Blockchain Gaming: The Path to the Next 3 Billion Crypto Users

By Scott Lee, Saurabh Sharma and Shanav Mehta

Blockchain Gaming: Part 1

The global gaming market has seen explosive growth over the past decade. Over 2.5 billion gamers and 700 million viewers have created a $180 billion dollar, rapidly growing industry. This growth has contributed to the rise of multi-billion-dollar businesses for not just game-creators, such as Epic Games (Fortnite), Riot Games (League of Legends), and Roblox, but also for streaming platforms, such as Twitch, Doyu TV, and Huya, as well as many other types of businesses that are ancillary to the video game industry. During this phase of growth, most of the value and control has been captured by the companies and intermediaries who created these platforms, games, and other products.

At the same time, decentralization and crypto merged with traditional concepts. Decentralized finance (DeFi) and many other crypto applications emerged within the last few years, taking the power away from centralized organizations and giving it back to the people. Now, it’s being rapidly applied to gaming. In the evolving blockchain gaming model, users are rewarded for their participation with ownership and financial participation in the platform/protocol, resulting in both higher engagement and higher network valuation.

Outside of sharing financial upside with users, another key tenet of this brewing ecosystem is the decentralization of both trust and access. In this model, no single entity controls access to in-game items, and assets can be traded between users via smart contracts, without having to trust a centralized entity. Users can have true ownership of their in-game assets, stored on their own personal wallets. This is certainly not surprising, given that decentralized gaming has been touted as one of the highest potential use cases of smart contract technology since as far back as Vitalik Buterin’s original Ethereum thesis. While games like Axie Infinity have become landmarks of early success in this ecosystem, we believe this represents the tip of a much larger iceberg that is set to disrupt gaming as we know it.

We see a few main aspects making up the blockchain gaming space currently: the virtual world, NFT’s, and the Play-to-earn economy.

The Virtual World

Virtual worlds are one of the core building blocks of one type of decentralized gaming. They’re exactly what they sound like – a digital world that lives on the blockchain. Within these worlds, gamers, investors, or game developers can purchase parcels of land, on which they can develop anything from interactive games to digital landmarks to even building their own digital home that can host their NFT’s and avatars. We can compare this to Roblox or Minecraft, current games that allow players to build out their own land, along with all the other netizens that are playing the game. It allows other people to see your home, what you own, and even play games in your digital house.

Much like physical commercial real estate, the value of land is determined by the quality of neighboring parcels and the economic value generated by the community of tenants around you. For example, land plots in Sandbox adjacent to the estate bought by the popular TV show series, The Walking Dead, carry a large premium. Funds collected from these land sales often sit in a treasury that is managed by the token holders of the metaverse project. Since these holders are almost always land parcel owners, a unique incentive mechanism for community building is created. This also introduces textbook network effects and poses a unique value proposition for the projects that eventually win.

The virtual worlds space is currently dominated by four projects: Decentraland, Sandbox, Cryptovoxels, and Somnium Space.

Cumulatively, these projects have completed ~$4.2B in land sales since inception, with adoption increasing sharply over the past quarter, with traditional game developers like Atari and auction houses like Sothebye’s among the land buyers.


With the quality of builders in these ecosystems, we expect these virtual worlds to be one of the base layers upon which this future model of gaming will be built. Given that these projects rely heavily on network effects, and existing projects have hit an inflection point, the white space for new entrants is relatively lower than in other segments.

Non-Fungible Tokens/Assets

Empty land doesn’t do much by itself – we need avatars, houses, and items to populate the virtual world. NFTs – non fungible tokens – fill this exact need. NFTs have been around since early 2017, with projects such as CryptoPunks and CryptoKitties paving the way for these digital collectibles and avatars. NFTs can be developed specifically for games, for the virtual world itself, or as a standalone project; however, all three of these can easily interact with virtual worlds as long as they’re on the same ecosystem (such as Ethereum).

