The Building Blocks of Gamefi Infrastructure
Preface: To the creators of the gamefi metaverse
Games have long been a frontier of human experimentation. We use them to tell stories, to channel competitive aggression, sometimes to escape, and sometimes to create alternate forms of coordination. Games, at their best, enshrine the human capacity to imagine.
So it is no wonder that since the turn of the century, games have spawned entire industries. Platforms like Steam and mobile app stores aggregate the long tail of games, nurturing new and independent creators or studios. Competitive play has evolved into an esports scene amassing tens of millions in top prize pools. Perhaps most intriguingly, virtual economies have spawned where in-game creators could earn a living creating experiences. Perhaps most notable of these is Roblox, where 29 million creators earned a cumulative $1b since 2018.
Today, the idea of “the metaverse” looms large as digital giants race to further digitalize every aspect of our lives, encapsulating us in virtual, gamified environments. Between the lines, that’s an entire digital economy where platforms can track every interaction, and tax every single purchase by 30-50%. The public, understandably, is confused, sceptical, and yet feels morbidly curious about this latest symptom of institutional power creep.
Web3 is not an attempt to stand against the tide, it simply offers options as a counterbalance. Entrenched platforms, game publishers, and big tech players will naturally brandish NFTs and tokenization to further their interests. But it also makes these tools and mechanisms freely available to the long tail of developers and creators, public and open sourced. In this document, you will find the tools and ways you can turn your game into an open economy, which makes it much easier to invite financing and collaboration.
To be clear, the pitfalls are many. Most iterations of Web3 game economics today are problematic because everybody assumes they will make money playing games. That is not how economies work. Markets emerge from goods and services people create and pay for, and if the “product” is an investment, it distorts demand. Do not confuse speculative hype, which is volatile and fickle, with actual adoption and retention. So wield these tools judiciously and responsibly, at your own peril.
As with any frontier, I would bet any day on the long tail of human potential – especially the bright, hungry, and stubborn. In this document and here in Web3, we cheer for the little guy, the underdogs and mavericks who dare to push the boundaries of games, game assets, and game economies. This is for you, anon.
Introduction: Unleashing the long tail
Web3 gaming is bubbling with potential. Leading Web3 games like Axie Infinity or Sandbox hit a peak of millions of players, and hundreds more games have been funded. Dappradar calculates investment into Web3 gaming at $4b in 2021, and $2.5b in Q1 2022. Capital is ready to flood into this segment, from megafunds like A16Z ($600m), infrastructure players like Immutable ($500m), and conglomerates teaming up like Binance and Animoca ($200m). Everyone seems googly-eyed to bet on Web3 games as the precursors to digital economies and a teeming metaverse. But games take time and creativity, and Web3 complicates it further. So how do we unleash a generation of game creators?
To tap into the long tail of innovation in Web3 games, infrastructure is necessary to lower the barriers of entry, especially for developers new to Web3. Across the entire lifecycle, solutions address pre-release technical aspects, to post-release distribution and engagement. Financial infrastructure can also help fund and monetize Web3 games and game assets. Meanwhile, Web3 gaming guilds and metaverse projects are also expanding to serve all of these functions. These solutions do not replace traditional game infrastructure, but complement them to unlock new surface areas for innovation in player ownership, peer-to-peer engagement, and open collaboration.
Here we point out a few leaders from each segment, how and why Web3 game creators utilise them, and our observations on the trends and gaps. Finally, we condense our insights as a thesis and prediction for each section. We welcome your feedback and as always, seek to support builders who further strengthen and complement the landscape.
Pre-release development: Navigating the mint
Web3 games are defined by assets owned by players in the form of NFTs and crypto tokens. But where and how should we mint these assets?
Specialised gaming blockchains offer high throughput (thousands of TPS), low fees (or 0 minting fees on ImmutableX), and often offer support for builders including funding and grants (like Polygon Studios). Korea-based Klaytn by Kakao has attracted Korean publishers and players alike.
Developers may regard these players as impartial blockchain providers who are more tailored in their SDKs and tutorials towards NFTs and gaming.
Web2.5 shared gaming platforms offer synergy with an umbrella of games, not unlike a publisher. Similar to gaming blockchains, they typically offer their own chain with high throughput, but with tighter shared incentives with a common token. Gala Games, by a Zynga co-founder, enforces purchases in their native GALA token. Enjin, linked to the Efinity blockchain, requires each asset to be “infused” with their ENJ token, which can be retrieved by “melting” assets.
