# The Rise and Challenges of Web3 Gaming

Web3 gaming, which marked a significant milestone with the launch of Axie Infinity in 2018, initially grew rapidly. However, in the current cryptocurrency market, AI-related projects dominate more than 70% of the space, while the gaming sector struggles with a single-digit market share.

In 2023, 29 out of the top 40 companies in the gaming industry have ventured into the Web3 domain, with pioneers like Nexon and Krafton making serious forays into the market to overcome growth limitations in traditional gaming.

Sustainable growth for Web3 gaming hinges on creating impactful success stories. Examining promising projects is crucial to understanding potential trajectories in this space.

# The Evolution of Web3 Gaming

2018’s Axie Infinity stands as a hallmark for Web3 gaming. As a trailblazer in the Play-to-Earn (P2E) model, it captivated the market with its unique gameplay centered around collecting and nurturing NFT-based characters called ‘Axies’. This game introduced a new dimension by assuring digital property rights and enabling secure transactions on a marketplace through blockchain technology.

Following Axie Infinity, The Sandbox gained attention in 2022 by promoting itself as a user-generated content (UGC) platform. Leveraging blockchain, The Sandbox proposed a new paradigm akin to Roblox, allowing gamers to create and monetize content. Continuously expanding its features, The Sandbox has established a successful business model protecting creators’ intellectual property and revenue.

Most recently, the hamster-themed Hamster Kombat caught the industry’s eye. As a Telegram-based Tap-to-Earn (T2E) game with 9.5 million monthly active users, it succeeded in dramatically lowering entry barriers by integrating marketing tools with a simplistic tapping mechanism.

While AI-related projects command over 70% of interest in the cryptocurrency market, the gaming sector’s influence remains minimal. Such an imbalance has led to the underappreciation of the innovation and growth potential inherent in Web3 gaming. This study aims to delve into the reasons behind the mass entry of gaming companies into the Web3 space and the current undervaluation of its milestones.

# Traditional Gaming Giants Embrace Web3 Amidst Growth Stagnation

Mobile gaming revolutionized the industry. Newzoo reports that the global gaming market surged from $70.6 billion in 2012 to a projected $187.7 billion in 2024, with mobile games climbing from 18% to 49% of total revenues. Mordor Intelligence forecasts further growth to $110.9 billion by 2025 and $181.9 billion by 2030. However, industry experts suggest the mobile gaming market might be nearing saturation.

In response, the gaming sector has explored new innovations. Cloud gaming and AR/VR have emerged as potential growth drivers, yet high development costs and infrastructure demands have limited their market penetration.

Amid these challenges, Web3 gaming began garnering attention. It demonstrated the potential for rapid revenue generation with relatively low development costs, igniting hopes of a new growth engine for the industry. Axie Infinity’s success in Southeast Asia—with minimal resources achieving significant daily active users (DAUs) and a $3 billion valuation—underscored Web3’s business viability and scalability, instilling confidence in major gaming companies about the Total Addressable Market (TAM) and growth potential.

By 2023, 29 out of the top 40 gaming companies, including Take-Two Interactive, Nexon, and Bandai, have embarked on Web3 ventures. Nexon has even successfully completed the second test for the Web3 version of its famed IP, MapleStory, while Krafton is intensifying efforts on their Web3 game, Overdare.

# The Chasm Between Gaming Industry and Web3 Ecosystem

Axie Infinity’s sharp decline highlighted structural issues within the Web3 gaming ecosystem. Its user base plummeted from 1.48 million in March 2022 to 800,000 by April. Concurrently, AXS token’s value nosedived 95.7% from a peak of $164.90 to $7.11. Analysts have pinpointed sustainability flaws, yet the fundamental discord between traditional game development timelines and Web3’s economy remains the core problem.

Game development requires significant time and capital investment; AAA games often take 3-7 years and upwards of $50 million to $200 million to develop. ‘Red Dead Redemption 2,’ for instance, allegedly consumed around $500 million for development and another $300 million for marketing.

Moreover, games inherently lose users over time, necessitating relentless quality maintenance and updates. P2E games attempted to break this cycle but have largely faded from relevance.

Even game platform businesses face similar challenges. The dominant PC gaming platform, Steam, launched with skepticism in 2003, required eight years of gradual growth before capturing 70% of the PC game download market by 2011.

Conversely, the Web3 market exhibits a pattern of rapid hype and equally fast cooling. The cyclical nature of interest and investment in new opportunities obstructs the long-term development trajectory essential for sustaining games.

# Awaiting Web3 Gaming’s Resurgence: Success Stories Needed

Despite initial setbacks, Web3 gaming remains noteworthy due to its synergy with the gaming industry. In-game item trading, digital asset ownership, and community-driven economies naturally align with blockchain’s core values, thus retaining game companies’ interest.

For sustained market growth, three fundamental issues must be addressed: ecosystem stability, rational token economy design, and high-quality gameplay. Overcoming the ‘early failure effect’ from initial project collapses will require credible success stories from established companies.

### Major Game Success Candidates

Hope is placed on upcoming Web3 games like MapleStory and Overdare. Both projects benefit from significant industry expertise and resources, warranting close observation of their outcomes. MapleStory particularly promises to onboard loyal users with its existing IP.

### Integration with AI

Krafton’s Overdare development could synergize with AI technology. At CES 2025, Krafton unveiled AI-based ‘Co-Playable Character’ technology, enabling NPCs in games to engage organically with players beyond preset roles. Though not yet released, Overdare’s UGC platform may leverage this tech, empowering users to create and sell content effortlessly. This aligns with current market interest in ‘AI-agents’ and could address the short-lived hype economy prevalent in Web3.

However, regulatory barriers present significant challenges. In South Korea, even established IPs like MapleStory face restrictive Web3 service limitations, with many countries lacking clear regulatory frameworks for blockchain gaming.

A notable example is the merging of Klaytn and Finschia, resulting in ‘KAIA.’ Combined with the LINE messenger’s 200 million users, this venture is expected to achieve meaningful results in Asian markets with relatively loose Web3 game regulations, such as Taiwan, Thailand, Indonesia, and Japan. Mini Universe and other services are already live, making it crucial to observe their performance.

Web3 games, while not a current focal point, possess the potential to integrate various emerging technologies and industries like AI and metaverse. Future innovative projects could realize this potential, producing significant achievements.

*This article is based on the report “Web3 Gaming: It Ain’t Over ‘Til It’s Over” from Tiger Research, a global Web3 specialist research institution. The full report is available on the Tiger Research official website.*