Web3 founders and top VCs break down how blockchain gaming can take crypto mainstream – and explain potential hurdles for widespread adoption

• Insider spoke with industry experts about gaming's potential to take crypto to a broader audience.
• Blockchain gaming VC investments notched $2.5 billion during Q2 2022, according to DappRadar.

Blockchain gaming raked in $2.5 billion in funding during Q2, 2022, according to a DappRadar report. The burgeoning space has attracted some of the biggest names in Silicon Valley, with Andreessen Horowitz debuting a $600 million fund for gaming startups in May. Animoca Brands, a Hong Kong-based game developer and crypto investor, also secured a $75 million raise at a $5.9 billion valuation in July.

Total investments in the sector this year, by some measures, are outpacing last year's by around 33%.

Franklin Bi, the director of portfolio development at crypto hedge fund Pantera Capital, previously told Insider that it is blockchain gaming's "perfect moment" to "take off."

"The gaming industry travels in cycles. New cycles are historically marked by new tech or new business models or novel user experiences. Crypto and NFTs have opened up all of the above," Bi said in a statement.

There have been a slew of household names jumping on the blockchain gaming bandwagon. Microsoft Corp. announced plans in January to acquire Activision Blizzard Inc. – commonly known as the publisher of franchises like Minecraft and Call of Duty – for $68.7 billion. Microsoft says the deal will help develop "building blocks for the metaverse," according to a statement from CEO and Chairman Satya Nadella.

With the gaming market valued at almost $200 billion this year, there is potential in onboarding a critical mass of users through blockchain games. Insider spoke with industry experts about the nascent space and its potential to take crypto to a broader audience.

NFTs as a way to own in-game assets

Gaming may be one of the main driving forces for mainstream adoption in crypto, Pavel Bains, the CEO of blockchain startup Bluzelle, says.

"I have three kids who grew up on Fortnite, Minecraft, and Roblox," Bains told Insider in a statement. "Virtual currencies and acquiring in-game digital assets is what they already know."

He added: "The power of crypto can help turn those virtual goods into tangible assets for committed gamers. It's a natural progression for the upcoming generation and they will use it as a vehicle to learn valuable finance lessons at the same time."

In traditional games, players commonly buy skins or virtual cosmetics for their characters. This is a market, per trading platform DMarket, that generates roughly $40 billion in annual revenue. These assets belong to the studio, instead of the buyer, which could make NFTs an attractive alternative to the traditional gaming model.

"So what's happened with the advent of blockchain games is that now those virtual goods and items can be put on-chain and you can have actual ownership of that," Justin Kan, cofounder of NFT marketplace Fractal, previously told Insider. "The only difference is that these companies themselves are giving up control and what they get in exchange is a more robust economy."

NFTs verify ownership of a player's asset because it's recorded on a public ledger via the blockchain. Instead of holding these assets with a Web2 gaming studio, participants can hold tokens in their crypto wallets or some other more decentralized custodian.

"We believe ownership of digital assets will open up another layer of excitement and experience for gamers as they will now have additional motivation playing the games they enjoy," Kyu Lee, a partner at venture capital firm CRIT Ventures, told Insider in a statement.

Games are entertaining and people want to play them

Gaming is an effective onboarding tool, STEPN's Shiti Rastogi Manghani says, because it's entertaining and accessible to a broader audience. STEPN, dubbed a "move-to-earn app," allows users to earn game tokens through exercising.

"Anything that is fun, social, engaging will get the users in the door," Manghani, the startup's CMO, told Insider in a statement. "We've seen this time and again in multiple industries like retail, e-commerce, and social media. It serves basic human needs. Gaming or any utility app that checks those boxes will go mainstream. If it benefits the users in the process, that's icing on the cake."

Younger generations, in particular, are long accustomed to playing video games. Games have always been at the "forefront of emerging technologies" because humans love to be entertained, Shahaf Bar Geffen, the chairman of Web3 startup UnCaged Games, says.

"The game of Tetris was built by Alexey Pajitnov to make computers less intimidating and more accessible to people," Geffen told Insider in a statement.

Roadblocks to blockchain gaming

With any new technology – and especially one in a volatile market – comes plenty of obstacles.

Amid a crypto bear market, blockchain gaming has shown signs of slowing down as well. Axie Infinity, the game which once had the largest user base in the industry, had 83% fewer participants in Q2 than in Q1, according to DappRadar. The downtrend in players steepened following a $650 million hack on its Ethereum-linked sidechain, Ronin.

"While gaming activity still dominates the overall landscape, we have also begun to see the first cracks appearing in the industry, and many top blockchain games started to show weakness," the DappRadar report says.

Potential hurdles for mainstream adoption are a game's usability, Steven Goldfeder, the CEO and cofounder of Ethereum scaling solution provider Offchain Labs, says. Is it fun or are people just playing for the returns and financial rewards?

"A good blockchain game needs to be a game first, and a blockchain application second," Goldfeder said in a statement to Insider. "The incorporation of blockchain technology should be purely additive, enhancing the gaming experience for users that wish to engage with the blockchain, but not by limiting accessibility to those who just want to play the game."

He added: "Ironically, in order for blockchain to go mainstream, it needs to be able to operate in the background, and core to that are ease of onboarding, fast confirmation times, and low transaction costs that are abstracted away from users."

This article is intended to provide generalized information designed to educate a broad segment of the public; it does not give personalized investment, legal, or other business and professional advice. Before taking any action, you should always consult with your own financial, legal, tax, investment, or other professional for advice on matters that affect you and/or your business.