Games

Blockchain games and metaverse projects raised $1.3B in Q3: DappRadar

The blockchain gaming sector remains active in terms of adoption and venture capital firms have taken notice, according to industry data.

Venture financing for the blockchain industry remained robust in the third quarter, even as bearish conditions ravaged digital asset markets, a sign that venture capital firms were focused more on the long-term value proposition of the sector.

Blockchain games and metaverse projects raised a cumulative $1.3 billion in venture capital between July and September, according to DappRadar’s latest BGA Games Report. While this figure was down 48% compared to the second quarter, it was nearly double the total amount raised in 2021.

DappRadar said that projects focused on Web3 metaverse infrastructure accounted for over 36% of the quarterly investments.

Looking at blockchain gaming specifically, the report showed that underlying industry activity was still growing despite the bear market. The number of unique active wallets participating in blockchain games increased by 8% month-over-month in September to 912,000. DappRadar said that Web3 games “continue to be a driving force for the dapp industry,” accounting for nearly half of all blockchain activity across 50 networks tracked by the firm.

*Wax, BNB Smart Chain, Matic, Solana, EOS and Hive are the six largest gaming protocols based on active wallet addresses. Source: DappRadar*

As reported by Cointelegraph, data from DappRadar showed that seven out of the top 10 blockchain games registered an increase in unique wallet addresses during September. The company noted that most of the top games are mobile-first, a key feature in the push for wider mainstream adoption.

However, it may be a while still before blockchain and Web3 games pique the interest of casual gamers, according to a recent survey by blockchain entertainment provider Coda Labs. The survey found that only 12% of non-crypto gamers have dabbled in Web3 games and just 15% were interested in doing so in the future.

Nevertheless, Web3 projects of all stripes have attracted significant interest from the venture capital community. According to Cointelegraph Research, Web3 projects accounted for 42% of all individual funding deals in the second quarter and seven of the top 10 most active VCs identified Web3 as their top sector for investment.

Skyweaver’s parent company secures $40M in Series A funding

The round was led by Brevan Howard Digital and Morgan Creek Digital, along with Polygon and Take-Two Interactive, among other investors.

Horizon Blockchain Games, the developer behind the Skyweaver game, has raised $40 million in Series A funding, the company disclosed on Oct. 4. The round was led by Brevan Howard Digital and Morgan Creek Digital, with additional participation from Polygon, Take-Two Interactive, Ubisoft, Xsolla, The Sandbox co-founder Sebastien Borget, Sky Mavis and Axie Infinity co-founder Aleks Larsen, among other investors.

With the funds, Horizon plans to invest in Web3 products and scale its operations. Specifically, the company wants to grow its developer stack and smart wallet Sequence, expand the content and reach of the nonfungible token (NFT) turn-based card game Skyweaver, and introduce the semi-fungible token (SFT) marketplace Niftyswap.

Peter Kieltyka, Horizon’s co-founder and CEO, said the Series A allows the company to “grow the Sequence ecosystem by attracting more builders to our platform via marketing, community, and partnership initiatives.”

Based on the Polygon network, Skyweaver enables players to battle each other and earn tokenized cards to trade via its marketplace. The game was launched in February after months of testing for a limited number of players. According to the company, over 3 million games were played in the private beta and 345,000 people signed up for the waitlist before it went live.

The Niftyswap marketplace is expected to make trading SFTs easier by offering liquidity on-chain. SFT is a token that can be both fungible and nonfungible. The tokens are fungible until they are redeemed, when they lose their value and become nonfungible. It was enabled by the ERC-1155 token standard, which was co-created by Horizon’s team.

The number of users interacting with blockchain gaming decentralized applications (DApps) increased in September, according to data from DappRadar, with seven of the top 10 games having more “unique wallet addresses interacting with dapp’s smart contracts” and all of the top five games posting positive results.

Pro sports league Karate Combat to launch DAO for fan, athlete governance

Karate Combat’s DAO will be launched as part of a three-year sponsorship deal with Hedera’s HBAR Foundation, expected to go live in December 2022.

Karate Combat, a prominent full-contact martial arts league, announced the decision to form a decentralized autonomous organization (DAO) to transition its governance to fans and athletes.

Karate Combat’s DAO will be launched as part of a three-year sponsorship deal with Hedera’s HBAR Foundation, expected to go live in December 2022. Holders of Karate Combat’s in-house governance token, KARATE, will get to vote on various decisions, which include determining the league’s budget, resource allocation, supplier selection, marketing strategy and rule changes.

