This year has been an incredible period of growth for blockchain gaming. Our investment in Sky Mavis’ (Axie Infinity) Series A earlier this year was our first dive into this segment of gaming, and we have become increasingly active through our investments in Genopets, Sipher, and a few others yet to be announced. Konvoy is proud to back some of the most capable founders in this space, and we are excited to play a small part in these bold new projects.
The hype around play-to-earn and the vast availability of capital from institutional investors continues to drive more ideas to market, making it difficult to keep track of what is happening. Due to our level of involvement in blockchain gaming, we have seen an extreme acceleration of deal flow from innovative founders that are aiming to change the way games are played.
Great ideas are naturally going to be iterated upon. This is a simple truth when it comes to innovation, but the speed at which this is happening within blockchain gaming has been staggering. Through our discussions with hundreds of operators over the last 6 months, we have seen the following evolution in focus from founders as the space has incrementally progressed:
Ability to Earn → Ease of Crypto Adoption → Games-First Mentality → Genre Alignment → Creator Economies
Ability to Earn: Axie Infinity was undoubtedly the breakout title that initiated the explosion of growth for crypto-enabled games. While users enjoy the gameplay, the narrative that created a cultural movement was the ability for players to own and monetize their assets and earn financial rewards from playing. The fact that players in the Philippines were able to quit their jobs and earn more from a video game captivated the world (CNBC). Although players across the globe knew they could not expect the same lifestyle changes, the fundamental mechanics laid the groundwork for a transformation in how players value their engagement with video games. This resulted in the first wave of competitors seeking to capitalize on this trend of earning by playing.
Ease of Crypto Adoption: As a growing pool of creative entrepreneurs enter the market, developers are aware that they need to expand their addressable audience. Rather than focus on a niche cohort of crypto enthusiasts, the real prize is tapping into the 3b+ gamers across the globe. However, given the early stages of crypto education, game makers know that onboarding processes need to be intuitive for any user. This is leading to a growing number of fiat-based crypto onramps, where a payment platform like PayPal or Stripe can be implemented with all of the conversion to crypto happening on the back-end. Most innovators in the market today have not done this well, yet some have.
Games-First Mentality: Even if it is easy for gamers to start playing, that does not mean they will want to. The earliest iterations of blockchain games were notorious for being trading platforms with superficial games layered on top. As the play-to-earn mechanic becomes more ubiquitous, content itself will take on a more important role in standing out. Despite the initial novelty, blockchain integration will become less of a standalone differentiator (it is almost obsolete already as of this note). Deeper game experiences that appeal to the broader traditional gaming audience are the new target, not merely by choice but by necessity. We have also seen a cohort of companies interested in introducing a free-to-play option that does not require a crypto wallet to play. Instead, the user has the ability to “turn on” the play-to-earn features. This highlights the importance of compelling gameplay and a simplified crypto adoption experience.
Genre Alignment: The games-first approach has naturally led to concentration in a few genres. While the potential for blockchain in games is quite broad and extensive, some game styles are better suited for blockchain-based economies. For example, the initial games were in arcade or short-lived gameplay, yet the latest genre to see a surge in activity is MMORPGs. MMORPGs are a natural fit for the inclusion of blockchain tech as they allow for a very organic implementation of land ownership, combat weapons, cosmetic items, and trading. Seamlessly embedding blockchain tech in this genre will become more mainstream, if not a prerequisite, moving forward.
Creator Economies: Developers are not only finding new ways to logically integrate crypto into existing game structures, but also leveraging blockchain as a layer that enhances the player experience and return on engagement (we will expand on this more in the coming months). The most recent example of this is embodied by creator economies that are unlocked through user-generated content tools. The fun aspect of the creation process is a major theme across gaming, but blockchain enables users to be easily rewarded through the ownership (and subsequent monetization) of their finished product (this is a big deal). The best blockchain games moving forward will leverage the technology to create entirely new game mechanics.
Given the volume of conversations we have had with founders in this space, it often seemed like “new” ideas reflected the same thing everyone else was doing. Looking back, that was the wrong way to think about it. Even ideas that seemed saturated were actually innovating in small ways. In aggregate, they have compounded to create meaningful strategic developments that are pushing the gaming industry forward. The short time period in which these new developments of thought and consensus across the founder ecosystem has taken place is remarkable.
Takeaway: Blockchain gaming is an increasingly crowded yet unsaturated market. The skepticism around the magnitude of valuations is understandable and we certainly share the same concerns. However, there is meaningful innovation happening through the accelerated influx of talent (and capital) that is eager to disrupt traditional gaming economic models (this is happening, it is not theoretical). What started as a way to enable players to earn monetary rewards through games is now coming full circle by enabling the creation of richer game experiences.
As game-endemic investors, this opportunity is much larger than simply riding a wave of speculation and hype. This is a key tenant of the future of gaming.