Key Takeaways

• After a period of stagnation, Web3 gaming is undergoing a revival with developers unveiling a wave of games. The year-end witnessed a flood of activities, including numerous NFT mints, whitelists hunting, and announcements of upcoming airdrops.
• The OG chains (BNB, Ethereum, Polygon) still lead the pack in game quantities. However, game quantities don’t equate DAUs. Near leads in active gamers, surpassing WAX, and new entrants like Nebula Gaming Hub gained prominence.
• While the BNB chain dominates trading volume, driven by Alien World, Ronin closely follows with the influence of Pixels Online and Axie Infinity. DFK secures the third spot with DeFi Kingdoms.
• Q4 fundraising remained lively, reaching a total of $208M. Animoca Brands demonstrated commitment with 7 funding rounds, and the US led in the number of project funding with 42 projects, followed by Hong Kong (12) and Singapore (8).
• On-chain gaming took center stage in Q4, sparking significant interest. This resurgence fosters belief in the future of Web3 gaming, envisioning possibilities like permissionless composable modding and true ownership.
• The overall market is fueled by speculation and mercenaries. While there is a growing interest in Web3 gaming, it should translate to sustained interest and engagement, emphasizing the need for quality games that offer earning opportunities while playing.

Web3 gaming, after months of stagnation, is undergoing a resurgence with developers bringing forth a wave of games.

As we approach the close of 2023, numerous games have emerged from the shadows, hinting about upcoming alpha playtests, open NFT collection mints, and sneak peek token airdrops.

This revitalization in the Web3 gaming market coincides with the movement of Bitcoin prices. In the past 90 days, Bitcoin has witnessed a significant upswing, breaking the $44,000 mark for the first time since early 2022. This positive movement is attributed to the optimistic outlook linked to the potential approval of a spot Bitcoin ETF, contributing to overall bullish sentiment. Riding this upward trend, the Web3 gaming market cap has surged by 85% since October, reaching a notable $7.57 billion milestone (Footprint Analytics).

Overview of the Gaming Landscape

Leading Chains by Active Games

Overall, the OG chains BNB, Polygon and Ethereum (in ascending order) have historically dominated the market in the number of games, and they seem poised to maintain their leadership. On top of that, the gaming landscape is becoming more vibrant with a series of projects announcing the release of their gaming chains. Among these, South Korea's Layer2 blockchains, Kroma Network, and Chromia, which is set to release its mainnet in 2024, contribute to the evolving scenario. Additionally, TreasureDAO is in the process of constructing its game blockchain, as revealed by Footprint Analytics.

Source: Footprint Analytics (Data as of December 18th, 2023)

Leading Chains by DAUs

Taking a different perspective, the quantity of games doesn't necessarily correlate with the number of active gamers. Near has notably taken the lead, surpassing WAX, which previously held the top spot for several quarters. The breakout moment for Near occurred with the "Move-to-Earn" Sweat Economy title and the gaming studio Playember, attracting a significant influx of gamers in Q4. The growth of the Sweat Economy can be attributed to the game's expansion into new geographies like the US, Barbados, and Jamaica.

In the second position, WAX's active gamers are primarily drawn to two titles: Alien Worlds and Farmers World. For Farmers World, one observation is that the game’s DAUs might be bot-driven with minimal transaction value. Moreover, its social presence (Twitter + Discord) has been inactive since the previous year. As competition intensifies, DAUs on WAX have been on a declining trend, creating opportunities for other platforms to step into the spotlight.

Notably, Nebula Gaming Hub, a gaming-focused chain in the SKALE network, emerged as a noteworthy newcomer. Despite its late entry, Nebula experienced remarkable growth, with Gamifly and motoDEX leading the way. Impressively, it now boasts the third-highest DAUs.

Following closely, Ronin onboarded the new addition of Pixels Online, which migrated from Polygon in late October. Since the migration, the player count has skyrocketed to an average of 100k DAUs, reflecting a staggering 566% increase pre-Pixels. Furthermore, the network recently welcomed two new additions, Apeiron and Wild Forest, with anticipations of further growth in the ecosystem.