In addition, the DAO will enable fans to vote on athlete-related decisions such as fighter contracts and fight match-up selections based on predetermined boundaries of influence. Karate Combat plans to distribute 50% of its in-house tokens to the community for free, to be used for participation in the DAO and a gaming application.

Participation in Karate Combat’s DAO is expected to span globally as the league broadcasts in more than 100 countries through mainstream and online channels, including CBS Sports, Eurosport, YouTube and TikTok. Adam Kovacs, the president of Karate Combat, highlighted the need for improving fan engagement, stating:

“The sporting world must evolve to increase engagement with a new generation of fans who have grown up on social media and digital gaming. They expect to be active participants in the action, rather than passive viewers.”

According to Karate Combat, the league hosts an online community of over 3.5 million fans who could potentially help steer future decisions. Shayne Higdon, the co-founder and CEO of HBAR Foundation, envisions the upcoming DAO to attract more users to the Hedera Network, which, in turn, will help bestow “tangible, real-world impact for end-users.”

Unlike most crypto sub ecosystems that currently explore avenues for recovery, the GameFi industry lacks the involvement of blockbuster titles, according to Kevin Shao, executive president of the Asia Blockchain Gaming Alliance (ABGA).

Speaking to Cointelegraph, Shao highlighted the lack of attention to “game performance” and users’ enjoyment. Rather, he believed that the current GameFi titles focus solely on nonfungible tokens (NFTs) and play-to-earn (P2E) features.

While stressing the importance of accommodating different users’ tastes, he stated that the introduction of several “triple-A” titles in GameFi would be essential for the ecosystem’s comeback.

NFTs bring in-game ownership to a new level, says Blokhaus founder

NFTs improve interactivity by allowing users to unlock fully modular, community-driven in-game experiences to which they own the pieces, explains Mark Soares, the founder of Blokhaus Inc.

Nonfungible tokens (NFTs) have taken the gaming world by storm. Whether it’s through limited edition collectibles, avatar enhancement or play-to-earn incentivization, digital assets have given in-game ownership a new meaning.

The ways in which NFTs are available to players are becoming increasingly tangible. In the case of Blockxer, the latest blockchain game from Blokhaus Inc., every component of the game has been NFT-ized and available for modification by users.

Mark Soares, the founder of Blokhaus Inc., told Cointelegraph that when every aspect of the game is an NFT, users can create completely “bespoke” game experiences. Everywhere a user turns in this 8-bit, arcade-inspired game, there is an NFT — from the background and the characters to the weapons and more:

“Imagine the ability to create your own characters, in your own scene, and the ability to gift or sell these mods as an NFT pack to other players.”

NFTs allow users to unlock fully modular, community-driven in-game experiences to which they own the pieces. Soares likens this customization of an NFT-driven game, such as Blockxer, to 90s mixtapes, saying that it puts the “power of game creation in the players’ hands.”

As explained by Soares, the design of Blockxer is quite simplistic, harkening back to pixelated arcade games of the nineties. It highlights crypto-meme culture and includes characters like a zombie doge.

*Zombie Doge NFT character sample. Source: Blockxer*

Even though the game design is simplistic, Soares stated that it doesn’t mean the utilities of the NFTs have to be simple as well. In fact, he said that too simplistic thinking of NFTs is a problem in the blockchain gaming industry.

“Usually [they’re] just add-ons, rewards or badges for games that you can purchase – we think they can and should be much more.”

This is only the beginning of NFT integration into the world of gaming. Recently MyMetaverse and Enjin games began implementing NFTs into popular games such as Minecraft and Grand Theft Auto 5 servers.

Other gaming giants like SEGA games have recently shown interest in blockchain gaming and its features.

Metaverse graphics aim for community and accessibility — Not realism

Metaverse graphics have been questioned in terms of quality, but industry experts explain that images appear certain ways for a reason.

Some may argue that the Metaverse has been around for years, as demonstrated by early gaming platforms, yet virtual ecosystems are now being embraced by almost every industry. A recent report from consulting firm McKinsey & Company believes that the Metaverse has the potential to generate at least $5 billion in value by 2030. McKinsey also found that investments exceeding $120 billion have been put toward Metaverse platforms this year, indicating that major growth is underway.

While notable, there is still the perception that most metaverse platforms are lacking when it comes to graphic quality. For example, Mark Zuckerberg was recently criticized for posting a selfie in front of the Eiffel Tower within Meta. Although Meta has already invested over $10 billion into building its metaverse, some have pointed out that Meta’s current graphics are lower quality than images that appeared in Second Life in 2007.

