From Pixels to Blockchain: A Player-Centric Exploration of On-Chain Gaming.

By Yoonduk Kim and Kimberly Liang

Table of Contents

Key Takeaways

Introduction

Section 1: Different People Like Different Games

• Model of Player Choice with Heterogeneous Preferences

• Finding the On-Chain “Gamers”

Section 2: How Does Blockchain Make Games More Fun?

• Immersion Through Ownership

• Expanded Freedom for Interaction and Content Creation

• Ethos of Decentralization

Section 3: The Current State of On-Chain Gaming and Obstacles

• Effect of Blockchain Integration on Player Utility

• Who Enjoys the On-Chain Features?

• The Drawbacks of On-Chain Gaming

• On-Chain Games in 2023

• The “Killer App” of On-Chain Gaming

Section 4: Innovations and Future Prospects in On-Chain Gaming

• Infrastructure

• Game Developers

• Discussions

• Conclusion and Acknowledgements

Key Takeaways

• Discourse on On-Chain Gaming can benefit from the perspective of gamers, recognizing them as consumers with heterogeneous preferences

• On-chain features that enhance the player’s core gameplay experience regardless of market conditions are necessary for sustained, long term success of the space

• Identifying the segment of gamers that enjoy the on-chain features is an important step in cultivating a healthy, loyal player base

• Development is underway on various fronts to improve the benefits and reduce the limitations of On-Chain Gaming. Advancements in execution environments, cross-chain communication, and open-source tools can help On-Chain Gaming achieve its promised potential

Introduction

Public interest in On-Chain Gaming has waned in recent years. Google Trends shows that the search volume for the topics, ‘crypto game’, ‘pay to earn’, and ‘Axie Infinity’, are now far below their ATH during the bull market of 2021. Mainstream media coverage on On-Chain Gaming has also seen a noticeable decline.

Articles and reports on On-Chain Gaming commonly portray them as investment rather than entertainment. Emphasis is put on the Pay-to-Earn business model, the market capitalization of the underlying tokens, and the few lucky individuals that hit the jackpot. Even in web3 research, focus tends to skew towards finances. “Gaming” is viewed as a monolithic industry, instead of a creative enterprise with varying styles and forms. The term “market” is used to denote the consumers, instead of viewing them as gamers with different tastes and wants.

In this article, we bring a consumer-centric perspective to On-Chain Gaming. As avid web2 game players, we pose the following question: Why should players invest their time and money on an On-Chain Game rather than their favorite web2 game? To answer this question, we conducted interviews with over 20 industry professionals representing the various constituents of On-Chain Gaming, from the game developers, web3 infrastructure protocols, and major L1 and L2 chains. In all sessions the interviewees were asked the question, “how does the blockchain make games more fun?” 

The article is structured into four sections. Section 1 lays out a consumer utility model of games and the conditions for On-Chain Games to succeed in the long-term. Section 2 gathers responses from industry professionals and highlights blockchain's potential to enhance player experience. In Section 3, our consumer model is applied to on-chain features to evaluate their impact on game enjoyment. The final section underscores current challenges and future prospects in On-Chain Gaming.

Section 1: Different People Like Different Games

Model of Player Choice with Heterogeneous Preferences

The popular narrative around On-Chain Gaming revolves around triple-A production standards, a facet yet to be seen due to the sector's nascency. Industry outlets hype triple-A On-Chain Games under development, emphasizing the combined experience of the development team and the amount of capital invested. The narrative paints a picture of the On-Chain Gaming landscape which didn’t have a “hit” due to the lack of big-budget projects, which will be rejuvenated by the oncoming triple-A titles. 

However, this perspective overemphasizes the role that production budget plays in the consumer choice of games. There does exist a sizable audience of gamers that enjoy games with quality graphics and high production value. But there is a larger group of gamers (and potential gamers) for whom the title, “triple-A,” holds little to no value. Thanks to lowered barriers to publishing and expanded channels for marketing, independent developers with small teams have seen huge success in the web2 gaming space in recent years. Production budget is not the only reason that the On-Chain Gaming space has not yet had a big hit product. Many factors enter the player’s mind before they decide to play a game, and everyone has their own reasons.

We abstract an individual’s decision to play a particular game as a multiattribute utility model of choice [1]. A player would decide to spend their valuable time (and money) on a game because it brings them utility, which manifests in various forms of fun, social cred, or financial profit. Given a set of games, a rational player will choose the one that offers the most utility.

