Denver, CO

47.81°F

12:00pm
/ Cambridge, MA

50.08°F

12:00pm

Konvoy Ventures is a thesis driven venture capital firm focused on the video gaming industry. We invest in infrastructure technology, tools, and platforms.

Communities in Web3

How web3 is impacting the role of social interaction in gaming

Social in Web3 Gaming

Over the last two weeks we have discussed how social experiences are being incorporated across the gaming industry. As a reminder, these pieces covered:

  1. Virtual Reality and the opportunity for immersive social experiences (read the full piece)
  2. Successful integration of social features across gaming-focused social platforms, game x social platform hybrids, and individual games (read the full piece)

Today, we are continuing with this theme by taking a look at how web3 is impacting the role of social interaction in gaming. While web3 is a highly “financialized” term (play-to-earn, play-and-earn, etc), it is important to highlight that it is also an evolution in how people collaborate and communicate in virtual worlds.

Here are 5 examples of how web3 is transforming the social experience within games:

1) Community is King: The broader blockchain space is heavily community-driven. Early adopters of any new trend (tech or otherwise) often view themselves as part of an ideological shift. These sorts of “movements” foster peer-to-peer engagement where all participants are considered equal. The phrase WAGMI (“We Are All Going to Make It”) has become core to the identity of the crypto movement. Taking it one step further, these communities have a desire to create and be part of exclusive social circles, which has driven the floor price (lowest price any NFT in a collection is available for) of assets like Bored Apes to over $360k on OpenSea at the time of writing.

Gaming has always been an inherently social activity, but web3 is changing what this means in practice. Historically, the primary function of being social in games was related to in-game experiences (talking to teammates in a match, completing co-op campaigns, etc). Blockchain gaming has focused on creating social outlets outside of the game. This can partially be attributed to most games being pre-release, but it also plays a critical role in sustaining an active peer-to-peer economy. Community is not limited to teammates and enemies, but rather creates a mutually beneficial social ecosystem. This does increase the strength and importance of interpersonal connection within these groups, but it also calls into question the motivation that players have for engagement.

2) Developer Engagement: The ethos of decentralization centers on providing a shift in power from “the top” to the masses (or at least a more representative and broad group). In terms of gaming, this means transferring some decision making capabilities and ownership from game developers to the player base. One of the most noticeable results of this shift is more parity between game creators and players. An example of this is the fact that many of the most engaged communities generally have leadership teams that are active in the community (daily messages, weekly AMAs, accessible on email/twitter/DMs, etc). People in web3 gaming are uniquely appreciative of founder transparency feeling that their opinion/voice is not only being heard but is having a direct impact on the future. Some teams have taken this to the extreme. For example, we recently spoke to a CEO that publicly shared their cell phone number with their Discord server that has tens of thousands of members. The trend here is that the entire stakeholder ecosystem is brought in and made to feel they are part of the inner circle of the community.

3) “Street Cred” (Social Credibility): One of the most important social features in blockchain gaming does not even involve communication at all. Gamers have always been known to “flex” their assets in-game (i.e. showing off or proudly showing their friends what they own). This is the primary reason why cosmetic items and microtransactions generate billions of dollars each year. For context, one Fortnite skin pack generated roughly $50m alone last year (Forbes).

That being said, blockchain-enabled games are particularly well-suited for users to demonstrate their status through exclusivity and real-world value (vs just in-game value in web2). This aspect of a user’s identity has nothing to do with their gameplay ability, and everything to do with their individual wealth and/or spending capabilities. This mirrors a lot of the same human behavior we see in fashion, watches, or cars (in real life or “IRL” industries).

While this human behavior (cosmetic self-expression of status) is relevant in any existing game that features in-app purchases, the true asset ownership enabled by blockchain technology is changing the scale of player investments. We are no longer talking about $25 to $50 cosmetics, but rather assets that have reached floor prices of almost $50k (Dapp Radar) and are typically purely cosmetic. This social dynamic in web3 gaming is particularly relevant as asset transferability and shared ownership of realms/items/servers become more prevalent.

4) Guilds: One of the biggest challenges for blockchain games is balancing genuine entertainment with earnings mechanisms. While traditional games are always able to optimize for enjoyment, web3 games must find an appropriate balance that attracts people to the game and keeps them there with financial incentives (web3 user acquisition and retention is much different than traditional games). This directly impacts the composition of the community, and one of the most relevant examples of this is guilds (communities of people that band together to explore new games, share assets, and have outsized financial influence on various virtual worlds).

Although guilds are a great way for games to efficiently onboard sizable user bases, these groups are composed of mostly “earners” rather than players. While some users leverage guilds to help with the high cost barrier to entry for some games, a lot of users join guilds to supplement their income (especially in emerging markets). These relationships can often be seen as more professional than what is traditionally seen in casual peer-to-peer communities where the primary goal is entertainment (not earning).

Because of this, guilds and their players are likely to enter and exit communities depending on where earnings potential is highest. In this sense, they are not true members of the community, but rather temporary citizens that aim to extract (rather than provide) value. This is one of the most highly scrutinized aspects of the web3 gaming space. We believe guilds and players motivated by earnings have a key role to play in the future of this genre yet will not be the all-encompassing dynamic at play in web3 gaming.

5) Value Extraction: Guilds are just one example of how the financial layer of blockchain impacts a gamer’s social experience. Because web3 has intrinsic ties to the financial markets, building and growing a community has economic benefits for its members. If there is more interest in a given game or project, the token economy and NFTs will likely appreciate in value at a higher rate than those without engaged users (simple supply/demand dynamics). Even if the game developer and their community have genuine intentions for the game’s entertainment value, this financial component is an inextricable reality for any web3 community.

Takeaway: Web3 gaming is spearheading a new social paradigm in the industry. The key trends are 1) active community involvement in the game development process, 2) accessibility to the studio founders, 3) enhanced ability to “flex”, 4) financial incentives that may supersede the desire of pure entertainment, and 5) integration between games and the global financial markets. We are incredibly bullish on the future of web3 gaming and believe that it will eventually be as large (if not bigger) than the Free-to-Play market ($60-80b) over the next decade. As we look at the social side of web3, it has become clear that social value and financial value cannot be separated in web3 gaming.