Second Life 2007. Metaverse 2022. pic.twitter.com/2JByEzk5eL

— Andres Guadamuz (@technollama) August 17, 2022

Metaverse graphics are aesthetic choices

Although the mainstream has been quick to criticize graphics associated with various metaverses, industry experts note that image quality is intentional. A spokesperson for Linden Lab — the firm behind Second Life — told Cointelegraph that the content design and aesthetic choices that other metaverses make are usually stylistic:

“For instance, the blocky appearance of some Metaverses builds upon the modeling techniques first seen in Minecraft. This was a deliberate choice to not appear realistic.”

Echoing this, Yat Siu, co-founder and chairman of Animoca Brands, told Cointelegraph that graphical representations depend on the brand and the imagery of the Metaverse in question. “If you look at the visuals of Phantom Galaxies or Life Beyond you can see that the quality is both high, and that fashion can be experienced in a manner that is visually closer to what one might expect in reality.”

With this in mind, Linden Lab’s spokesperson mentioned that one key difference between Second Life and other metaverse platforms is its community’s focus on realism. “While there are 20 years of archived Second Life images scattered across the internet, you will see incredible quality our creators are delivering today — way beyond that of even newer virtual worlds or metaverses.”

*Image of Le Jardin Des Tuileries in Second Life, uploaded in Sept. 2022. Source: Linden Lab*

But, while realistic images may appeal to certain metaverse communities, other platforms are taking different approaches. For example, The Sandbox — dubbed as one of the most popular blockchain-based Metaverses — intentionally has boxy graphics.

Sebastien Borget, co-founder and chief operating officer of The Sandbox, told Cointelegraph that the platform chose voxels as the building blocks for its metaverse due to ease of use:

“Voxels are like ‘digital legos’ that require no user manual. Hundreds of millions of people already know how to work with voxel graphics (thanks to Minecraft) and this opens The Sandbox to a massive community worldwide.”

To Borget’s point, Siu noted that the boxy, voxelized images in The Sandbox are not a visual limitation, as it is a style that allows for communal design. “People don’t consider Lego as ‘lo-fi.’ 8-bit style or retro pixel art is another example of something that is trendy and fashionable because of what it represents,” he remarked.

Borget added that the graphics enable accessibility for creators of all ages and backgrounds, which is critical since he believes the Metaverse will largely consist of user-generated content moving forward.

To put this in perspective, Loretta Chen, co-founder of Smobler Studios — a Singapore-based multimedia design agency — told Cointelegraph that she recently partnered with The Sandbox to create a wedding reception in its Metaverse.

According to Chen, Smobler Studios used VoxEdit and Game Maker to build the wedding venue, which are two free software applications that can be downloaded from The Sandbox website. In addition to being accessible, Chen noted that she was pleased with the imaginary aspects provided by The Sandbox’s graphics. “We took creative liberty in some aspects. We would be remiss if we aimed to recreate an identical replica of assets with no imagination or element of fun.”

*Image from the wedding reception recently hosted in The Sandbox. Source: Smobler Studios*

However, some industry experts believe that high-quality images are crucial for ensuring engaging metaverse experiences. Jacob Loewenstein, head of growth at Spatial — a metaverse platform focused on augmented and virtual reality — told Cointelegraph that Spatial prioritizes high-quality graphics for a number of reasons:

“First, they help the user feel more immersed. Secondly, they help the user express themselves more fully. Finally, users that participate in the Metaverse’s economy expect virtual goods with premium graphical fidelity.”

Given Spatial’s focus on quality, it shouldn’t come as a surprise that the firm is partnering with major fashion outlets, like Vogue Singapore, to bring metaverses to the mainstream. Graphic quality is also becoming crucial as the McKinsey report notes that 79% of consumers active on the Metaverse have already made purchases.

At the same time, it’s important to recognize that user-generated content becomes more difficult to achieve on Metaverses focused on realism. For example, Ready Player Me is also working with Vogue Singapore to ensure that users can interact with realistic avatars.

Unlike voxelized images that may be easy to create with, Rainer Selvet, co-founder and chief technology officer at Ready Player Me, told Cointelegraph that Ready Player Me renders graphics in its avatar editor through the ThreeJS JavaScript 3D library.

Additionally, various cosmetics associated with the avatars are authored by 3D artists that include physically based rendering materials, which define how different assets should physically look in a game engine. Although this process is complex, Selvet shared that Ready Player Me will be open-sourcing its graphics library visage in the coming months to make creating easier for developers.