We assume a simple additive utility function, where the gamer i’s utility for game j, uij, is derived as follows:

\(u_{ij} = \sum_{k=1}^{K} \beta_{ik} x_{jk} \quad \text{for} \quad i \in I \quad \text{and} \quad j \in J \)

Equation 1. Utility of Player Choice

Game j has K features, each differing in value. User i also has their own preference weight for each feature k. The total utility is the sum of the product of each game’s feature value (x_jk) and the corresponding preference weight for that feature (ik).

Consider the following toy example set of games and their feature values (the numbers are arbitrarily set for the purpose of demonstration and do not reflect the opinions of the authors):

In this example, we have K=3 features. Game a, Minecraft, would have the following feature values, where Gra corresponds to Graphics, Soc to Social Interaction and Eas to Ease of Access:

\(x_{a\text{Gra}}, x_{a\text{Soc}}, x_{a\text{Eas}} = (2, 5, 4) \)

Consider Alice (A), who loves to build new things and share her creation with her friends. She has a high preference for social interaction: (AGra ASoc AEas)=(1   10   5) .

Another visualization could be the following:

Thus, Alice would choose to play game (a) Minecraft, as it provides the highest utility, 72, compared to other games in the choice set.

On the other hand, Bob (B) considers graphics to be the most important feature:

 (BGra BSoc BEas)=(10   1   1) .

For Bob, game (b) Elden Ring would be the top choice with utility 54, compared to 29 and 18 for Minecraft and Candy Crush, respectively.

Gamers like Bob may be a big fan of triple-A titles with detailed graphics, while Alice may not be as impressed. The impact of triple-A titles on the On-Chain Gaming space would therefore correlate to the proportion of “Bobs” constituting the player base. The question is, who are the players of On-Chain Games, and why do they play?

Finding the On-Chain “Gamers”

We approach blockchain integration as we would any other technology. Adding VR to a game does not automatically make the game better; so is the case with NFTs or real money transactions. Blockchain is a niche technology that has potential to be valuable in certain games for certain audiences. 

People that play On-Chain Games will do so because they assign high preference weights for the games’ blockchain features. One feature often emphasized in the media is profit potential. On-Chain Games’ seamless integration with DeFi exchanges could allow players to potentially earn financial profits by playing the game. Let Charlie (C) be a player who does not regularly enjoy games but is motivated by profit, with a preference profile of: (CGra CSoc CEas CPro)=(0   0   0   10) . 

Charlie gives distinctly high weightage to profit potential, while being indifferent to graphics, social interaction, and ease of access. While gaming in general did not provide utility to Charlie in the past, he has a newfound reason to play On-Chain Games that can make him money. 

Profit potential lies on precarious grounds, however. Features like graphics or accessibility seldom deteriorate. In fact, most game features tend to improve over time through developer updates and community contributions. Profit potential, on the other hand, is influenced by external risks outside the developer’s control. If the polygon count for Call of Duty was correlated with the daily trading volume of Bitcoin, it wouldn’t be unusual to see gamers drop the game after seeing their character become a blocky mess.

Market dependency helps explain the rapid rise and the subsequent cool-down of P2E (Play-to-Earn) gaming in 2021. Consider Game (d), P2E Game X, which lacks core gameplay functionality but had great (perceived) profit potential during the crypto bull market. Once the profit opportunities diminished, players like Charlie stopped playing. Meanwhile, traditional gamers like Alice and Bob would continue to play their favorite web2 games that excel in their preferred feature dimensions.

Therefore, for blockchain integration to have a positive long-term effect on the player gaming experience, it must do one of the following:

1) Improve the game’s traditional features in a meaningful way

2) Introduce new features that are decoupled from influences outside the game

Players that enjoy On-Chain Games for the long run will be the people who appreciate such features. Those gamers will spend their time, energy, and money on the game regardless of crypto market conditions, because having fun is independent from what goes on in the outside world. The success of On-Chain Gaming is grounded on identifying this segment of gamers that enjoy (or would enjoy) the new gaming features only available through blockchain.

In the following section, we list the key features of blockchain integration that experts in the space believe can make games more fun. Such features would take advantage of blockchain’s unique capabilities to enhance the core gaming experience and attract a loyal player base. 

Section 2: How Does Blockchain Make Games More Fun?

The economic opportunities of On-Chain Gaming have been extensively covered in existing publications. Blockchain integration allows for innovations in business models and opens up new audiences for gaming. But relatively little has been said on how blockchain can bring utility to the consumers, the gamers.

This section is our interpretation of the insights we gained from asking the question “How does blockchain make games more fun?” to over 20 professionals in the On-Chain Gaming Space. Our overall impression can be summarized as “cautious optimism.” On-Chain Gaming will not replace web2 gaming, nor is it expected to. Rather, blockchain should be considered as a suite of useful tools that any developer can have at their disposal to introduce new features or improve upon the game functionality of their choosing. Blockchain integration already exists on a wide spectrum, from web2 games that only incorporate NFTs as a standalone feature, to Fully On-Chain Games in which every game state and computation is handled on the chain. 

