The GameChanger: Unleashing Web3 Gaming's Epic Journey into 2024 and Beyond

The GameChanger: Unleashing Web3 Gaming's Epic Journey into 2024 and Beyond

With over  3 billion active gamers globally, the gaming industry is undergoing a massive surge, poised to reach $282 billion in 2024, surpassing the combined earnings of the movie and music industries. Blockchain technology enables Web3 gaming, that brings asset ownership, programmability, and composability in games, , is making a more significant transformation for the industry than previous transitions such as arcade to home console or home console to mobile in the past decades. Decentral Park Capital (“DCP”) anticipates 2024 to mark the commencement of the "Gaming Summer," as technology matures, past investments yield results, and numerous AAA studios intensify their Web3 gaming endeavors. Exciting investment opportunities await in both horizontal gaming platforms and individual games across various genres. 

1. The State of Gaming - Snapshot of the Web2 Game Market 

The gaming industry is experiencing a tremendous boom, with the revenue expected to reach $282 billion in 2024, growing at a rate of 8.76% per year. This surpasses the combined earnings of the movie and music industries. Major game companies, often referred to as "AAA" publishers, wield billion-dollar budgets comparable to or even exceeding those of blockbuster films. The influence of gaming extends to new sectors like eSports and streaming, both generating billions in annual revenue.

Source: Forte, December 2021

The gaming industry also has a vast audience, with more than 3 billion active gamers around the globe, occupying more than one-third of the world population.

Source: https://explodingtopics.com/blog/number-of-gamers, August 2023

The gaming industry has undergone significant transformations in nearly every decade. On the hardware front, the gaming industry traversed from the arcade game era in the 1970s to mobile dominance in the 2010s. On the software side, the gaming industry has progressed from basic ball games with minimum graphics (Pong) to Massive Multiplayer Online Games with rich immersive experience (Roblox), and an additional 30 different genres that cater to diverse tastes across age, gender and region.

Source: Visual Capitalist, August 15,2023

The gaming industry tends to witness major technological breakthroughs every decade. DCP believes the next breakthrough will be even more fundamental in nature. It’s not about the gadgets people use to access games or the emergence of new genres; rather, it’s about how economic relationships will be redefined between gamers and publishers - welcome to the era of Web3 gaming.

1. What Gaming Could Become - The Rise of Web3 Gaming 

DCP sees Web3 gaming representing a paradigm shift in the gaming industry, driven by three key factors that address fundamental limitations of Web2 gaming and enhance the gaming experience:

• Ownership of In-Game Assets:

As games become fancier, an enormous market has emerged in Web2 gaming for customized in-game assets, colloquially known as “skins”. A study showed 69% of the gamers in Fortnite have purchased in-game assets with $85 spent on average. Players earn assets in the game or purchase them in third-party marketplaces. In some instances, these skins have traded for several hundred thousand dollars. And yet, ultimately, the players do not truly own or control these items - they are at the mercy of the marketplaces, and the game itself. If their account is banned or lost, or if the third-party marketplace acts maliciously, it’s entirely possible that their expensive assets will be lost forever.

Web3 gaming leverages blockchain technology and uses NFTs to enable true ownership of in-game assets. Each asset is uniquely identifiable on the blockchain, granting players control, and the ability to transfer, trade, or sell their assets outside the confines of a specific game. This concept of ownership enhances player autonomy and provides a tangible value to virtual items.

This customization and ownership over in-game assets is one of the biggest killer apps for Web3 gaming. The ability to purchase and trade in-game assets may bring enormous value both to gamers who can maintain provable ownership over their items, and to game developers who can collect royalties off their subsequent exchange.

• Programmability and Composability:

Web3 gaming introduces programmability through the use of smart contracts, which makes in-game assets programmable and composable. This programmability enables developers to implement complex and innovative gameplay mechanics, rules, and economic incentives to reward users according to their participation level in the game. For example, games may use free NFTs to achieve user acquisition. They may also use NFTs as token gates to allow certain users to access selected content. On the composability side, building a series of games on the same blockchain may allow users to port the skins from one game to another, enhancing the skin’s utility as well as the fun of the game.

• Transforming Gamers to Owners

User generated content has become a big part of the Web2 gaming world. Games like Roblox and Minecraft leverage user generated content to make the game more fun and social. Unfortunately, gamers and creators rarely financially benefit from their content creation, and it usually comes via other platforms like YouTube or Twitch, and rarely directly from the games. Web3 games, on the other hand, enables the issuing of fungible tokens representing ownership of the game. They may reward early users or creators with the token to truly align the incentives of the gamers and developers. Blockchain supports transparent attribution and fair compensation for creators, providing a direct incentive for players to contribute to the richness of the gaming experience. User-created content not only enhances the diversity of gaming worlds but also fosters a sense of community engagement and collaboration.