Source: Footprint Analytics (Data as of December 18th, 2023)

Leading Chains by Trading Volume

When it comes to trading volume, BNB led the pack, primarily propelled by the success of Alien Worlds. However, smaller chains like Ronin and DFK are gradually claiming a significant slice of the market. Ronin secured the second-highest trading volume, holding 20% of the total market trading volume, despite having only three games (Pixels, Axie, and Apeiron) available for public play. Following behind is DFK with a ~14% share in December, which is primarily driven by DeFi Kingdoms. The uptick in trading activities on DFK was likely attributed to well-coordinated social media exposure and an extended period of consolidation with a low token price, making it susceptible to easy pumps and generating hype.

It can be interpreted from the chart that higher DAUs don’t necessarily translate to higher trading volume. It could mean that most of the games are F2P or in alpha testing/closed playtest. Also, a single hit game can drive 60%+ of a network, outnumber other networks’ games and capture the most attention from the public, hence accounting for a large portion of the market.

Source: Footprint Analytics (Data as of December 18th, 2023)

Top Games by NFT Transaction Volume

In Q4, the top 10 games by NFT trading volume witnessed a resurgence in demand for the Virtual Worlds genre, notably outperforming other categories in terms of trading sales. The two noteworthy collections are TOPIA Worlds and Pixels Land which took the spotlight as the most sought-after NFTs. Land NFTs have gained prominence due to the increasing visibility of their utilities, allowing players to earn passive income

For example, TOPIA Worlds owners can earn the in-game token $TOPIA daily by staking their lands, renting them out, and deploying smart contracts to TOPIA’s chain. Additionally, they are eligible to receive recurring cosmetic lootboxes as rewards.

Likewise, owners of Pixels lands can earn 1% of resources when someone farms on their lands, or monetizes their properties through rentals. Notably, owning lands also opens up the possibility of receiving future airdrops.

From the current trend, it can be expected that there will be a boom in land/property NFTs demand in the upcoming time. As growing gamers immerse themselves in virtual worlds, owning land/property NFTs represents a pivotal element in unlocking potential passive income streams. It is also a strategic move to capitalize on emerging opportunities and enhance the overall gaming experience.

Source: Footprint Analytics (Data as of December 18th, 2023)

Fundraising Events

Historically, year-end tends to be a less active period for investments. However, Web3 gaming in Q4’23 witnessed lively fundraising with a total of $208M, just slightly 3% lower than the Q3 figure of over $216M (note: the funding amount might be higher due to undisclosed investments - Cryptorank). Impressively among those, MapleStory, a 20-year-old Korean MMO game, recently secured a remarkable $100M in funding, setting the stage for exciting developments with nostalgic elements in their Web3 gaming initiative.

Besides, numerous noteworthy fundraising efforts are shaping the gaming landscape in 2024. For instance, Mocaverse raised an additional funding of $11.9M (totalling $31.88 million in funding) to build a vision of becoming the empowerment layer for Web3 culture and entertainment with Moca ID and the Mocas NFT.

Shrapnel, an FPS Web3 game, secured a staggering $20M in series A led by Polychain Capital. This capital injection will help cement its position in the industry, supporting key initiatives such as the development of the Shrapnel marketplace and the bootstrapping of the $SHRAP token. Notably, Shrapnel earned top honours at the GAM3 Awards 2023 for Best Graphics and Most Anticipated Game.

Source: Cryptorank

When it comes to the number of funding rounds, Animoca Brands continued to display its expertise and commitment to Web3 gaming, leading the Q4 funding rounds with 7, followed by Polygon Ventures with 3.

Regarding the number of projects by the jurisdiction of funds, the US demonstrates its dominance in Web3 gaming investments, contributing to 42 projects in the last three months of the year. Following closely are the prominent Asian Web3 contenders Hong Kong and Singapore, with 12 and 8 projects, respectively (Cryptorank).

