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Our Questions About Web 2.5 Gaming

Updated: Aug 16, 2023


Today, the dominant crypto gaming "meta", by way of $ raised, eyeballs gathered, and expectations raised, is broadly speaking variations of "Web 2.5 Gaming", characterized by the following pillars:

  • Web 2.5 Tokenization: Many projects and investors focus on adding tokenization and financialization to popular Web 2 game genres like FPS, Action-Adventure, Simulation, MOBA, and MMORPG.

  • Web 2.5 Economy: A lot of research has focused on how to make a hypothetical crypto economy work in a hypothetical, highly immersive MMO world.

  • Web 2.5 Gameplay: A lot of investment and engineering resources are undertaking the challenge of producing artistic effects and gameplays that will rival today's Web 2 incumbents.

In this essay, we aim to

1) engage with and raise questions about this prevailing Web 2.5 Gaming approach, and

2) call out a few interesting alternative areas at the intersection of crypto+gaming that we feel are currently underexplored. We will cover a few specific things in this essay:

  • Locate the Web 2.5 approach within the broad search space for "What kinds and parts of games can crypto potentially disrupt?"

  • Raise and discuss our 4 questions about Web 2.5 Gaming:

    1. Should we invest a lot in disrupting gameplay and artistic effects?

    2. How difficult it is to design an in-game open economy?

    3. Are immersive, asset-centric games a declining subgenre?

    4. Even for immersive MMOs, is hyperrealistic connectivity what players want?

  • Revisit the search space, and call out design areas where we'd like to see more $, entrepreneurial efforts, and practical iterations.

Visualizing the Search Space

Ethereum's founding myth apart, gaming has historically been a great test ground for new technologies. The collective thought process of how crypto+gaming can work often takes one of two directions:

  • From crypto to gaming: start with the core features of crypto (programmable value, credible neutrality, etc.) and evolve them towards an experience that would be fun. (Think fully on-chain games, gamified Defi, etc.)

  • From gaming to crypto: survey the existing landscape of gaming and which part is crypto most likely to fit in and add value. (Think Ubisoft, Animoca's racing games, and many other crypto games currently under production)

We at Maverick are slightly biased towards the 1st approach (for their alignment with our cryptonative & token-maxi philosophy) and will share our thoughts there going forward. But this essay is about the 2nd approach, where we are interested but not well-versed, and very curious to learn from those who know much more.

We visualize the gaming-to-crypto search space as follows:

  • Horizontal (game categories): there are many genres of games, and each genre has its own domain know-how, target demographic, gameplay, and in-game dynamics.

  • Vertical (stack layers): a successful and profitable gaming product requires most, if not all, layers to click together: tokenomics, gameplay, GTM, operations, economic management, ecosystem, and decentralization, to name a few. One floppy layer could easily destroy the entire experience. Since crypto+gaming is so new, there are not yet tried-and-proven designs for any single layer. Finding an optimal solution for a single cell (e.g. How to market a crypto-enabled strategy game) is hard enough. Finding a vertical line that works together (e.g. How to solve all 7+ questions for a strategy game) is orders of magnitude harder. We believe we are bound to see many more iterations, experiments, and trial-and-errors before a full-stack solution is made.

  • Cells (counter of hit iterations): The number in each cell represents the number of relatively successful attempts the crypto space has seen. Each hit game, even if it eventually fails, pushes crypto's collective know-how forward and moves us closer to eventually solving a cell or two. Till today, the most well-known iterations happened in P2E (Axie Infinity and StepN), Fully On-chain (Dark Forrest and CryptoKitties), Casino Games (several old and new designs that didn't win much DAU), and Strategy (Dark Forrest again).

  • The Collective Quest: Builders across the crypto gaming space build and iterate their products so that we have more green dots with higher numbers. As we accumulate collective know-how, talents, experiences, best practices, and case studies, we are probabilistically getting closer to creating the right crypto game.