*Avatars created by Ready Player Me. Source: Ready Player Me*

Metaverse images will improve, but community remains key

Even though the quality of graphics is based on choices by metaverse platforms, improvements are being made as Web3 advances. For instance, Borget noted that The Sandbox is spending a majority of its resources on research and development to ensure the next phases of user experience. He said:

“Avatar expressions and emotions will make The Sandbox even more immersive and fun for users. And if you look at how The Sandbox looked two years ago, users will already be excited to see how it is different today, and how it may evolve in the next two years.”

*Image of how The Sandbox appeared in 2018. Source: The Sandbox*

While innovation is clear, technical limitations will likely slow development. For example, Selvet pointed out that software and hardware challenges remain, stating, “Many of today’s metaverse applications are predominantly browser-based, yet users want access to be frictionless.”

As such, Selvet noted that the need for metaverse accessibility on devices other than gaming PCs is increasing. Loewenstein added that Spatial is particularly focused on bringing the Metaverse to both web and mobile, yet he noted that compute constraints have been problematic.

Fortunately, developments are underway. Loewenstein said, “Firstly, new processors are increasingly powerful, while being light and power efficient. Secondly, new APIs like WebGPU will, in the next 24 months, enable users to access the true power of their GPUs in web metaverse experiences. Thirdly, cloud rendering is becoming more available at a lower cost, while high bandwidth internet (such as 5G) similarly proliferates.”

*Image of how The Sandbox currently appears. Source: The Sandbox*

All things considered, metaverse development currently seems to be focused more on community building rather than imagery. “I believe we need to move past the expectation of a photorealistic meta-human Metaverse and look at what drives human interaction,” remarked Borget. In order to do so, Borget explained that metaverses should focus on ease of use:

“If we build a world that requires high end technology and skills to build and run, we’ll be leaving out most of the world’s population. However, if we instead focus on making creation and play highly accessible and engaging, we can make the metaverse a new, more level playing field.”

Can the Metaverse exist without blockchain?

Read this article to understand why a metaverse can thrive and scale better on blockchain rails.

So, is blockchain ready to take on the Metaverse journey?

In essence, the ideal metaverse must be on blockchain rails, which mandates inclusive incentives centered around creators and users while still offering immersive and seamless virtual experiences.

The Metaverse is not just about the experiential elements; it is also about the economic aspects. The financial incentives must be centered around the real value creators. Those who create content, and regularly interact and transact on the platform are the ones who are creating value.

While the economic model possibilities are exciting, and several hopeful glimpses of these possibilities have emerged, there are significant technical challenges to overcome. The deficiencies in user experiences need to be addressed too.

In the short term, a few scalable Web2 versions of the Metaverse would embrace the Web2 ethos of incentivizing participants. As blockchain matures, more hybrid models would emerge, where Web2 elements bring scalability and user experience, and blockchain takes care of incentivization. A fully scalable on-chain Metaverse may seem utopian now, but it would be the ideal way to build the future internet.

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Blockchain challenges in delivering the Metaverse

The Metaverse of the future sounds great, but is it all just hype? Serious technological, experiential and economic model headwinds need to be addressed for the Metaverse narrative to come true.

Blockchain suffers from scalability, interoperability and security challenges. Even the best chains with meaningful user bases can handle only about 50,000 transactions per second. The internet has millions of data interactions per second in emails, tweets, posts, Google searches, messages and more.

This comparison assumes that data interactions in a metaverse must be on-chain. As cryptographic techniques (like zero-knowledge Rollups) get better at addressing scalability challenges, the economic features will rightly take the limelight to create new Metaverse-based models for the future.

Apart from the scalability challenges, there are major interoperability issues across blockchains. This is particularly related to bridges used to transfer value from one blockchain to another.

Many cyber attacks on Web3 platforms have occurred through these bridges. The Ronin bridge attack and Solana wormhole bridge attack are examples. Interoperability is an ample opportunity within Web3 but it is equally a vulnerability that needs to be addressed.

These blockchain infrastructure layer challenges keep returning to haunt the ecosystem. One of the more recent issues is creating a sustainable economic model of the Metaverse. While GameFi has been leveraged as a growth hack to attract users, a scalable token model is yet to be identified.

To date, there have been many failed economic models that have informed and inspired new models and economic approaches. Yet, innovators in this space are at least a cycle away from identifying a sustainable model.

The last headwind is that of user experience. VR hardware and the Web3 onboarding user experience need to be more seamless to attract hardcore gamers, creators and users into the Metaverse.

Why would blockchain fix the internet?

The internet handles several million data transactions per second. The blockchain infrastructure is in its technological infancy compared to the current iteration of the internet. Yet, blockchain is not just an infrastructure layer; it is an economic layer too. These economic features of the blockchain can potentially address the challenges of the internet.

