Executive Summary

• Web2 gaming can currently result in jarring experiences in both gameplay and ownership for gamers, web3 ownership offers a solution.
• The web3 gaming landscape in 2024 has seen significant growth in on-chain activity in the last 18 months with almost 1/3 of all dApp transactions being gaming related as of the time of writing.
• Immutable and Ronin sit as the leaders in the web3 gaming industry, focusing on providing infrastructure to game developers to build the future and cultivating strong communities around existing web3 games.
• Web3 tech is gaining increasing adoption among mainstream entertainment companies with 72.5% of game studios having web3 initiatives. 
• A breakout web3 game could potentially grow the active web3 user base by multiples.
• While the future of web3 gaming is bright, disrupting the incumbents of the gaming industry will be a difficult task. 

 

Why Web3 Gaming? 

Web2 gaming today can result in a frustrating experience around in-game assets for players, 75% of gaming revenue comes from in-game assets that players have no real ownership or control over. As such gamers are at the whims of arbitrary decision making that can wreak havoc on their assets and gameplay experience. In fact this was actually one of the defining experiences that inspired Vitalik Buterin to create Ethereum. 

“I happily played World of Warcraft during 2007–2010, but one day Blizzard removed the damage component from my beloved warlock’s Siphon Life spell. I cried myself to sleep, and on that day I realised what horrors centralised services can bring. I soon decided to quit.” – Vitalik Buterin 

 

The Web3 Gaming Landscape in 2024

The state of web3 gaming in 2024 showcases a dynamic mix of investment surges, technological advancements, and shifting market dynamics. Despite a 29% decline in NFT metaverse-based collections in Q2, the blockchain gaming sector remains a stronghold, attracting ~2.3 million active wallets daily and accounting for 28% of all dApp activity. The industry’s momentum was further solidified by a record $1.1 billion raised in Q2, marking a 314% increase over the previous quarter. Major players like a16z have been leading the charge, raising an additional $600 million for its web3 gaming fund. 

 

The development of account abstraction has driven renewed interest in web3 gaming, offering a significantly improved user experience by bypassing traditional barriers like seed phrases and gas fees, maintaining seamless in-game experiences. Scaling solutions such as Immutable’s zkEVM and opBNB have also emerged as big winners of this year, with explosive activity growth. Despite the Ronin chain’s dominance in daily active users, Immutable has won over 70% of web3 game development, indicating a battle between existing user bases and developer-friendly ecosystems. With roughly 2.3 million daily unique active wallets engaging with gaming dApps in August the landscape is marked by strong user fundamentals, catalysed by growing interest in play-to-earn/play-to-airdrop and fair gaming models. The sharp rise in blockchain gamers, up 83% in 2024 to 90.3 million users as measured by DappRadar,  reflects the sector’s continued appeal amid broader market fluctuations.

 

Industry Leaders

Immutable

Immutable has established itself as the leading infrastructure provider in the Web3 gaming industry, capturing approximately 70% of the market for funded games. This success stems from Immutable’s commitment to creating a comprehensive gaming ecosystem. Key components of this ecosystem include the Immutable Passport, which offers simplified wallet solutions, Immutable’s seamless in-game payment systems using crypto rails, and a global order book designed to maximize liquidity for in-game assets. A significant recent development is Immutable’s zkEVM chain, built on the Polygon framework, which has seen rapid growth. In the first half of 2024 alone, over 150 games have adopted this chain. The zkEVM is fully compatible with Ethereum’s Virtual Machine (EVM) while offering up to 600x greater efficiency than Ethereum’s Layer 1 and incorporating features such as gasless transactions to enhance user experience through account abstraction techniques.

 

Ronin

Ronin, although sharing some similarities to the Immutable platform, takes a different approach in many ways. Ronin is an EVM-compatible layer-1 blockchain that is focusing on growing the ecosystem of play-to-earn games already owned and supported by the web3 community. Ronin was born out of the success of the title Axie Infinity which still stands today as the most popular NFT game by all time trading volume. As a result Ronin has had strong traction among web3 gamers and is currently host to the highest total unique active wallet count, currently sitting at roughly 3.6m in the last 30 days. Ronin is planning to integrate zkEVMs using the Polygon CDK in a similar fashion to Immutable in order to allow games to launch their own rollups atop the Ronin mainnet. 

 

The comparison between the two platforms brings up a core tension: will the future of web3 gaming be driven by a platform’s ability to nurture developer innovation (Immutable’s strategy), or will it hinge on cultivating strong communities around existing successful games (Ronin’s strategy)? In the long term, Immutable’s developer-centric approach might foster a more diverse range of games, potentially drawing in new users, while Ronin’s focus on community and proven successes could sustain its current user base and enhance stickiness. However, success for either strategy will likely depend on broader trends in game design and player engagement. 