In this search space, we locate the Web 2.5 approach in the yellow-shaded areas:

  • Genre-wise, focus on proven popular genres like MMO, MOBA, FPS

  • Stack-wise, Web 2.5 gaming traditionally focuses on remaking gameplay and tokenization. The latest conversations are starting to explore more complex possibilities around in-game open economy management and ongoing operations.

Our Questions for Web 2.5 Gaming

Question 1: Should crypto games spend first on gameplay and artistic effects?

The challenge of gameplay and artistic effects in popular genres gets in the way of iterating the possible potential of crypto+gaming.

Today, many crypto game studios and investors are focused on remaking the gameplay of popular genres like MMORPG, FPS, and MOBA. While it makes prima facie sense to go after the largest seen TAM, these are also places where PMF or TMF -- team-market fit -- is least clear. Crypto upstarts typically spend a lot of resources on gameplay before gamers even come in and experiment with risky but crucial crypto-economic designs. Historically, it has been extremely difficult to disrupt gaming incumbents with data, distribution, and social moats. For a few important reasons:

  • Data: Over the course of 10+ years, data optimizers like Sensor Tower and Unity have accumulated endless data and analytics for the game to granularly optimize for each individual player's retention, screentime, and inclination to pay. Building an economic model and game loop that rivals 10+ years of data optimization in terms of both UIUX and profitability is no easy undertaking.

  • Artwork: According to Unity's CEO, typical gaming companies have 3-5 times more artists than engineers. For many of the more popular games like Fortnite, Genshin Impact, and Honor of Kings, Unity and Unreal tailor-make the rendering engine to optimize performance.

  • Gameplay: each new gameplay is rigorously A/B tested and even with all the asymmetrical advantages, successful titles are a rarity for even the most successful studios. More than 95% of all game titles lose money. The uphill battle will only be steeper for crypto upstarts.

Furthermore, directing resources at gameplay and artwork means that much fewer resources, mindshare, and product iterations are allocated to Open Economy designs (more on this later). Founders and funds instead focus on hiring ex-studio product managers, artists, and renderers for the most eye-catching concept videos.

But not all games require world-class art and gameplay to have a fighting chance at success. We believe games exist on a spectrum from creative/gameplay-heavy to economics/strategy-heavy. Genres like casino games, board games, strategy games, and strategy-focused RPGs don't normally require the latest graphic cards. These games instead compete in their distribution, operations, economics, game loop design, and more. Such categories feel more natural to a crypto-powered revamp.

We think Web 3's limited resources are better spent on exploring how crypto-economics can unlock new paradigms in gaming, rather than funding ex-AAAs to make another MOBA/FPS game with some tokens stuck on top. To further take this point home, what has really catapulted DeFi into its own chapter of crypto's history is not conquering foreseen massive TAM use cases like Real-World Assets or Payment Solutions, but its native composable legos that allowed people to play with, iterate, and eventually reimagine finance and leverage.

With this, let's move on from gameplay and artwork, and discuss the project of designing an in-game open economy with crypto.

Question 2: The prize and challenge of designing an open economy

The grand prize of an on-chain MMO economy is big, the challenges may be even bigger. This section is inspired by Aiko's comprehensive piece on designing a sustainable in-game economy and a taxation-based revenue model. In our view, Aiko's piece represents the latest frontier in Web 2.5 gaming: creating an internally sustainable economy where in-game transactions happen frequently, so that the creator can profit by collecting taxes on internal transactions. This way, the player and operator incentives are aligned in that they both want a thriving economy with higher GDPs and velocity of capital.

We have no doubt that the endgame is super exciting. Re-creating Genshin Impact or Fantastic Westward Journey with crypto's promise to liven up the internal economy 10x is anyone's dream. But we do identify quite a few difficult prerequisites before a crypto MMO economy can take off from scratch:

  1. Necessary Complexity: In order to have a sufficiently sustainable economy, the game itself likely needs to be sufficiently diverse and complex. To properly represent such game logic, we need many different fungible and non-fungible assets across different levels, contexts, and specializations.

