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<h2 id="header-0">What is Web3 Gaming?</h2>Web3 gaming refers to the next generation of gaming experiences that incorporate decentralized technologies, such as blockchain, non-fungible tokens (NFTs), and decentralized finance (DeFi) within some aspect of their gameplay loop. They are often characterized by a play-to-earn (P2E) characteristic. Play-to-earn is a gaming mechanic where game players earn crypto tokens as rewards for completing tasks like completing levels and winning battles against other players. Rewards can be in the native currencies of protocols such as MANA, or NFT assets.<react-video url="https://www.youtube.com/watch?v&#61;VhQegRUm1a8&amp;t&#61;0s"></react-video>Aradena Battlegrounds is one of a new wave of Web3 gamesThe top blockchain games in the world, as listed by dappradar.com, have impressive 30-day transaction volumes. Axie Infinity (deployed on Ronin and Ethereum) did US$93.6 million of transactions in the last 30 days, while Galactic Arena (built on the Binance Smart Chain) has done US$49.7 million over the same period.While trading volumes remain steady, user activity within the Web3 gaming sector has fallen below the peak levels hit during the boom periods of 2022.<img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/4dc50028834b46ad808c7fa36af55b64.png" />Source: Footprint Analytics<img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/73f335e4d69344638e02314a24439c39.png" />Source: Footprint AnalyticsBreaking down the gaming sector by individual blockchain networks, we can observe clear drop-offs in activity on the Solana, Hive, and Celo blockchains.There is optimism, however, for emerging blockchains designed specifically to target the gaming industry, particularly Aptos and Sui. Both Aptos and Sui were founded by an ex-member of <a href="https://about.fb.com/news/2020/05/welcome-to-novi/" rel="noopener noreferrer nofollow">Meta’s blockchain teams</a>. Aptos was founded by Mo Shaikh and Avery Ching. Shaikh worked in Strategic Partnerships at Novi/Meta until December 2021 and Ching was the tech lead of the crypto platform team at Novi and was Meta for 10 years. Evan Cheng, the co-founder, and CEO of Sui, was the director of Research and Development at Novi. Previous to that, Cheng was a Director of Engineering — Programming Languages &amp; Runtimes, at Meta.Sui is a brand new Layer-1 blockchain with an eye-catching valuation. The main net of the network launched on 3rd May and its token is already amongst the 100 largest tokens in the world. The token had a public sale price of US$0.10 and a private sale of US$0.03, the Sui token currently trades for US$1.16 and has a market cap of US$ 611.6 million.Sui already has 200 projects in its directory and over 100 are supposedly vying to launch on the Rust-based blockchain. The team behind the blockchain, Mysten Labs, raised US$300 million during a series B at a valuation of US$2 billion.Sui is designed to have technical specifications that support an “object-based” approach to on-chain assets that is designed to appeal to game creators. After revealing a new trailer for Sui gameplay, Sui’s head of Gaming Partnerships &amp; Investments, Anthony Palma, said “These great games are fun and engaging, and our focus is to enable deeper levels of player excitement and agency for a more immersive gaming experience.”The gameplay shared was impressive, indicating games on SUI have high-end graphics and gameplay. One of the games being developed on Sui is based on a popular comic book and TV series, The Walking Dead.The Aptos blockchain, launched in late October, currently has a TVL of ~US$50 million. The blockchain’s native token APT, has a market capitalization of US$1.5 billion, already making it a top 50 crypto asset by market cap.Aptos is a layer-1 blockchain, with resource objects and is built with the Move programming language. Aptos was created after Diem, the Meta Blockchain project, was sold to Silvergate Capital for US$135 million. Following the sale, employees of Diem split to build their own open-source blockchain, Aptos.Like Sui, Aptos has been able to attract hundreds of millions of dollars of Venture Capital investment. Early investors in the project include a16z, Franklin Templeton, Circle Ventures, and Temasek.Aptos has specific infrastructure designed to appeal to game builders including the Unity SDK, indexer, and APIs that abstract away the blockchain so game developers can focus on games. The Move programming language is designed to be flexible and able to safely manage assets. Aptos also offers rapid throughput via its consensus model and a parallel execution engine. The blockchain is also set up to be easily upgraded and advance quickly when necessary.In both the Sui and Aptos cases, there is an element of sacrificed decentralization and project picking by the operators of these blockchains. This may go against some traditional blockchain sensibilities, however, building games is a complex process with multiple points of failure. Support and structure for game developers appears to be a potential strategy to create a funnel of well-designed, functional games.