ArkStream capital: Nintendo or Steam? Analyzing the Development Paths of Decentralized Gaming Platforms
Warren
Introduction
Decentralized gaming has been a frequently discussed topic in the crypto market, and recently, the success of the decentralized gaming platform Magic on Arbitrum has sparked numerous discussions. Some compare it to the “Nintendo” of the crypto world, while others refer to Gala Games as the “Web3 version of the Steam platform.”
However, these two completely different models raise the question: Which development path is suitable for decentralized gaming platforms?
Development of Traditional Gaming Platforms
Before discussing the development of decentralized gaming platforms, it’s important to understand the evolution of traditional gaming industry platforms. Here, we categorize gaming platforms into three types: studio model, development engine model, and distribution platform model.
- The studio model starts with game studios and gradually evolves into large companies with multiple game IPs. These companies often attract players by continuously releasing new games or sequels and making corresponding adjustments and improvements based on the performance of their games. There are many examples of the studio model, with Blizzard Entertainment being the most representative. Founded in 1991, Blizzard Entertainment initially started as a computer game development studio, with its first game being Warcraft. With the release of World of Warcraft, Blizzard became one of the leaders in the gaming industry. Today, Blizzard is part of the American game company Activision Blizzard and owns numerous well-known game IPs, including World of Warcraft, StarCraft, Diablo, and more.
The studio model is one of the most common patterns in the traditional gaming industry. Today, globally renowned game studios have emerged by starting with a blockbuster game and gradually gaining industry influence.
- The development engine model is a relatively new gaming platform model, with Roblox being one of the most famous examples. Roblox is a community-based virtual world game platform that allows users to design and create their own games and share and play them on the platform. It provides an ecosystem for creating and sharing games, including game development tools, virtual currency systems, and commercialization features.
User data from Roblox demonstrates that it is a highly popular gaming platform, particularly among young audiences. As of March 2021, Roblox had over 180 million active users, with an increase of nearly 40 million users in the past year. Additionally, according to Sensor Tower data, Roblox’s revenue reached $2.96 billion in 2020, an 82% increase from 2019. This indicates that game platforms based on the development engine model have significant growth potential, especially among young users.
One advantage of the Roblox platform is that it provides an open set of tools and engines, enabling developers to relatively easily create their own games and share them with other developers. This openness and interactivity inspire innovation and collaboration, encouraging more people to participate in game development. On the Roblox platform, users can write their games using the Lua programming language and design game elements such as scenes, characters, and props using visual development tools available on the platform. This open creative approach results in a diverse range of games and high levels of creativity on the Roblox platform.
However, a disadvantage of the development engine model is the difficulty in ensuring consistency and standardization of game quality. Because games on the Roblox platform are created by developers in the community, their skill levels and design styles may vary greatly. This can lead to games of varying quality on the platform, which may impact the overall reputation and user experience.
- The distribution platform model, exemplified by Steam, starts with flagship products (such as DOTA 2 and CS:GO) and gradually develops into a game distribution platform. The Steam platform provides players with convenient channels for purchasing and downloading games, and it also offers game developers a wide-ranging platform for promotion and distribution.
Today, you can find any game released on PC on Steam, making it a dominant player in this field.
As a distribution platform, Steam assists game developers in handling game release and distribution, allowing them to focus on game development without worrying about sales and distribution. Additionally, Steam provides players with a convenient way to purchase and manage games, and it enables communication and interaction with other players through the Steam community. Steam also supports online multiplayer gaming and user-generated content, enhancing player interaction and engagement. We have also seen other game development teams launching their own game distribution platforms, such as Blizzard’s Battle.net, EA’s Origin, Ubisoft’s Uplay, etc. For excellent development companies that consistently produce outstanding works, they prefer to retain the publishing rights in their own hands rather than sharing them with pure distribution platforms.
Development Path of Blockchain Gaming Platforms
Now, let’s explore the corresponding relationships between these three types and their development in decentralized gaming platforms, as well as their progress in the decentralized world.
Studio Model and Public Chain Ecosystem
Studios typically have their own game engines and development teams to create their games. This model involves many intermediate steps and requires the involvement of various teams and individuals, making it a capital-intensive approach. However, it can also lead to the creation of highly successful game IPs.
In the crypto world, this path has gradually evolved into developing a hit game first and then launching a public blockchain. Examples include Flow, the public blockchain issued by Dapper, the company behind Cryptokitties, Ronin, launched by Axie Infinity, and ImmutableX, launched by God Unchained. With the maturation of “one-click chain launch” technology, products with existing user traffic can develop their own Appchain or L2 solutions, becoming a potential development path for blockchain gaming.