In a blockchain-based world, the tokenomics of a metaverse (the new internet) platform allows more inclusive incentives. These metaverse applications can be inclusive from a shareholding (governance token) and user incentivization (utility token) perspective.

Active participants in the metaverse ecosystems often hold utility tokens. For instance, participants in a gaming metaverse earn their utility tokens by playing and creating games. Participants in an art metaverse earn tokens by creating art and being ambassadors of art by writing useful reviews.

The Metaverse allows participants to earn as users and creators of the platforms. As long as participants in these ecosystems keep creating value, they are incentivized. As these participants generate more value in an ecosystem, they accrue credentials and become influencers.

Yet, if an influencer in one Web3 metaverse wants to create a profile on another ecosystem, they should be able to carry their friends and network along with them. Ecosystem credentials such as “XP” (experience points) in a gaming platform should not get carried along as they are ecosystem specific.

The fundamental ethos is that users own their credibility and network, not the platforms.

The other fundamental design construct of the Metaverse is nonfungible tokens (NFTs). NFTs offer value permanence. When a gamer buys an in-game asset in a Web2 game, they offer a revenue opportunity to the game studio. They don’t own the asset. That changes in the blockchain world.

NFTs not only offer users the ability to create, buy and sell Metaverse assets but also allows them to accumulate ecosystem credentials in the form of “soul-bound tokens.” Soul-bound tokens behave like credit scores in financial services and as Metaverse users accumulate more, they tend to accrue more value faster.

Why do we need a new internet?

Our current internet is inadequate. Incentives are skewed toward a limited set of stakeholders, creators get exploited and users have very little control over their data. Can the new version of the internet change that?

The internet has been built and evangelized through applications like Google, Meta (previously Facebook), Instagram and Amazon. These applications deploy several techniques to grab users’ attention, and monetize that when they have it. Despite creating monetizable value through these apps, users get a very tiny slice of the value accruing to them.

Even when users who have created value receive very little money, the applications that grabbed the users’ attention have generated wealth for themselves and their shareholders — several trillion dollars. The internet must be more inclusive for this to change.

This is not because of the applications, themselves, but because they were bred in a capitalist ecosystem. Here, the winners take all the value and the wealth. It is okay for this to happen with the new internet, as long as “winners” has a more inclusive definition.

The other key challenge with the current internet is the exploitation of content creators. The internet has left us overfed with content. Yet even high-quality content creators seldom get paid their due. The platforms and intermediaries that offer web-shelf space to these content creators make most of the money. This needs to change; the internet must be more creator-friendly.

Apart from skewed incentive mechanisms, the current internet also takes user data for granted. Internet users have very little control over their data and their network. Why would a user need to start from scratch to build their network when they move from Facebook to Twitter? This needs to change and the Metaverse is the change.

Does the Metaverse need to be on a blockchain?

Blockchain-based solutions have seen financial, legal, gaming and social applications, albeit at a relatively small scale over the last few years. However, whether the blockchain infrastructure layer will be a must-have for the growth of the Metaverse narrative remains unanswered.

The answer to that question depends on how we define the Metaverse. Some definitions of the Metaverse focus only on its experiential elements. The word Metaverse often makes us imagine wearing a virtual reality (VR) headset and going through an immersive experience in a virtual world.

This is not all wrong, but it is an incomplete definition of a Metaverse. The Metaverse is expected to be a futuristic version of the internet. That is a great vision, but why do we need a new internet? The answer to that lies in the answer to another question — do we need blockchain for the Metaverse?

South Korean ministry recommends enactment of special Metaverse laws

The MSIT identified that imposing older regulations serve as a deterrent to the growth of new ecosystems.

The Ministry of Science and ICT (MSIT) of South Korea revealed plans to move away from imposing traditional video gaming laws on the Metaverse. Instead, the ministry decided to issue new guidelines for incentivizing the growth of the budding ecosystem.

South Korea’s interest in garnering Web3 and the metaverse ecosystems is evidenced by the $200 million investment it made for the creation of an in-house metaverse. Running parallel to this effort, the MSIT identified that imposing older regulations serve as a deterrent to the growth of new ecosystems.

In the first meeting of the National Data Policy committee, MSIT noted that “We will not make the mistake of regulating a new service with existing law.” However, discussions around designating the Metaverse as a video game are still on the table.

The ministry decided that new industries — including the Metaverse, autonomous driving and OTT streaming platforms — demand the formation of fresh regulations. In regard to the Metaverse, MSIT raised concerns about hindering industrial growth due to a lack of legal and institutional basis. Revealing the plan, a rough translation of the press release read:

“Establish guidelines for classification of game products and metaverses for rational and consistent regulation and support for enactment of related laws (enactment of special metaverse laws, etc.)”

