Making Sense of Blockchain Gaming
A summary of my learnings from My Crypto Heroes and fellow blockchain game developers
I just returned from ETH Denver and NFT.NYC where I had lots of discussions about why we, as an industry, decided to build a game on the blockchain. In short: There are a few things that blockchain games can do, which “normal” games simply can’t do.
This post is highly inspired by the panel we had during the MCH meetup.
It should give a good overview of the current state of blockchain gaming, what is working, and what we need to improve moving forward.
The “Obvious” Things
Gaming and NFTs
Blockchain Games use the blockchain to store individual assets, called NFTs.
Why this is exciting: When I was a teenager, I used to play a ton of Guild Wars, while trading with in-game items and game accounts on eBay. Sometimes, I got scammed on eBay due to cash backs on PayPal or asynchronous trades (items first, payment last). That was unfortunately normal.
Today, game asset NFTs, secured by the blockchain, allow me to freely trade my game assets without the worry that I’d receive the money or the item.
Some Feedback I’ve received on this:
Counter argument:
Games could build their own scam-free peer to peer market, like we’ve seen with CS:GO (Skins) or Diablo 3 (Auction House).Answer:
This is possible, however, having the item on the blockchain allows users to make use of all other Ethereum based products that are built on top of it.In other words: I don’t need to build my own peer 2 peer trading backend and can use OpenSea instead. This is quicker, has less overhead for game developers, and is probably more secure overall.
The Crossover of Gaming and Finance
Blockchain games are “money games” by nature and should be treated as such. You ask why? Game assets are designed to hold value, which can be converted into FIAT that can be spent in the “real world”. The blockchain is used to secure the value of those assets and allows users to transfer them in and out of the game.
Most blockchain gamers play because of the money aspect. They enjoy playing a game that allows you to invest your money strategically, with a gameplay of generating returns if you outperform your opponents.
The average blockchain gamer also likes poker, used to trade in MMOs, or at least trades with crypto or stocks. So naturally, they enjoy the intersection of finance and gaming. Some even look at blockchain games as heavily gamified savings accounts.
To go even one step further, we built DeFi Game during the ETH Denver hackathon, that uses ERC721 Crypto Kitties, converts them into ERC20 Wrapped Kitties and turns it into ERC-20 DAI for the prize money. A lot of people liked the idea, which shows that the crossover of gaming and finance is something that gets people excited.
Composability
Since NFTs are built on the ERC721 or ERC1155 standard, they can be used within other games and platforms.
If you comply to the above-mentioned standards for your game assets, you’ll be able to automatically make use of platforms like OpenSea. You can also enable asset conversion into a game asset of another game, if that game also complies to the ERC721 / 1155 standards.
If you build your game on Ethereum, you can use every Ethereum-based service, for example 3Box for your player identity or the ERC-20 token DAI as rewards for your tournaments.
You could even sell NFTs in DAI, turn that into CHAI and use that accrued interest for tournament winnings. Some people call it “money Lego” and similar to Lego, the possibilities are endless.
The “Not So Obvious” Things
Navigating the Legal Landscape
Composability gives developers access to 3rd party services without the need to “own” the 3rd party services. This has actually very powerful legal implications, depending on your country and legislation.
Here are 2 examples to get your creativity going:
Example 1
- Imagine you sell game assets as NFTs, send them into quests/tournaments, and receive game assets (NFTs) as rewards.
- That’s considered gambling in some countries.
- A way around this: If you don’t allow users to sell the assets inside the blockchain game, they’re (on paper) not worth anything.
- However, there’s this 3rd party platform called OpenSea which allows users to sell those assets for Ether (or other currencies).
- Since the game company has no affiliation with OpenSea, it is perfectly legal for users to buy and sell NFTs on OpenSea and use them inside the game.
Example 2
- Let’s say you want to offer the DAI savings rate in your game.
- Imagine players invest in heroes, that money gets turned into DAI and then turned into CHAI to collect the interest rate (currently 8% p/a).
- Why this is exciting: Normal game companies cannot do this — they would need a bank license for that. (Feel free to correct me here, I haven’t double-checked that info with experts)
- If you implement the example of DAI and CHAI from above, your company doesn’t need a bank license since the money never touches your company’s bank account. You are using the protocols of Maker, which is considered as the “central bank of Ethereum”.
Player vs. Investor Mindset
At My Crypto Heroes, we realized that different kind of players have different kind of mindsets. Here’s what we observed:
- Small / Casual Investors
They think in FIAT value. We observed in MCH that common, uncommon, and rare heroes decrease in ETH value if the value of ETH increases. - Bigger Investors
They think in ETH. One ETH is always one ETH. We observed stable ETH values of our legendary heroes, independent if the value of ETH going up or down. - Busy Whales
They also think in ETH, but here’s another thing to consider:
Some investors just like to invest into the game and not actively play it. Therefore, it’s important that your game offers assets that are investible without the need to play to capture the returns.
For example: Selling a raid boss that gives you passive income is good for whales who don’t want to actively play. But assets like legendary heroes that need to be played to get rewards should only be sold to active players.
Treat Your Players Like Shareholders
Running a blockchain game requires a different mental model than building traditional games. Instead of consuming games, players invest in games and game assets. This means:
Your players are your investors, which means you should communicate with them like you do with your shareholders.
- You, as the game developer, have the most control over your players’ asset values because you give them utility in the game. Never forget that.
- When thinking about features, consider how they impact the asset values across your entire player base (small investor, medium investor, large investor).
