I recently attended Roblox's Q4/FY23 earnings video conference. While all the numbers are growing and, without a doubt, enormous, I'm still reeling from the huge losses that Roblox reports year after year. I can't stop thinking this in my head: Something is wrong here. It made me think of Matthew Ball's recent article, “The State of Massive and Turbulent Gaming in 2024,” which highlights the key issues of the entire gaming industry: the extremely high capital intensity of game production, the underdevelopment of monetization through advertising, and the lackluster underperformance. Real growth, lack of space to penetrate indies, lack of real diversity of content.
Who else sees this? Is there a different future for gaming? I sat with Yat seoCEO of Animoca Brands, which is behind The Sandbox, for example, and the most popular blockchain-powered games on the planet, to discuss traditional versus non-traditional gaming.
This is a summary of our exchange.
What are the main differences between traditional games (such as Roblox or Fortnite) and blockchain-based games?
There is one big difference. Games built on Blockchain technology have digital ownership rights, while traditional games do not. Our vision revolves around the sovereign rights of players. In traditional games, all game assets only benefit the game, and sharing only benefits the ecosystem. Our view is exactly the opposite: we believe that it is all about the assets, and that the ecosystem is at the service of the assets and their owners. In the physical world, we already behave exactly this way.
I do what I want with my physical properties and drive my physical car wherever I want. In the real world, the broader ecosystem is at the service of our individual freedom. In the traditional digital world, we are very limited. You don't own your virtual property or virtual car in a traditional game – the game itself owns all the assets and simply allows you to use them. Traditional games require staying in the game to unlock any positive network effects. In blockchain-based games, assets are owned by players, giving them some of the same freedoms we get from owning assets in the real world.
What are the main technological barriers to blockchain-based games becoming as popular and hackable as Roblox or Fortnite?
I don't think the barriers to creating a great game are technological. We've already built great games that behave like traditional games while delivering the benefits of true digital ownership to users. For example, Imaginary galaxies (Developed by Animoca Brands' Blowfish Studios) is a sophisticated, great-looking product. Most players interact with games for social reasons, because their friends are there. This is the main driver of the success of any game.
Web3 Games has not yet reached its peak, in terms of sheer following. The first challenge to adoption is mindset. Buying a phone or opening a bank account is procedurally difficult, but we still go through it because we understand the important benefits of communication and banking, and we accept these activities as part of the social norm. Web3 is like the Web in its early days, circa 1996: it exists and offers amazing benefits, but it's mainly used by early adopters who understand those benefits. For example, Web3 players tend to be more financially literate than Web2 players. Web3 gaming is growing rapidly in Asia, which tends to be highly capitalistic and where financial interests are part of everyone's culture. Blockchain-based games are more popular in Asia because players there want to play, earn, play and own based on their skills, participation and the “work” they do for the ecosystem.
Could the recent SEC approval of a Bitcoin ETF in the US be a way to open the door to in-game rewards such as token assets, securities or cryptocurrencies, especially for adult audiences or branded software?
It's a good first step. We learn through play. Today, most of our interactions are digital. We can scale anything digitally. Thanks to the digital world, we have more connections, both globally and locally, than we could have in the past. In the modern era, media such as books are the main platform for storytelling. Gaming is a newer medium that has become dominant in today's entertainment platforms, where users engage, enjoy and learn.
Games can be a great way to teach a large audience about finance. The SEC approval opens up new possibilities for fractional ownership of digital assets, and particularly reinforces the idea that we can own things digitally. The world of Web2 relies exclusively on rent and on the concentration of gains in the hands of a few big players, but once users' financial literacy improves, this approach begins to look much less attractive.
What is the best blockchain game that Animoca Brands has invested in? What KPIs are you looking at?
Axi Infinity It has been hugely successful, and is still growing. pixel It is one of the largest Web3 games in the world. The KPI we look for when we decide to invest is the current and potential network impact of the project.
Web3 games do not yet have hundreds of millions of users like some traditional games. It's a bit like restaurants: McDonald's is very popular, but it's not the only option if you want to go out with family or friends. There are so many to choose from. In the Web2 arena, where free-to-play games dominate, people are giving up their data and information to games and platforms to monetize. Games have a problem because paying users are now a small minority. This is why winning and losing in traditional games does not hold up well. On the other hand, Web3 games offer better opportunities to secure paying users, have a healthier and faster path to financial sustainability, and protect intellectual property.
In contrast to traditional games, blockchain-based games can be profitable with only a few thousand users, while enjoying richer and more diverse content and higher engagement, thanks to a more equitable distribution of resources across the ecosystem (participants receive rewards and benefits proportional to their efforts).
Capitalism is an economic system that promotes change and is inherently dysfunctional because it relies on market competition, favoring the most competitive entities. Innovation means change. Stability is a feature of closed oligopolistic markets. In such markets, including most of the gaming industry, we have deprioritized creativity in the name of stability and concentrated power in the hands of a few players who don't take risks for innovation because they don't have to. That's why we have, for example, many shooting games or professional sports games that all look exactly similar to each other. When developers get into Web3 games, they're jumping into an open market and can make money faster — note that volatility is also part of the equation. This is why we need to raise awareness about financial literacy and our digital value, because this will encourage the gaming industry to enter the turbulent world of blockchain and flourish.
Written by Francesco Pagano.
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