Notable Mints

December was packed with a series of minting activities from Web3 gaming projects. Some notable names include:

• Overworld - a cross-platform RPG, highlights social interaction and collective storytelling. Featuring utility-driven collectibles and immersive multiplayer gameplay, it encourages players to explore and influence a vibrant fantasy world. Collection: Overworld Incarna (mint price: 0.15e → current: 2.25e, 1400% upside).
• Champions Tactics - innovative PVP Tactical RPG currently in the development phase for PC at Ubisoft. Collection: Warlord (mint price: free → current: 0.18e)
• Animalia - an independent F2P online NFT trading card game featuring crypto-inspired meme creatures. Collection: Animalia Tundra Titans (mint price: free → current: 0.14e)
• Poglin - the first IP of Gacha Monsters. The IP is set to be distributed across various formats, including video games, anime, comics, physical merchandise, and web3 with many offerings to come. Collection: Poglin: Nycra (mint price: 0.05e → current: 0.2e, 300% upside)
• Farcana - a web3 metaverse, combines battle royale, NFTs, and P2E, offering a dystopian Mars setting with real-world implications for strategy, skill, and stakes. Collection: Mars Enigma Vault (mint price: free → current: 1.66e).

Note: All data as of December 26th, 2023

The Re-emergence of On-Chain Gaming

The concept of fully on-chain games (FOCGs) took its roots with Dark Forest in 2020 but only recently, especially in Q4, has it become the talk of the town, drawing significant interest. The buzz around this niche gained momentum with Proof of Play studio securing a substantial $33M investment for its on-chain game - Pirate Nation.

This surge in attention attracted numerous players eager to establish their presence in the domain. Key players like DoJo by Cartridge, Curio, Paima Studios, and Lattice are actively working on building robust infrastructures for FOCGs, aiming to have an edge in the field. Among those, Lattice is leveraging OP Stack to build their chain Redstone, a supper cost-effective L2 catering to on-chain games and autonomous worlds.

Source: @AW_Research

Although FOCGs are still a nascent domain, it is expected that this segment will mature over the coming years. This maturation is expected to inject new excitement and developments into the broader Web3 gaming landscape, including concepts like permissionless composable modding and true ownership.

Overall Market Sentiment

As we head towards the year-end, the revival in the market has everyone in the Web3 gaming community buzzing with excitement, proudly declaring, "We are back!" Yet, it's important to recognize that the current market sentiment is driven by speculation and the pursuit of exit liquidity. People are diving into projects and tokens with hopes of selling at a profit and anticipating scoring valuable airdrops. While there's talk about mainstream adoption, it's often more of a playground for big-money players/degens than regular gamers. The speculation about mainstream adoption > actual mainstream adoption.

Although the growing interest in Web3 gaming is positive, it needs to translate into sustained engagement and real investments from players. Beyond the hype and token speculation, what players truly desire are actual quality games, and ideally, ones that let them earn while playing.

To foster a connection between traditional gamers and the Web3 space, major players from the Web2 gaming industry are making interesting moves. Zynga, for instance, is in the works with Sugartown, a Web3 gaming platform coupled with a transmedia IP. Konami has unveiled Project Zircon, a new Web3 game, and Square Enix is actively engaged in the development of Symbiogenesis.

Beyond individual efforts, collaborations between Web2 and Web3 entities are becoming more prevalent, signalling a push for mass adoption. Notably, the developer of Axie Infinity is introducing a Japanese web2 game, Zoilds Wild Arena, to Ronin. In a similar vein, Immutable has joined forces with Ubisoft's Strategic Innovation Lab to craft a gaming platform, emphasizing the industry's collective efforts toward broader acceptance. This collaborative movement is set to gain prominence in 2024 and onward.

Closing Thoughts

The last quarter of 2023 is, generally, a good time for us to bid farewell to the remnants of the crypto winter and welcome the pivotal moment in the future. The air is charged with excitement, and the industry's resilience is now irrefutable. Q4 witnessed a wave of numerous projects that had quietly taken shape, stepping into the limelight. Amidst the buzz of FOCGs and new game launches featuring enticing token airdrops, the call for sustainable game development echoes louder than ever. The quest for games where players can earn while playing becomes the focal point for 2024 and onward, steering us away from the pump-and-dump loop.

At Ancient8, our belief in Web3 gaming is unshaken. We consistently push forward and shift our strategy to stay competitive in the industry. This year, we underwent a significant transformation to become a gaming-focused Ethereum layer 2 powered by OP Stack with a vision to onboard the next 100 million Web3 citizens and seize upcoming opportunities. The stake is high but our enthusiasm has never been greater as we continue to develop our product suites and deliver excellence to the market. Please accompany us in our next chapters ahead!

Cheers to a great year for Web3 gaming in 2024!