Based on the information we gathered, blockchain can make games more fun in the following ways:

1. Immersion Through Ownership

2. Expanded Functionality for User Generated Content

3. Ethos of Decentralization

Immersion Through Ownership

On-Chain Games enhance the gaming experience by giving players ownership of in-game assets outside the game in the form of fungible or non-fungible tokens. Once the asset is minted and transferred to the player’s wallet, it exists independently of the game. It cannot be taken away and the player is free to use it as they see fit, allowing for deeper integration across the in-game world and the real world. 

In the field of behavioral economics, the endowment effect is the observation that people assign greater value to an object that they own, than the amount they would have paid to acquire it [2]. Players may develop a deeper sense of ownership for their on-chain asset than their off-chain counterpart, feeling that their characters and items are more valuable. The consequences of a character death or the rush of a rare item drop would be more viscerally felt. 

In the history of gaming, technological developments were primarily directed toward enhancing sensory realism. 3D graphics, surround sound, and VR make the game look more ‘lifelike.’ Motion controls added a layer of physical realism by connecting player movement to character actions. In the case of blockchain, the increased psychological realism through ownership has the potential to enhance player immersion.

Expanded Freedom for Interaction and Content Creation

When executed correctly, On-Chain Games can offer players an unprecedented level of freedom to interact with the game through their own creations. This is made possible due to the web3 culture that heralds the composability of smart contracts, the underlying programs that comprise the applications on the blockchain. 

Composability is a design principle where systems are assembled from various independent components. Composability is achievable under the condition that all of the components in the system are robust, as the whole is only as strong as its weakest link. The creator of a system must therefore have a way to vet the legitimacy of its constituent components. Some software components are deemed legitimate through association, based on the reputation of its publisher (e.g. Microsoft, Adobe). In this case, the user is trusting the publisher to act on their best behalf, in some cases outlining the liabilities of each party through legal contracts. Alternatively, there are many open-source software components that are free to use, with the assumption that the user is responsible for any damages caused by using them. In the case of open-source software, security rests on the scrutiny of “many-eyeballs,” an assertion that if a project is popular enough, bugs or exploits will be caught by the developers that maintain it and the users that utilize it [3].

Most web3 applications are open-source because of blockchain's transparent nature. Transactions on a blockchain should be publicly available at any time. Smart contracts running the applications are also open for anyone to review and reuse. This structural limitation of transparency produced several characteristics that make the web3 landscape unique. Applications are executed trustlessly, with the assumption that the user is responsible for checking that the code is legitimate. Open and interoperable protocols became popular, as building internal, closed-source codebases became infeasible or unprofitable. This resulted in a culture of composability, in which developers select existing smart contract components to assemble their application, while taking on the responsibility of ensuring that their program is secure from exploits or attacks.

In On-Chain Gaming, the open, trustless, and composable nature of blockchain has often been negatively portrayed. In early 2022, Axie Infinity’s bridge chain Ronin Network experienced a hack where over $600 million worth of funds were stolen [4]. The publically available network structure allowed the hackers to target the weakness in its consensus mechanism. Even putting aside the big hacks, On-Chain Gaming space has been, and is still, inundated with scams and low-effort projects. By its very nature, blockchain does not have a central entity to regulate or enforce the actions of its users. On-Chain Gaming relies on the discretion of its community to protect themselves from malicious actors.

Nonetheless, composability presents an attractive value proposition for the players that enjoy creating mods and content for their games. In traditional web2 games, there is a hard limit to the degree of freedom the player has in adding and making changes to the game content, especially when it comes to interacting with the game state. For On-Chain Games utilizing smart contracts, the boundary is entirely dependent on the access modifiers set by the programmer. As long as the interactions are permitted by the developer, players can build new games or services that interact with the existing game and assets, which others can then build on top of. In essence, players have the capability to be the developer of their own spin-off project. 

An example of a Fully On-Chain Game that demonstrates the capabilities of the smart contract is Treaty, a multiplayer strategy game whose primary mechanic revolves around the creation and interaction with its namesake treaties. Though the game’s core rules are pre-set, the players have free reign on the use of smart contracts and external assets (e.g. USDC or any existing tokens) to create contracts and alliances. Curio, the team behind Treaty notes that Treaty was not aimed for the general gaming audience - it ran for a 5-day period in early 2023 with several hundred web3 enthusiasts. According to Curio, the project was a showcase for the level of complexity and freedom that Fully On-Chain Games can offer to players while keeping critical game states protected.