1. The Evolution of Web3 Gaming - From Play-to-Earn to Play-for-Fun Again

The GameFi highs of 2021 provided investors with a glimpse of the immense interest in the emerging Web3 gaming sector. The hype was primarily fueled by the play-to-earn model, where users were motivated to play not for entertainment but to extract financial value through token rewards. In hindsight, the most lucrative names - Axie Infinity, Decentraland, and The Sandbox, all reaching market caps exceeding $6 billion - were not particularly polished at the time. Their success was largely due to being among the few games available.

 The latter two, heavily riding the "metaverse" narrative, have lost appeal as investors and players alike recognize the metaverse as a highly zero-sum game. They now face the choice of which metaverse to invest their time and money in. Unlike traditional game genres where players can easily switch between RPGs and FPS games, switching between metaverses is less attractive, especially considering potential sunk costs. For a significant Web3 metaverse to emerge, it is more likely to be built, as observed with Web 2 games, on an already popular Web3 game like Minecraft, Fortnite, and Grand Theft Auto. 

Following a substantial bull run in 2021, the Web3 gaming industry went through months of stagnation as interest seemingly vanished. To attract genuine gamers to the Web3 ecosystem, the focus will likely shift away from short-lived financial incentives toward making the games inherently enjoyable. 

Luckily, during the bear market, a new wave of platforms and games worked diligently, and now, the results of their efforts are starting to surface. Also thanks to the 2021 game bubble, a substantial amount of VC funding went into the gaming sector, setting fertile ground for new game launches in 2024 and beyond. The broader crypto market has convincingly rebounded from the winter lows of 2022, a Bitcoin ETF has been approved, and the crypto gaming industry is poised to unveil a plethora of exciting titles in 2024.

Source: Game7 Research, October 18, 2023 

1. Building Winning Investment Strategies in Web3 Games - What We Like and Why 

There are two types of investment strategies to capture the substantial growth opportunity in Web3 gaming: a horizontal gaming infrastructure play that supports the development of Web3 games and trading of in-game assets, and an individual game play for games that are already garnering a ton of hype, and are poised to be market leaders in their respective genres. 

• Horizontal Plays 

With the development of faster and cheaper blockchain infrastructure, blockchains can be optimized for Web3 gaming development. Winning gaming “platforms” not only excel in technology but also provide ecosystem support to create a smooth user experience similar to Web2, and developer tooling to support fast and easy development. Furthermore, DCP views Web3 gaming’s success as inseparable from its in-game assets. Platforms that support and incentivize an active NFT marketplace, with strong liquidity and user network effect, will have a lead in building a thriving Web3 gaming ecosystem. 

Companies that DCP considers of particular interest are[1]:

Source: CoinGecko, as of 1/16/2024

-        Immutable (IMX): Immutable (IMX): With over 150 games on its platform, Immutable has established itself as the market leader in blockchain gaming. Their Layer 2 blockchain, ImmutableX, is purpose-built to onboard new and existing games and seamlessly integrate them into the IMX ecosystem. With past successes like Gods Unchained, current heavy hitters like Illuvium, and highly anticipated names like Guild of Guardians and Metalcore, IMX continues to attract players on a large scale. Furthermore, IMX’s innovative tokenomics model ensures the token captures 2% of the trading fees of any in-game assets, ensuring that token holders benefit from the growth of the NFT platform. 

-        Beam (BEAM): Beam, the chain-agnostic gaming platform built by Merit Circle, started as an Avalanche subnet and is now expanding to Immutable zkEVM. In addition, they’ve partnered with Immutable to launch the Sphere NFT marketplace, which is already fast-growing. With the imminent release of Big Time, a highly anticipated action RPG, on top of their impressive game library, they are establishing themselves as a serious name in the space. 

-        Ultra.io (UOS): Positioning itself as the “Steam” of web3 gaming, UOS is built atop a proprietary blockchain and offers far more competitive distribution rates compared to its web2 counterparts. They also have some exciting upcoming releases: one with Ubisoft and their first web3 game, Champions Tactics, as well as Ultra’s own exclusive title, Project Citadel. 

-        Aurory (AURY): A smaller gaming studio compared to the previous two names, Aurory saw success with their first major release, Aurory Tactics, a turn-based strategy game. Next up is Seekers of Tokane, set in the same universe, which is shaping up to be a fun and exciting Pokémon-style RPG with an extraction element built in.