Previously, on Sept. 1, members of the National Assembly supported an official proposal for the enactment of the Metaverse Industry Promotion Act to support the Web3 industry.

While supporting the growth of new technologies, South Korean authorities continue their crackdown on people running the Terra ecosystem.

South Korean prosecutors claim that Do Kwon, the co-founder and CEO of Terraform Labs, allegedly defrauded investors by issuing Luna Classic (LUNC) and TerraUSd Classic (USTC) without notifying investors of the danger that the price of both could plummet together.

As a result, the prosecutors have applied with authorities to revoke Kwon’s and other Terra employees’ passports.

Animoca Brands continues shopping spree with MotoGP mobile dev acquisition

The company announced its acquisition of WePlay Media after it recently closed multiple multi-million dollar fund rounds with investors such as Temasek.

One of Web3’s leading digital property rights developers, Animoca Brands, announced yet another major acquisition to its increasing portfolio of gaming subsidiaries.

The company announced the purchase of WePlay Media, which developed the popular blockchain-game MotoGP Championship Quest, on Frid. According to the agreement, the acquisition is ian effort to bolster user engagement in motorsport mobile gaming.

Graeme Warring, the co-founder and chief operating o of WePlay Media and co-creator of MotoGP, called the acquisition an exciting development for both parties as they expand their reach to motorcycle fans across the globe.

“Animoca Brands has the ability to reach hundreds of millions of users in core growth demographics to expand the sport’s fan base and create engagement opportunities for the riders, teams and sponsors.”

Similarly, Yat Siu, the co-founder and executive chairman of Animoca Brands, highlighted the potential engagement boost of the acquisition of MotoGP and other motorsport-related games under Animoca.

According to MotoGP’s latest Global Fan Survey, their community has high levels of engagement and interest in regular participation in competitive mobile gaming. It reported that 79% of all respondents from 16–24 years of age engaged in competitive gaming on a weekly basis, with 54% of fans based in the Asia-Pacific region.

Animoca has shown to be highly invested in developing the motorsport gaming sector as it introduced a motorsport-based REVV token rewards ecosystem and NFT programs within the MotoGP game.

Earlier in April of this year, Animoca also acquired Eden Games, which developed the Gear.Club, the Test Drive series and other popular racing games.

In August, Animoca subsidiary Grease Monkey Games received funding to develop the blockchain-based motorsports game Torque Drift 2.

This latest acquisition development comes after Animoca’s successful $110 million funding round led by Temasek on Sept. 8, from which it said it planned to make subsequent strategic acquisitions. Animoca has investments across the Web3 space in operations such as The Sandbox, Axie Infinity, SkyMavis and DapperLabs, among others.

GameFi fundraising jumps 135% in August, but is still down from June: Report

Web3 games and Metaverse projects have raised $748 million in funds last month.

The GameFi sector remains a leading force in the blockchain and crypto space despite the ongoing downturn in the crypto market. Recent numbers from DappRadar revealed that Web3 games and Metaverse projects raised $748 million in funds last month. This was up 135% from July but is still a decline of 16% compared with June.

Blockchain gaming collected $3.1 billion in investment last quarter; so far in 2022, it has added $6.9 billion in funds. This year’s forecast seems to indicate that investments could reach $10.2 billion — an increase of 20% over the $4 billion of 2021. The figures suggest that investors remain bullish on GameFi, despite uncertain market conditions.

“Looking at the whole picture, we observed that 38% of the investments goes to infrastructure, 33% to games and metaverse projects, and 27% to investment firms,” the report stated.

More than 50% of the industry’s usage is still in blockchain games, despite an 11% decline from last month, to an average of 847,000 daily Unique Active Wallets (UAW).

On the nonfungible token, or NFT, side, the total trading volume related to games increased by 13.25% in August, and sales jumped by 83.36% to over 1.3 million nonfungible tokens traded. A recent ChainPlay Survey found that 75% of GameFi investors joined the crypto space solely for games projects, and 81% are prioritizing positive in-game experiences above profit-making.

Metaverse projects’ sales rose 38.62% month-to-month to 19,354, while trading fell 28.90% to $22 million. Among the protocols, Ethereum’s trading volume fell 14.40% in August, bringing it to $11 million. Meanwhile, Solana’s increased 171% to $1.7 million, and Ronin’s increased 27.64% to $8.2 million in total trading volume.