  2. Aggregate trading liquidity: Given the complexity and the number of long-tail assets, there needs to be a lot of trading activity for the market to have workable liquidity. This aggregate trading activity can be interpreted as DAU x Average Daily Trades. But is there a big enough player base for a trading-centric immersive MMO? (more on this in questions 3 and 4).

  3. Freedom and abuse: With freedom comes the potential for abuse and exploitative behavior. Even in a game as simple as Dark Forest, guilds can exhibit abusive behavior that harms the experience of other players. A more complicated game is only going to be 1,000x exposed to such risks. How to moderate such abuses, or if they should be centrally moderated at all, remain an open question.

  4. Economic management and centralization: In a real economy, there are central banks and finance departments that discretionarily modulate economic activities in a pretty ad hoc manner. In a traditional game, a huge operating team works day and night to balance the numbers. It is impossible to set up a perfect economy and it will run perfectly forever. But discretionary centralized economic moderation naturally has tension with crypto's promise of ownership rights and credible neutrality. Walking the fine balance between playability and ownership predictability will be challenging.

We do not suggest that any of the aforementioned challenges are impossible to solve. Quite the contrary, we do think many worthwhile paths can exist to solve each individual challenge: AIGC players, limited trading times, community-managed mods, etc. Each of the solutions can be exciting, but they probably need to be iterated many times before becoming mass-production-ready.

Our question/suggestion: given how hard it is to solve all challenges in one complicated MMO game, is a studio better served to start with smaller, simpler game genres where they can take care of one dimension of the challenge at a time? For example, we can start with a simple on-chain, casino, simulation, or board game, and ask one or two practical questions at a time. Here's a (growing) list of specific questions we would love to see products explore answers for.

  • A paradigm to value and exchange some in-game assets without overcomplicating the UI/UX.

  • Best practices to value and incorporate inter-game tangible and intangible assets.

  • Best practices to open up certain mod SDKs to the community and align economic incentives.

  • Best practices to manage the in-game economy through internal and external cycles democratically, algorithmically, or technocratically.

  • New primitives for funding, distributing, and buying games.

  • Solutions to profile and distinguish users against abusive or botting behavior.

Question 3: Vertically, are asset-centric immersive games a declining subgenre?

Today's majority favor atomic, quick matches instead of immersive in-game worlds and storylines. We observe a few clear trends in gaming over the last 10-20 years

  • Inflation-adjusted, only mobile gaming is growing while desktops and consoles decline

  • Games and gamers generally become less immersive/immersed in the gaming world. Average gaming sessions are getting shorter and shorter.

The phenomenon is pretty straightforward as it is driven by our collective shift towards a more connected and fragmented lifestyle. Our time is divided by long commutes, always-on notifications, and many competing forms of media and entertainment. The cozy basement console will likely forever remain a fantasy from the past. It is in the same trend that super-short video forms like TikTok and Reels are taking over YouTube, Netflix, and cinemas in the entertainment war.

To use the world's highest-grossing mobile game of all time, Tencent's Honor of Kings (MOBA), as an example:

  • Tencent has continually shortened the average time per match from an average of 25 minutes to its current 15-18 minutes while launching even faster-paced game modes on the side.

  • Tencent continually simplified its non-match storyline so that the game becomes more atomic around the MOBA match itself, phasing out the importance of accumulative assets like player levels, experience points, coins, and collectibles.

We recognize that there exists a minority of gamers who enjoy deeply immersive games with fantastical storylines, in-game assets, in-game careers, and a deep bond with like-minded hardcore gamers. To these fans, the game is like a second life that may be even dearer to their identity and self-recognition to what others call "real life". But if we look at the list of top-gross mobile games today, the chart is dominated by atomic, non-immersive games that feel like quick complements, not full-fledged alternatives, to the busy and mundane modern life.

So far, the overwhelming majority of tokenization designs we see add more complexity to the game itself. It is almost like playing a supra-game on top of whatever the original game is. This approach leaves open a few questions:

  • Games have specialized categories that speak to the preference of different groups and situations, trying to force a strategy supra-game onto FPS/MOBA/SLG will unlikely automatically make sense. Similarly, the concepts of asset, ownership, accumulation, and a hyperrealistic in-game career are not universal features.

