Web3 Gaming Insight: Finding the North Star Amidst Liquidity Challenges and Emerging Opportunities

Web3 currently has excess supply-side capacity and demand-side liquidity is exhausted. After two years of development, the shortcomings have gradually become apparent. This research report has sorted out the competitive landscape of the web3 game industry and the existing viable entrepreneurial opportunities.

Web3 currently has excess supply-side capacity and demand-side liquidity is exhausted. After two years of development, the shortcomings have gradually become apparent. This research report has sorted out the competitive landscape of the web3 game industry and the existing viable entrepreneurial opportunities.

Report summary

In the context of rising standards and overcapacity in the global game industry, Web3 has attracted many Web2 teams because of its high profit margin throughout the life cycle as a way for game manufacturers to recover costs. However, Web3 currently has excess supply-side capacity and demand-side liquidity is exhausted. After two years of development, the shortcomings have gradually become apparent. Therefore, this research report has sorted out the competitive landscape and existing viable entrepreneurial opportunities in the Web3 game industry.

For teams that are still in the web3 product development stage, it is necessary to make it clear that as an industry with poor infrastructure and extremely high profit margins, the team must have all-round abilities; however, most waist teams have a huge perception gap with the head team, so they need to see the gap as soon as possible and speed up learning and iteration. At the same time, new business models are still emerging, and the team can fully utilize Web3 commercialization to innovate and seize market opportunities; and seize opportunities brought about by changes in the distribution side pattern to seize traffic-based super apps and traffic entrances, or independently open up the market themselves to become super apps.

Furthermore, for teams that are still exploring and watching, they can first seize the parallel opportunities between Web2 and Web3 at a time when Web2 customer acquisition costs remain high and business models are bottlenecked, especially the large player base driven by casual games and AI. Second, by summarizing and digesting past successful/hot project experiences, you can also learn many methodologies and use them skillfully in operations. Third, it is possible to make products that meet the entertainment needs of more users and have a long-term business model on top of high-traffic entrances. Fourth, based on new asset forms, there are still opportunities for gamification + commercialization innovation of assets. Then, for full-chain games, it is recommended that the team build an excellent open source racecourse rather than reinvent the wheel, so there may be an opportunity to start the next wave of craze. Finally, the future crypto agent (Crypto+AI) field is likely to still be dominated by traffic. The team should stick to a traffic-led path. In the near future, AI agents on the chain will definitely prefer to cooperate with high-quality traffic entrants.

Corresponding to our previous two research reports, this is an attempt to summarize cyclical changes in the industry and provide some more general, macroscopic, and feasible suggestions for entrepreneurs at different stages. In the process of writing, I was deeply aware that the industry is entering a deep water zone, infrastructure progress is slow, and market liquidity is scarce, so it is not easy to start a business; however, I hope the developers can find some methodologies and inspiration to deal with the cold winter of the market in this article, and I sincerely pay tribute to the seekers who continue to move forward.

Web3 is indeed a good choice for many game makers that are limited by edition numbers and volume fees

Web3 provides a commercialization gripper around the entire life cycle of a game: NFT/FT/ Taxation. Compared with traditional R&D methods, web3 is indeed an effective way to increase game profit margins and complete globalization.

Supply side: However, against the backdrop of rising standards in the Eastern and Western game industry, Web3 is the only outlet to take on a lot of excess productivity. After two years of development, the problem gradually became apparent.

Demand side: We have entered an era of scarce liquidity. Stock markets are limited, attention is scarce, and transfers are extremely fast. Therefore, at this stage, the team should focus on refining products and motivational models to break the circle and gain customers in order to get on the fast track in the era of abundant mobility.

What is the current competitive landscape of web3 game entrepreneurship?

Analysis from the four dimensions of industry profit margin, team perception, business model, and market.

1. Web3 is an industry with poor infrastructure and extremely high profit margins. All-rounder teams can reap the biggest dividends, but teams without all-rounder capabilities will double the hardships and have a higher error rate.

2. There is a huge gap between waist and head manufacturers. Most manufacturers may not reach the volume threshold, requiring the team to have strong evolutionary ability & iteration speed.