<h2 id="header-1">Web3 gaming within the wider gaming ecosystem</h2>2022 was a major year for the wider gaming sector, headlined by major deals and game releases. Microsoft acquired Activision, Sony acquired Bungie and T2 acquired Zynga. Blockbuster games like Elden Ring, God of War: Ragnarok, and Call of Duty: Modern Warfare 2 achieved record sales. The last game on the list sold a billion dollars worth of copies within 10 days of its release.The gaming sector was one of the fortunate few to succeed during the pandemic. With much of the world stuck indoors because of lockdowns, people turned to gaming for entertainment. Global financial services provider PWC forecasts the sector to continue growing strongly heading into 2027. It is estimated that by 2027 there will be 3.2 billion users gaming globally.<img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/7d465e1495f5407f85f89586b9797304.png" />Source: PWCBlockchain is a growing factor in investments within the gaming space. Drake Star reports that amongst private placement deals, blockchain deals accounted for more than any other sub-sector.<img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/06fbe43dc2724cd9bee3474076d0e364.png" />Source: Drake Star Global Gaming Report 2022While Web3 gaming has had a great deal of venture investment poured into it, it remains a much smaller sub-sector than the PC/Console or mobile markets. There are many venture capital firms entering the Web3.0 gaming space, most are focused on seed-or-early-stage gaming projects.This is another area where Web3 gaming separates itself from the rest of the sector. Generally, smaller game developers and indie game developers don’t receive large VC investments. Gaming is considered a high-risk investment category, with a very small percentage of games going on to be big hits. Games often need big investments and investors realize that few offer returns. Projects like Ouya and Star Citizen are cautionary tales of gaming startups that had millions of dollars poured into them but in the end, had very little to show for the investments.The funding and cash utility scenario when investing in token-based Web3 gaming projects differs from traditional gaming for a few key reasons.<ul><li>Liquidity - In order to realize profits from an equity investment in a startup, investors often need to wait for an event like an IPO. This means they are often tied to their investments for an extended period of time.</li><li>Passive income options - Web3 gaming typically gives investors the option to stake their tokens pre-game launch or contribute to liquidity trading pools on decentralized exchanges. This allows investors to earn a passive income and earn more when they exit.</li><li>The hype and outsized returns attached to crypto projects - as evidenced by Sui, crypto projects can rise quickly in value and there is a hype and value cycle attached to anything blockchain-related. The bull run of 2021 dwarfed the bull run of 2017, which dwarfed the bull run of 2013. The rising tides of crypto can raise all boats and investors often appreciate the sectoral play as much as they back individual projects.</li></ul><h2 id="header-2">Web3 Games – Next Level Gameplay</h2>Everyrealm, in its recent review of the Web3 gaming space, says only 30.1% of Web3 gaming projects actually have a game that is live. A factor in this lag may be the incubation of high-quality games. A noted factor in why Web3 gaming has not had achieved the level of mainstream gaming acceptance is the lack of quality or complexity in the gameplay. Everyrealm says one reason why Web3 gaming startups are slow to launch new titles, is because they are aiming to release higher quality games with more potential to breakthrough with the mainstream gaming audience.Axie Infinity is a Pokemon-style turn-based Role-Playing game (RPG) with elements of card battler games like Heartstone. It is the most popular and successful blockchain game ever released, and is noted for its very simple gameplay model. The core gameplay loop of Axie Infinity is:<ul><li>Battle with your Axies.</li><li>Upgrade them so that they can compete at a higher level and beat stronger players.</li><li>The final element of the loop trifecta is utilizing an upgraded Axie and some battle skills to earn SLP cryptocurrency tokens that have money elements.