Blockchain games are revolutionizing society. The gaming industry is on the verge of a revolution thanks to the play-to-earn (P2E) model. This revolution is being driven by web3 technologies, particularly blockchain.

As a result, fresh revenue streams are developing, promising to democratize in-game ownership through native tokens, such as NFTs. Although this paradigm shift is exciting, experts and players alike are wary because P2E is by its very nature risky.

We think that Web3 is where gaming will go in the future. But to play the game wisely, we need the right equipment. We, therefore, developed five criteria to evaluate the long-term potential of Web3 gaming.

How do Web3 games generate revenue?

P2E as well as Web3 games generate revenue by issuing and selling tokens and other digital assets and then charging a commission on in-game transactions. Here’s a quick rundown of how it works.

 Startup funding

Some web3 games require the player to pay to begin playing. P2E games are frequently distinguished from F2P (free-to-play) games, which can be misleading. Technically, all blockchain games are P2E, but while some are free to play (such as Splinterlands, Gods Unchained, and Thetan Arena), others require an initial investment, such as purchasing an NFT asset (Axie Infinity, Alien Worlds, Sorare).

Native tokens

Native tokens can be found in almost all web3 games and serve a variety of purposes.

The most common is an in-game currency that corresponds to real-world currency. There is frequently a token dedicated to DAOs and governance. Aside from that, the token utility can be quite complex, with some tokens being used as collateral to earn interest in a variety of DeFi dapps, or being ‘locked up’ for rewards in a process known as staking.

NFTs can be traded both within and outside the game. They are scarce because, unlike ‘currency’ tokens, they are not fungible. In some games, the players can create their own NFTs. 

In-game NFTs can take on an infinite number of forms depending on the ecosystem, such as game characters, cards, virtual real estate, Decentraland, natural resources, tools, and accessories, and more.

Other revenue streams

Web3 games can also help companies to create traditional revenue streams, including:

• Partnerships can provide new NFT skins for avatars, be used for events such as virtual concerts, or help to improve the gaming infrastructure in other ways.

• ‘Battle pass,’ in which a player accumulates points to unlock reward tiers, such as the Party Pass in Blankos Block Party, which allows players to unlock ‘hype points,’ which can be used to purchase accessories.

• Advertising, ranging from Admix-style billboards to Decentraland kiosks and The Sandbox art galleries.

5 Criteria to Assess the Long-Term Potential of Web3 Gaming

Here are 5 key elements you should consider when evaluating a long-term potential Web3 gaming project.

Nature of the gaming universe

When it comes to the nature of Web3 gaming, you should think about the factors below:

• How expansive is the world of gaming? The caliber of the graphics and animations, as well as how engaging the plot is
• If the player didn’t win money playing, would the game still be enjoyable or fun? It’s crucial to inquire about having fun, which can refer to engaging in profitable activities like gaming.
• Can users contribute to the ecosystem’s co-creation (UGC), for example, by creating user-generated NFTs? Although not a requirement in and of itself, user retention benefits greatly from this.
• How user-friendly is the game? There are several ways to introduce new players to web3 game mechanics. For instance, Defi Kingdoms has received praise for using gamification to make complex crypto concepts simple.

Web3 games’ target audience, up until now primarily crypto-savvy, will become more appealing to the “traditional” gaming community by offering a richer experience, which is likely to increase conversion.

While speculating is a legitimate part of the deal, reaching the mass market will depend on developing meaningful engagement, particularly through features that promote collaborative creation of in-game assets and worlds. Native web3 studios have a technological advantage over their predecessors when it comes to blockchain-powered user generated content (UGC), which they should fully utilize.

Business models

When evaluating the business models of the gaming project, you should pay attention to the following factors:

• Is there a free-to-play component? Is this game still available for purchase? This has a direct impact on the game’s mass market potential.

• Revenue sources: Does the game combine multiple revenue sources? As a general rule, the more, the merrier, as this reduces the risk for the model as a whole.

• Token: Is the game’s tokenomics truly intelligent and interoperable in the real world and in other games? How has the value of tokens changed over time? Are there beautiful NFTs that can be collected and used in the game, or are they just derivative JPGs? What utility do they have? Over time, all of this will have an impact on user retention and token appreciation.
• Partnerships: high-profile partnerships increase visibility and brand appeal, while also increasing the value of native tokens.
• Merchandise (physical / digital): Does the studio work with incredible brands and designers, especially on their merchandise?
• If advertising is present, is it integrated tastefully into the game or is it likely to irritate players?
• Is there a marketplace where you can buy assets from within or outside the game?
• Value retention of digital assets purchased / earned through game mechanics: how much can a player lose?

