Industries in Depth

Blockchain gaming under the microscope part 2: the bubble

The value of the tokens used in blockchain gaming has unravelled since the start of 2022

The value of the tokens used in blockchain gaming has unravelled since the start of 2022 Image: Ronda productions for Pexels

Abhimanyu Kumar
Co-Founder, Naavik
Alice Liu
Head of Research, CoinMarketCap Research
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  • This second of a four-part series on blockchain gaming looks at the speculative bubble in play-to-earn games, and asks whether it has burst.
  • Many play-to-earn games saw a meteoric rise in interest, followed by an equally steep fall.
  • A new generation of games will build on the lessons learned.

This four-part series dives deep into the recently published 2022 Blockchain Gaming Report to distill the key insights for readers. The first part looked at the potential for mass adoption of blockchain gaming, in which players use blockchain technology to earn assets with real-world value. This second part looks at the speculation bubble in play-to-earn games, and asks whether it has burst.

With the exception of STEPN, a game released in March that rewards users for physical movement, prominent games like Axie Infinity, Pegaxy and Crabada are down more than 80% in value from their all-time highs. This is part of an unravelling of play-to-earn games’ token valuations since the start of 2022. Besides the dwindling market capitalization, user numbers are decreasing as well. Axie Infinity's daily active users (DAUs) peaked in November 2021, before undergoing a steep fall. STEPN has also seen a meteoric rise and an equally steep fall in user interest.

Axie Infinity's daily active users (DAUs) peaked in November 2021, before undergoing a steep fall. blockchain gaming
Axie Infinity's daily active users (DAUs) peaked in November 2021, before undergoing a steep fall Image: Naavik

The same has happened to trade volumes. The monthly traded volume of AXS, the main token players can win by playing Axie Infinity, is down over 95%, as is STEPN's count of monthly sneaker tokens minted. Sales of virtual land NFTs in Yuga Labs’ Otherside, The Sandbox and Decentraland have also seen a similar collapse in interest.

The blockchain game, STEPN has also seen a fall in active users, after a meteoric rise
The blockchain game, STEPN has also seen a fall in active users, after a meteoric rise Image: Naavik

Blockchain gaming eras

The first-era blockchain games were defined by CryptoKitties, released in 2017, which showed the potential of player ownership through NFTs, but lacked playability due to the limitations of the Ethereum network. The second generation was defined by Sky Mavis and Axie Infinity, but the play-to-earn model had a flawed economic design. This second era of blockchain games built on top of the first by using scalability solutions to produce playable games. However, the focus on sustainable yield earning over fun ultimately led to the demise of these play-to-earn games.

The report argues that: “the next era of crypto games, to (over)simplify, will build off of the previous two eras – using various scalability solutions and sidestepping the most significant economic flaws while prioritizing fun."

Below are three case studies of projects taking the right approach, according to the report:

Have you read?

    1. Splinterlands

    Splinterlands has been announcing a new profile picture project, pre-sales for a new card set, the release of a new podcast, developing two new games, and hosting its first-ever Splinterfest convention. The team is developing its ecosystem at a rapid pace, while delivering long-term utility to its community.

    For example, the new card set was sold for the governance token, SPS, instead of the utility token, DEC, and profits went to the decentralized autonomous organization instead of the company. Splinterlands is doing well by accruing value to the token holders instead of the developers, and evidently its token price has not suffered a significant drawdown compared to the other play-to-earn projects.

    Splinterlands' token price has not suffered a significant drawdown compared to the other play-to-earn projects. blockchain gaming
    Splinterlands' token price has not suffered a significant drawdown compared to the other play-to-earn projects. Image: Naavik

    2. Sorare

    Sorare is an Ethereum-based fantasy sports game, which according to the report, “has a sustainable and arguably very profitable model, which is still rare among blockchain games.” While fantasy sports has been around for a long time, Sorare managed to raise a substantial amount, closing a $680M Series B round led by Softbank in September 2021, at a $4.3B valuation.

    Unlike rivals like NBA Top Shot, Sorare is a full-fledged fantasy game. It boasts 500,000 users and 150,000 on-chain card holders, with 30,000 of them transacting monthly. Thanks to its free-to-play model (with the ability to buy or win better cards), Sorare has been able to attract significant interest to its product. That has allowed the company to build out its staff to 170 employees and 50 job openings, with collaborations with the NBA and the PGA Tour coming.

    3. Dark Forest

    Dark Forest, a massive multiplayer strategy game, explores the zero-knowledge proof authentication technology that is to power the next generation of Ethereum scaling solutions. Primarily, the technical achievements of this game stands out: it runs completely on-chain and uses secret information that is central to the zero-knowledge approach.

    This has a real impact on its gameplay: the "fog of war" that is central to its strategy-focused play is real in Dark Forest. Players can make moves that are verified on the blockchain but remain hidden from their opponents. This is through the implementation of zk-SNARKs, one of the first in blockchain games.

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