3. Business model innovation continues unabated. The more liquidity is exhausted, the more new changes are required. The Web3 business model changes with market hotspots/new asset forms, and the team needs to innovate while fully understanding the & economic model of the market.

4. The drainage potential of L1/2 and the platform is gradually declining. Super ecology and traffic entrances that take precedence over a single L1/2 are rising, and they are looking forward to wrestling in the next cycle. The project party needs to choose good wood as soon as possible or take the initiative to open up a new UA path.

So, in the liquidity depletion cycle, what other directions are worth exploring for web3 gaming teams?

1. Look for parallel opportunities between Web2 and Web3 games to catch up with new user consumption habits and AI experiences when web2 customer acquisition costs are high and commercialization becomes a bottleneck.

Phenomenon 1: Facing the same user base, the customer acquisition cost of web2 has increased again.

The growth of games in the global web2 market in 23 years was largely due to pan-casual circuits such as trifecta, simulated management, and casual casinos. However, the purchase cost of the racetrack was high, and after “Seek Daichi” became popular, the acquisition cost of traditional H5 games tripled. web3 faced the same user habits, lower customer acquisition costs, and higher profit margins. Suggestion: Teams that make casual games can compete for retention without considering platform-based play, but instead use casual game traffic & to continuously release products and use mutual advertising +token swaps in self-built DEXs to import traffic and liquidity into new games.

Phenomenon 2: The card drawing business model has entered a bottleneck, and there is no room for innovation.

The Gocha (krypton card) business model was introduced from Japan to China, and now it has been ten years, but in the past six months, especially after the domestic version was liberalized, it was discovered that players’ spending power was weak, and the overall scale of user payments declined. On the other hand, games such as “Against the Cold” have also succeeded with light payments and large DAUs. Suggestion: Web3 has many commercialization grippers and is suitable for commercial innovation. We recommend reading our previous two research reports to maximize the profit margin of NFT+Token+ taxation.

Phenomenon 3: Simplified experience and stimulation of high frequencies.

Find a game that is quick to play and addictive, and make it a mobile game. From “Vampire Survivor” to “Case Force,” several games ranked in the top ten WeChat Mini Program were born from a gameplay prototype. You can find everything from AAA’s realistic art production pipeline to a two-dimensional industrial production capacity dispute, but when users get tired of the aesthetics, they increasingly choose to spend time fragmented in high-frequency exciting mini-games. Suggestion: A simplified and motivational design based on a gameplay prototype fits the Web3 team’s ability stack. Second, the closer to the original stimulus of opening the box, the more similar to the financial incentive pleasure of Web3 itself. From this, it can be deduced that there are more templates to refer to, and the user profile is more consistent. The web3 team can also consider adding a hang up experience when making games, so that the game itself has the effect of an “electronic disk string” rather than unlimited transfers for 24 hours, so the “energy value system” design we mentioned earlier is also very important.

Phenomenon 4: Growing in tandem with AI and the gaming industry.

Parallel opportunities in the AI-led gaming industry do exist, but it is recommended not to add entities if not necessary. For teams that have come to Web3 due to the collapse of their path and/or traditional competition, they should reconsider this opportunity for industry change, especially in the context of domestic censorship and unable to adopt large foreign models. It is best to be able to use AI to create novel experiences and next-generation products while directly using Web3 to complete global distribution and commercialization with higher leverage. Suggestion: Start the design more from an economic/diplomacy/agency level. For example, the SLG game-based agent I mentioned in the article. It also means AI for more transactions and profit margins.

1. Seize the window to digest Web3’s proven routines and use ingenuity in the early and middle stages of operation.

First semester:

• Find the right data pool: (see FRIEND.tech) at When X (formerly Twitter) motivates creators and the incentive stimulates social media communication effects, it connects to this open (API interface or data can be crawled) data source and quickly completed the financialization (sharing) of KOL. Perhaps entrepreneurs in this direction can also develop ideas to find other eligible data pools. After all, the core of its business model is to select important off-chain Pow and traffic, and the upstream chain is to seek rent for valuable data, information, and people.

