The catastrophic mistakes of web3 developers

How we got to a place that feels so similar, but so different, from F2P gaming

Even though I often depict web3 gaming as having a very similar trajectory as the early days of free-to-play (F2P; developer skepticism, player pushback, early innovation in Asia), there are a number of major differences that have set up web3 gaming for a much more challenging birth. This rocky start has led to a lot of confusion for developers, players, and the industry at large: best practices have taken a long time to emerge, sizable case studies are few, fragmentation is rampant, and few are thinking of the long term. 

Blockchain-based technology as an inevitable underpinning of part of the future of gaming has also been delayed by sentiment and forces that aren’t limited to the interactive media industry, in a pretty fundamental departure from the early days of F2P when that new revenue model was able to mature without the same pressures. Here are some of the larger issues:   

1. Crypto and NFTs became household terms early on, while gaming took decades to become mainstream. 

Video games required a solid 4+ decades as the hobby of “nerds in dark basements” before free to play and mobile took gaming into the mainstream. Even then, there were significant misunderstandings of the magnitude and reach of gaming. When the global gaming industry had exceeded the revenue of movies, TV, and music combined, even people in media thought that it was a niche pastime unworthy of the time in attention or advertising investment that other sectors enjoyed. In short, despite how massive gaming was, it wasn’t on the tip of everyone’s tongues beyond specific game names.  

Crypto and NFTs—largely because of their use cases outside of gaming—came into the public’s eye with stunning speed. While statistically there would be many more people excited by a GTA VI ad during the superbowl, it was instead the disgraced FTX that tempted mainstream faces like Larry David into a halftime spot. “Crypto” and “NFT” were known entities in a way that “gaming” wasn’t.

In terms of PR nightmare, this has been pretty rough for web3 gaming. Instead of the expected-but-naive pushback from hardcore gamers alone as we saw with F2P, the rise and subsequent plummet of attention and affinity for crypto globally has set up a challenge of perception for reasons that have nothing to do with gaming. This is partly what has been so exciting for me about the bear market: with fewer get-rich-quick schemes available, web3 gaming has been able to quietly continue to iterate and innovate without the same leering public eye. But the perception has still squashed a lot of early investment and consumer potential.

2. While loot boxes and free to play mechanics weren’t investigated by regulators until F2P titles were already topping charts, crypto and NFTs have had sweeping regulatory pressure and legal chaos since early on because of non-gaming usage. 

Thanks to the above-mentioned DeFi scandals and other NFT rug pulls and scams, combined with the mainstream notoriety, policymakers have been on top of blockchain-based technology for a while. And because the use cases have been varied, the legislative burdens have been sweepingly broad rather than specific; because of this, the industry is still without any guiding light on what will be acceptable practices in different jurisdictions as it relates to gaming. This is quite different from F2P, where mechanics like gacha were relatively limited to gaming, and therefore most policies were determined as they related to gaming. While not always great for developers, it gave clearer guidance. 

This won’t be an issue forever. Web3 is too big and too unstoppable for this to remain a problem, and more progressive regulations in places like Japan are offering more workable definitions of what is and isn’t ok and applying pressure to other nations to get specific. 

3. Free to play mechanics were devised for gaming, while the blockchain was developed separately from a specific gaming use case. 

As I’ve said before, gaming struggles with technology and design that it didn’t create for its own purpose. Even though web3 as a technology is perfectly adapted to the needs of gaming (digital currencies, ownable and tradeable items, etc.), the early use cases—particularly around NFTs—set up precedents (both real and imagined) that developers are still struggling to separate from strategically. 

One is the over-financialization of web3 assets. Speculative profile picture (PFP) NFT collections established a number of strategically limiting expectations that game developers are still falling victim to. While PFP traders wish for nothing except to be made rich, gamers just want to play games. With a lot of early web3 gaming go-to-market, developers found themselves simultaneously trying to make games (which is hard enough by itself) and playing the NFT speculation meta, trying to make their early collection holders—almost none of whom will actually be players—happy and rich. 

Gaming normally doesn’t do this. It doesn’t try to wedge itself into a design or community engagement strategy that was built for other purposes. This is one of the reasons why eSports largely failed: trying to take gaming and force it into the structure of traditional sports and regional atheletic teams was just not going to work. 

But there is hope on the horizon. More and more developers are—trite as it sounds—just focused on building good games. 2024 will be a banner year for new games hitting the market that appeal to the good ole-fashioned gamer. 

