The key to fully grasping XAI's potential in the Web3 gaming space is to understand its track and its position in the Arbitrum ecosystem. As a loyal supporter of XAI, I am confident in its future. Arbitrum's technological innovation and support for game developers indicate that XAI is about to usher in explosive growth in the Web3 gaming space. This not only reflects its technological potential, but also heralds the huge investments that are coming. For long-term investors, now is the best time to pay attention to XAI and its role in the Arbitrum ecosystem. Persistence and patience will be the key to success. As the market gradually recognizes it, those who stick to the end will be those who see and believe in the deep value of XAI.
Now let’s take a look at the Arbitrum community’s discussion on vigorously developing the gaming track and the corresponding huge subsidies and investment plans:
The following article is translated from:https://forum.arbitrum.foundation/t/arbitrum-and-the-future-of-web3-gaming/21270
On February 17, 2024, the content of the above link was translated to introduce some extended background of the XAI project to Binance Square users.
Due to the external link restrictions of Binance Square, the hyperlinks in the original text are not displayed here.
Some content has been cut down to make it easier to read.
The original text will be continuously updated. If you want to get 100% understanding, it is recommended to read the original text directly.
Preface
This forum post is intended to be an educational hub for the Arbitrum DAO, focusing on the impact that Web3 gaming can have on the Arbitrum ecosystem and its stakeholders.
The content here is expected to evolve and be updated as new information and data become available.
Core contributors include: Dan Peng (@Djinn), Karel Vuong (@karelvuong), Helika team, and other game ecosystem builders.
opportunity
The global gaming industry is huge. With more than 3 billion gamers worldwide (1 in every 2.36 people), and revenues of around $184 billion in 2023, this presents a huge opportunity for the Web3 gaming sector.
While the Web3 game is still in its infancy, Arbitrum has a unique opportunity to immediately attract promising builders through allocated funding and a support network led by experts.
The following key points support our hypothesis:
For Arbitrum, gaming is a low-hanging fruit; all the ingredients for success are already there. All it takes is a catalyst to start the snowball effect and attract the attention of talented game developers.
Despite having minimal incentives, Arbitrum ranks 7th in total number of games competing on the network, highlighting that builders are choosing to build on Arbitrum primarily due to its advantages in technology, liquidity, and user acquisition.
The launch of Arbitrum Orbit and Stylus is key infrastructure for attracting game builders, which will further increase the number of high-quality games.
Gaming has a huge audience, and capturing a small portion of that traffic within the Arbitrum ecosystem for Web3 could bring exponential return on investment (ROI):
The industry size is expected to reach US$272 billion in 2024 and is expected to reach US$426 billion in 2029.
As of 2022, the user base exceeds 3 billion.
Gamers moving to on-chain Arbitrum will result in a net benefit for all protocols:
Most gamers are between the ages of 18 and 34, making them the main user group of DeFi and generally early adopters of technology.
Now is the time to act — gaming infrastructure is maturing and networks ready to support Web3 gaming are poised to grow:
“2024 is the growth year for introducing people to Web3,” said Yat Siu (Animoca Games).
Dmitrii Morozov, CEO of GG MetaGame, noted: “The foundations laid in 2022 and 2023, through development in alpha and beta phases, will bear fruit in 2024, with many games scheduled for commercial release, potentially pushing Web3 gaming to new heights.”
background
STIP (Strategic Technology Innovation Program) has initiated various exploratory efforts to better support game development and position the Arbitrum ecosystem for success. As part of these efforts, various builders and game experts shared content to help frame opportunities and educate the DAO about standards, ecosystems, and processes that support game development.
The first DAO discussion on gaming was brought up in an open delegate call focused on gaming, where @karelvuong from Treasure shared his experience building the Arbitrum gaming ecosystem from scratch. @Soby from XAI also provided some perspective on why Arbitrum was their preferred destination despite having a good working relationship with other chains.