- Inform players of upcoming changes, why they’re made and how it impacts their asset value and the entire ecosystem.
- Communicate your timelines and stick to them religiously. (Especially important for the Japanese community)
- Think about long term shareholder / asset value. Think how the player assets evolve over time, including when new games get released.
- Company decisions also impact game asset values. For example: A leaving CEO is a bad signal for your players, as much as it is for your investors.
The Things “We Need To Figure Out“
Business Models
- The current business model of most blockchain games is to sell NFTs to its users. However, if the supply of the NFTs should remain limited, the game company cannot sell infinite assets.
- Once the player made her investment, she can play with those assets indefinitely. This means there are no recurring revenues, with a big spending in the beginning and little to no spending in the long run.
This leads to an unsustainable business model where game companies make lots of money in the first months with little to no money in the long run. Here are a few solutions to this:
- Consumables:
Your game economy should have items that are consumed over time. Or your NFTs can be “damaged” over time by going on quests, joining tournaments, etc. To continue playing with the NFT, the user needs to “repair” the NFT, resulting in micro transactions. - Cut from Peer to Peer Transactions:
You can take a cut from P2P transactions such as trading or paid tournaments. However, be careful where you take money off the table. As a general advice, only take a cut from a transaction that adds value to the user. If you take small cuts from every possible transactions, that will make players angry very quickly. - Subscriptions:
My Crypto Heroes offers a 0.1ETH / month prime subscription to its users. This gives us, the game developer, recurring revenues and the users some benefits in the game. Since blockchain games are “money games”, subscriptions can be a natural fit. It’s like paying $10/mo for your bank account for added features and better rates.
PS: Research from DappRadar showed that subscriptions lead to high long-term retention rates.
PPS: Recently, a16z blogged about building products for more “super fans”, i.e. highly engaged users that are willing to spend more. In the blockchain gaming context, this means you could build sustainable games with 10,000 DAU if their LTV is ~$1,000. (as a comparison: currently, MCH has an LTV per paying user of ~$350) - DAI Savings Rate:
With My Crypto Heroes, we generated about $3M in NFT sales. If we put this into CHAI at a 8% interest rate, that’s $240,000 / year.
This is certainly not enough to run a game, but imagine blockchain gaming gets to ~100,000 users with ~$500 avg. investment: That’s a total investment of $50M, which returns a $4M interest per year. That’s probably enough to feed a small to medium sized game team.
UX Standards
The user experience of most blockchain games is still not ideal. However, lots of UX improving products are getting better and are ready to be used. Here are some of them:
- Wallets
(Non)custodial wallets and smart contract wallets are getting better. Two examples are Fortmatic that just launched a while labeled solution and Authereum, which is a recently launched smart contract wallet. - Gas Fees
For most gamers, the concept of gas fees is still very difficult to understand. To not confuse them, you can pay for your users’ gas fees by implementing something like GSN or using smart contract wallets. The tricky part: Paying for your users’ gas fees is not a sustainable business model either. You need to figure out a sustainable way to do this. Two ideas:
1. Let whales stake for new users’ gas fees and give them a revenue share
2. Offer consumable items that represent the gas that’s paid per transaction. For example: Ethernal World added the consumable item “food” to abstract the gas fees away from the users. - On-Ramp and Off-Ramp
To break into the non-crypto audience, you should give players options to purchase Ether with FIAT. Luckily, last year lots of startups tackled that challenge and companies like Wyre and MoonPay can provide a great UX to convert your non-crypto players into crypto users.
Also, it’s important to think about off-ramp too: How do my users cash out? The path from game asset to crypto to FIAT should feel like magic internet money.
Note: Don’t expect this to be the silver bullet for mainstream adoption. At our latest game Brave Frontier Heroes we added the option to buy in-game currency with FIAT and just a small fraction of our players used it.
- NFT Pegs
Should you peg your NFT assets’ value against ETH or FIAT? How do you communicate this? Those are also questions you should answer very early in the project since it affects the ecosystem. As mentioned earlier, most small / casual investors think in terms of FIAT and value NFTs as such. However, large whales and crypto-native investors think in ETH since they are in it for the long run.
Defining the new Genre
Lastly, I want to do a little “call to arms” to the entire blockchain gaming ecosystem. We need to ask ourselves:
What are we building here?
- Are we building normal games with NFTs as the game items?
- Are we building high risk / highly speculative game assets that feel like ponzi schemes?
- Are we building highly gamified savings accounts?
- Are we building poker-like tournament games, that can only be played with a buy-in?
My Thoughts
I personally think that blockchain games are inherently “money games”. Offering a “free to play” blockchain game is not something that makes sense to me. Similar to how banks cannot offer you any interest if you invest $0, blockchain games can only give you returns if you invest money. Everything else is either unsustainable or highly speculative.
In the future, I think we will see different variations of blockchain games: More speculative and less speculative assets. Current blockchain games are probably more on the “speculative” side of the spectrum. A promising upcoming game is SkyWeaver, which offers assets for both, non-speculators and speculators.
On the “less speculative” side, we could even see NFTs that are backed by DAI. Imagine there’s a game that offers “stable heroes” that are pegged against $10, $50, $100, etc. Instead of keeping $1000 on your bank account, you would move those $1000 into the game to have fun and even get returns if you play well.
Personally, I want to see a future where blockchain games will become the bank accounts of the future.
Instead of putting your money in a boring savings accounts, I want to battle against others to compete for interest rate. I understand that this is not for everybody, but it’s a niche worth serving.
