Game On: The Year Ahead for Web3 Gaming

2024-01-31

Web3 gaming is experiencing a resurgence, with an increasing number of Web2 game studios making the shift to Web3, while AI technology is being introduced into game development and enhanced user experience. To dive into what’s ahead for the Web3 gaming sector in 2024, we invited Chris Chang, Co-Founder and CBO at Gomble; Zoe Z., CMO of SleeplessAI; and Jeremy Horn, Co-Founder of Xterio for an AMA. Each of these portfolio projects have been founded by Web2 game industry executives who made their move to Web3.

Click here to listen to the full AMA discussion on X, or take a look at the summary of key topics from our discussion below.

New Narratives

With predictions of a bull run coming, the gaming sector initially lagged behind compared to other sectors, but the sector is now gaining momentum driven by an influx of capital and talents in 2023. Will 2024 be the breakthrough year for Web3 gaming? Here are some new narratives we discussed for the year ahead:

1. Transfer of Value > Financial Rewards

There is an enormous amount of value to be transferred between users, and also value to be accumulated in Web3 games. Digital collectibles and utility components of Web3 could be leveraged to unlock the return of value for both new and existing users, extending beyond the airdrop narrative. While it's essential for game projects to demonstrate robust tokenomics via generation of real demand and real native revenue, blockchain components should serve as an enhanced addition to game playability and user experiences. Additionally, we expect to see more initiatives on democratization and ecosystem development that transfers value to core contributors i.e. gamers, content creators, builders, and marketers through ecosystem rewards that unlock additional features and content. 

2. The Content Universe 

In earlier Web3 gaming cycles, the focus was centered on infrastructure. Now, with the maturation of Layer-1s (L1) and Layer-2s (L2), the narrative is shifting towards playability and users’ content consumption. The gaming landscape today, driven by the Free-to-Play (F2P) movement, often relies on legacy franchises and IP licensing to drive monetization. Users are likely to invest more time and money in familiar titles and characters to which they’re emotionally connected. Despite price fluctuations, entertaining content and sociability should be core reasons why users play.

3. Web2 Game Studios Shift to Web3

Major traditional studios can bring in the experience and talent needed to take more Web3 games to the same caliber as Web2 games, while simultaneously creating higher acceptance of blockchain technology amongst game developers. Several Web2 studios are applying Web3 elements to their popular IPs or introducing entirely new Web3 native projects under their banners, representing new opportunities to onboard gamers.

Jeremy, Co founder of Xterio has transitioned from executive roles with Web2 gaming giants to pioneering a Web3 game studio. Jeremy comments: Web3, much like the early days of Free-to-Play (F2P), exhibits signs of being in a market infancy stage, facing skepticism from developers and players alike. However, these challenges serve as opportunities for founders who recognize something extraordinary in the making with incredible potential upsides. Xterio, a pioneering force in the web3 gaming industry, has harnessed the potential of digital ownership and blockchain technology to redefine player engagement and monetization strategies.

In the F2P gaming world, two pivotal metrics dictate success - player retention and monetization. The free-to-play market is currently facing tremendous headwinds from increased privacy regulations to overall user behavior changes.

Early Play-to-Earn (P2E) data has demonstrated that providing players ownership of their digital assets significantly enhances retention, conversion rates, and overall monetization. Xterio has embraced this insight with its debut title, Age of Dino, where players own and trade characters and dinosaurs, creating real-world value through in-game currency converted into tokens for accessing additional content.

To remain competitive in the gaming industry, seizing opportunities is paramount. Blockchain technology emerges as a game-changer, enabling direct player involvement in the game ecosystem and economy through incentive alignments. Xterio leverages digital ownership to create a dynamic gaming environment that encourages player participation and asset ownership.

Web3 X AI: Enhancing Gameplay Experiences

The gaming industry typically involves a 2-5 year development time for producing high-quality game titles. With the ongoing evolution of Web3 gaming and a growing number of studios shifting to mobile gaming for its lower costs and complexities, potential opportunities arise for AI integration in the development process. This integration and the accessibility of AI toolkits can enhance gameplay and accelerate the speed at which these games are launched, in addition to Large Language Models (LLMs) that can contribute to Web3 gaming by providing natural language processing capabilities, assisting in generating game IP i.e. character and world storylines.