4. Free to play required new game design, but the possibilities of design weren’t as limited by the available technology and infrastructure as web3 games has been. 

This last point is significant. Yes, changes in live ops tooling, ad tech, and payments infrastructure all allowed F2P to blossom, but possibilities of game design weren’t as impinged by available tech in the way that it has been for web3. For example, the ERC 721 standard (the one used for your average PFP collection) scales horribly for game items. It wasn’t until some smarties with whom I have the pleasure of working created the ERC 1155 standard that scalable in-game items were possible. Blockchain throughput speeds, SDKs for gaming engines like Unity and Unreal, and other advances in web3 infrastructure are finally allowing web3 gaming to catch up to traditional gaming. F2P didn’t need to take multiple steps back in polish and design just to integrate that model. For example, F2P mechanics and payments weren’t relegated to graphically weak browser-based games in the way that early web3 games were. 

Fortunately, the technology has already improved dramatically thanks to folks like Sequence (yes, shameless but 100% reasonable plug). 

The combination of all of the above has put web3 gaming into a really tight spot over the last few years, with big issues and major developer mistakes still plaguing progress:

1. Focusing on the wrong audience

For all that some developers talk about “onboarding the next billion” and appealing to “real gamers,” many developers continue to make design, infrastructure, and go-to-market choices that belie an unfortunate truth: they want to be where the degens are. 

Theoretically, any gamer can access and play any web3 title. That technology is here, it works, it scales. But who the benefits of on-chain gaming are meant for remains to be seen. Not everyone needs or wants secondary trading. Not everyone needs or wants interoperability. I’ve speculated on who they may be, and in the end I believe this will be how things play out. But in the meantime, many developers are still assuming a top-down approach to finding their audience: web3 users love speculation, secondary markets are what allow speculators to do what they want to do, therefore my game design should be focused on speculators and where they are and what they like. What does this mean? Horrible UX. Unsophisticated wallets, third party marketplaces, and lots and lots of friction because that’s what the degens enjoy. [I will fight anyone on this—degens like friction since it makes them part of the hard-core early adopter club who figured it all out when it was hard to do.]

This is short term thinking. Every F2P game needs whales. In web3, those whales become uber whales. But whales can also only exist because of the mass market—without other gamers as fodder to beat or to peacock to, there’s not much for whales to enjoy. Being king isn’t all that great if you don’t have any peons.

For developers, this means that for every whale you also need to be stocking the pond with thousands of baitfish. And the only way you can do that is by creating an experience that is pleasurable—and seamlessly accessible—to those fish. Overly focusing on a handful of Metamask users does not a market make, and web3 is littered with a graveyard of experiences that tried—and failed—to make that audience of a mere couple thousand people happy. The data are there to prove this is not the way.  

Yet we still see games pull out the 2021 PFP playbook and start this all over again. Why? It could be for a number of reasons: their knowledge is outdated; they are simply testing a web3 experiment without hopes for a sustainable future; they’re looking to get cash quickly and then figure out the rest later. This last idea is the one that is provably misguided. Not only do empty promises put you in dangerous legal territory, but there have so far been few if any examples of developers and project owners who have simultaneously been able to cater to the loud and demanding early speculator crowd and reach new users at scale with both audiences seeing the benefits. 

2. Relying on dependencies 

The nice thing about live ops is that it can forgive some launch mistakes. Just look at No Man’s Sky. But liveops game development has benefitted from a rock-steady baseline of how games should be built, on top of which new technology and new standards in game design allowed developers to push the envelope in how to create and then manage their launched games. Much of this is thanks to full-stack tooling that removes distractions and game-breaking dependencies for developers. If you want to tweak something for your onboarding account creation system, a developer needs to know nothing else in the game will fail. That has not been the case in web3. 

Only recently have developers had the option to build with full-stack technology that allows for the kinds of natural updates and live ops maintenance that gaming now requires. For web3 gaming to flourish, this is key. As any developer knows, the more technology dependencies built into a game the more things will break, be exploited, or just not feel as snappy and smooth as players expect. Web3 gaming used to be riddled with this, like wallets that broke whenever a third party marketplace updated some platform code. 

Unfortunately, many web3 game developers are still building with this hodgepodge of technology. And their time is limited by finite capital that can’t be wasted on building basic rails in-house or constantly monitoring and adjusting the game to the updates of a fractured developer stack. Live ops gaming requires constant developer attention on new content and iterative updates, but web3 game devs who haven’t found discovered full-stack, seamlessly interconnected tech are going to end up spending most of their time attending to a network of infrastructure that will result in game-breaking and revenue-reducing issues. 

