Blockchain game industry counts on Web2 studios and franchises to drive Web3 adoption

The blockchain game industry is still struggling to find adoption, and it’s looking to Web2 studios and franchises to lead the way.

That’s one of the insights from the 2023 State of the Industry Report from the Blockchain Game Alliance.

In a survey of 526 people at blockchain game companies, a significant 19.8% of those surveyed believe that traditional game studios venturing into the realm of Web3 gaming will have the most positive impact this year.

Moreover, 15.2% highlighted the transition of Web2, or traditional gaming, into Web3 as a critical driver. A total of 35.0% agreed that Web2 game studios committing to the adoption of Web3, leveraging their talent, experience, brand recognition, and vast mainstream audiences, has already been a pivotal factor in the industry’s progress this year.

The respondents were spread across the U.S., Europe, Asia and Latin America. About 70.7% of respondents in 2023 were in senior positions, whether as founders or at the executive level, or as non-executive managers within their companies and protocols.

The BGA noted that its members grew in certain regions, with respondents in Middle East and North Africa accounting for 5% of respondents, compared to few responses in the previous reports. That was due in part to regulatory clarity for Web3 in places such as Dubai and the United Arab Emirates in general. In 2022, Dubai committed $4 billion to metaverse development over five years, and Saudi Arabia’s Neom special economic zone recently invested $50 million in Animoca Brands.

Crypto Winter?

Over half of the respondents (52.1%) foresee a noteworthy shift within the next 12 months. This confidence is reinforced by the commitments of influential Web2 gaming giants like CCP Games (EVE Online), Nexon (MapleStory), Ubisoft, Square Enix, Bandai Namco and others who signaled intentions to adopt Web3 in 2023.

It was a year that saw wild swings in cryptocurrency prices and new scandals with companies like Binance facing regulatory actions. But Bitcoin prices have soared in recent weeks and have roughly doubled to more than $43,000 per Bitcoin compared $22,000 at the beginning of the year.

In spite of the Crypto Winter, DappRadar reported that blockchain gaming saw an average of 786,766 unique active walets in Q3 2023. Web3 gaming projects had also raised $2.3 billion in investments by the end of September, though funding has dropped compared to a year earlier.

The BGA has over 390 corporate members and 110 individual members now.

Challenges: Scams, Ponzi schemes or bad gameplay?

Yet, the industry faces its share of challenges. Onboarding new users emerged as the primary concern for over half (55.1%) of respondents. Activating a Web3 wallet and dealing with the complex onboarding process can hold back players.

And 35.4% of respondents said that user acquisition is a significant challenge. Additionally, 70.0% noted the persistent misconception that blockchain gaming is synonymous with scams or Ponzi schemes.

Despite improvements in accessibility, such as implementing free-to-own and free-to-play (F2P) models, and making the blockchain elements optional, problems with onboarding continue to impede adoption momentum. The trend has persisted since the earliest days of blockchain gaming; in 2021, the popularity of NFT rental programs known as “scholarships” grew due to the high barriers to entry into Web3 games, the report said.

Poor gameplay was cited as the next issue behind onboarding, with Web3 games often drawing lackluster comparisons to web2 games in terms of features and gameplay. However, in 2023, some Web3 games have challenged this, the report said.

Games such as My Pet Hooligan and Illuvium have gained a lot of attention for their high-quality aesthetic. Star Atlas, which is currently under development, is another title that has awed gamers with its use of Unreal Engine 5 and its potential to rival world-class titles like Star Citizen and Eve Online, the report said.

Other Web3 games that have earned acclaim include Cross the Ages, a collectible card game (CCG) featuring a story mode and player-versus-player mode akin to current Web2 CCGs like Hearthstone and Legends of Runeterra, Upland, a simulation game where players purchase and trade virtual properties representing real-world landmarks.

In 2023, the topic of regulation regained some mindshare, becoming the fifth biggest concern among respondents when it was sitting at 10th place in 2022. This is unsurprising given high-profile enforcement actions in crypto over the past year, such as FTX and Binance.

However, during the inaugural industry survey in 2021, regulation was cited as the number one challenge facing the industry, with fears that adoption would slow if countries began implementing stricter policy or
compliance measures. Additionally, it was difficult for web3 founders to navigate the uncertain regulatory environment with any level of clarity or confidence. This was a reflection of the times, given that the earliest blockchain games were highly financialized, The report said.

Sebastien Borget, COO of The Sandbox, also said in an email to GamesBeat that there was a decline of women representation in the industry. That is something the group will also strive to improve at the BGA and in the industry, he said.

Demographics

There’s a notable decline in female participation in the survey, signaling reduced representation and gender diversity within the industry.

About 79.7% of respondents anticipate continued work in the industry over the next year. And 44.3% received crypto or stablecoins as payment in 2023. Female participation hit an all-time low at 16.9%.

Mainstream adoption coming?

The industry drivers offer some hope, as 76.2% recognize asset ownership as the primary benefit. A total of 37.8% believe web2 game studios will propel industry growth. And 52.1% predict significant blockchain adoption within the gaming industry, the report said.

While all respondents believe asset ownership is the biggest benefit of blockchain gaming, there are subtle differences between the second and third biggest benefits depending on the region.

Respondents from the United States, Europe and Oceania believe that new revenue models should be the second biggest benefit, while those in Asia and Latin America place more emphasis on player reward models.

There is also a strong belief that mainstream adoption will gain momentum in 2024, with more than half (52.1%) of respondents confident that at least 20% of the gaming industry will likely leverage blockchain technology in some way within 12 months, the report said.

Borget, who is also president of the BGA, acknowledged the transformative nature of 2023 for the industry. Despite economic pressures and negative media sentiment, Borget expressed optimism, citing an increased number of survey responses and a commitment to shaping the industry’s future.

“Those building in the space have certainly felt the pressure of the economic environment and less favorable media sentiment, but it has allowed them to be more disciplined and focused,” said Borget. “New winners will certainly emerge from these times. The BGA is well-positioned to signal the trends and showcase the gaming industry leaders of tomorrow. Our survey received more responses than ever this year. I thank everyone for demonstrating their commitment to shaping the future of our industry and I look forward to discovering what we build together in the coming year.”

He added, “What strikes me the most with this report is the level of confidence the industry has towards the imminence of one or multiple major hits upcoming, because the industry has matured and is addressing better its own challenges in terms of onboarding users, acquiring new users through quests driven platforms and focusing on fun of core gameplays, but also because adoption didn’t stop and major triple-A and Web2 actors entered last year and big titles are coming. Also, there is a greater recognition that assets ownership is not hype or futile, it’s the essence of what the sector wants to change and this resonates across the all gaming industry. Change in mentalities is happening”

The BGA’s report, conducted by Web3 advisory firm Emfarsis, serves as a comprehensive resource for industry stakeholders, providing critical insights into the sector’s current status, potential growth, and emerging trends. The report is now in its third year.