In the above discussion and many other conversations about how we can grow a gaming DAO, it became apparent that gaming offers numerous benefits to the Arbitrum ecosystem, which are further detailed in the appendix.
Data on the competitive landscape reveals several insights:
Leaders and major L2/L1 competitors are actively pursuing gaming and other ecosystem builders with budgets as high as $100-500M in grants and other incentives — as recently demonstrated by multiple networks pursuing Treasure DAO for their L3 search.
Arbitrum is the L2 leader in the DeFi space, but ranks below major network competitors in game presence metrics and game migration.
Development expenses for Web3 games are expected to match or exceed those for corresponding Web2 games. This is attributed to the overall demand for equality in game quality, coupled with a lack of a clear marketing and user acquisition playbook, and negative impressions among traditional gamers.
The game publisher model, where publishers provide funding and dedicated in-person support to game builders, has the potential to catalyze and accelerate the growth of web3 games on Arbitrum.
Arbitrum DAO’s early focus on decentralized finance was great, but it meant that DAO programming often didn’t take into account the specific needs of gaming projects.
These insights are further described in the Appendix section below. They point to a need to actively grow the Arbitrum gaming ecosystem through support for current and new game projects and studios - with guidance and dedicated resources from experts (publishers, game developers, etc.) already committed to growing Arbitrum's dominance in the gaming space.
Macro Environment and Arbitrum’s Peers
While Arbitrum has become the de facto home for decentralized exchanges due to its recent accolades and leadership in bridging $ETH and DEX volumes, it still lags behind in the gaming space.
Arbitrum Gaming Track in Web3 Network
Game7 Research released a report on October 15, 2023 covering the state of Web3 gaming in 2023, and the results are quite revealing. Unless bold and decisive action is taken, Arbitrum’s gap to a middle-of-the-pack position in several metrics will continue to widen.
At the time of the report, Arbitrum was the seventh largest ecosystem in terms of number of games, behind Polygon, Solana, Immutable, and Avalanche, among others. While the number of games itself is not a meaningful indicator of success, it suggests that Arbitrum has had challenges with game acquisition. In addition to attracting new games, tracking player adoption and employing quality control as other measures of success are necessary.
Many of Arbitrum’s peer ecosystems have dedicated gaming sectors and incentives to attract gaming studios to build on their networks, which are typically managed by the relevant network’s foundation entity, which has far-reaching agency and the ability to deploy capital to gaming projects. Fortunately, Arbitrum DAO has the necessary funds and is able to deploy them in a way that will have a material impact on the growth of the network.
The gaming landscape of Ethereum’s second-layer solutions
Within the Ethereum L2 landscape, Immutable holds the lead with 75% more games built on the network compared to Arbitrum. While there is a relatively steep drop to third place and then levels off, other ecosystems are already working to catch up. The Optimism ecosystem in particular recently hired Ryan Wyatt and Urvit Goel to lead growth and gaming BD. These leaders are equally credited for Polygon’s early gaming lead and Polygon and Immutable’s gaming partnership. In short, Arbitrum is currently in second place, but that position could change quickly given the concerted efforts of other chains in growing their gaming presence.
Games built on the blockchain framework
When it comes to blockchain frameworks (e.g. Arbitrum Orbit, OP Stack, Polygon CDK, Avalanche Subnets, etc.), Arbitrum lags behind in the number of active L3s built on top, but ranks fourth in terms of active games. OP Stack currently leads with 25 active networks.
That doesn't mean Arbitrum is necessarily underperforming. Given competing networks' respective release dates, Arbitrum has shown that even without significant game-focused marketing or grants, developers are still building new games and migrating from other networks to Arbitrum. This shows Arbitrum's potential in gaming, especially given its brand recognition, stability and technology offerings.
Imagine what data would look like if there was a large-scale grant program and experienced publishers working with the DAO to find, secure, and market talented teams building on the Arbitrum network.
Arbitrum has become the de facto king of decentralized finance, but lags far behind in gaming — which is both a risk for future network growth and an opportunity to actively develop the sector.
