstly, the perception of cryptocurrencies being associated with the dark web and illegal activities is a significant concern for major web2 entities looking to transition to web3. This perception has deterred many big players in the gaming industry from fully embracing blockchain technology.
The second hurdle mentioned in the report is poor gameplay. Given the relative youth of the blockchain gaming niche, it is not surprising that 37% of respondents believe web3 games could be better developed. Many gamers compare the gameplay of web3 titles to that of well-established web2 games, which have decades of development experience and consistently deliver high-quality experiences.
Looking ahead:
According to a study by Coingecko, out of 2,817 web3 games launched in the past five years, a staggering 75.5% have fallen out of favor with the market. The average annual failure rate from 2018 to 2023 was 80.8%, highlighting the significant instability faced by the web3 gaming industry.
Despite the challenges, the BGA predicts that traditional web2 gaming publishers will likely shift towards web3, particularly in the mobile and multiplayer game sectors. The Alliance believes that the influx of web2 studios into blockchain gaming will help improve the user interface (UI) and user experience (UX) of web3 games, which have been major pain points for blockchain gamers.
The report also predicts that artificial intelligence will play a more prominent role in blockchain gaming in 2024. Additionally, the BGA expects that a breakthrough blockchain game will emerge, creating a domino effect that will shift public opinion regarding web3 games.
In conclusion, the State of the Industry Report by the Blockchain Gaming Alliance provides valuable insights into the current landscape of the web3 gaming industry. While there are challenges to overcome, the report highlights the industry’s potential for growth and innovation in the coming years.