On-Chain Games also provide developers and creators the tools for content monetization on predefined terms. Many of the most successful game archetypes have come from user-generated content: Counter Strike began as a mod for Half-Life. Dota 2 originated from a Warcraft 3 custom map of the same name. The Battle Royale genre can be traced to mods in Minecraft and Arma 2. 

Despite the popular success and the cultural impact of their creations, the creators have been typically excluded from sharing the financial rewards, with some engaging in prolonged legal battles for ownership [5]. Compensations come in the secondary form of employment or the launch of an independent new game. One reason for the status quo is the problem of attribution. In traditional games, quantifying the contribution of a user created content is not only difficult, but oftentimes impossible due to data inaccessibility. Smart contracts make it possible for the creators to be compensated on transparent terms, based on publicly available data. Combined with the composability of smart contracts, On-Chain Gaming has a potential to be a playground for experimentation where game designers and content creators build off each other’s creations. 

Ethos of Decentralization

As discussed above, On-Chain Gaming brings with it a unique culture of decentralization and transparency. Based on our interviews and surveys of On-Chain Gaming community Discord channels, we summarize our understanding of how this cultural characteristic can manifest in a tangible manner to make games more fun. 

The first point relates to community engagement. On-Chain Games generally have active community discussion channels on Discord, Telegram and the like. This characteristic may be attributed to the web3 culture of in-groups and the systematic incentives from DAO governance. It is important to note that many communities in web3, especially in the NFT sector, have users with financial stakes in the project. The collective aspirations of the project’s success could be a strong driver of solidarity that may not be as pronounced for non-financialized On-Chain Games. Still, the Decentralized Autonomous Organization (DAO) structure adopted by many projects presents an interesting new dimension to how players approach gaming. 

Traditionally, players had little say over a game’s production process, since most of the feedback was generated after the game’s release. As more games adopt the live service model with continuous patches and updates, interactions have become more two-sided. The DAO structure goes a step further, putting up key design decisions to a vote by the governance token holders. In some cases, the votes act as a political metagame, as the outcome of the vote affects the game balance in ways that favor certain groups. Players can have influence over the votes by 1) being a “whale” and having a larger share of the governance tokens, or 2) having clout through engagement in the community channels. The social dynamics and maneuvers on display can oftentimes eclipse the complexity of the underlying game. The events on these channels have intricate ties to the game as a shared history among the players or are even canonized into the game’s lore. 

Whether the community dynamics of On-Chain Games is a unique lasting characteristic of the web3 domain, or a byproduct of the smaller player base remains to be seen. Currently, even On-Chain Game projects with larger budgets and bigger teams tend to follow the web3 tradition of establishing and maintaining community channels. The advent of an On-Chain Game with a playerbase of millions operating under a DAO structure will present a valuable case study on the viability of the DAO system at a large scale. 

The second facet of the decentralization culture is developer empowerment. Game developers in our interviews placed high value on the ideals of decentralization and transparency. A representative of web3 game developer Ladder Labs emphasized his team’s vision of an automated, fully on-chain repository that will outlive the company. For developers like Ladder Labs, the permanence and independence of data is an important element at the core of their game. 

The open-source standard and composability let developers focus on crafting enjoyable games. According to a representative of the Solana Foundation, web3 can provide opportunities for smaller development teams by reducing the technical burden of developing in-house infrastructure. As the field matures, the available tools for finance, governance, and communication will continuously develop in parallel. The increasing availability of open-source tools may empower developers with limited resources to bypass the technical barriers that exist in web2 game publishing.

The ethos of decentralization may not have much direct impact on the player’s gaming experience. Still, it sets the stage for encouraging developers to provide a diverse offering of games with new features and innovations.

Section 3: The Current State of On-Chain Gaming and Obstacles

Effect of Blockchain Integration on Player Utility

On-Chain Gaming, with immersion through ownership, greater freedom for content creation, and decentralization, offer new ways for players to have fun. Per our multiattribute utility model of Section 1, we can operationalize the blockchain features as follows: 

In this section, we will explore which segment of players would have high preference weights for the on-chain features. We then identify the drawbacks that blockchain integration has on traditional gameplay features. Likewise to the benefits, we will examine the gamers that would be most affected by the downsides. On-Chain Games that successfully integrate blockchain components will take advantage of the features while minimizing the downsides. 

Who Enjoys the On-Chain Features?