Building Web3 Games
Developing games has extremely high upside in terms of potential network effects, but it does come with the risk of being a resource- and time-intensive endeavor.
This situation is exacerbated by adding the web3 element. Not only do teams need to create a fun and rewarding game, they must also find ways to generate value and integrate complex web3 components that introduce additional risks and resource challenges.
Advantages of Web3 Gaming
The advantages of web3 in gaming listed below are excerpted and paraphrased from an article written by Colleen Sullivan (co-head of Brevan Howard Digital):
Ownership: Physical and digital experiences are beginning to merge, and we’re seeing proof points in web2 games, which also have perfect use cases in web3 as non-fungible assets. If a player pays $15 for a skin in Fortnite or Counter-Strike, and has the option to own it outright or not, they’ll likely choose the web3 version of the skin. The same is true in non-consumption games like EVE Online, Diablo, or World of Warcraft, where items are earned through hours of hard work and grinding. Ownership is not limited to assets, but also includes the game itself in terms of governance and creation. Some games have also become platforms (e.g., Fortnite, Roblox), allowing users to create and contribute to user-generated content (UGC). Web3 can allow players to have greater ownership in games, contributing to the construction and expansion of the game through mods, new game modes, etc.
Composability and interoperability: In web3, assets (ERC-20s, ERC-721, and ERC-1155) and smart contracts form the building blocks that exist anywhere on the internet. Through the power of web3, the dream of “taking your sword from one game to another” can be made a reality. For games built entirely on-chain with game logic built into smart contracts, it allows the creation of a permanent game that exists anywhere on the internet and does not require centralized servers. For savvy game builders and the right foundation, this allows new games or forms of expression to be built on top of games. Wallet holdings - public - allow for extensive segmentation, allowing builders to transfer assets and state between games (and even beyond) permissionlessly.
Convert non-consumers into the game economy: In traditional games, especially in free-to-play (F2P), a large portion of players are non-consumers. They may enjoy the game and spend hours in it, but they don’t spend any money. According to the Newzoo 2022 Global Games Market Report, there are about 299 million console gamers and 458 million PC gamers who play games but don’t spend money. The data on the percentage of players who make in-game purchases is fuzzy, but the number often cited is 5%. In web3, if game assets are tokenized and non-consumers are inadvertently introduced to the blockchain game economy, what if they suddenly realize that the sword they spent hours grinding to get is worth $4,000? Or that the token airdrop they received has actual value behind it. Non-consumers are successfully converted.
User Generated Content (UGC): Blockchain gives creators the ability to establish proof of origin and digital property rights to the virtual goods they create. These virtual goods can be sold instantly to eager buyers, effectively making UGC strong. As gaming moves toward Games-as-a-Service or live service models, there is a growing trend for many games to embrace UGC. In these models, contributions from people around the world foster network effects and keep game content fresh.
Game Development Costs and Considerations
Development costs
The easiest benchmark to understand the cost of game development is to look at a simple numbers game in terms of pure development costs.
Mobile games are often the cheapest and fastest to market, but they also compete in a highly competitive market. By 2024, the average mobile game will cost between $100,000 and $250,000, with larger launch titles costing over $1 million. Large, complex AAA games like Call of Duty can cost well over $100 million to develop alone.
The above cost examples do not include any web3 integrations or components, which can quickly add up depending on complexity. For any game with an on-chain transaction element, it may be wise to carefully evaluate the integration and production of on-chain builds. We estimate that web3 development and integration costs add at least 25-50% on top of traditional game costs.
Looking at the high end of web3 gaming, we can draw some conclusions based on recent releases. The AAA web3 game Shrapnel, released on the Avalanche network, raised a total of $37.5 million through two funding rounds and a token sale, and has been in development since at least 2021. However, as of early 2024, the game is still in development and has not yet released an open beta milestone.
