The esports industry is booming, with revenues exceeding $1 billion in the last few years. During this same period, blockchain-based gaming has been rapidly evolving and innovating on standard industry practices, especially in terms of tokenized in-game economies and player rewards. From play-to-earn, free-to-play-to-earn, to move-to-earn, some projects are taking things further still by integrating blockchain games into the eSports space. The hope is that combining GameFi and esports will deliver more competitive game modes for players while ensuring security, fairness, and new economic models enabled by decentralized blockchains.

The intersection of GameFi and esports is inevitable. The question is, will this be the key to unlock mainstream adoption of Web 3 games with a compelling user experience?

The origin of esports

Esports or electronic sports is a form of competition where professional gamers square off individually or in teams, and winners are rewarded in cash at the end of each tournament. While professional esports has been around for almost two decades, only in the second half has its audience ballooned into the hundreds of millions, forcing the game industry to take notice and, indeed, embrace the phenomenon. Esports is constantly evolving, driving change in the gaming industry, and inspiring new technological and entrepreneurial innovations.

Figure 1: Esports arena

The first informal esports event was held way back in 1971. The event took place at the University of Stanford, where students of multiple disciplines competed in an “Intergalactic Spacewar Olympics.” This inspired other friendly competitions over the years, until the first official competitive gaming event kicked off in 1980: the Space Invaders Championship, which saw more than 10,000 players competing to set the high score. The surprising surge of interest caught the attention of media, game developers, and other organizations who realized the potential of competitive gaming, and acted on it.

In the late 1980s, Nintendo came to dominate the early esports scene with the launch of their legendary first console: The Nintendo Entertainment System (NES). This introduced classic titles like Super Mario World and Street Fighter 2 that became extremely popular at tournaments around the world.

In the late ’90s, it was relatively difficult for gamers to connect with one another without social media nor any well-established, regular-held gaming tournaments. But the rise of the internet and PC gaming has elevated esports to global popularity. Some of the most popular esports games today include Call of Duty, Counter-Strike, League of Legends, Madden NFL, Overwatch, Dota 2, and Fortnite.

Figure 2: Some of the most famous esports games today

What is behind the rise of esports?

Data by Statista indicates that global revenue generated by esports has reached $1.38 billion in 2022 with the eSports audience reaching 532 million people worldwide. Revenue is predicted to reach $1.87 billion by 2025 with over 640 million viewers.

Figure 3: Esports revenue from 2020 - 2025 (Statista)

The rise of Esports isn’t some random phenomenon. There are many reasons why esports is proving to be so popular right now.

Entertainment Value: The most obvious reason why esports is so popular is that video games are so entertaining. People can play by themselves, compete with others, watch competitive esports, bet on games— No matter how they enjoy gaming on a personal level, most gamers can appreciate esports for their level of competition, skill, and high stakes. There’s a seemingly endless variety of esports games and tournaments, so one can easily find their favorites. And most esports events broadcast in outstanding graphics quality, which esports audiences have come to enjoy and expect.

Game Quality: Video games used to have comically bad graphics, however, standards have dramatically improved over the past decade. Now, video games have photorealistic cinematic sequences, mind-bending animations, and stunning gameplay graphics. These improvements allow gamers to experience fully rendered worlds with hyperrealistic environments that make it much easier to feel immersed in the action of esports tournaments. As gaming technology and visual/auditory fidelity has improved, more and more people have begun to play, which contributes to esports' massive popularity.

Accessibility: Esports’ popularity also stems from the fact that it’s relatively easy and cheap to begin playing, making it extremely accessible. Anyone can get involved with esports and become a champion regardless of their age, gender, physical ability, cultural background, or location. Esports games are mostly or entirely skill-based, and all participants are more or less equal in the digital world. Additionally, gaming has a low barrier to entry and offers terrific entertainment value per dollar spent compared to traditional sports.

Social Value: Humans have been played sports for at least 3,000 years, and board games for at least 4,600. Our appreciation for organized competition, both mental and physical, stems from its value as a social experience. Traditional sports offer great opportunities for socializing in person, but esports takes things to a whole new level. Online games enable gamers from all different corners of the world to meet, play, and connect with each other, often forging true friendships in these virtual arenas. Also, esports games are usually team-based; players have to work together and rely on each other to succeed. Communication and coordination are highly valued skills and are essential in the world of competitive gaming. Thus, esports is a very social sport by nature. It also provides the opportunity for community engagement online through chatrooms, which are made available for most livestreams and events.

