State of the Union: Web3 Gaming

One of the biggest developments in crypto last year was the rise of Web3 games. According to this report by DappRadar, gaming made up half of blockchain usage and accounts for hundreds of millions of dollars in transactions. However, web3 games today are largely viewed as inferior to their web2 counterparts, plagued by poor user experience across onboarding and gameplay, and with economic models like play-to-earn now widely accepted to be mercenary. So what do we make of this? And why do we think this represents a huge opportunity to potentially onboard the next billion users to Web3?

If you weren't keeping track of Web3 gaming in the last cycle, here is a quick summary to get you up to speed:

  • Web3 games attracted fewer gamers than grifters who were magnetized by short lived monetary opportunities (e.g., play-to-earn) that were ultimately not economically viable
  • While the sector saw record levels of funding in 2022 ($10bn vs. $4bn in 2021), the reality is there is abysmal demand for most crypto games. VCs funding these games have also typically invested into gaming infrastructure rather than the games studios themselves
  • Web2 gaming incumbents are cautiously interested in crypto, with many investing in web3 projects / ecosystem funds and spinning up internal departments dedicated to crypto
  • As with any bear market cycle, the industry will ultimately coalesce around a handful of winners that survive. Especially given the long development cycles around creating games, it’s likely that many existing games will run out of cash before demand shows up for what they’ve built. The ones that raised capital just before the bear market or managed to reduce their burn rate leading up to it are heads down and vigilantly shipping products. They are focused on game mechanics and onboarding in preparation for the next wave of user adoption
  • Despite market volatility, gamers want to own the value they create and be able to seamlessly navigate across, in, and out of the environments they contribute in with their reputation, commercial output, and agency. This desire hasn’t faded, but there is an aversion to crypto particularly from the Web2 crowd
  • Additionally, many people perceive Web2 games as simply more fun and, as result, these attract more gamers because they don’t deal with Web3 constraints.

What has held web3 games back?

Web3 games are having a tough time attracting gamers who genuinely just want to play fun games. The main constraints holding them back are limitations around throughput, security, and functionality.

These constraints also represent an opportunity with rollups, specifically modular rollups, being the solution. All innovation cycles take time, and their evolutions speed up every cycle. This is no different for Web3 gaming. We started by building games directly on Layer 1s (L1s) like CryptoKitties and Dark Forest on Ethereum.

A few moving parts need to work together to make a transaction validated and final. You need:

  • Execution: Run a program
  • Consensus & data availability: Store the result
  • Settlement: Make sure the result is correct

An L1 handles all these duties, and they are done by the same set of nodes (computers running the network). This is not ideal from a few vantage points:

  • TPS proved to be abysmal i.e. 15 TPS
  • Gas fees are high to incentivize validators with a confined amount of available blockspace. Low supply and high demand are pricey on the blockchain just like those economics are in everyday life
  • One silver lining is that although speed and cost were horrendous, security was top notch.

It turns out though people don’t want to pay high fees and wait a long time for just security. Will Robinson from Alliance DAO broke down the math best using Dark Forest as an example. Dark Forest uses about 40 transactions per block every 5 seconds on Ethereum. If you assume 20,000 users and a speed of 8TPS, where players spend between $20-$200, that would mean each player could move every 30 minutes in the game.

Luckily, we then had our next wave of innovation - traditional rollups. Traditional rollups essentially take execution off of the L1 enabling the L1 to just focus on settlement and consensus.

The good news is that TPS improved, the bad news is that it only improved to 100’s of TPS which although is better, is still prohibitive to creating gameplay remotely close to web2 in terms of UX, security, and functionality.

The main technical hurdle that traditional rollups are bound by is that they still grab blockspace from the same L1 shared blockspace, and they share all of the same validators for execution. It’s like sitting down for dinner made by a private chef, who is actually just getting the food from a buffet that everyone is eating from.

Despite the bottlenecks, some Web3 games experienced relative success in terms of daily active users. However, they were faced with one problem - demand for the game was greater than the throughput availability. The games couldn’t provide a sensible user experience.

Enter the next solution: app chains.

Like all innovations, an improvement occurred where TPS dramatically increased ensuring a more viable user experience for gamers. In essence, you trade the shared security afforded to you by an L1 for speed. When times are good, that trade is fantastic. The fees decrease, more UX features/mechanisms are possible, and by proxy, there is an increase in activity. An asset that cost $5 with hours of validation time and $40+ in gas fees became a $5 asset with instant validation and a nominal gas fee.

However, there's always a tradeoff. In one example, Axie Infinity traded security for speed as is the case with any app chain where you sacrifice the shared security afforded to you by an L1 with a robust ecosystem and token economy. This was exposed by one of the biggest exploits in crypto history.

Where are we heading?

After what’s been a treacherous road paved by diligent builders, we’re now faced with a handful of options:

  • Ethereum: Started with a ton of security, no speed, and high cost
  • Traditional rollups: Kept the security, somewhat improved speed, and reduced costs
  • Multichain / app chains: Kept costs low but lost security

On the horizon, a variety of data availability solutions are popping up to make blockspace abundant but secure: Celestia, Polygon Avail, EigenLayer, Ethereum 4844, etc.

This in turn has created a switch where data availability and blockspace have gone from being scarce, to being a commodity. Enter the final innovation to enable on-chain gaming at scale: customizable rollups.

Customizable rollups solve for the trade off between speed and security. This is only possible because blockspace is now a commodity. Although no longer scarce, to tap into this abundance of blockspace, games need to be able to conveniently spin up their own rollup on a variety of data availability solutions. They need to be able to easily build custom functionality into their game's chain. This is costly and requires engineers to be protocol engineers vs. being focused on delivering core product functionality.

Customizable rollups enable:

  • A game (or any dApp) to be their own appchain while still acting as their own execution layer
  • Choice of preferred VM. The customizable rollup acts as a Layer 2 where the game can select their VM. That could be EVM (Ethereum) or SVM (Solana)
  • Different infrastructure tied to that VM, e.g., wallets, smart contracts, and a host of relevant game features like verifiable randomness and MEV capture 
  • The ability to route to any L1 for data availability and switch at anytime
  • Maximum dedicated throughput: 100,000+ TPS to rival even the best Web2 games

How does that look in practice:

Now games can ensure:

  • Superior UX through maximum dedicated throughput
  • Trust that your assets are secure at all times and can switch to any L1 at any time for any reason if it suits your gameplay
  • Choice of VM that then enables you to tap into a wide spectrum of relevant open source tools for your game and not have to integrate with each L1 to tap into their communities 

Customizable rollups provide a flexible open canvas for developers to design games customary with Web2 but are rooted in the ethos of ownership that is only possible in Web3. 

Eclipse offers customizable, modular rollups-as-a-service using the VM of your choice. Take the best parts of every ecosystem and build your own app chain, without the hassle of managing infrastructure or worrying about security or reliability. With Eclipse, developers receive maximum control and the highest dedicated throughput. You can learn more about us on our website and our Twitter.