While the high capital requirements to build a game do not mean that the network should bear 100% of the financial burden of the game development life cycle, in a world where the positive incentives provided by competing networks and the growing number of talented teams looking for the right ecosystem partners In an environment where incentives can make a significant difference for game studios.
Development time
Due to the rapid development of the crypto space, game developers are encouraged to create value and enter the market in a shorter time than the traditional game industry. While the development cycle of traditional games in web2 often reaches 3-5 years for large titles and 1-3 years for smaller independent games, the timeline of web3 games is shortened by the emergence of pre-vertical slice game prototypes, which is necessary to maintain attention and support community participation after the release of web3 game projects. This means that in order to maintain quality on an accelerated timescale, a larger budget is required.
Actively building means more resources are needed for development, game design, token economics, and user acquisition, while also requiring upskilling to incorporate new development paradigms (e.g., Solidity and smart contracts) into traditional game development.
Summary of the chain/ecosystem's needs for developers
Development
Distribution and Marketing
Liquidity (players and capital)
funds
Incentives and subsidies are mainly used to support operating expenses, and rarely for player redistribution
Given the capital requirements of games and the main driver of user retention/acquisition being fun - it makes sense to use funds to create web3 games and bootstrap incentives in DeFi more generally.
Successful games will be different from successful DeFi protocols
In the gaming space, there is less focus on yield, becoming +EV or accumulating value through transactions, and more on creating experiences that provide fun and engaging experiences to players. Brand building, cultivating active player communities and establishing emotional connections with one's own IP are often the priorities for titles, which increases the complexity and cost of building games. In addition to the game development process, this requires marketing and creative efforts tailored to each individual game.
The role of game publishers
Game publishers and gaming ecosystems play a vital role in the gaming industry, providing teams with a range of benefits that often help accelerate a game developer’s chances of success, including but not limited to:
Financial support: Game development is a resource-intensive process, and publishers can provide developers with the necessary funds. This financial support usually covers development costs, marketing expenses and other operational needs, usually in the form of future economic incentives and alignment of interests through revenue sharing.
Expertise and guidance: Publishers often have teams with experience in all aspects of game development, including design, marketing, distribution, and monetization models. They can provide valuable guidance to developers, helping them navigate challenges and make informed decisions during the development process. In terms of monetization, publishers can provide valuable insights into effective strategies, including pricing models, in-app purchases, minting strategies, and other revenue sources in both web2 and web3 environments.
Marketing and Promotion: Publishers excel at promoting games to a wide audience. They leverage established networks, relationships, and marketing channels to attract users and create awareness for the game through events, media relations, and paid marketing.
Distribution channels: The publisher has established digital and physical distribution channels that allow the game to reach a wider audience. This may include partnerships with major distribution platforms (such as Epic Games, Steam, or mobile app stores), physical retailers, and other distribution networks to help the game reach players around the world.
Resource Access: Publishers can provide developers with access to additional resources, such as advanced technology, licensing deals, proprietary tools, or quality assurance and game testing support. This resource access can speed up the development process and give studios advantages that would otherwise be difficult or time-consuming to build.
Network Dynamics
Other networks already have a huge head start on Arbitrum and have invested heavily in gaming by setting up dedicated gaming teams and dedicated funding allocations.
According to the aforementioned research, Arbitrum recently surpassed Ethereum in transaction volume on a 24-hour basis, but currently ranks seventh in terms of introduced games. In addition, the network does not have a formal gaming incentive program like many of its network peers.
Comparison of gaming-focused grants and incentive programs across selected peer networks (excluding general incentive programs; sorted by size):
Immutable: $500 million ecosystem fund starting June 17, 2022
Ronin: 1.5 million RON worth about $2.8 million as of writing, starting January 27, 2022
Avalanche: $220 million fund starting March 8, 2022
Polygon: $190 million total - $100 million fund from July 21, 2021 and $90 million + Polygon Village fund from November 9, 2023
Solana: $150 million grant program starting November 26, 2022
Optimism: $2 million retrospective grants to on-chain games starting January 11, 2024; excludes general incentives allocated to ecosystem funds (including the Partner Fund managed by the Optimism Foundation) and RetroPGF
Given that the majority of the funding for the Arbitrum ecosystem is in the hands of the DAO, it is critical that the Arbitrum DAO community mobilizes to seize the opportunity before us to become the go-to web3 ecosystem for gaming.