-        PLAYA3ULL Games (3ULL): Another smaller gaming studio, built on another Avalanche subnet. PLAYA3ULL’s first title, Nexus, a third person shooter MOBA, has enjoyed several thousand daily active users. Players can earn 3ULL by playing the game, which can be spent in various ways across the PLAYA3ULL ecosystem. 

• Individual games 

Unlike the previous P2E game hype, DCP believes successful Web3 games should be fun to play from the outset, and good games are capable of attracting a loyal community of gamers rapidly. We select games by evaluating the “fun” factor through our own lens as gamers, as well as monitoring their user growth. Additionally, we consider a thriving NFT market, with healthy floor prices for in-game assets, as an indication of the interest in the games. DCP is excited about a few upcoming releases that we predict are poised to be leaders in their respective genres[2]:

Source: Information above is data from CoinGecko, Dune Analytics, as of 1/16/2024 

-        Parallel & Echelon Prime (PRIME): Another name that has dominated the Web3 and NFT zeitgeist for a couple of years, Parallel is finally in the last stages of Beta and set to launch very soon. The sci-fi trading card game has seen millions in trading volume over the past few years, with its highly collectible NFTs. Players have been earning PRIME by competing head-to-head, helping to wrap up any necessary balance tweaks. In addition, Parallel is launching an experimental AI-based game where autonomous NFT “Avatars” can explore and interact with the game’s ecosystem, perhaps even performing certain tasks and autonomously earning PRIME on the player’s behalf. It represents a unique and fresh step into the new AI narrative at the intersection of blockchain and gaming, no less. 

-        Big Time (BIGTIME): Launching in partnership with Beam, Big Time is one of the most hyped Web3 games in recent memory. Big Time is another highly polished game; this time, a massive multiplayer action RPG with a rich crafting ecosystem, customizable characters, and a ton of in-game content. It has already generated $90 million in NFT sales on the Open Loot marketplace. Big Time is expected to launch as soon as Q1 of this year, so anticipation is high. 

-        Guild of Guardians (GOG): Immutable’s next big title, Guild of Guardians, is yet another hotly anticipated game. It received one million pre-registrations ahead of launch, which is expected sometime in Q2. The game is a fantasy-themed roguelite; a turn-based squad RPG launching on mobile. The game looks very polished and is expected to be a winner with more casual gamers. Guild of Guardians will feature a wide range of customizable characters and in-game assets, which should cultivate an active NFT marketplace on top of the game. 

-        Star Atlas (ATLAS): Perhaps needing no introduction, the MMO space combat & exploration game has been in development for several years now, and with periodic playable updates via “Seasons”, we are starting to see glimpses of the finish line. This AAA-level game has the makings of crypto’s Eve Online, and DCP is excited to see what comes next. 

-        Shrapnel (SHRAP): Yet another game building on Avalanche subnets, Shrapnel is a highly polished, AAA-quality extraction first-person shooter. It is one of the most highly anticipated games in Web3, and aside from being a great-looking game, Shrapnel is building a unique and complex UGC system which, if successful, will help keep the game fresh and relevant for a long time. Players are expected to be able to design custom maps and other content that will enable them to earn rewards for their contributions. As a Web3 extraction shooter; a genre that has become extremely popular in just a few short years; Shrapnel will allow players to keep the loot they extract with as NFTs, which can then be traded on Shrapnel’s marketplace. 

Conclusion - Gaming Summer for 2024 

The stage is set for an exciting Web3 Gaming Summer in 2024. On one hand, the capital accumulated during the previous bull market in 2021/2022, coupled with diligent development during the bear market over the past two years, is starting to bear fruit as we witness the emergence of a new generation of Web3 games. These games are built upon the lessons of the past and leverage fresh blockchain and graphics technologies to create efficient, high-quality games with carefully designed ecosystems. It's also worth noting that the timing in 2024 is particularly opportune for a GameFi boom. The launch of the Unreal 5 engine in mid-2022 has spurred game developers to build on it continuously.

On the other hand, advancements in Blockchain technology have transformed on-chain games from theory to reality. The thriving development ecosystem not only enhances the user experience but also simplifies Web3 game development for Web2 developers. While many previous Web3 games were built on Ethereum, facing challenges like congestion and expensive gas costs during market peaks, the new wave of games and platforms primarily utilizes faster chains such as Immutable, Solana, Polygon, and Avalanche subnets. These alternative chains offer advantages, including explicit funds for talent and developers, developer-friendly SDKs for smoother onboarding, and the establishment (or utilization) of interoperable ecosystems to foster a loyal and dedicated player base. 