• Batch invitation system: (see STEPN, Friend.tech) Use the invitation mechanism in batches to slowly release people and complete all stages of product testing at the same time. Let me in As a paving stone for economic incentives, fomo social fission actually lengthened the overall operating life of the project by slowing the rate of user entry in the early stages.

• NFT trading experience: (see Memeland, Matr1x) Since the NFT market has left enough examples and gameplay, this game operates in an NFT-driven manner, and has many playbooks to refer to, and even has a relatively complete industrial chain (with an NFT trader - whitelist intermediary - kol) as the core. (1) Early Twitter and alpha community marketing, PUA users’ guts create community depth; (2) small plates, poor liquidity, and a good control panel create wealth effects; (3) the expectation of several NFT series in a row can continuously help the price to be beautiful; (4) whether it is distribution or hype, it can help the team make some money + not pay a dime; (5) finally, consolidation depends on the product +FT Airdrop + cash flow.

• Purchase/Geographic Arbitrage: (See Axie, Hooked) Use more UA launch testing channels to seize on-chain arbitrage in regions with low purchase costs; at the same time, establish a local & distribution system (guild) and add a token incentive layer. Compared with the local per capita income level, the token wealth effect is more obvious than the local per capita income level, bringing opportunities for dissemination and breaking the circle.

Mid-term:

• Rollback logic: (See STEPN) Many people now tell web2 vendors about the “web3 distribution” story of IP acquisition, but what many traditional vendors don’t realize is that not only can web3 be viewed as a global distribution method, you can even redistribute it on every chain. Since every chain has a large gap in liquidity/user profile/traffic support (especially in the big TVL era), issuing new assets across chains is a way for users to build headstocks one by one, and users will continue to enter new chains to earn money from advanced markets. Or it’s similar to rolling back in traditional games. Practice a new number at a new starting line, verify your own assumptions about strategy, and get positive feedback.

• Casual/Fragmented Operation: (See BAYC) For mature IPs, games can be seen as a gripper to enhance community cohesion and focus attention during the operation phase, so they are expensive in high frequency and asset fomo, so there is no need to look far to produce AAA and lengthy games.

1. Relying on high-traffic entrances, it is a product that meets the entertainment needs of more users and has a long-term business model. In other words, spread the business model that supports existing entertainment needs +web2 through new traffic channels and add to the Web3 incentive layer.

Telegram bot:

After Unibot quickly became popular, many entrepreneurs joined the TG bot circuit as an imitation, but so far they have only seen fine-tuning the strategy/performance of trading robots and GPT robots. Although trading bots are rapidly rising by meeting the trading needs of crypto users, they have a single business model, low UI/UX and trading strategy optimization ceilings, and the number of users has yet to break through the 10,000 level. It has been a long time since they actually break the circle. Therefore, new TG bot entrepreneurs need to open up ideas, try products that are more in line with consumer habits, and establish a long-term stable business model. Among them, the method with lower trial and error costs is to directly spread the Web2 business model (gaming) using a new traffic channel (Telegram) and add a web3 incentive layer (token+NFT), such as Rollbit. In addition, the following ideas are for reference only:

Examples:

Game category: You can follow the infrastructure development process of the WeChat Mini Program to see the game performance that TG Bot can provide, and the education that users can provide from depth to depth. It is recommended to conduct more marketing tests to identify user profiles based on the main user distribution regions (India, Russia, Middle East, etc.) and game preferences. It is speculated that TG market users can accept element games. Breaking circles and growth will rely on social and fission games, while crypto users are more likely to accept card gameplay that prevents +pvp. [Simple Elements] - Keep watching, Tetris. [Social party category] - If you draw, I guess who is undercover. [Competing fissioners] - Jump, sheep to sheep. [Card Placement Category] - Currently, WeChat applets rank at the top, such as Seek Dachian, King of Salted Fish, etc.