Huge growth opportunities as gaming settings appeal to the masses
Games as a segment have high retention and stickiness, and represent an opportunity to attract a new user persona that is not only underrepresented on Arbitrum, but may be new to crypto as a whole. As an untapped addressable market of users, there is an opportunity to introduce them to web3 through the lens of gaming and show them the wonders of this space.
This field is starting to get lively.
Overall, it’s still early days and a ripe opportunity for Arbitrum to seize
While average spending per user may be lower, gamers bring a significant amount of network activity and attention to the ecosystem.
Gaming is a core use case for Arbitrum Stylus and Orbit
With the launch of Orbit, teams now have a way to create their own L3 ecosystems on top of the powerful Arbitrum Network technology. This is the perfect advantage for games looking for performance, cheaper transactions, and a curated network customized for their use case.
Stylus opens the door for thousands of developers coding in other languages to create their games within the Arbitrum ecosystem. Support for C++ brings a very popular game development language into EVM compatibility, lowering the barrier to entry for game studios that are typically made up of technical teams focused on one developer stack.
Maintaining Arbitrum’s technological leadership and promoting adoption of its products
Arbitrum showcases an impressive set of innovative technologies and products through its Orbit technology stack, which enables developers and protocols to inherit features such as AnyTrust and other forms of altDA, EVM+ compatibility via Stylus, BOLD’s next generation fraud proof As well as improvements such as Timeboost. All of this is built on top of significantly lower fees and faster block times, which is great for gaming use cases.
Especially for Stylus, due to the super efficiency of the WASM program, the Stylus contract is an order of magnitude faster than other contracts and has significantly lower gas fees. When using Stylus, memory costs are reduced by 100-500 times, and consuming RAM is now feasible on the blockchain, opening up new use cases. The WASM program is much more efficient than using Solidity. There are many reasons for this, including decades of compiler development in Rust and C. WASM also has faster runtime than EVM, resulting in faster execution. Generally speaking, the performance of contracts using WASM language is improved by 10 times compared with contracts using Solidity. Use cases that were impractical in EVM are now possible in Stylus. Computing power has increased by more than 10 times. Memory performance has been improved by more than 100 times. Crypto libraries can now be deployed without permission as custom precompiled code. Applying Stylus to gaming would be a major unlock of the possibilities for fully on-chain gaming and autonomous worlds. The best incubation place for blockchain innovation has arrived.
Overview of the three pillars of successful, profitable game building
The three pillars are:
Positive unit economics: optimizing revenue and costs per worker
Scale: Retention and User Acquisition
The Right Amount of Fun: Engagement
Positive unit economics
Achieving positive unit economics means that your game needs to make more money from users than it costs to attract them. There are two components to positive unit economics:
User Acquisition: Continuously optimizing user acquisition is critical to reducing the cost of attracting users. This means knowing how much a user or group of users costs, where exactly they come from, and how they interact with the game throughout their journey (i.e., deep funnel).
Lifetime Value (LTV): Diligently optimizing your game to increase LTV is the key to success. Games never get it right the first time. Build systems (LiveOps, points program, A/B testing) that allow rapid implementation of optimizations. Use your system to measure the results using statistically significant user groups and then implement the optimal configuration. Repeat…repeat…repeat…and reach a break-even point where your user lifetime value exceeds the cost of acquiring them.
scale
Scale is often thought of as user acquisition. This is incorrect: user acquisition is only part of the equation, but is often a game's biggest liability.
If this equation is not closely monitored and unit economics are not measured, a game will scale unsustainably, lose money, and not achieve profitability.