Ownership can be an engaging feature to players who place great value on the collection and trading of game assets. A common thread we noticed across the interviewed professionals who had given ‘immersion through ownership’ as their answer was that they had an extensive background in MMORPGs or collectible card games. Some recounted actively participating in marketplaces for games such as Runescape, World of Warcraft, and Magic the Gathering. Players that value ownership thrive in games where assets take the center stage. The enjoyment comes from maintaining a collection, augmenting them through trades, and displaying them. Collectible games is a unique genre as the requirement for progression increases at an exponential rate in the amount of money or time invested. The player base would lean towards the hardcore, rather than the casual gaming audience.

Expanded freedom for content creation provides benefits to gamers that are also creators. Currently, most user generated content are labors of love, where creators are self-funded or independently supported by the community. Part of the issue arises from the difficulty of attribution and the absence of a system for creator compensation. On-Chain Games can present an attractive proposition for creators through transparent payout schemes outlined by smart contracts. Influx of talented, fairly-compensated creators can subsequently generate enjoyment for players that engage with the creations. Games with a large creator base tend to have a powerful and versatile core game mechanic, or a captivating world populated with interesting characters. Games like Elder Scrolls, Minecraft, or the Sims present a sandbox-like environment for modding. Meanwhile, games such as Undertale or Overwatch have large fan bases that generate and consume secondary content. As the two genres represent vastly different consumer segments, On-Chain Games that plan to capitalize on the composability of smart contracts would need to have a good understanding of their target audience.

Though the direct tangible utility of decentralization culture on player experience is nebulous, it may bring in a new audience of players that did not traditionally identify as gamers. In several community-centric On-Chain Games, gameplay is simply a backdrop for player engagement on social channels. The real game is in the dialogue and drama that arises from the politics of DAO governance. Blockchain has blurred the boundaries of financial assets and games. While the financialization of games (or the gamification of finance) has been eyed warily by the traditional gaming population, the trend has not encroached on the web2 games. The On-Chain Games that cater to a crypto-native audience may develop into its own genre with a loyal fan base. 

The Drawbacks of On-Chain Gaming

The decentralized blockchain was originally developed with the intent to maintain records of secure, public consensus [6]. Computation speed was not the primary objective. Increasing the speed and transaction throughput of a blockchain comes at the cost of security and/or decentralization. This tradeoff between security, scalability, and decentralization is known as the blockchain trilemma, a term coined by Vitalik Buterin, co-founder of Ethereum [7]. The landscape has undergone innovations on many fronts, but On-Chain Gaming is not yet exempt from this puzzle.

Security is a fundamental requirement for a blockchain to function and the On-Chain Game to be playable. If the game’s integrated blockchain is not secure, malicious actors can steal player assets and modify the game state to their liking. However, these security requirements can sometimes create inconveniences that disrupt the player experience. Any transaction that significantly affects the player’s on-chain gamestate must be verified by the player. This introduces entry barriers for new gamers as they are burdened with the concepts of wallets, addresses, smart contracts, and transactions. 

With security as the precondition, On-Chain Games must bear additional cost in scalability. On-chain gaming requires maintaining state across many distributed nodes, which is inherently slower than traditional client-server architectures. The added latency can impair game dynamics, hindering the potential of fast-paced online multiplayer games requiring real-time feedback. Arbitrum, a Layer 2 solution for the Ethereum network, is one the fastest chains presently with a blocktime of 0.25 seconds. Though Arbitrum’s speed is remarkable as a general purpose blockchain, it would translate to 250 ms of ping (latency) in the context of traditional games. As of this time, first-person shooters or real-time strategy cannot be implemented fully on-chain, since ping in the 60-80 ms range is sufficient to spark controversy in competitive esports. 

Decentralization comes with its own set of challenges, particularly in relation to governance and control. Empowering players to influence game development through DAO structures can sometimes lead to conflicts of interest, hindering game progress. Moreover, the elimination of a central authority can give rise to scams and exploitative practices. 

Given the above, a possible course of action would be to sacrifice decentralization in exchange for scalability. Restricting consensus to a group of authorized nodes could expedite execution speed, while granting greater oversight of malicious actors. However, the gains come at the price of On-Chain Game’s identity. The unique characteristics of blockchain integration: ownership, interoperability, and the decentralization ethos, are realized only when no central authority holds power over the ecosystem. After all, an On-Chain game running on a single node would be just a web2 game with extra steps.

Blockchain integration has the potential to generate value for gamers by introducing new ways to enjoy content, but may adversely affect basic functionalities. In our consumer utility model, we can operationalize blockchain integration in games as: 1) introducing new feature dimensions, while 2) potentially weakening some of the existing features. 

In its current state, On-Chain Gaming is not for everyone. It can add enjoyment for players that want a greater sense of ownership, gamers that like to engage in content creation, and people that identify with the ethos of decentralization. To gamers who value ease of access, fast-paced action, and/or the safetynet of centralized moderation, blockchain may be detrimental. 