In addition, mainstream adoption is occurring in real-time. Among the top 40 gaming studios, seven already have blockchain games, and an additional 22 have blockchain initiatives, showcasing a tangible shift toward blockchain integration in the gaming industry. DCP expects more AAA studios to launch Web3 game efforts in the near future and more Web3 games available on Web2 game stores. 2024 is shaping to be an exciting year for both gamers and investors.

Source: CoinGecko, October 2023

About Decentral Park

Decentral Park is a founder-led cryptoasset investment firm comprised of team members who have honed their skills as technology entrepreneurs, operators, venture capitalists, researchers, and advisors.

Decentral Park applies a principled digital asset investment strategy and partners with founders to enable their token-based decentralized networks to scale globally.

The information above does not constitute an offer to sell digital assets or a solicitation of an offer to buy digital assets. None of the information here is a recommendation to invest in any securities.

Certain Risks / Disclosures

Decentral has prepared the previous briefing (this “Presentation”) for presentation, on a confidential and limited basis to provide an overview on Decentral’s investment strategy. This Presentation is not an offer to sell to any person, or a solicitation to any person to buy, limited partner interests in a fund, and is solely intended to provide an overview of Decentral’s current investment strategies and certain industry specifics relating to crypto investing. Any such offer or solicitation will be made only pursuant to any existing future fund’s Private Placement Memorandum (as amended and/or supplemented from time to time, and including, without limitation, the legends contained therein, the “PPM”) and subscription documents, and will be subject to the terms and conditions contained in such documents and the PPM. Recipients of this Presentation agree that Decentral and its officers, directors, employees, partners and agents shall have no liability for any misstatement or omission of fact or any opinion expressed herein. Each recipient further agrees it will (i) not copy, reproduce or distribute this Presentation, in whole or in part, to any person (including any employee of the recipient other than an employee directly involved in evaluating Decentral) without the prior written consent of Decentral, (ii) keep permanently confidential all information contained herein not already public, and (iii) use this Presentation solely for the purpose set forth in the preceding paragraph.

The information in this Presentation is not presented with a view to providing investment advice with respect to any security, or making any claim as to the past, current or future performance thereof, and Decentral expressly disclaims the use of this Presentation for such purposes. Each recipient should consult its own advisers as to legal, business, tax and other related matters concerning an investment in a Decentral fund. Past performance is not necessarily indicative of future results. There can be no assurance that Decentral will achieve the results as those presented or that Decentral will be able to implement its investment strategy or achieve its investment objective. Investors in Decentral  may lose part or all of their invested capital. Any investment in a Decentral sponsored fund is subject to various risks, none of which are outlined herein. A description of certain risks involved with an investment in a Decentral sponsored fund can be found in such fund’s PPM and the Form ADV Part 2 for Decentral Park Advisors, LLC, available upon request and filed with the U.S. Securities and Exchange Commission; such risks should be carefully considered by prospective investors before they make any investment decision.

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Statements contained in this Presentation (including those relating to performance) that are not historical facts are based on current expectations, estimates, projections, opinions or beliefs of Decentral or its affiliates or its sources of information as of the date of this Presentation. Such statements involve known and unknown risks and uncertainties and undue reliance should not be placed thereon. There can be no assurance historical trends will continue over the life of the fund or the course of the potential transaction.

Certain information contained in this Presentation constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “potential,” “project,” “estimate,” “intend,” “continue,” “target” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, including those set forth herein and those set forth in a Decentral sponsored fund’s private placement memorandum and the Form ADV Part 2 for Decentral Park Advisors, LLC, available upon request and filed with the U.S. Securities and Exchange Commission, actual events, prospects, opportunities or results or the actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Additional risks of which Decentral is not currently aware also could cause actual results to differ. In light of these risks, uncertainties and assumptions, prospective investors should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this Presentation may not occur. Decentral undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Unless otherwise noted, the information contained herein is unaudited and may be preliminary and subject to change, and Decentral and its members, partners, stockholders, managers, directors, officers, employees and agents do not have any obligation to update any of such information. Certain figures in this presentation have been rounded. In addition, certain information contained herein has been obtained from published and non-published sources and/or prepared by third parties, and in certain cases has not been updated through the date hereof. While such information is believed to be reliable for the purposes of this presentation, Decentral assumes no responsibility for the accuracy or completeness of such information and such information has not been independently verified by it.

Please note that this presentation is provided for information purposes only. The goals, commitments, themes and outcomes outlined in this report are purely voluntary, are not binding on investment decisions and/or Decentral’s management of investments and do not constitute a guarantee, promise or commitment regarding actual or potential positive impacts or outcomes associated with investments made by funds managed by Decentral.

