Deep Dive
November 3, 2023

The First Wave of On-Chain Gaming - Recap

Let's dive deep and explore the First Wave of on-chain gaming

Early Days

In the beginning, there was chaos. The world blockchain technology was primarily associated with cryptocurrencies, and only a handful of individuals envisioned the potential of blockchain in the future. With each iteration of financial cycles, especially those centered around Bitcoin, blockchain technology garnered increasing attention as more and more people decided to stay engaged with the new technology. The space started to grow organically, technology began to spread to various industries, and overall adoption was on the rise.

The First On-Chain Games

As the technology evolved, the blockchain world witnessed visionary projects aiming to blend the appeal of gaming with the transparency and immutability of blockchain. During the bull market of 2017, we witnessed the first instance of a game being created with the use of blockchain technology that gathered public attention, largely due to its speculative nature.

CryptoKitties, often dubbed the "Tamagotchi of the blockchain era," a brainchild of Axiom Zen (now Dapper Labs), marked one of the initial ventures into blockchain gaming. This charming collectible cat-breeding game captured users' imaginations, enabling them to trade and breed digital felines on the Ethereum blockchain. Each CryptoKittie was algorithmically generated, with a unique appearance, and stored as an NFT on the blockchain. Users could store these NFTs, engage in various in-game activities, or trade them on secondary marketplaces, where prices at times reached tens of thousands of dollars. This was the first time an on-chain game gained such significant attention, and it marked a pivotal point, after which blockchain gaming started to be recognized as a distinct niche.

CryptoKitties wasn't the sole project that emerged during the 2017-18 cycle; another significant player rose to prominence as the leader of the gaming narrative in 2021, three years after its inception. It was the hyped web3 gaming narrative that genuinely sought to find Product-Market Fit (PMF) and, in doing so, identified the core issues that web3 gaming had been grappling with since its inception.

It was more than just pixels; it was about digital ownership. This small but critical detail initiated a revolution. From this point onwards, players could genuinely own the in-game assets they acquired, won, or received as gifts.

The new era of blockchain adoption began.

Axies Take Over the Stage

If there's one game closely associated with the world of cryptocurrencies, it's undoubtedly the creation of SkyMavis studio, which took the web3 gaming world by storm in 2021 with its brainchild, Axie Infinity.

To understand what made Axie Infinity unique, let's delve a bit deeper into how the game operated.

Axie Infinity stood out due to its play-to-earn model. Players had the opportunity to earn the game's native cryptocurrency, "Smooth Love Potion" (SLP), and another cryptocurrency known as "Axie Infinity Shard" (AXS). They could do this by participating in battles, breeding Axies, and engaging in various in-game activities. These tokens they earned could be then traded on cryptocurrency exchanges or used to acquire more Axies, expanding their in-game collections.

While there are similarities between CryptoKitties and Axie Infinity, such as both games featuring algorithmically designed creatures that players can breed and utilize, Axie Infinity took one step further. The introduction of competitive gameplay and the opportunity to breed unique and more valuable Axies set in motion a flywheel effect. Axie Infinity began to dominate the communities that engaged with the game, exploring various strategies from which they could earn in-game assets and convert them to dollars.

The game's success can be attributed to its user-friendly interface, engaging gameplay, and the economic opportunities it presented to players, particularly in regions where traditional job opportunities were limited and dollars were seen as a high value currency. Consequently, Axie Infinity not only became a popular game but also gave rise to a new way of earning real world income in the blockchain gaming realm, especially in countries like the Philippines. It paved the way for a thriving ecosystem of "scholarship" programs, gaming guilds, and in-game entrepreneurship.

Axie Infinity showed that blockchain-based games can go mainstream under certain conditions and this in turn sparked an interest to pursue the leader, and take its place.

Play-to-Earn Goes Mainstream

Play-to-Earn was the leading narrative during the 2021 web3 gaming hype. What initially seemed promising for players, unfortunately, turned out to be as value-draining as many crypto projects with the root cause of this issue lying at the heart of the web3 gaming concept. What was initially envisioned as a domain built on blockchain technology, seemingly protected from the value-extraction mechanisms of the crypto world, ultimately embraced the same principles and mechanisms by mirroring the fundamental token economy design.

Play” in Play-to-Earn was the only way to succeed, but it destroyed the very essence of gaming by how it was defined and implemented. Play-to-Earn forged an environment where the term "play" no longer implied skill or game mastery but merely reflected the depth of one's financial resources.

Axie Infinity continued to build upon the Play-to-Earn model, even though it was the dominant design narrative of 2021, despite its inherent flaws. As the trend persisted, it gave rise to numerous iterations of the Play-to-Earn concept, with many new projects prioritizing the attraction of capital over genuine player engagement. Just as the initial enthusiasm began to wane, a fresh wave of experiments emerged, sparking renewed attention.

A similar pattern played out when Play-to-Earn became overly saturated and appeared overly mainstream to investors and the general audience. The web3 gaming space witnessed further attempts to iterate on the Play-to-Earn concept with the aim to create something new, something to capture the attention and capital of venture firms and market-oriented actors yet again. This gave birth to Move-to-Earn games like Stepn, which still adhered to the fundamental concept of Play-to-Earn: the more capital you invested, the more capital you could extract.

Venture Capital & On-Chain Gaming

Venture Capital funds are primarily driven by the goal of increasing the numbers on their spreadsheets to keep their investors satisfied. While this pursuit isn't inherently negative, it often translates into pressure that Venture Capital firms exert on new projects and promising trends. They aim to reap the rewards quickly, sometimes even before these projects have had the opportunity to fully develop and mature.

When we apply this scenario to the real world, it becomes evident how Venture Capital has propelled the rapid expansion of the web3 gaming space. Unfortunately, this accelerated growth has sometimes occurred at the expense of affording projects and developers the necessary time to explore diverse ideas and construct strong foundations for this emerging branch of the gaming industry. As capital began flowing in, there was limited room for experimentation, and products had to be rushed to the public to meet investor expectations.

The initial triumph of Axie Infinity hinted at the potential of on-chain gaming, even though it was in its infancy. Suddenly, both social media and conventional media outlets were abuzz with enthusiasm about this new era of gaming. It promised a realm where players could truly own in-game items and properties, actively engage in communities, participate in thriving virtual goods markets, delve into digital real estate, and embrace the enticing Play-to-Earn model. It felt like a glimpse into the future, almost within our grasp.

However, the vision of web3 gaming became overly preoccupied with mirroring the trends and behaviors of the crypto world. This focus ultimately had detrimental effects on how it was marketed and how it was perceived by the traditional gaming community. What was once at the vanguard of pioneering new chapters in gaming soon became inundated with capital that demanded immediate results.

Final Words

Recapping the initial phase of on-chain gaming was essential in comprehending the fundamental ideas that fell short and the significant missteps that occurred along the way. In the upcoming article scheduled for release next week, we will delve deeply into the mechanics and principles employed in the First Wave of on-chain gaming. We will also pinpoint solutions and explore how to put them into practice to revive web3 gaming.

A promising future lies ahead for those who analyze the past and apply the lessons.

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