Loyal Community: People have always been deeply invested in sports like football and basketball. However, over the past couple of years, video games have quickly grown in popularity and prevalence. The gaming community is now arguably just as big as the sporting community, and the culture of fandom in sports is being replicated in esports. There are fan clubs and news sites. People can purchase merchandise from some esports teams and games. As such a passionate community has formed around esports, the industry has grown exponentially.

Career Opportunities: Unlike traditional sports, people don’t need to be the most physically superior to become pro gamers. They do, however, need to train hard and fully dedicate themselves to the craft of gaming. As the popularity of esports has grown, so has the number of children, teenagers, and adults with dreams of going pro in gaming. It’s now considered a legitimate career path, but the odds of becoming a professional esports player are estimated to be even lower than the percentage of college athletes who go pro. However, as the popularity and audience for video games grows, there will be more and more avenues for earning an income from gaming, such as becoming a twitch streamer with sponsorships, etc.

How esports transforms the gaming industry

The explosive growth both in revenue and number of participants in esports has had a significant impact in the broader gaming industry, as more and more people become interested in competitive gaming.

Game Design

One of the biggest changes that esports has brought about is the way games are designed. Developers have started designing their games with esports in mind, creating titles that are easy to watch and understand for spectators. Not all genres are ideal for esports, and many developers have pivoted to focusing on building titles that are. This has led to a boom in popularity for certain genres, such as first-person shooters and multiplayer online battle arenas (MOBAs). Additionally, with the high demand of players thirsting for new adventures and experiences, esports games keep introducing new content and adjusting the existing versions to make the gameplay more fair and more interesting to retain and attract more users. This also proves that the project is still working to further improve their product and highlights the level of interactions between developers and gamers through feedback and implementation.

Gameplay Enhancement

Esports has helped popularize collaborative gameplay among competitive teams and groups of friends. Games are taking these patterns of behavior into account to optimize the overall experience and deliver a more enjoyable balance of collaboration and competition. Not to mention, esports competitions pit the worlds best players against one another, which provides invaluable data and inspiration for updates to improve gameplay and the overall experience.

VR Gaming

As we enter the Metaverse, developers are starting thinking about combining VR and esports. Actually, VR esports leagues already exist, Counter-Strike: Global Offensive and League of Legends tournaments have been streamed live to VR devices. VR not only creates a competitive esports experience for players, but also for fans as they can use it to get a better point-of-view and the “feel” of the game. This experience allows fans to immerse themselves in a higher level of immersion and make them more emotionally involved in esports.

New Audiences

The incredible growth of esports is fueling the emergence of numerous streaming platforms. Twitch is the number one platform for streaming video game globally, and especially esports. The platform has 140 million active users and 9.2 million active streamers every month (as of March 2022). It has played a critical role in revolutionizing the gaming world by changing how gamers access and consume gaming titles. The platform has managed to bring esports to an entirely new audience. Streaming platforms such as Twitch have helped grow esports into a multi-billion-dollar industry and have empowered famous esports players to draw huge salaries in sponsorships and and advertising fees. Game developers are now drawing agreements with leading streamers like Twitch and Roblox to extend their market reach. For gamers, this means more opportunities to compete at a professional level and earn a living doing what they love. For businesses, this means more opportunities to invest in the industry and reap the rewards.

Esports x GameFi: A world of possibilities

We have lately seen many big names in the crypto industry starting to tap into the esports space:

• Crypto.com partnered with Fnatic and inked a big deal with esports tournament series Twitch rivals;
• Bybit expands esports footprint through deals with Alliance and Astralis. The exchange also entered an exclusive partnership with Navi, an esports organization known for its Counter-Strike, FIFA and Rainbow Six Siege activities;
• FTX made a $210 million deal with esports giant TSM for naming rights.

Figure 4: FTX signs $210M naming rights deal with TSM

And most importantly, there are a number Web3 titles that are prime candidates for esports in development such as Shrapnel, Delysium, Phantom Galaxies, Nyan Heroes, Gods Unchained, etc.

The combination of GameFi and esports opens up a wide variety of opportunities to developers, fans, and competitive players alike.