3. Taking dumb money

As we all know, building a game is notoriously difficult. Getting money to build games is even harder. And building a AAA game requires at least $60M to get anywhere close to that upper echelon.

What the aforementioned frenzy of household-nameification around crypto and NFTs did was fuel a massive influx of capital, much of it from people who got the money through the very same get-quick-rich token launches which spawned that public attention in the first place. The very definition of a bubble.

And what that did was flood the market with easy-to-get money being invested by people who didn’t understand gaming or the challenges of web3 development, nor folks who could offer other strategic help or connections outside of our web3 echo chamber. Some of the money came from organizations like FTX who imploded. In all, a staggering amount of money disappeared very quickly, and more of it will.

Now, please don’t get me wrong. The stress of being an entrepreneur means you’ll fight for checks in as many creative places as possible, and many markets have similar crescendos of silly money being spread far and wide (hello, AI), but web3 came with a uniquely twisted web of strings-attached funding that many developers are still falling for.

Take, for example, the chicken-and-egg issue of much of web3 gaming’s performance-based grant money: to this day, developers are accepting relatively meaningless (in the grand scheme of things) money unlocked by achieving specific goals, often related to launch and usage. While there’s nothing wrong with this kind of setup in general (in fact I think it’s something the VC world ought to consider more regularly), it’s a real catch-22 when the very nature of the developer ecosystem means, for various reasons, those milestones can’t be achieved.

Some chains, for example, have dangled money along with purported access to a vast chest of existing players. Developers will have no trouble reaching their growth milestones because of all the gamers the dev will be tapping into when they launch their game, so the chain says. What developers typically find, however, is a network of bots rather than humans that are already spread thin pumping the tokens of others’—or even the chain’s own developed—games. No players, no milestones hit, no unlocked money.

Other entities, like some infrastructure companies or newer, non-EVM chains, have offered significant amounts of money to secure developers as clients using similar performance-based milestones. Once the game launches and starts scaling, so they claim, stages of the money will be unlocked for the devs. The issue? These companies are the ultimate “fake it till you make it” and often have incomplete or perhaps non-existent technology for the devs to use. It’s hard to get your game to market and hitting milestones if the rails to get there don’t work well or exist altogether.

In many of these cases, developers have had to wait out their contractual terms before extracting themselves for onerous deals, and that’s if they had secured capital from other sources to even stay alive during that time. I have game makers come to me daily with traumatic stores from these kinds of deals. Fortunately, devs are starting to wise up to these gimmicks as time unfolds, revealing the wasteland of dead or dying games left in the wake of shoddy “investment” structures.

I believe that in 2024 we’ll see a dwindling of these kids of gotcha deals as they’re replaced by new, more mature and diligenced capital sources as the market picks up steam again .

4. Having no market leaders  

There are no standard ways to do a web3 game anything. How much is on-chain? Pre-launch mint or no? Token or not? 

Free to play started with the same, universal premise: make the game free. In web3, we don’t even have that. Should users even have a wallet at the start? What currency should purchases be made in? On what chain should I develop? 

In traditional gaming, we didn’t have to throw out the baby with the bath water when considering F2P. Gaming engines like Unity and Unreal were the obvious go-to choices. It was obvious that players should pay with the payment method that works for them (e.g. credit card in some countries, prepaid game cards or mobile payments in others). But because of drastic upheaval in underlying technology, regulatory uncertainty, new game design implications, and other aspects new in web3, it’s as if all of gaming started from scratch when considering the blockchain. 

If not best practices, it is increasingly clear that we as an industry can identify established better practices. The upcoming year will be the first in which smart game creators will be able to look backwards at the right and wrong ways to do things. And from that I hope we see more games working in the way that we expect at the scale that feels authentic to the size of gaming and the gamer audience. It’s only with that “proof in the pudding” of games operating successfully at scale will the rest of the developer ecosystem look at web3 as a viable option. Exactly as they did with F2P. 

For anyone who remembers fighting for gaming decades ago, or even a single decade ago with the rise of mainstream F2P, the battle for innovation and acceptance in web3 will feel relatively familiar in some ways but also completely alien in others. But as with F2P, we’re on the cusp of something new and big and wonderful. And those who have slogged through it in the early days will be in the best position to capitalize on everything that unfolds over the next couple years.