On-Chain Games in 2023

An overview of the most popular On-Chain Games of the present can offer perspective into the genres and the player base that thrive in the space. We take a look into the top 100 games on DappRadar, sorted by the number of unique active wallets (UAW) over the 30 days up to the time of writing. 

The most popular genres in the top 100 are strategy, role-playing, and collectible card games. Meanwhile, genres like FPS and action constitute a minority, despite their popularity in web2 gaming. The data is consistent with our observation that the genres that emphasize asset ownership, integrate assets in unique gameplay features, or have a high level of player interaction, will have greater appeal to the On-Chain Gaming crowd. In contrast, the data confirms the sentiment that blockchain technology as it currently stands does not provide as much value for certain genres involving fast player action or reflex reactions.  

We also notice the emergence of protocols building platforms on which many different On-Chain games sit atop. Iskra is the 5th most popular On-Chain Gaming dApp at the time of writing. Iskra is a gaming hub that provides an array of games to its users, with opportunities existing to invest in the development of a game that most interests the community. They involve users from an early-stage, allowing the best game to garner the most attention and giving gamers the choice to use their tokens interchangeably in between many modes of games. The popularity of such platforms suggests that some gamers in the space are interested in being involved in the investment, development, and governance of their games.

The distribution of game platforms presents another insight. The majority of games (69%) in the top 100 are accessible both on mobile and PC, with mobile-only games constituting 28% compared to 2% of PC-only games. The bias towards mobile is expected, given the difficulty in implementing resource-intensive genres on blockchain. Yet the number of games available on both platforms is surprisingly large. We interpret this pattern to represent the lower front-end complexity in On-Chain Games. In web 2 gaming, cross-platform development is a challenge as the game code must be adapted to new hardware environments. For On-Chain Games, most of the developmental resources are focused on the blockchain back-end, which is platform-agnostic by design. The player-facing front-end features are relatively basic, with most interfaces programmed in javascript to run on the browser. 

The “Killer App” of On-Chain Gaming

Based on our examination of the key blockchain features and the player base, we believe that a triple-A production isn’t essential for a “Killer App” to emerge in On-Chain Gaming. Triple-A titles have competitive advantages in presentation. Bigger budgets allow for high quality graphics and grand, professionally written narratives. Games like The Last of Us are successful because they have the production value to immerse the player in ways that are irreplicable by smaller studios. Blockchain, in its current state, offers little to no value in enhancing the core gameplay features of such titles.

In contrast, many indie game developers can truly capitalize on the capabilities of blockchain technology. They can innovate with unique gameplay mechanics that revolve around asset ownership, player interaction, or community-driven developments, which are not easily implemented in a centralized setting. The availability of open-source components enable aspiring game developers to bring their ideas to life, even if they lack the financial resources of major studios. 

We believe that it is far more likely that the first On-Chain Game “hit” will be a “Stardew Valley” than a “Red Dead Redemption.” The industry’s romanticisation of triple-A may be a well-intentioned, but misguided attempt to seek solutions through financial means, as it is often the case in web3. What the On-Chain Gaming space needs is more passionate game developers and engaged players, not more money.

Section 4: Innovations and Future Prospects in On-Chain Gaming

On-Chain Gaming of the present is defined by its untapped potentials and technical limitations. Fortunately, the field is rife with a slew of innovations with aims to raise the bars and break the limits. In this section, we present some of the work that is underway by different actors in the space: the infrastructure protocols, blockchain foundations, and game developers. We end this section with discussions on the trends we hope to see as gamers.

Infrastructure

Innovation is being made on all fronts to overcome the infrastructure limitations of blockchains. In our interviews, we explored two topics: addressing ecosystem fragmentation and creating robust protocols.

Various chains coexist in the current web3 ecosystem to address differing needs for throughput, security, and cost. At the present, games occupy the bubble of their respective chain. For developers of On-Chain Games, choosing the right ecosystem significantly influences market opportunities and the level of technical support they can access. Similarly, players tend to be constrained in their protocols depending on their loyalty to the cryptocurrencies that they own. 

Fragmentation is an obstacle that On-Chain Games must overcome to realize decentralization’s promise of scale and openness. There are two competing ideas on how fragmentation will be resolved. One is a winner-takes-all argument. Some experts believe that one protocol will eventually reign supreme, assimilating users and developers from other chains. An expert from a leading L2 chain notes that making a game available on multiple chains requires significant effort on the part of developers. There needs to be a tangible reason for developers to make their game multi-chain, as the easier alternative is to simply build on the most popular and well-developed chain. 

