The core differentiation between web3 and web2 games

Gaming will onboard the next wave of crypto users is a popular web3 rallying cry. People love games, and web3 games have unique properties that can cut through the noise, appeal to the masses and smooth their onboarding into web3.

But despite the early wave of adoption throughout 2021 that seemed to prove out the thesis, web3 games have fallen harder and faster than other crypto sectors, putting the entire thesis under scrutiny. The common push backs being that:

1. Web3 games aren’t fun
2. Early web3 game adopters weren’t players, they were investors
3. Players want to play. They want escape. They don’t want to invest or be forced to ‘pay to win’

These three criticisms of web3 games are all true, but let’s take a look at the unique properties and innovation that web3 gaming bring to the table. Let’s explore!

Two unique aspects of web3 gaming

Web3 brings some new, unique and exciting properties to games, that can invent new categories. I categorize them as:

1. Interoperability
2. Ownership economy

Each of these opens up gaming to new avenues, opportunities and paradigms. They don’t absolve games from making good games that are fun to play. Web3 games still have to deliver on what a regular game delivers. But these two aspects create new opportunities and design surfaces for game designers to build and innovate.

Interoperability, mods and UGC

Mods are a staple of almost every great game. Built by the gaming community, mods offer variety and longevity to games that otherwise might grow stale. The best part about them is that they not only increase the fun factor and lifetime value of a game, but they’re not even built by the core game design team!

Mods have delivered some of the best games of the past two decades, including famously, League of Legends! Similar to mods, another gold mine for games is user generated content. Roblox and Minecraft have capitalized on the ability to let players build in game worlds.

In web3, the principle of interoperability extends and enhances the ability for users and players to build mods and UGC that is more powerful, integrated and financially flexible and longstanding then in web2.

The power of web3 interoperability

Web3 interoperability offers three significant upsides to the standard modding and UGC of web2:

1. Open, permission-less innovation: web3 games can be built with key aspects, game logic and attributes on the blockchain. This allows other developers and game builders to seamlessly integrate other games’ ecosystem into their desired game universe. Loot led the way with this concept of providing a basic building block for other game developers. While modding exists in web2, it always exists in the games’ original world. An Elder Scrolls mod will always remain within Skyrim. A World of Warcraft mod will always stay within Azeroth. On the blockchain, an in-game NFT can be used organically and immutably in a third party developers game. Thus a character from Axie Infinity or Crypto Raiders could be used in a home brew mod.
2. Governance: Imagine developing a mod, launching it and reaching players, only to have the game developers release a patch that disables it? It’s a risk mod developers must accept, and one that they can’t control — even when they’re developing within the guidelines of the game developer. Web3 enables mod developers to partake in game governance, protecting themselves. While this form of governance doesn’t necessarily exist in all web3 games — it’s a decision made by the game designers — the ability for this form of governance exists, which would give mod developers more confidence.
3. Financial upside: Web2 mods are hard to monetize. Many games don’t enable monetization at all, and the ones who do charge a notoriously high marketplace fee. Web3 gives game developers the opportunity to participate in the financial upside of the game ecosystem they develop for. By participating in the overall game ecosystem, they can grow the pie of the TAM for the game. An Axie Infinity mod using $AXS benefits from the growth in the Axie Infinity market cap.

Open, permission-less innovation, governance participation and financial upside are all three key drivers web3 offers players and developers for a more powerful interoperable ecosystem. More mods and more UGC have the power to dramatically grow the pie for a game ecosystem.

Ownership economy

The second paradigm shift that web3 unlocks for gaming is the ownership economy. It’s true that players don’t control 100% of their NFTs destiny. A game came always mint more ‘Sword of the Dragon +10’, create an infinite amount of new Loot or change the rules of breeding new Axie’s. Yet web3 still offers a new type of ownership economy that enhances player experience in a few ways:

1. Players can own parts of the game and have ‘financial freedom’ with them. Yes, more Loot can be created. But until then — players have complete control and financial freedom over their in game items and characters. Instead of a one sided relationship that exists in todays web2 games, it is a two sided relationship.
2. Players can own every part of the game. The traditional role of player vs AI and enemies is changed. Players can now fulfill other roles and own them as well. They can control the enemies, monsters, merchants — anything. A great example of this is Crypto Raiders Mobs.
3. Players can take part in governance. Many web3 games let players take part in decision making regarding game development. Sometimes this is contingent on game involvement or token ownership.

Web3 opens new avenues for players to participate and own different parts of the game. Some appeal to more classic gameplay and enable new experiences, others appeal to new kinds of players.

Two questions web3 games need to answer

Interoperability and the ownership economy open up new options for web3 developers regarding two important topics:

1. Who is your player?
2. What business model do you have?

Who is your player?

Traditional games have one kind of user: a player. Players come in all shapes, sizes and preferences, but they’re still players. Web3 gives games two new user archetypes: the investor/trader and the developer. The ownership economy unlocks new game modes for players who enjoy financial games. Trading, investing, collecting — are all valid new modes for play. The powerful interoperability web3 enables means that developers can be an equal user cohort.

What’s your business model?

Web3 unlocks new business models. Interoperability and ownership economy both enable new business models. With interoperability as a main focus, a developer first go to market is viable, so is developing a ‘game as a protocol’. Focusing on the ownership economy unlock financial business models. Instead of focusing on freemium’s or a one time game purchase, trading fees, ‘1000 true fans’ or collectibles are now a business model.

The core differentiation between web3 and web2 games

To capitalize on the innovations that web3 brings to the table, web3 games have to lean in to the advantages it offers: interoperability and the ownership economy.

Enabling other developers and gamers to use in game assets, own them, extend their use to other ecosystems, all the while being fair, transparent and having a minimally extractive mindset unlock new opportunities in the game design space.

I design tokenomics for crypto protocols (all still in launch phase) and am putting everything I’m learning into a super in depth course on Tokenomics. If you’re interested in my free email course on tokenomics, sign up here!

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