Decentralized esports

Most gamers do not have what it takes to join a professional esports team, but that should not prevent them from participating in competitive tournaments. Traditional sports have lower tiered leagues, from the minor/club league down to local “little league” for kids and many in between, and while there are certainly regional esports tournaments, this is still very localized and, ultimately, still exclusive. Blockchain provides a solution through projects like Communitygaming.io— a platform that enables anyone to host their own tournaments, from amateur level up to the pros. The platform uses a smart contract system to record all results and distribute rewards in an automated system that’s both transparent and tamper-proof. These sort of GameFi platforms are decentralizing and democratizing esports and create opportunities for everyone who wants to compete with others for rewards.

Diversified revenue streams

Traditional esports offers a limited number of revenue streams for game developers and players. Blockchain-based games incorporate crypto and NFTs to generate more value for all parties involved. Game producers could raise capital for esports events through through NFT / token sales and transaction fees; players earn just by playing games; and fans are rewarded for participating in specific events/programs of their favorite game. All the parties will benefit from GameFi eSports.

Transparent and secure payment

In the normal esports sector, players are often required to use expensive payment processors to receive their tournament prizes. GameFi leverages blockchain technology to distribute money quickly and affordably in the form of digital assets, directly into users' wallets. Meanwhile, distribution of funds can be automated via smart contracts that eliminate the risk of fraud or getting “rugged.”

Moreover, tournament organizers can facilitate transfers from fiat to crypto and back again. This potentially offers a flexible payment option for participants to choose, either cryptocurrencies or fiat. These payments are executed cross border where it might be hard in traditional currency.

Engagement boosting

Loyalty reward programs held by gaming projects can incentivize higher levels of engagement and provide real-time reward payouts and redemptions. Blockchain games enhance loyalty rewards by creating a user identity across all digital touch points while also facilitate the trading of digital assets. For example, Verasity is a Web3 project providing infrastructure and tools for video publishers to track real user interaction with esports streams to avoid bots and to serve rewarded video and loyalty programs using VRA for their viewers. No more difficulty in verifying players' activities, botting or use of illegal third-party programs.

Safer Esports Betting

For better or worse, there will always be people who want to bet money on sports games, and the same is true of esports tournaments (or any high-level competition, for that matter). But esports betting currently suffers from a lack of transparency and reliability, making it more risky for gamblers and capping the growth of its user base. Legally organizing any kind of betting operation is a tricky procedure in most countries, and most people in the world are not able to bet with their local currency, adding the cumbersome and often costly step of currency conversion. Blockchains have enabled the creation of safer betting platforms which anyone can place bets on using cryptocurrency and a crypto wallet. While this adds the steps of onboarding users to Web3, it would certainly pay off (at least in terms of convenience and fees) for users and provide a safer alternative than the current Web 2 options for betting on esports.

Crowdfunding

Esports leagues, teams, and their players are each running a business, and traditional financing typically requires an unfavorable loss of equity, cost of capital, or revenue to third parties. With more decentralized and transparent gaming platforms, crowdfunding through personalized, automated contracts is now much easier and faster. This enables esports leagues and their players to more easily launch their businesses, monetize, and also track fan engagement and loyalty through blockchain-based products.

Team tokenization

GameFi esports gives people the opportunity to buy shares in a team represented by tokens, opening up ownership to the fanbase while directly raising funds without traditional corporate sponsors. This type of fundraising offers a new level of community participation and direct monetization of the fanbase. A team’s token can be traded freely on an open market, diversifying ownership and liquidity for the team’s endeavors. Token holders will also have the ability to vote on proposals ranging from minor details to more significant changes. We have seen many traditional sports, especially football, create their own fan tokens including Arsenal, Manchester City, FC Barcelona, Juventus, etc.

Conclusion

There are many organizations in the global gaming industry that are exploring the possibility of integrating GameFi with esports, but the concept is relatively brand new. The opportunities are numerous– the question is whether or not now is the best time to execute on them or to wait for the GameFi industry and technology to mature. It will truly start to flourish once the next generation of Web 3 game games are released. These higher-quality titles are sure to penetrate mainstream culture and gaming communities, drawing another wave of investment in the space to build superior products, practices, and experiences within esports using blockchain technology. This powerful combination will unleash the competitive spirit within players worldwide.