On the other side are experts like Irene Wu and Matt Krak of LayerZero, who envision a future where user-facing web3 applications are independent from their underlying chains. LayerZero is a cross-chain interoperability protocol that allows developers to engineer cross-chain applications without forfeiting trustlessness or necessitating intermediaries. Matt, as the developer relations engineer, observed that game developers want to own their execution environment with mempools and blockspace. On the business end, Head of Strategy Irene described cross-chain’s benefits of market expansion and risk management. Ideally, cross-chain communication will enable games to exist on a protocol that is custom-tailored to them, while accessing audiences from other chains. By running on an independent chain, the game can mitigate the external risks of congestion or even collapse. LayerZero seeks to realize the vision of omnichain - or chain-agnostic - systems where players need not even be aware of the game’s blockchain backend.

LayerZero is among the numerous protocols that support developers in the web3 space. A representative from Gelato, a project that provides infrastructure pieces for developers, expressed his thoughts on how building for On-Chain Games is different from traditional game development. Most web2 games are built on a monolithic, in-house codebase tailored to address the specific needs of the studio. As blockchain projects require a higher degree of transparency and security, web3 development utilizes components vetted by other developers. As the field develops, On-Chain Game developers will be able to better focus on core gameplay mechanics, while delegating secondary features to robust, automated protocols.

On a larger scale, foundations for blockchain protocols are making efforts to aid in growth of the On-Chain Gaming space. Representatives of Solana Gaming shared examples of how the foundation supports game developers building on the Solana chain on business and technical fronts. Developers can troubleshoot issues on RPC nodes, API calls, and on-chain integration. Younger, smaller studios can receive guidance on go-to-market strategies and financing. Lastly, blockchain foundations play an integral role in bringing in larger traditional gaming studios to web3. 

Game Developers

The short-lived boom and bust cycle of 2020-2022 was a wake-up call for developers in On-Chain Gaming. The developers are recognizing the importance of creating games that are sustainable in the long term. In a Twitter Space discussion called “Web3 Gaming in 2023 (The Great Reset)”, representatives of popular On-Chain Games collectively voiced their thoughts on the field’s shift from tokenomics to player enjoyment. The crypto winter was a learning experience in identifying On-Chain Game’s weaknesses in player onboarding and sustainable value creation.

In our interviews, developers from Defi Kingdoms, Curio, and Ladder Labs offered their perspectives on the path forward. Defi Kingdoms is currently one of the largest game-fi projects in web3, a prime example of a community-driven, web3-native project where a large part of the action happens on Discord. Magnus Ironroot, the Solidity director at Kingdom Studios, illustrated the history of the game from its origins as a gamified yield farm to an online RPG, as features were built piece by piece. According to Magnus, “community involvement was a critical component in Defi Kingdom’s development;  the feedback, support, and engagement provided have helped shape the vision of the platform. The long-term goal for DeFi Kingdoms is to reach new audiences outside the web3 space. Its primary focus at present is building out the many game systems that lie on their strategic roadmap, including combat, crafting, and world exploration.”

On the other end of the spectrum, Ladder Labs and Curio are developing exclusively Fully On-Chain Games to explore the technical capabilities of blockchain-based games. Ladder Labs emphasized the importance of recognizing the strengths and weaknesses of blockchain technology. For instance, smart contracts open up opportunities for referral programs with complex compensation schemes that are impossible to implement in web2. But Ladder Labs takes a very measured approach in designing with blockchain’s limitations in mind, opting for turn-based games that employ asset ownership. 

Curio is actively working to expand the boundaries of On-Chain Gaming. The team shared some topics currently under experimentation by developers in the space, from utilizing traditional gaming engines in tandem with blockchains, matching different combinations of virtual machines (execution layer) and consensus layers, and mechanisms allowing players to build sovereign software on top of existing projects. 

The common threads we noticed in our interviews were “awareness” and “intentionality.” Today’s On-Chain Gaming landscape requires developers to be cognizant of the technical limitations while identifying new opportunities for their target playerbase. Blockchain integration in gaming encompasses a wide spectrum and developers must make each feature decision deliberately with clear intent. Gone are the days where adding NFT functionality automatically generated buzz and market volume. In the future, we are likely to see innovative On-Chain Games that harness the blockchain in new, unexpected ways.

Discussions

Through this article, we aim to highlight gamers as individuals with heterogeneous preferences. Between the guarded skepticism of the traditional gaming space and the rosy overpromise of the crypto industry, the question of “who enjoys blockchain features and why” is often overlooked. In the previous sections, we outlined 1) the ways in which blockchain integration can create enjoyment, 2) how blockchain integration can adversely affect player experience, and 3) the ongoing innovations that strive to amplify the good and alleviate the bad. In this section, we discuss the advancements we wish to see as gamers.