There are numerous entry barriers in web3 games, including acquiring cryptocurrency, creating a wallet, paying gas fees, and so on—not to mention the general information asymmetries surrounding blockchain. While this does not always imply that “free-to-play” is the best option, the higher the barrier to entry for players, the more difficult it will be to democratize web3 gaming. Expensive buy-ins should be justified.

The sustainability of web3 games will then be determined by:

• Their accessibility and appeal will determine how quickly the game’s player base grows;
• Significant utility for in-game assets, both inside and outside the game;
• Solid collaborations. Multiple revenue streams will help to stabilize projects by acting as a safety net in the event that one of the streams fails.

Team quality

Another important factor while seeking a long-term potential Web3 gaming project is the team. While checking the team quality, you should find out the answers to the questions below.

• Is the team open to the public (doxxed)? In the crypto space, this is not always a given.
• What is the size of the team? The team’s size should be proportional to the scope of its ambition and roadmap.
• Do the key members have relevant experience? We’re looking for top talent in a variety of fields, including product development, gaming (especially from top-tier studios), finance and crypto / tokenomics experts, marketing, and community-building.

The goal here is to assess how well-equipped the team is to carry out the big vision. It’s a similar logic to evaluating any core startup team — looking at the founders’ backgrounds and how complementary they are.

Web3 dimension, on the other hand, adds a few extra requirements, such as expert knowledge of tokenomics, so a chief economist can be a huge asset. Having a key member of the team with prior gaming experience is also a big plus, especially for studios looking to win over a larger target audience.

Financing and roadmap

Financing and roadmap are also crucial when you are assessing the long-term potential of Web3 gaming. In this part, you should focus on the following questions.

• Volume of funding to date: Did they raise a sizable sum of money or cryptocurrency through venture funding (or another method) to realize their dream?
• Which venture capital firms (such as Sequoia, A16Z, etc.,) or venture studios (like Satom) support them? Or are there any angel investors?
• Do multiple revenue streams and low risk make the game financially stable? This is related to the business model. Or does it lack funding from venture capitalists?
• Ambitious and realistic roadmap: Is the roadmap both visionary and ambitious, or does it not exist at all? How thorough is their plan of action?
• Frequency of shipping updates: Does the project communicate about all the aforementioned topics in a timely and open manner?

It is comforting to see ambitious projects with clear road maps. However, they require equally strong financial backing. If they have them, studios with strong finances will want to publicly tout them. Be careful because many projects may list well-known individuals on their websites but lack any real partnerships that will be important in the future. It’s possible that they merely used those platforms to finish their projects before using them as a marketing gimmick.

Having said that, not all web3 projects use the same funding strategy because some avoid traditional VC structures out of principle and opt to use alternative and/or more community-driven approaches.

Community

Last but not least, you should check the products’ communities by answering the questions below.

• Do Telegram, Discord, and Twitter communities exist that are sizeable, active, and naturally growing? Do they seem shady? Are they real? How many people attend their town hall meetings?
• DAO Project: Is there a DAO, and if so, is it a live, intelligent DAO? If so, does it permit the advancement of its plan? Or will it be deterred and slowed down?

Games with strong communities will stand out from the competition. Web3’s core ideologies revolve around communities, and these communities congregate on social media. A person’s ability to maintain buzz and expand the project’s reach can be seen by their social media presence.

As the hubs of web3 life, Telegram, Discord, and Twitter (also known as Crypto/NFT Twitter) have emerged. Other social media platforms, including TikTok, Instagram, Twitch, and YouTube, continue to reflect the project’s relationship with the local population. The web3 goal of a truly decentralized, thriving community is crucial in achieving the web3 goal, so those involved must do it correctly.

Final words,

These are the standards that we’ve established internally to define a “virtuous” Web3 gameplay. While it’s not an exact science and requires extensive tokenomics expertise to fully understand, some elements of long-term success seem obvious.

The winners of the Web3 revolution will be able to offer: 

• A top-notch, enjoyable gaming experience; 
• Sound business models that favor token appreciation over time
• A chance for users to creatively shape the platform.

The mindset for Web3 games aiming for a mass audience should probably change from play-to-earn to play-and-earn.