Case studies are presented for illustrative purposes only and have been selected in order to provide an example of the type of investments made by Decentral and do not purport to be a complete list thereof. There can be no assurance that Decentral will be able to complete similar investments, or that if completed, such investments will be profitable or of similar quality or performance. Decentral will remain opportunistic in consummating investment activities. Future investment funds’ portfolio construct may vary from construct of existing funds and breakdowns shown in this presentation. Past or projected performance is not necessarily indicative of future results, and there can be no assurance that the funds or its investments will achieve comparable results to those presented herein. Investment

strategy does not guarantee return of principal. Any estimated future returns set forth herein (the “Projections”) are hypothetical, have been prepared and are set out for illustrative purposes only, and do not constitute a forecast. They have been prepared based on Decentral’s current view in relation to future events and various estimations and assumptions made by Decentral or the applicable portfolio companies, including estimations and assumptions about events that have not yet occurred. All such estimations and assumptions may require modification as additional information becomes available and as economic and market developments warrant.  Any such modification could be either favorable or adverse. While the Projections provided are based on assumptions that Decentral or its portfolio companies, as applicable, believes are reasonable under the circumstances, they are subject to uncertainties, changes (including changes in economic, operational, political, legal, tax and other circumstances) and other risks, including, but not limited to, broad trends in business and finance, tax and other legislation affecting a fund, its respective investors, investments, monetary and fiscal policies, interest rates, inflation, market conditions, the level and volatility of trading markets, the availability and cost of short-term or long-term funding and capital, all of which are beyond Decentral’s control and any of which may cause the relevant actual, financial and other results to be materially different from the results expressed or implied by such Projections. Additionally, certain Industry experts may disagree with the estimations and assumptions used in preparing the Projections.

No assurance, representation or warranty is made by any person that any of the Projections will be achieved, and no recipient of this Information should rely on the Projections. None of Decentral, their funds, their respective affiliates or any of the respective directors, officers, employees, partners, shareholders, advisers or agents of any of the foregoing makes any assurance, representation or warranty as to the accuracy of the Projections. Nothing contained herein may be relied upon as a guarantee, promise or forecast or a representation as to the future.

There can be no assurance that any future fund of Decentral will achieve the desired results, that targeted returns will be met, or that prospective investors will receive any return of or on its capital. Investment results may differ significantly from any investment targets or projections shown or implied herein due to a number of factors, including the effects of any fees, taxes and other expenses to be borne by prospective investors (which in the aggregate are expected to be substantial) and other risks and considerations particular to any potential investment opportunity.

Footnotes

[1] The views set forth herein are those of DCP and have not been verified by third party sources.  They discuss general investment interest based on market activity and industry or sector trends based on DCP’s experience and are not and should not be construed as research or investment advice. DCP’s opinions regarding the gaming industry are necessarily subjective and do not reflect the investing approach of all investors.  These opinions are not a reliable indicators of future performance or opportunities and actual events will vary from those described herein and may do so materially and adversely. DCP’s investing approach is only an example of the strategy’s possible portfolio and investing approach.  There can be no assurances that investments will be in the presented categories or entities or that if made, such investments will be profitable or that such investments if consummated will be for any particular Decentral vehicle.  Investments are subject to continuing due diligence and there are no assurances that such investments will be consummated or will be used to seed any future DCP funds.  

[2] The views set forth herein are those of Decentral and have not been verified by third party sources.  They discuss general investment interest based on market activity and industry or sector trends based on DCP’s experience and are not and should not be construed as research or investment advice.  DCP’s opinions regarding the gaming industry are necessarily subjective and do not reflect the investing approach of all investors.  These opinions are not a reliable indicators of future performance or opportunities and actual events will vary from those described herein and may do so materially and adversely.  DCP’s investing approach is only an example of the strategy’s possible portfolio and investing approach.  There can be no assurances that investments will be in the presented categories or entities or that if made, such investments will be profitable or that such investments if consummated will be for any particular Decentral vehicle.  Investments are subject to continuing due diligence and there are no assurances that such investments will be consummated or will be used to seed any future Decentral funds.  

[3] The projected figures above are based on certain assumption made by Decentral, which may not prove accurate and therefore actual figures may differ materially.  The inclusion of DCP’s estimated figures should not be regarded as an indicated the Decentral considers them to be reliable predictors of future events and the estimations should not be relied upon by investors.  Please see page entitled “Certain Risks / Disclosures” for additional discussion regarding the use of projected figures.