How GameFi contributes to the growth of crypto and NFTs

The GameFi sector has achieved unprecedented growth over the past couple of years and is attracting investors.

The crypto industry has grown tremendously over the past couple of years, and one of its biggest drivers is the GameFi industry.

GameFi — a portmanteau of gaming and finance — enables gamers to earn rewards while playing.

The market has been growing steadily and presently has a token market cap of approximately $9.2 billion. Notably, GameFi networks have continued to thrive despite the crypto winter. Indeed, the industry is forecasted to reach a $74.2 billion valuation by 2031.

How GameFi networks work

GameFi ecosystems are based on blockchain technology and use different in-game economic setups to reward players. The rewards are usually in the form of nonfungible tokens (NFTs) that are tradable on major marketplaces. The items are typically in the form of virtual lands, costumes and weapons and are instrumental in diversifying user experiences.

The difference in gaming strategies and economic setups is what makes each game unique.

One of the most popular GameFi economic setups is the play-to-earn (P2E) model. The model is designed to keep users engaged while enabling them to earn rewards.

It allows players to indulge in the games without spending any money. However, progress can be curtailed due to the lack of assets needed to compete successfully. As such, gamers are sometimes compelled to purchase in-game items in order to advance to top levels where they can obtain bigger rewards.

Popular blockchain gaming networks utilizing the P2E GameFi model include Decentraland, The Sandbox, Axie Infinity and Gala.

Why GameFi is popular

The GameFi world has attracted millions of users over the past couple of years. This is impressive considering that the industry was practically non-existent before 2015.

Today, the industry attracts over 800,000 daily players. Many of them are drawn to GameFi due to the medley of benefits it provides.

One of them is the ease of trading digital assets. A recent market report published by CoinMarketCap found that about 75% of gamers are willing to trade in their in-game assets for some form of currency. This advantage is one of the main reasons why GameFi is so attractive to players.

Some virtual assets, such as land, can also be rented out to other gamers. Users who wish to generate passive income without playing games can also indulge in liquidity mining by staking assets. This is a huge incentive for retail investors and people who wish to monetize their gaming time.

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Another merit that many GameFi players appreciate is the low transaction costs. GameFi environments usually utilize cryptocurrencies, and this makes fund transfers relatively easy to execute and cheap.

This is a major bonus when compared to conventional money transfer modes, which are expensive, especially when it comes to making cross-border payments. This aspect was highlighted in the 2021 Blockchain Game Alliance (BGA) survey report, in which 17% of participants named lower transaction costs as a major GameFi benefit.

Another innovative element that captivates GameFi players is the support for user-generated content. This capability not only allows GameFi platforms to engage users with different tastes but also encourages creativity among players while propagating an autonomous environment in which assets can be created, listed and traded publicly. In the 2021 BGA survey, 47% of respondents ranked creativity and gameplay among the top reasons why they liked GameFi.

These distinctive advantages, as well as other auxiliary factors, contribute to the consistent growth of GameFi.

How GameFi boosts growth

GameFi projects rely on cryptocurrencies to settle transactions, and this has contributed greatly to the increased adoption of digital currencies in recent years.

According to a recent report published by DappRadar — a platform that tracks activities on decentralized applications (DApps) — the number of unique active wallets (UAW) wallets tied to the blockchain gaming sector rose sharply in the third quarter of 2021, accounting for approximately 49% of the 1.54 million daily UAWs registered during that period. The data confirms the disruptive potential of GameFi and the increased use of cryptocurrencies in the sector, subsequently promoting their use and adoption.

Another related survey report released by Chainplay — an NFT game aggregation platform — recently revealed that 75% of GameFi investors got into the crypto market through their involvement in GameFi, showcasing GameFi’s growing impact on crypto adoption.

Besides advancing the use of cryptocurrencies, GameFi has also contributed immensely to the rise of the NFT industry. GameFi relies heavily on NFTs for in-game assets, and this increases their use on the blockchain. Not surprisingly, the rise of the GameFi market in 2021 coincided strongly with the NFT boom.

GameFi NFT sales rose to $5.17 billion in 2021, up from the $82 million recorded in 2020. The sales numbers helped to solidify the growth of the NFT market.

GameFi attracts more investors and gaming companies

Droves of investors are injecting money into promising GameFi projects. The development is bound to help the blockchain industry gain greater credence in mainstream markets as a viable investment space.

According to data derived from Footprint Analytics — a blockchain data analytics firm — over $13 billion has been raised so far by blockchain gaming companies. Over $3.5 billion of this was raised during the first half of 2022.

