Thesis Spotlight: Crypto Gaming (1/X)

By Charlie Liao, Richard Wolpert & Vishal Lugani

From fiddling with the original Atari 2600 to spamming “gg ez” in competitive Valorant lobbies, several members of the Acrew team are longtime gamers. We have thousands of collective hours across each medium (PC, console, mobile, VR) and find a lot of joy in exploring genres. We’ve also been long-time gaming investors, having either institutionally or personally invested in companies like Kongregate, Scopely, Sorare, Onchain Studios, FunCountry, Discord, and Gamespy among others. Our crypto research analyst, David, even went as far as to name our liquid token strategies after Runescape armor tiers. Gaming also fits squarely within our overarching thesis in consumer — Community Activated — where we believe the best consumer companies are empowered by genuine connections amongst their users.

We say all this to contextualize our conviction in the following statement: gaming will be a major driver in crypto adoption and growth in the coming years. And crypto will be a key enabler in spurring innovation in the gaming industry. To support this view, our gaming investment team spent the last few months researching and developing theses for blockchain gaming.

We’ll share our findings in a series of posts, starting with why we think crypto gaming is positioned to accelerate in the coming years (especially beyond its play-to-earn origins). Our later posts will touch on the benefits of crypto gaming to consumers and developers, and to that end, where we think the most investable opportunities are as the space evolves.

If you are a founder building at the intersection of crypto and gaming, reach out!

State of the market
As the crypto market reforms and hunkers down for the winter, a new narrative has quickly emerged around gaming. Both web3 builders and investors believe that blockchain games will play a major role in onboarding the next 1 billion crypto adopters through fun and easy to play games. However, there remains a fair amount of skepticism given the status quo. At the start of this movement, early movers in blockchain gaming (e.g., Axie Infinity and StepN) pioneered a new type of gaming called play-to-earn. These games focused on paying out value to users in the form of token emissions or spectacular asset appreciation. Because the P2E movement experienced significant volatility, skepticism grew. During periods of high volatility, often spurred by issues of tokenomic sustainability, we’ve heard common refrains like:

  • Refrain 1: Gamers are weary of crypto, especially NFTs
  • Refrain 2: Tokenomics aren’t sustainable
  • Refrain 3: The games today aren’t fun enough or visually appealing
  • Refrain 4: Most crypto features can be replicated off chain

But if you recall the early innings of Free-to-Play (F2P) gaming, it too was met with great skepticism before it became a dominant business model for digital entertainment. Critics, often passionate gamers, looked at the worst of F2P, settling on talking points related to reputational risk for studios such as gamer exploitation (e.g., dark design patterns in games), gambling, and damage to gameplay. The model has since matured and is now the leading revenue generator for the industry, accounting for roughly $150B, more than 75% of gaming revenue. In addition to market value, F2P also spawned a set of ancillary industries and delivery frameworks such as mobile analytics and live service gaming. Finally, it’s worth noting that F2P revitalized mobile gaming in a way that brought in more women and international gamers, simultaneously improving profitability and accessibility.

Despite its success, F2P has skewed the way ownership works in the digital world. The model is designed to maximize revenue for publishers, but it’s often at the expense of users who don’t receive any ownership despite pouring hours into virtual worlds. Many gamers now pay more for their games than ever before. If F2P’s key benefit to users was lowering the barriers to entry for gaming, then crypto is a logical evolution that offers ownership, unique gameplay features, and community-orientation. As is the case with the adoption of anything new, the shift to blockchain gaming will take strenuous developer hours, new infrastructure and bold entrepreneurship to unlock large-scale, sustainable change. And we’ll continue making investments to support this shift.

Unlocking large-scale change in gaming
To reach broader adoption, we think the intersection of crypto and gaming will be broader than what was created by the early movers in play-to-earn. Blockchain gaming sits on a spectrum. The lighter touch may only involve a payments or marketplace layer. To the other extreme, every state change could be recorded on chain. We believe that many of the most successful games, especially those that onboard a larger share of mainstream users, will look like the former. Below is a view of the spectrum of crypto gaming we think is emerging:

Fortunately, many tailwinds point to a better future for blockchain games:

  1. Crypto infrastructure continues to improve
    - Emergence of new chains that support higher volumes and practical TPS (sidechain / rollups like Polygon and L2 rollups, AVAX subnets, Solana, Flow, ImmutableX, Sui)
    - Conscious effort from chains to create strong developer ecosystems through large ecosystem funds
    - Development of gaming specific infrastructure to ease the technical ramp into gaming and vice versa (e.g., Anything World, Stardust, Inworld, Worlds, Altered State Machine, Metaphysic, Horizon, and Treasure)
  2. Influx of fresh talent and other key stakeholders
    - New builders and operators from gaming or other entertainment experience (e.g., Shrapnel), including top tier creators and e-sports teams (e.g., Dr. Disrespect, G2)
    - Gaming institutions are encroaching, including Ubisoft, Gamestop, Square Enix and Nintendo. All have actively tried to incorporate NFTs or have expressed public interest in the technology
  3. Traditional gaming supports NFT dynamics
    - Micro transactions have been prolific in games for close to 20 years. Users are acclimated to buy into a system for cosmetics or items, helping accelerate adoption
    - Gated experiences and features also abound — look no further than Pokemon’s event-driven legendaries

Sustainability in the next generation of crypto
Finally, and more philosophically, it’s likely that the next generation of crypto applications will default to economic sustainability (e.g., properly configured sinks and faucets for tokens, clear understanding of where underlying values for assets and tokens come from, etc.). As we’ve discussed, early crypto games at the cutting edge of innovation were heavily impacted by volatility, highlighting some limitations in play-to-earn mechanics. Some of the market ebullience also dramatically inflated asset prices, conflating speculation with sustainable user interest. It became clear that once yields and valuations came down, the lasting games had positive core experiences that maintained user interest without much correlation to market movements. The implications were clear: the winners focused on providing a great gaming experience above all else. is a fitting example at ~1m players as of last month. We expect to see a lot of this moving forward.

After all, most players don’t care about the underlying database technology that drives their experience — this is why new chains have materialized for games (ImmutableX, Flow). Users also, as evidenced by the strong mainstream preference towards CeFi over DeFi, don’t care about self-custody. They want fun games. We’ve started seeing evolution on this side of the spectrum already. Take Blankos Block Party for example, a game with ~1m players. Blankos is a free-to-play digital universe for players to complete quests and socialize with other gamers. They have a no-code UGC component where users can easily design and build their own games to share with the community. A vast majority of the game is off chain — the only real web3 functionality comes with cosmetic “playable” NFTs.

Image source: JustGamers

If these tailwinds continue playing out in the long run, crypto gaming may undergo its own Renaissance. In future posts, we’ll talk about the benefit to consumers, benefit to developers, and where Acrew will focus its investment efforts as the category continues to delight us.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store