Scale = Retention x User Acquisition
With the right systems in place, every churned user is a data point that moves your game toward profitability. Incremental optimization is how you take your game from zero to success.
The right amount of fun
Fun is necessary for success, but not sustainable on its own. Fun means user engagement; actions taken or frequency of play are example metrics for measuring fun. The problem with some Web3 games is that they inflate these numbers through financial incentives. This makes their numbers look good in the short term, but unsustainable.
Example: A game lowers the ROI of farmers, does regular user engagement drop? If the answer is yes, that's critical. "I should build a feature to offset the loss of engagement we'll see if we weaken farming."
Finding a healthy balance between fun and sustainability is essential to having both engagement and profitability.
How to measure success in Web3 games
There are several stages in game development, each with its own measures of success. As a game progresses through the various stages of its lifecycle, it is critical to ensure that these measures of success are achieved at each stage.
Phase 1 - Game Development
Functional core loop
Game system configurable
Implementing a high-quality taxonomy
A core understanding of LiveOps and how it works in games
Plan user identity and attribution
Profit Plan
Phase 2 - Alpha/Closed Beta
Which systems are not working as expected, including core loop, liveops, and monetization systems
Have all malfunctioning systems been restored?
Game stability exceeds 99.5%
What is the NPS (Net Promoter Score) of your initial users? Is it over 50?
Phase 3 - Public Testing
What are the metrics for initial retention, engagement, and profitability?
Where in the funnel does churn occur?
Which exact marketing channels and creatives are generating our best users?
Implement and successfully deploy A/B testing
Are game optimization mechanisms working as expected?
Phase 4 - Game Release
Each user acquisition push brings incremental and measurable improvements in CAC and LTV
Are our break-even point less than 1 year?
Which user acquisition channels are effective and sustainable, and which are not
Is the cost of acquiring a user decreasing over time? Is the lifetime value of a user increasing over time?
What percentage of users are paying customers?
How are users responding to features and LiveOps?
Have we tested our marketing channels to ensure the economics still hold true when scale increases?
Stage 5 - Growth
Are we trending toward positive unit economics?
Are we reliably exceeding our goals for customer acquisition cost and lifetime value?
Do the unit economics remain the same as we scale?
Which marketing channels perform best?
Which segmented offers and experiences were implemented
Statistical data:
ARPDAU (Average Revenue per Daily Active User)
dX Reserve
Participation Rate%
Proportion of paying users
Session Length
DOW frequency
Grants Allocated: Performance-Based Milestones
It's important to remember that the complexity and size of games vary from game to game. Here are the ranges based on averages:
Phase 1 - Game Development
This phase is critical as all the foundations of the game are laid and initial performance baselines are established. If the game design and tools are not set up correctly at this stage, the game will struggle to break even.
Recommended grants range from $100,000 to $1.5 million, depending on the scope and status of the project.
Phase 2+3 - Alpha/Closed Beta and Open Beta
Phases 2 and 3 are intertwined by their shared focus on refinement and optimization. During these phases, positive unit economics must be achieved before a game can be launched and scaled.
The recommended grant is $250,000 to $500,000, which is lower than Phase I because this phase focuses on refinement.
Phase 4+5 - Game Launch and Growth
These two phases are intertwined by a focus on launch and sustainable growth. The key is to continually optimize the game as it scales to reduce the cost of acquiring users while increasing their lifetime value.
Grants of more than $1.5 million were recommended, which is the highest amount possible because the majority of the funds are allocated for launch and user acquisition.
Opportunities and next steps
The Game Catalyst Program (GCP) is a model designed to rapidly accelerate Arbitrum’s support for game developers and also strategically allocates funding and resources to vetted experts to help accelerate the onboarding and go-to-market of the best game developers.
A governance AIP based on this article is being written and can be found at:
https://docs.google.com/document/d/1EBndybVeY8U9dR52o4UTK1KOqpxHG2GbjfKEIpwKjBQ/edit#heading=h.je7x66gn460c