This means that the success of games on these chains are more tightly correlated with the fate of the token and ecosystem branding.
Setting up your own blockchain/ layer 2, on the other hand, is rising in popularity among games that have gained popularity such as Axie Infinity’s Ronin as an Ethereum sidechain and DeFi Kingdom’s DFK chain as an Avalanche subnet. Existing frameworks like Substrate and Cosmos SDK also have been used by hundreds of live projects.
This approach offers the maximum flexibility and scalability, at the expense of technical complexity. Fortunately, emerging players like Saga simplify the experience and enable a seamless setup or even migration from other chains.
Web2.5 integrators bypass the question altogether by being agnostic to the underlying blockchain, and simply offering a suite of SDKs and APIs for developers. Positioned as full-stack infrastructure, players like Forte, Stardust, and Particle Network go beyond minting to offer support like wallets, payments, and analytics.
These solutions are optimised for developer experience, hence are likely to be the most adaptable and flexible, although developers should be conscious of the pragmatic security assumptions and trade-offs.
Our thesis is that game developers will opt for the easiest experience with end-to-end web2.5 integrators. As providers mature, innovators can differentiate with web3 native modules like zero-knowledge features or specialised modules like in-game tournaments.
As for the underlying blockchain, developers will increasingly prefer the flexibility of an independent app-chain, especially in customising the user experience (e.g. removing gas for every interaction). However, before interoperability is mature, the network effects of building on specialised gaming blockchains and shared gaming platforms remain attractive.
Pre-release funding: Bootstrapping a player-creator economy
Web3 games have the option to finance the initial development by pre-selling in-game currency/ governance tokens and game assets. How do we distribute these assets?
Auction platforms and launchpads platforms enable easy crowdfunding in exchange for tokens or in-game assets.
For token sales, among the top choices is Balancer’s Liquidity Bootstrapping Pools (or Copper Launch built on top), which enables price discovery while mitigating front-running. Another option is gaming-focused launchpads, who curate communities to invest small amounts, for example Roco for Avalanche, Seedify for Binance chain, and Enjinstarter for Enjin. Alternatively, centralised exchanges also run sales for games, for example Coinlist for Gods Unchained, or FTX for Star Atlas.
While crowdfunding can be attractive, public crowdfunding via token auctions/ sales tends to attract financial investors who may not be actual players of the game, and mainly looking to sell at a profit instead of holding or using them. Hence it is common to limit the amount of tokens sold to less than a third of total.
NFT pre-sales also facilitate funding by pre-sales of in-game assets, usually playable characters or land. Initial minting is usually done on the project website itself. However, launchpads could presumably also serve this need.
Similar to token sales, game asset sales also attract financial investors who may not be actual eventual players. Hence it is also prudent to limit the amount of assets sold. While less liquid for investors, these assets can arguably serve as collectibles before the game launch.
Our thesis is that selling tokens and game assets, especially those which come with equity-like governance and ownership features (e.g. land, governance tokens), will become more selective, just as how founders seek value-adding partners with private venture capital fundraising. Projects will whitelist or prioritise buyers who are players or contribute meaningfully (e.g., content creators, infrastructure providers, community managers). This also synergises with the growth of guilds and Web3 identity/ reputation.
Beyond price appreciation, buyers or investors can also be rewarded with game-related perks such as exclusive early access, behind-the-scenes from game development, or even some creative input on the game itself. Learning from NFT projects, game token and NFT gated communities can also help build a sense of community. These factors shift the balance from pure fundraising towards community curation. Platforms which adapt to these evolving trends and needs will come out ahead and retain valuable users.
Post-release growth: Scaling with engagement
The success of games are traditionally measured by the acquisition, retention, and monetization of players in centralised apps. Here, Web2 platforms already work well. However, Web3 games introduce additional elements of on-chain assets and behaviour. How do we harness these new elements?
Game/ app stores are a staple in game distribution, with mature players across mobile, PC, and consoles. Web3 games will tap into existing channels, for example Grit by Gala Games on Epic Games. Meanwhile, existing Web3 game stores or distributors attempt to recreate that experience, for example GuildFi or Lootrush, with a combination of web2 elements like centralised Game ID and game discovery, plus web3 elements like wallets, marketplaces, and rentals.
Currently, the Web3 platform experience is far from Web2 equivalents. Aside from the lack of compelling games for now, familiar aspects such as reviews and social features are missing. As with other aggregators in Web3, there is huge room for competition and innovation as users can easily port to new entrants, which use the same underlying data on NFT ownership, on-chain behaviour/ reputation, and on-chain social graphs. This can also be bootstrapped with token ownership incentives for onboarding, engagement, and curation.