</li></ul>The more you battle, the more you can earn and upgrade. The more you upgrade, the more battles you can win and the more tokens you earn. The more you earn, the more you are encouraged to battle and earn.Turn-based games have a very simple non-dynamic play-style where players take turns to perform pre-restricted actions that are executed automatically. Complicated button combinations don’t need to be remembered and skills like aiming are not required to be successful within these games.This simple play style means it is ideal for an auto-play-focused game (just tap a button many times on repeat). There are many popular free-to-play RPG games that utilize this simple gameplay element and instead focus on directing players towards secondary in-game goals like social goals, upgrading characters, or earning items.Axie Infinity has achieved popularity thanks to its immense social media communities and monetary incentives driven by token rewards and NFTs. This appears to be the modus operandi for the majority of the Web3 gaming space. Simple straightforward games that gain engagement through secondary activities.The other factor in why these types of games are popular with developers is their ease of creation. Developers can create relatively simple games, and monetize them with tokens and NFTs. It is a high return on investment with low operational and startup costs.The potential and relevance of the blockchain to gaming are clear. Traditional gaming has never truly offered a way for players to actually own in-game assets, or be truly rewarded for their in-game efforts. Gaming can be a hard slog and players are often left with simply a sense of accomplishment or a higher rank. Blockchain-based games with self-contained economics can reward players for their contributions with monetary rewards (tokens).<h2 id="header-3">Aradena Leads The New Wave</h2>Aradena Battlegrounds is a medieval, turn-based strategy card game which is backed by major Venture Capital firm Animoca Brands. It is part of a new wave of blockchain games that have learned from the mistakes of predecessors and focused on solving pain points such as mediocre gameplay and a lack of asset value. As it says on its Twitter account - “There&#39;s no such thing as web3 gaming. Just gaming, enhanced by Web3 technology. We&#39;re here to build a great GAME that is FUN to play.” <img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/d10f870257b24d0ea52abb19fc8e69be.png" />Aradena focuses on a ‘play-first’ model as opposed to an earn-first model, which is what most first-generation blockchain games focused on. It has a collectible card game mechanic that is well-suited for NFT trading and Aradena cards are popular on OpenSea. Purchased cards can then be deployed within the Aradena Battlegrounds game. The <a href="https://www.aradena.io/ag/" rel="noopener noreferrer nofollow">Aradena IDO is currently underway on Gate.io and Uniswap</a>. <img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/f04060f8f92f4920a737ba066f8227fd.png" />Source: Aradena.io Token-based games have another layer because tokens earned within a game may be used within decentralized applications. Gaming-focused blockchains like Aptos can create interconnected gaming universes, where tokens from one game can be transferred to another. Projects like Bored Apes with its native token, APE, are creating interconnected games tied together by a token with actual monetary value that can be earned across games.<h2 id="header-4">Conclusion</h2>The potential of Web3 gaming to be both an exciting sector for investment and a gaming industry disruptor is evident. Web3 gaming projects offer self-contained economies that reward players financially for their in-game contributions. It’s a compelling narrative, particularly for online and social games, where contribution to a game’s experience is not rewarded by traditional systems.The sector has seen a decline in activity compared to the boom periods in 2022. There are, however, emerging blockchains like Sui and Aptos, founded by ex-members of Meta&#39;s Libra blockchain team, that are designed specifically to target the gaming industry. The buzz and excitement around the industry remain.The majority of blockchain games have simple gameplay models but there appears to be a new wave of more advanced games coming. As the overall gaming industry continues to grow, these new games, plus the application of blockchain technology to engage and reward players, may well be the game-changer that the market has been waiting for.

Investment Watch: Picking Winners In Web3 Gaming

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