Lottery category: Since there are now more and more valuable assets, there are not only consensual blue-chip NFT assets (BAYC/Punk), but also IP co-branded assets and real-world collateral chains (such as Pokémon card chains), combined with various lottery games and dividend incentive mechanisms, there are many ways to play. [One yuan to win a treasure] — Each person has the chance to participate in drawing a blind NFT box with a valuable item for 1 yuan. [Game Blind Box] - Similar to participating in a tree planting game, you can get a fruit blind box, and if you participate in an NFT game, you can get an NFT blind box lottery. [Bargain Group] - Buy fragmented blue-chip NFTs in groups or directly make a TG launchpad bot. You can get the lottery at a low price by retweeting and group buying, and get the one that was originally whitelisted on Discord.

Private domain category: The first two involve the spread and fission of TG groups, and TG is currently in the early stages of the content ecosystem, so before the content matrix is completed, private domains can be built and commercialized in conjunction with the DAO+ creator ecosystem. [Post Link] - Whether in a group chat or when posting a link on a channel, you can receive a commission. Follow the steps of browsing, clicking, downloading, and retweeting to see the conversion rate, and the reward is directly credited to the wallet when the rebate is given to users within the community. [Creator Community] - Set up a ranking voting bot within the creators’ community, publicize the competition, and get token rewards for higher rankings.

4. Gamification + commercialization innovation for assets still has opportunities: Treasure House

Background 1: The overall liquidity of the NFT market has dried up, and the NFT market needs new narratives and trading hotspots.

Background 2: At the application layer, the complexity of NFT-driven game assets has already increased. There are many types and quantities of assets under the same IP, and they are intertwined, and the ultimate value is reflected in products and tokens. However, players still need to trade OTC in the community, or manually collect NFTs that meet the requirements and buy them one by one. The transaction method is very primitive.

Background 3: At the protocol layer, with the advent of ERC-6551 and ERC-4337, although the underlying technical problems of account abstraction wallets have not been solved (for example, there is no support yet, and the stability of private key generation wallets is poor), with the improvement of infrastructure, the granularity of future accounts and assets will be quite different from the present. Just as ERC-721 and ERC-20 have completely different interaction forms/financial attributes logic, the new asset forms in the future will be: multi-subject + multi-granularity nested, making it more difficult to unify pricing. Therefore, financial interaction forms and scenarios based on future assets will become more interesting.

5. Full chain game: Make an excellent open source racecourse instead of reinventing the wheel, find innovative mechanisms with sufficient wealth effects and commercialize + gamify them, and eventually break the circle to obtain external liquidity.

Background 1: The full-chain narrative undertakes liquidity from NFTs and GameFi. Loot is close to the emergence of NFTs such as BAYC and Punk, and its highest market price was also when the Dark Forest community, the originator of the game on the entire chain, had the highest number of participants. Whereas full-chain gaming games (such as Wolf Game, Sunflower, etc.) also appeared after Axie and GameFi Summer, FDV was below $5M, which is 4/1000 for Axie and 5/1000 for STEPN. It can be seen that in a situation where the liquidity of both NFTs and GameFi is exhausted, social gaming games are less likely to rise to prominence, and even if they break out, it may be difficult to break the circle of customers.

Background 2: In order to prevent full-chain games from becoming the original rough pos/pow competition and optimize UI/UX, the team needed to dig deeper into technical issues and gradually develop the full-chain game technology-driven self-built Appchain/L2 trend, which deepened layer by layer. The game and test network environment is closed. The test users are only two digits. It is easy to reinvent the wheel and is not universal. Currently, there is no sign of open source, and there is no need for licensing or interoperability for a long time.

Analyzing the past three examples of full-chain game innovation, we can summarize the following commonalities: 1) The innovation of full-chain games may not appear in main tasks, but side tasks. If valuable branch lines can be identified and commercialized in this process, it may be possible to create universal infrastructure, and if financialization+gamification can greatly lower the user threshold on top of the product, it can have the effect of breaking the circle and driving the influx of new liquidity. 2) Games that focus on simple, fomo asset gameplay and have a wealth effect are more likely to drive innovation: for example, the prize pool dividend mechanism in Fomo3D and the mechanism that already breeds deflation and asset appreciation in CryptoKitty can only become an excellent racecourse.

Traffic is still king in the 6.AI agent era. Traffic led +crypto agents are easier to launch and find good ways to commercialize, while back-end AI can continuously optimise + modulate and seek cooperation with high-quality traffic entrants.

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