 

Mainstream Adoption

CoinGecko shared in a 2023 report that 29 of the world’s 40 (72.5%) biggest game studios are investing in web3 gaming, with 7 of these studios actively developing their own web3 games in-house. This shows sustained and meaningful interest in the growth and adoption of web3 gaming beyond the 2021 period of NFT based hype. 

 

Last week entertainment giant Sony entered the web3 gaming ecosystem announcing the launch of its own Ethereum layer 2 network ‘Soneium’. The network is based on the Optimism stack and is focused on hosting consumer applications (ie. entertainment and gaming). Sony is moving quickly and have already launched their ‘minato’ test-net for Soneium. Sony has also recently announced the launch of their spark incubator program with support from Samsung, they are currently offering up to $100,000 in investment to eligible developers on the Soneium chain.  

Another gaming giant, Ubisoft, has shown renewed interest in web3 gaming having partnered with Immutable in November of 2023. Nicolas Pouard, Vice-President of Ubisoft’s Strategic Innovation Lab and Head of its Blockchain Initiative said: “As the platform of choice for many leaders within the web3 community, Immutable offers both cutting-edge technology and a unique expertise in seamlessly integrating decentralised technologies into games. We’re excited to partner with them and look forward to bringing that level of fluidness within a full-fledged game, so players only have to focus on the fun of the experience”. Ubisoft have recently shared that their in-house web3 games are nearing completion and should be ready for launch by the end of 2024. 

 

Waiting on a Breakout 

While web3 gaming growth has been significant, a breakout web3 game could dramatically transform the crypto industry. If such a game captured just 2-3% of the player base from major web2 titles, it could generate billions in revenue and attract a wave of new gamers. With 3.2 billion gamers globally and top games boasting hundreds of millions monthly active users (MAU), even a modest web3 adoption could make a huge difference. A breakout web3 game with a player base comparable to those of current popular games could bring an additional 120 million players into the ecosystem, rapidly multiplying the current active web3 user base. This would not only validate the web3 gaming model but also accelerate the mainstream adoption of crypto on a massive scale.

 

Breaking the Incumbents

Disrupting the incumbents in the gaming industry will be no small feat, as traditional game developers and platforms have established deep-rooted ecosystems of loyal players, massive content libraries, and streamlined business models that centre on in-game purchases and centralised control. Web3 gaming, with its promise of true ownership and decentralised game economies, poses a clear challenge to these incumbents and their business model, yet overcoming them will require more than just technological superiority. The most critical hurdle lies in convincing a vast player base to adopt a fundamentally new system of ownership, one where gamers take control of their digital assets and in-game economies. In my view the most probable way to cause such a shift is to provide compelling gameplay experiences that rival, if not surpass, the engaging and polished titles produced by web2 developers. As of now, web3 titles still lag behind in delivering these blockbuster experiences, but the next wave of development could bring the breakout game that blurs the lines between web2 and web3, convincing mainstream gamers to embrace decentralised gaming as the new norm. In this way, the path to disruption likely hinges on innovation in game design as much as the technological infrastructure that underpins it.

 

XP.GG – The Backdoor to Web3 Adoption?

Melbourne based web3 gaming firm, Perion Labs, recently introduced their new product XP.GG, a gaming platform that rewards gamers for playing their favourite games. XP.GG is taking the unique approach of providing value to gamers at the web2 level where they currently sit bridging the gap between web3 and traditional gaming. This is being achieved by essentially providing backdoor exposure to web3 elements through a reward layer in order to maximise the addressable market.

 

“XP.GG let’s gamers Get Good and Get Rewarded by playing the games they already love,” said Amos Whitewolf, co-founder of Perion and CTO of XP.GG. “The more levels gamers unlock, the more rewards they get, and the higher the chance they have of winning thousands of dollars of weekly prizes. We can’t wait to introduce gamers to our Universal Battle Pass across all XP.GG games, giving them a shot at real prizes for getting good.”

Looking forward, XP.GG is looking to provide further web3 experiences for users through development of their infrastructure as well as continued growth of their games library integrating with the largest web2 and web3 games.  

 

The Future of Web3 Gaming

The future of web3 gaming continues to have a bright outlook with many game titles that have been in development since 2021 beginning to roll out while the overall user base continues to grow concurrently. However web3 gaming still has a way to go in disrupting the incumbents of the gaming industry and showing users that alternative compelling options over ownership exist. I believe the most likely path for web3 gaming to succeed is a breakout game which offers captivating gameplay first blurring the lines between web3 and web2. “Many of us are working toward a day when web3 gaming is just referred to as gaming”, Joseph Cooper, Earn Alliance CEO.

 

 

Disclaimer: PERC and IMX are portfolio holdings of Apollo Crypto

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