  • The extra tokenization layer of gaming likely makes the game more complicated and longer, likely frustrating modern gamers who just want a quick entertainment experience.

Question 4: Even for immersive MMOs, what is the right dose of tokenization and financialization?

Many come to online worlds to disconnect, not connect, to reality. Finally let's zoom in on a specific kind of game: MMORPG and MMOSLG games. Many tout these two categories as the most natural category of traditional games to bring on-chain. The reasons are quite intuitive: they natively feature concepts like personality, ownership, accumulation, growth, and P2P exchange in their gameplay. For a set of examples, consider Animal Crossing, GTA, SimCity, Sims, and Genshin Impact. Theoretically, we hypothesize that an MMORPG/SLG with a perfect fit for crypto should exist. But there are a few open questions we do not yet have answers to:

  • Escape and Reality: "Escape" is the first word in Nintendo's promotion for its 2020 hit game Animal Crossing, New Horizons. The charm of the game is, in part, that players are teleported into a parallel universe that is relaxing and predictable. MMORPG's typical players are also more risk-averse and calm than the typical traders who indulge in monetizable commodities and securities. Similar to how hedge fund traders probably don't want a Bloomberg terminal in their Ritz Carlton suite in Tahiti, we are quite unsure if the promise of interoperability, connectivity, and global liquidity is what players want on their Nintendo islands.

  • Non-financialization is probably a feature of MMOs. A successful MMO game must bring together a cross-section of people from all social classes. Different players have different opportunity costs for their time invested in the game. I would happily spend an hour of my leisure time waiting for the SimCity Trade HQ to refresh every 30s to look for rare items. But the moment I realize there is a price tag on my effort and time spent, one that is likely much lower than my hourly opportunity cost trading crypto, the emotional value of gaming is suddenly lost to commoditization and financialization.

It is impossible for us to exhaustively discuss all possible MMOs. There are definitely exceptions to my very primitive intuitions. One on top of my head is NetEase's Fantasy Westward Journey, an MMORPG where nearly everything is tradable. The game has grossed over 4 billion USD over its 8 years in existence (and counting). It is, if anything, the closest incarceration of crypto MMOs to dream for. There is a lot to be learned from FWJ, and the jury is still out if Fantasy Westward Journey is an exception or a paradigm. Another day.

So where do we go from here?

Frankly, we don't know. We try to engage the ongoing conversation with our honest questions, and we are always happy to be convinced otherwise.

Today, we feel there is a concentration of efforts around remaking Web 2-popular gaming genres with crypto. But we see a number of difficulties around competing with Web 2 incumbents, designing an open economy, and attracting a broad enough player base to make the economy prosperous. On the other hand, we identify several underexplored areas in gaming today that may be more conducive to meaningful crypto experiments:

  • Categories: Crypto-economic (and social) experiments of "games" that do not require impeccable artwork and gameplay as a prior industry standard. (Fully on-chain, casino, strategy, casual, board games, sports, simulation games, etc.)

  • Stack layers: Even in these categories, we are more interested in projects that don't focus singularly on gameplay, but rather broadly on how crypto may reimagine other stages of the gaming lifecycle.

We are sure the categories we point out will have their own set of difficulties, but we believe it is in the best interest of studios, investors, and the crypto industry in general to charter unchartered waters and push our collective know-how forward. We want to talk to founders, future founders, researchers, and investors who agree and, even better, disagree. We fully intend to continue thinking, deliberating, writing, building, and investing.

Please do get in touch.

We want to thank the following people and institutions whose writing, deliberation, and projects have inspired us:

Maverick team members @Simiao @Colin @Lydia @Maeve


Author: Asa

Research Lead, Maverick Crypto

Twitter: @theantiape

Telegram: @al01002


DMs are open.


Twitter: @GMMaverickCap

Learn more about Maverick: For long-form essays and research deep dives: For inquiries/media/outreach:

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