Many of the challenges faced by early on-chain games can be traced back to the hype around financial profit. P2E on-chain games that promised an alternative source of income still face challenges retaining long-term player growth while maintaining sustainable ways for players to generate revenue for their gaming activity. With the industry growing and large amounts of capital being invested, there are high hopes for the games to have eventual large mass adoption. But a large portion of traditional gamers are concerned about the technology being misused for predatory monetization schemes. In 2021, Ubisoft launched Quartz, a project designed to integrate NFTs into their titles in the form of cosmetics and collectibles. Ubisoft Quartz failed to gain traction as the player base criticized the company’s foray as a profit-driven initiative, rather than a genuine attempt to provide novel gameplay functionality [8].

On-Chain Gaming space is limited by its lack of a quality measure. In the web2 space, games are viewed as a creative product to the likes of books, films, or music. Reviewers publish their assessment of new game releases, inviting members of the community to debate the game’s merits and flaws. In web3, a game’s value is determined through financial metrics: market capitalization, unique average wallets, and transaction volume. While these metrics are mildly informative in gauging the popularity of the game, they cannot help the judgments on the long-term success and sustainability of game design. 

The shortage of conversations on game quality could be attributed to a multitude of factors. An argument could be made regarding the relative nascency of On-Chain Gaming. The users’ taking on dual-role as a player and an investor may obstruct fair assessment. But we believe that it is cryptocurrency’s root as a financial instrument that is holding On-Chain Gaming back from breaking free of its chains. Perhaps the field’s fascination with “triple-A games” is a byproduct of the culture. 

As we see developers focus their attention towards making fun games, we hope to see a similar shift in how the investors and the industry media assign value to On-Chain Game projects. We present below some sample metrics that we think can put the spotlight on “good” games over profitable ones.

1. Genuine user activity and social media engagement

2. Ease of access for traditional gamers

3. Professional reviews of game quality

User count is commonly used across all fields, but there is a significant difference in nuance between DAU (Daily Active Users) in web2 and UAW (Unique Active Wallets) in web3. On the one hand, UAW embodies the transparency of blockchains, as all transactions are publicly available as opposed to DAU, which is primarily used for internal business decisions of web2 game studios. However, On-Chain Games might be incentivized to inflate their UAW count, as the metric influences their comparison and ranking across other games. It does not help the case that UAW is easily manipulable through automated transaction calls. We propose initiating discussions on developing new methods to identify 'genuine' user activity. While the new metric will always be vulnerable to being gamed, we expect simple actions such as identification of low-effort bots, outlier analysis, and overview of summary statistics to be a good starting point. Derived measures such as transactions per capita after a 30-day period may be useful in removing traffic spikes from airdrops. Analyzing player participation in activities that require a high level of engagement, such as in-game governance, can offer valuable insights into the game's dedicated and loyal player base.

Ease of access is another overlooked quality that is important for On-Chain Games to break out to mainstream audiences. Onboarding comes in many forms. One dimension could be user experience, the time it takes for a new player to execute their first game-related transaction. Another metric may outline minimum capital requirements. Capital requirement is a metric often discussed among players of web2 mobile games with in-game transactions. In On-Chain Gaming, the calculation is easily doable through public transaction records on the blockchain. 

Finally, unbiased discussions surrounding game quality is a facet we anticipate to enhance On-Chain Gaming’s narrative. Graphics, storyline, music, controls, and multiplayer experience are essential components of “fun games” that are strangely missing when discussing On-Chain Games. Reviews from established web2 gaming media could help set the stage for comparison with traditional games. In all discussions, disclosure of the reviewer’s financial involvement should be a standard procedure to encourage objectivity. We eagerly anticipate new developments on methods to disclose and verify potential conflicts of interest in dialogues about web3 projects. 

Conclusion and Acknowledgements

The authors initially approached the topic with skepticism, rooted in our backgrounds as traditional gamers. Through insightful discussions with industry experts, we learned that the field holds a wealth of innovative ideas and dedicated professionals. Realizing the potential of On-Chain gaming will require concerted efforts from all stakeholders, including developers, investors, chains, and the player community. We look forward to seeing the developments that lie ahead.

We thank LayerZero for commissioning this research project. Their support in providing access to industry professionals and arranging interviews has significantly enriched the depth and scope of this study. We also wish to acknowledge the expertise and insights generously provided by the professionals who contributed to this research. Lastly, we express our appreciation to our colleagues at FranklinDAO Research.

References

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