In new projects, many have started to adopt a similar approach. Take Fusionist as an example. They have launched their own mainnet called Endurance, which aims to enhance user engagement, transparency, privacy, and security by storing user behavior and achievements on the blockchain. Within Fusionist’s plan, they have three games scheduled for release on this new chain: Colonize, Conquer, and Unite. They aim to build a decentralized gaming public chain ecosystem centered around Endurance.
This approach relies on the influence of a single game and requires the first product of the studio to have an explosive impact upon release. This raises a concern: if the intention is to build a public chain, the uncertainty of game success may hinder the adoption of the blockchain product in the long run. If the game fails to gain traction, the value of the public chain diminishes as well. The core of the studio model may still lie in creating an enjoyable game rather than telling a grand story.
Furthermore, transitioning from a single game to a public chain can become a “shackle” for the studio. The infrastructure of the public chain, such as nodes, cross-chain bridges, wallets, and others, poses varying degrees of security risks. Skymavis, the studio behind Axie Infinity, experienced both success and failure with Ronin. After a security breach on Ronin, users lost trust in the public chain, and other games or developers had to distance themselves from a public chain that hosted the entire Axie ecosystem. This was a significant blow to the development teams behind those projects.
Development Engine Model
Roblox has materialized the concept of the “metaverse” through a game development engine. Unlike centralized development engines like Roblox, decentralized development engines are built on blockchain technology, offering more freedom and creativity for game developers and players to engage. Fragnova (Fragcolor) and Cocos-CBX are two representative decentralized development engines that continue to advance the development of decentralized game engines.
Fragnova’s game engine provides game developers with a secure environment, allowing them to freely create, build, and share their game creations. Developers can create their games on the Fragnova Network and publish and distribute them through the platform, similar to traditional centralized game engines. However, the Fragnova Network emphasizes decentralization, providing developers with more control and flexibility. For example, developers can freely choose their game’s economic model and the blockchain on which the game operates. Additionally, by running all games on the blockchain, the Fragnova Network ensures the security and fairness of game data, as well as the authenticity and transferability of users’ digital assets.
Decentralized game development engines offer several advantages over centralized game engines. Firstly, decentralized game engines better protect game data and users’ digital assets. Secondly, decentralized game engines provide developers with more freedom and control, better catering to the diverse needs of different games. Lastly, by storing game data on the blockchain, decentralized game engines achieve a more fair and more transparent game ecosystem, attracting more users and developers to participate.
However, this does not mean that decentralized game engines are without drawbacks. On the contrary, it is the most challenging path among the three, as traditional game development engines are already highly functional. The competitors of these decentralized products are not limited to Roblox but also include well-established engines such as UE and Unity. UE, Unity, and other major engines have significant market presence, offering more comprehensive tools, technical support, and stable, mature ecosystems. Therefore, they remain the preferred choice for mainstream game developers. Decentralized platforms may have relatively smaller ecosystems and communities and may lack important resources such as tools, documentation, and plugins compared to large-scale engines. Thus, decentralized game development engines still require improvements and enhancements in terms of technology compared to centralized platforms.
Distribution Platform Model
From Steam to smaller platforms like 4399, the distribution platform model has become an entrepreneurial model for many decentralized gaming platforms. Taking TreasureDAO as an example, from the first revenue protocol of the Loot ecosystem called Magic to being the largest decentralized gaming platform on Arbitrum, TreasureDAO has demonstrated the magic of Web3 and has become a representative of the distribution platform model.
In terms of revenue models, traditional game platforms typically rely on game sales and virtual item sales. On the other hand, decentralized gaming platforms can generate revenue through token rewards, NFT transactions, platform fees, and other means. As for user protection, traditional game platforms often rely on intellectual property protection to safeguard user rights. In contrast, decentralized gaming platforms can employ technologies such as smart contracts to protect user rights.
However, while the narrative may be appealing, reality can be different. There is a significant gap of around 100 Marios between “Nintendo” and 4399. Looking at the list of 18 games launched on the TreasureDAO platform, most of them still fall into the category of “small games.” Compared to notable games like The Legend of Zelda and Animal Crossing, there is a decades-long industrial gap that cannot be easily bridged through quantity alone, let alone discussing top-tier IPs like Pokémon and Mario.