SleeplessAI, a blockchain-based virtual companion game developer, leverages AI-generated content (AIGC) and Large Language Models (LLMs) to craft personalized, story-based gameplay and dialogue. Zoe, CMO of SleeplessAI comments: AI not only enhances our productivity but also elevates users' gaming experiences. On the productivity front, AI reduces around 80% of our costs and lead time, thanks to our efforts in training prompts on AIGC tools like Midjourney and Stable Diffusion. We view AI not as a tool that overrides the creative process of artists but rather as a complementary tool.

For the user experience, we employ LLMs to craft emotive dialogue and interactions for virtual boyfriends, enabling natural conversations with responses that evolve based on players’ intentions. Additionally, each sentence in our generative chat can be connected to the game's value. From the perspective of literature and game operations they are of ‘value’. So compared with traditional scripted statements, generative chat is a huge improvement in productivity and randomness.

In addition, Xterio is developing an AI toolkit for content partners that generate high-quality 2D and 3D assets on-chain. Additionally, their AI companion project, Palio, aims to bridge the emotional gap between players and digital entities. Palio is envisioned as a companion that enhances users' lives, offering conversation and task-related assistance, creating a unique and emotional connection with the digital realm.

Jeremy of Xterio comments: Recognizing the challenges game developers face in areas such as technology enhancement, production, and fast-tracking, Xterio is committed to providing support. All the development we are building in the AI front will become development toolkits for our partners and the company seeks outstanding teams eager to expedite development through AI toolkits that Xterio is building. These toolkits include customized pre-trained models for user-generated in-game and promotional graphics, non-player characters' conversations and their interactions.

Simultaneously, Xterio extends its expertise in publishing, helping developers market and release their titles globally on multiple platforms. This approach reflects their dedication to nurturing innovation and delivering quality gaming experiences while keeping a keen eye on potential future market dynamics.

Xterio is a beacon of innovation in the gaming industry, seamlessly integrating Web3, blockchain technology, and cutting-edge AI advancements. Through their strategic approach, Xterio addresses current challenges and paves the way for a future where gaming experiences are more immersive, emotionally connected, and financially rewarding for players and developers alike.

A Different Approach to User Acquisition & Retention

We’re observing a trend of traditional game developers positioning themselves as Web2.5 games, an example of this is South Korean casual game developer, Gomble. The core focus of these studios is to create low barriers to entry and rich off-chain gameplay experiences to onboard Web2 gamers. Tokenized incentives are then gradually introduced as the game fully transitions on-chain to retain those same gamers, and onboard them onto Web3.

Gomble serves as the crypto arm of South Korean casual game developer, 111Percent. The core team have collectively launched over 150 games, and have shifted their efforts to building a community of Web3 casual gamers with Gomble. Chris, Co-Founder & CBO of Gomble commented: At Gomble, our primary focus is to address the barriers of bringing 2 million casual gamers into the Web3 market. Our game design and testing process prioritizes easy onboarding and a simple start for all players, we eliminate any prototype that takes a new user more than 30 seconds to understand the game rules. Rather than prompting completely new users to connect to a wallet, and purchase tokens on their first login, our approach is to gradually introduce Web3 elements, while focusing on fun and enjoyable content as users’ motivation to play.

We want to get users immersed and addicted to the gameplay before introducing any financial incentives so developing engaging games, attracting a continuous influx of users, and getting them immersed in the content experiences are the initial focus. Our game experience design allows Web2 to experience Web3 elements. Users can compete in tournaments or ranked competitions and receive in-game rewards equivalent in value to the tokens. Our approach to convert Web2 users is to naturally stimulate their interests and motivation towards Web3 in a non-intimidating casual game environment. As the ecosystem grows, the Web3 users' contribution will be crucial to building a sustainable economy. 

The above is a snippet of our conversation with Gomble, SleeplessAI and Xterio. Check out the recording for the full discussion on X Spaces.

Disclaimer: The content on this article has been prepared solely for informative purposes and should not be the basis for making investment decisions or be construed as a recommendation to engage in investment transactions or be taken to suggest an investment strategy in respect of any financial instruments or the issuers thereof, nor does it imply an endorsement or affiliation with any of the above mentioned projects.