Analytics providers play a crucial role in understanding a game’s traction, as a basis for improvement and attribution. Existing tools like deltaDNA, which was acquired by Unity, and GameAnalytics, a popular free tool used by 100k games, already work well.
However, few analytics providers include on-chain data. The Web2.5 integrators mentioned above are among the first to offer this service. In addition, dedicated players like ZeroDrop, invested by Nansen, bundle analytics with use cases like launching campaigns using wallet segmentation. As activity grows, these tools can also be used to recognise achievements or contributions, for example as soulbound NFT airdrops.
Community tools boost engagement through activities like esports tournaments and content creation. For example, Community Gaming has partnered with Riot Games to produce Valorant Elite Showdown. Chaingames has partnered with Atari with a token swap and support for each other’s games. Ignite Tournaments has partnered with a host of guilds including YGG and Avocado guild.
Web3 tournaments organisers can use crypto for seamless payouts, and build on-chain gaming credentials through NFTs. Content like tournaments or streaming highlights can also be collected as NFTs. However, these engagement methods are most effective when used to amplify successful games, and not as a short-term crutch for growth. For now, these platforms may validate and grow by integrating traditional games.
Our thesis is that infrastructure for gamefi growth and engagement is in a tricky chicken-and-egg situation because Web3 game traction is still relatively low, which is likely more due to lack of compelling games for now.
However, the common thread is that each of these platforms/ tools/ services can all contribute to on-chain data and reputation. Once a few Web3 games hit critical mass, the network effects from identity data enable these platforms to bootstrap and collectively innovate faster. This also synergises with the growth trend from other facets of Web3 identity/ reputation, such as NFT-gated communities and guild membership.
Post-release monetization: Unlocking asset utility
Web3 games generally give away value capture from selling game assets. Instead, after initial sales or pre-sales, new assets are generally created/ earned through engagement by time and skill, which can be sold to other players/ collectors. How do we monetise this economic activity?
NFT marketplaces facilitate trading of Web3 game assets, for example OpenSea, Magic Eden, X2Y2, and LooksRare, all of which facilitate royalties to the project treasury for each sale.
As opposed to tokens, NFT assets generate ongoing revenue for projects via royalties with each secondary sale, without the need to provision liquidity and/or market making. As volume picks up leading up to and after the game launch, projects may even set up dedicated NFT marketplaces to further capture transaction fees, such as Axie Infinity’s Marketplace, which generated >$170m in fee revenue.
Gamefi financial tools help unbundle and create new utility for game assets. Asset rental systems can be built in-game, or via integrations like ReNFT, which can be collateral-free. Loans can be offered to asset owners, using generalised NFT loan platforms like NFTfi (current leader in p2p loans), or more gamefi/ guild specific players like Voyage (peer to pool, coming Q3 2022).
These tools are powerful complements to any Web3 game. Rentals decrease the barrier to entry for monetisation by introducing pay-as-you-go or micropayments, and can even be made free for trial periods. Loans can unlock liquidity for holders, or can even be mortgages for guilds and players to “play-to-own” by earning fractional ownership of the assets.
Our thesis is that gamefi financial tools will be an integral component of all games and distribution platforms. For mature gamefi economies, their productive digital assets become an attractive source of yield. In fact, successful games may even decide to capture their own financial layer by creating in-house substitutes, given how lucrative it can be.
Hence, while gamefi is still not yet mature, these platforms may integrate even pre-launch to bet on the growth and engagement of the underlying game. As the financial layer, they are compelled to innovate with the games to figure out sustainable models, and rapidly adapt to gain an early mover advantage. Over time, these products will be abstracted away and aggregated by user-facing interfaces (e.g., in-game, wallets, distribution platforms), and shift focus to the protocol itself.
Bringing it together: Guilds and metaverse platforms
And then there are seemingly all-encompassing entities which get deeply entangled with any Web3 game they engage with. Projects go to them for funding, integrations, partnerships, and even advice. How do we make the most from these value-adding platforms?
Metaverse platforms build persistent environments in which games can be built, similar to Roblox or Minecraft.
Sandbox, an open voxel-style metaverse which has secured partnerships with The Walking Dead, Ubisoft, and Adidas, offers all-rounded support to game developers including a Game Maker Fund, a no-code Game Maker, and VoxEdit (3D modeller and animator complete with NFT minting). Naturally, assets can be sold on their marketplace and transacted in $SAND, their native token.