Speaking to Cointelegraph, Ilman Shazhaev, the founder and CEO of GameFi project Farcana, said that the industry is rapidly evolving, hence the rising interest among investors:

“Investors are particularly interested in GameFi because it represents a sector of the broader blockchain ecosystem that has earned a genuine interest worldwide. They are betting on the future, as only a few industries have a chance of attracting more users in the long run than GameFi.”

He added that the sector was still at a very nascent stage with significant room for improvement, especially when it comes to innovation.

As things stand, major enterprises, including mainstream gaming companies, are jumping on the GameFi bandwagon as the industry continues to advance.

Eminent gaming powerhouses such as Ubisoft are already making moves to conquer the GameFi frontier. Earlier this year, the gaming firm announced a partnership with Hedera and the HBAR Foundation to come up with Web3 GameFi games for the brand. The gaming behemoth is behind the popular Far Cry and Rainbow Six franchises.

Zynga, another renowned game developer, also announced plans at the beginning of the year to unveil its own NFT-based games. The mobile gaming giant said that it was working toward building a blockchain team and making alliances with accomplished blockchain partners in order to bring to life its own collection of NFT games.

Mainstream tech conglomerates such as Tencent, the Chinese multinational technology company, have also started investing in the GameFi sector. The company was recently named among the top contributors in Immutable’s $200 million fundraising event. Immutable is the developer behind NFT games such as the Gods Unchained and Guild of Guardians.

The entry of such players indicates increased competitiveness for a share of the space. This is likely to increase GameFi investments and drive innovation over the long term.

Cointelegraph had the chance to catch up with Anton Link, the co-founder and CEO of NFT rental protocol UNITBOX, to discuss this phenomenon.

Link said that the industry’s highly positive growth indicators were among the main reasons why investors are flocking to the sector.

“Unlike other application areas, it [GameFi] allows for implementing of tech here and now, and the sector’s growth forecasts and indicators speak for themselves.”

He also noted that some game developers were looking to dabble in GameFi in order to obtain a more engaged demographic.

Some challenges that the GameFi industry is experiencing

While the GameFi sector attracts hordes of players, investors and gaming companies, there are still some significant issues to overcome before it captures a sizable pie of the overall gaming industry.

Security issues

The GameFi market has faced some serious hacks in the recent past that are likely to negatively impact user sentiment in the sector.

One of them is the Ronin bridge hack attack that happened earlier this year. It caused Axie Infinity players to lose over $600 million in crypto. Most recently, a newly launched Web3 game dubbed Dragoma suffered a rug pull that caused users to lose $3.5 million.

These are just a few of the reported losses from GameFi intrusions and scams. Such incidences continue to erode trust in the industry.

Poor gaming experience

Furthermore, blockchain-based games suffer from playability issues. While they allow players to control and transfer their in-game assets, graphics, immersion and gameplay often lag far behind their mainstream competitors.

Many blockchain games lack game mechanics beyond “grinding,” i.e., completing repetitive tasks to be rewarded with assets.

Complaints from gamers show that the appeal of blockchain-based tokens isn’t everything and that players still value the vivid experiences offered by popular mainstream games over the benefits provided by GameFi.

Uncertain regulations

Additionally, many GameFi platforms are operating in a regulatory gray area and are likely to face major headwinds in the next couple of years. Right now, the United States Securities and Exchange Commission (SEC) is considering whether to classify blockchain gaming tokens as securities due to the “expectation of profit.”

Classifying them as such would bring them under the purview of the regulatory authority. This would oblige many GameFi platforms to make extensive disclosures about their clients and revenue models. Networks that fail to meet SEC requirements are usually forced to bar U.S. investors and players from joining their platforms to avoid fines and sanctions. This is likely to undercut the growth of the sector.

Technical complexities

Novel blockchain concepts usually experience myriad teething problems. The decentralized finance sector, for example, experienced many of these problems because many users found the platforms hard to understand and use.

GameFi is experiencing some of these issues as well. Buying and selling of NFTs, for example, is a complex affair and remains a major hurdle for newcomers.

The sector is still bound to the wider crypto market

GameFi is a subset of the crypto industry and is therefore affected by the booms and busts of the digital currency market. Consequently, the GameFi sector experiences a rise in activity during uptrends, but the opposite happens when there is a downtrend.

To maintain interest in GameFi platforms, developers face the uphill task of developing enthralling games to help ecosystems weather market slides.

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Currently, GameFi investors are focused on improving gaming experiences to build on sustainability, but the task is easier said than done.

Developers face myriad challenges, but if they are successful in attracting players with top-tier gameplay, the future of blockchain-based gaming looks bright.