NFTs also create use for other styles of games – MMORPG’s, AAA desktop games, etc. All of these can use NFTs as in-game items and characters. Axies (the creatures you use to battle on Axie Infinity) are an example of NFTs in use on a RPG-style game. Making these characters and items as NFTs give full ownership to the player – no longer can the game arbitrarily remove them from you.

Avatar projects, such as Bored Ape Yacht Club and CrypoPunks, have seen multiple million-dollar sales and have even begun to be featured on world-renowned auction houses such as Christie’s and Sothebye’s. Aside from being used as "profile pictures" for your digital identity, these can be used as the characters that represent your identity in the virtual world. NFT art and other collectibles can be used to decorate the houses or landmarks in the virtual land. Gaming project NFTs, such as Zed Horses, are used as the fundamental gaming assets for a game to function.

There are also specific projects in this part of the value chain that offer a range of products to both developers and consumers. The most established are NFT Marketplaces, such as OpenSea, Rarible, or SuperRare for ERC tokens or Solanart for Solana-based tokens. Some, such as Enjin (pioneers of the ERC-1155 standard), offer everything – tooling, NFT minting, game development environments, asset-trading marketplaces, and even an NFT storage wallet. Others, such as Genies focus on NFT avatar creation for users. Within these sub-sectors, the marketplaces segment is already well penetrated, while game development tooling and asset customization are still relatively under-penetrated.

In the NFT/Asset space, two forward-looking trends we see are: (1) traditional gaming companies entering the NFT / decentralized gaming space and (2) increased avatar creation and in-game NFT creation tooling (or conversion of existing assets into NFTs) for the purposes of gaming.

P2E Games, P&E, & Tokenized Economies/Guilds/DAO’s

The third, and arguably most important, aspect propelling blockchain gaming is the design of the P2E (play to earn) ecosystem. Axie Infinity, Yield Guild Games, Aavegotchi and others recently popularized the play-to-earn model, where gamers can monetize their playing time with rewards denominated in the game’s native cryptocurrency, which is subsequently easily traded on liquid, decentralized platforms (e.g. SLP from Axie can be traded on uniswap). This is very comparable to established MMO’s, such as World of Warcraft and Runescape, where players earned in game currency for completing tasks and could then use that to purchase items and upgrades. However, in this case, the in-game currency is fully liquid and easily convertible to fiat currency. The game itself generates revenue from the traditional methods – ads, retail/brand partnerships, and sale of newly minted in-game assets to players – but can also generate money from the resale of in-game items (which are generally NFTs themselves) on the blockchain (as they generally take a percentage of resales).

This model recently gained considerable traction and popularity, driven by Axie Infinity’s rapid surge in revenue and adoption, particularly in low-wage countries like the Philippines where it often pays more than people’s full-time jobs.

Source: Token Terminal

The most important question that this model will face in the long-run is around the ability to maintain revenue once new user growth settles at a steady state. Ad-based and in-game upgrade focused models will likely be a solution to the long-run sustainability problem. Beyond revenue from playing the game, users can also purchase the platform’s token and participate in governance over the game’s treasury-allocated revenue, making users owners and therefore incentivizing greater participation.

This is the area of the ecosystem where we expect the next wave of innovation to come from. We believe we are still in the very early innings of this type of model, and future games will be able to optimize functionality, gameplay and incentive design to create the next set of generational video games. We expect more games will be created that people truly enjoy playing, while also incorporating the earning aspect through blockchain, and transforming the current "Play to earn" into a "Play AND earn" model.


Blockchain gaming is still in its infant stages. As game studios begin leveraging these tools and building their own, we believe the entire gaming landscape will be slowly reimagined. As the lines between players, freelancers and owners blur, we believe that engagement will reach unprecedented levels, and usher in a new era for the gaming industry.

In the next article, we’ll dive in depth into what exactly makes blockchain gaming so interesting as opposed to traditional gaming. We believe (1) giving value control back to the users via the p2e/p&e economy and DAO voting rights and (2) ownership of in-game assets as NFTs are the two most compelling aspects of blockchain gaming. We’ll also provide more of a view on what makes a successful blockchain gaming company.

By Scott Lee, Saurabh Sharma and Shanav Mehta

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