Decentraland, the early mover 3D metaverse which hosts Sotheby’s virtual gallery and their own virtual casino Decentral Games, also offers a grants program, an SDK for game developers (albeit with more constraints), and of course a marketplace transacted with their native token $MANA.
Both projects have strived over time to improve user experience and hide/ defer elements of the blockchain. Both support the cheaper and faster Polygon blockchain, where they provide free gasless transactions using Biconomy. Decentraland runs directly in the browser, and supports guest-browsing without an account, while Sandbox enables sign-ups with just social media or email, but requires a client download for better performance.
However, both suffer from rent-seeking of creators, as the vast majority of land, which is required upfront for any game to be built, was mostly sold to speculators who do not contribute much in content or activity. Sandbox, as a fast follower, iterated by keeping a reserve and curating large buyers who promise to build content. That is why newer players like Mona (with >3k creators) and OM (by the prolific Punk6529) assert that metaverse land should be free and (theoretically) infinite, enhanced by curation and community. It is no wonder that open metaverse platforms currently have but a fraction of the traction of titles like Roblox and Minecraft, who boast hundreds of millions of monthly active players, setting the bar for whoever cracks the right ownership alignment.
Web3 Gaming Guilds were born as benefactors of Axie Infinity’s play-to-earn phenomenon, and have since amassed tens of millions in assets, and up to tens of thousands of players, which are channelled to support upcoming games and infrastructure.
Yield Guild Games, which has almost 30k players, has invested ~$10m in ~50 games by being early buyers of assets and tokens at a discount. Set up as a “metaguild”, subgroups spin off as subDAOs specialising in particular regions (YGGSEA), games (YGGSPL), or playstyles (YGG Elite). Players rent assets from the guild in return for 30% profit sharing, hence the guild acts as a financial platform. To boost engagement, YGG also organises tournaments, for example Manager’s Cup for Axie Infinity, and has invested in tournament platform Ignite among its infrastructure bets.
Merit Circle, a smaller guild with ~3.7k players, leans further towards an incubator model. On top of investing directly in game assets and tokens (~30 partners so far), they also work with external studios to incubate new IP in exchange for profit-sharing, starting with a low-key Project Loki. Expanding into infrastructure components, they are also building an NFT marketplace, NFT aggregator, and gaming distribution platform, all funded by the treasury.
As competition between guilds grows, it drives differentiation and execution. Snack Club, for example, taps into Brazil’s largest esports and gaming lifestyle group Loud, with 300 million followers. Jambo is building an African super-app that includes telco services and DeFi alongside gaming. PathDAO, a Southeast Asia based guild, is expanding into fintech services and building a media arm as well.
At their best, guilds act as amplifiers for Web3 games, with an emphasis on early funding and distribution. However, they also expected to optimise for player and treasury returns, just as how veteran gamers min-max strategies, or even tactically use bugs and exploits. In the case of play-to-earn, the zeal of guilds accelerated the hyperinflation of assets and tokens in Axie Infinity. Hence, it is up to game creators to design sustainable models that retain sufficient value.
From an infrastructure perspective, guilds are also natural B2B partners as they aggregate both games and players. While some prefer to build tools in-house, others invest or could even acquire useful components.
Our thesis is that metaverse platforms and guilds are in a good position to become focal points for web3 gaming, like major publishers and distributors in traditional gaming. The crucial difference is that the players and creators can own significant stakes, and contribute via DAO governance and subDAO structures.
As the landscape matures, games will favour projects with the right incentive alignment for value creation beyond capital. Metaverse platforms can effectively crowdsource game content in exchange for ownership, or become the “third place” social space between games. Guilds can push the boundaries of games by specialising further, for example high-skill teams that evolve a game’s meta, experienced beta testers who provide insightful feedback, or content/ social-focused influencers who help retain a community.
Closing: Choosing Web3
Every piece and player discussed here, by virtue of plugging into open blockchains, grows synergistically as assets, data, and reputation are compounded on-chain or on peer-to-peer storage. From other segments in Web3 such as DeFi and DAOs, we have seen how ownership alignment via tokens can supercharge contributions. Hence, the emerging picture is one where the tapestry of games, players, and infrastructure mutually own fragments of key parts in the stack.
Modern life is undeniably increasingly virtual — apps become more like games, and games perhaps become just part of life. As we nudge ourselves towards this convergence, I hope we choose the path where we own the value we create. Choose Web3, and design it so that we will all make it.