However, from another perspective, frequent and low-cost experimentation is advantageous for discovering potential hits. Due to the unclear development path of blockchain games, small game platforms can release multiple games to test player preferences and then conduct deeper development once player demands are identified. This approach is more capital-efficient compared to investing heavily in creating AAA games that may receive little attention after launch. The Beacon on TreasureDAO, for example, generated significant community feedback upon its release, which can serve as a starting point for further expanding the TreasureDAO universe.
On the other hand, Gala Games has opted for a different approach in the operation of its distribution platform. Instead of focusing primarily on asset on-chain and asset interoperability, Gala Games places greater emphasis on using tokens to incentivize the community and facilitate governance. The differentiation of Gala lies in its decentralized node network. According to official data from Gala Games, during its peak in 2021, it had over 1.3 million monthly active users and sold over 26,000 NFTs. However, following the cooling down of the GameFi market, Gala token (GALA) prices gradually declined from their peak in November 2021.
From the Gala Games' official website, it can be seen that they have currently listed 15 games, sourced from multiple game developers and covering various platforms such as PC, web, and mobile. However, only 3 of these games have actually been fully released, while the others are still in development. Furthermore, the few games that have been launched have relatively low playability.
When we compare decentralized gaming platforms to the mainstream platforms currently available in the market, we can observe significant differences in both the quantity and quality of games. However, it is fortunate that with the emergence of successful titles like Axie Infinity, the number of blockchain games has experienced exponential growth in the past two years. From the projects we have recorded at ArkStream Capital over the past year, games account for 20% of the total, totaling more than 800. Moreover, focusing on GameFi data, Footprint shows that the number of decentralized games has surpassed 2000. While most of these games still fall into the category of “small games,” the continued increase in quantity will eventually lead to a qualitative transformation. At that time, decentralized game distribution platforms, leveraging their advantages, will become the gathering place for the traffic generated by these games.
We believe that for a decentralized distribution platform, the ability to list a sufficient number of game products is a reflection of its competitive strength. Currently, decentralized distribution platforms have the greatest potential to catch up with their centralized counterparts precisely in terms of game quantity. Establishing effective incentive mechanisms, connecting upstream and downstream channels, and providing diversified peripheral services will enhance the competitiveness of these distribution platforms.
Furthermore, after accumulating traffic, blockchain projects can generate unique features such as NFT marketplaces or launchpads, which can bring significant profits to the platform and attract more players through token economics.
Development Space
Within the three types of traditional game platforms, corresponding decentralized platforms can be found that bring more innovation through Web3. Whether it’s the studio model or distribution platform, the key is to attract traffic through successful games. Therefore, the most crucial question is how to create successful games or attract popular games to be released on the platform.
We are optimistic about the development of vertical public chains in the future, especially when modular blockchain and Layer 3 architectures are sufficiently mature. Building dedicated Appchains for individual games can further enhance the performance of decentralized gaming while leveraging the network security of Layer 1 solutions like Ethereum. However, for teams dedicated to developing gaming blockchains, the priority of creating a popular game may far outweigh building an elaborate public chain. Priorities should not be misplaced.
For decentralized gaming platforms focused on development engines and distribution, the immediate task is to attract more game developers and studios. The emphasis should be on “quantity” for the time being in order to achieve success.
When comparing top game development companies with leading game blockchains, it is evident that decentralized game platforms still have dozens, if not hundreds, of times the growth potential. If the following issues can be addressed, decentralized game platforms will have the power to compete with centralized platforms:
- How to better protect user rights and interests by leveraging blockchain technology in terms of user protection.
- How to attract more players and developers to join decentralized game platforms, further enhancing the quality and quantity of games.
- How to compete with traditional game platforms in terms of creating successful games, and attracting more traffic and users.
Decentralized platforms, just like decentralized finance compared to traditional finance, are not merely a supplement but a disruption. When decentralized products provide excellent user experience and security, their advantages in production relationships will completely replace centralized platforms and return more rights to users and developers. We have the opportunity to witness the arrival of that day.
Conclusion
In the coming years, decentralized game platforms will face various challenges and opportunities. Technologically, decentralized game engines still need improvement and refinement to meet the evolving needs of developers and players. In the market, decentralized game platforms need to create more successful games to attract more users and developers. Additionally, they need to compete with traditional game platforms to gain more traffic and users. Therefore, continuous innovation and development are necessary for decentralized game platforms to achieve greater success in the competitive market.
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