What’s behind the nearly $1 billion surge in blockchain gaming investments



The
following
is
a
guest
post
from
Yaniv
Baruch,
COO
at
Playnance.


The
first
quarter
of
2024
reinvigorated
investors’
sentiment
in
the
crypto
market.
With
the
landmark
litigation
against
the
SEC
ending,
US
investors
have
finally
received
access
to
spot
Bitcoin
ETFs.
This
opened
the
doors
to
Web3
for
large
institutional
investors:
the
weekly
net
cash
inflow
to
US-based
ETFs
has
repeatedly
overperformed
the
initial
projections,
triggering
a
bull
rally
to
the
all-time
high
price
of

Bitcoin.


Despite
the
broader
market’s
optimism,
investments
in
Web3
gaming
remained
cautious,
with
$288
million
injected
in
the
first
quarter.
Nevertheless,
April
brought
the
industry
a
windfall—
a
staggering
$988
million,
the
highest
monthly
investment
since
January
2021. 

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Investment
Surge:
The
Data


The
root
causes
of
this
year’s
investment
spike
seem
to
be
similar
to
those
of
early
2021.
More
than
three
years
ago,
the

GameFi
industry
was
anticipating
a
round
of
explosive
growth,
facilitated
by
the
emergence
of
new
technologies
like
NFTs.
From
2020
to
2021,
the
total
market
capitalization
of
NFTs
skyrocketed
by
29
times,
while
at
the
same
time
the
total
value
locked
in
DeFi
protocols
reached
historic
peak
levels.


Likewise,
the
steep
increase
in
committed
investment
in
April
2024
is
driven
by

Ethereum
implementing
its
recent
new
technology
of
Account
Abstraction
and
the
rise
in
Layer
3
blockchain
solutions
in
general.
The
corporate
activity
is
abnormal:
a16z
is
raising
a
$600
million
gaming
fund,
Bitcraft
Ventures
is
following
up
with
its
third
GameFi
fund
of
$275
million,
and
Ubisoft
Studios
is
becoming
increasingly
interested
in
blockchain
collaboration
and
joint
ventures.
By
all
signs,
Web3
gaming
is
bracing
for
a
powerful
headstart.


The
uncommonly
strong
fundamental
user
engagement
metrics
bolster
this.
The
average
unique
active
wallets
for
gaming
dApps
almost
reached
3
million
daily

a
record-setting
number.
According
to
data
by

Coinbase Banner  

DappRadar,
every
third
person
logging
into
dApps
in
April
did
it
primarily
for
gaming
purposes,
suggesting
strong
interest
in
fair
gaming,
play-to-earn,
and
play-to-airdrop
business
models.
Meanwhile,
the
number
of
active
blockchain
gamers
grew
by
83%
in
2024,
reaching
90.3
million
users.


Growth
Drivers
Explained:
Account
Abstraction
and
Layer-3


Why
do
market
participants
and
venture
investors
equate
the
significance
of
Account
Abstraction
and
Layer
3
to
the
groundbreaking
impact
of
NFTs
and
DeFi?
Back
in
2021,
blockchain
gaming
tried
to
find
a
unique
way
to
distinguish
itself
from
its
Web2
predecessors.
This
search
for
value
proposition
manifested
in
NFTs,
offering
the
users
true
data
sovereignty
and
ownership
claims
for
digital
assets
and
DeFi
to
monetize
the
plethora
of
native
GameFi
tokens.


In
2024,
it’s
not
the
novelty
of
the
technology
or
lack
of
sustainable
monetary
rewards
that
hinder
the
future
development
of
Web3
gaming.
Users
have
become
accustomed
to
play-to-earn
GameFi
and
the
world
of
Web3.
Quite
ironically,
the
taste
for
new
technology
has
become
the
opposite—irritation
with
its
conspicuousness.
It
is
not
the
technology
or
in-app
economy
layer
VCs
are
betting
on.
Rather,
they
see


Account
Abstraction
and
Layer-3
solutions
as
technological
catalysts
for
superior
GameFi
UX.


On
paper,
Account
Abstraction
replaces
non-custodial
wallets
with
programmable
smart
contracts.
In
practice,
this
offers
the
dApps
developers
an
unprecedented
scale
of
flexibility.
For
instance,
by
eliminating
the
seed
phrase
reliance
and
introducing
arbitrary
verification,
AA
allows
gamers
to
create
trusted
decentralized
accounts
with
familiar
options
like
email
or
Google
accounts.

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Secondly,
it
maintains
the
integrity
of
the
in-game
experience
without
compromising
security,
removing
the
need
to
approve
every
in-game
purchase
individually
and
from
external
wallets.
Finally,
Account
Abstraction
introduces
sponsored
transactions,
removing
the
most
notorious
chokepoint
in
the
dApps
UX

gas
fees. 


Even
when
the
network
activity
is
low,
and
the
gas
fees
are
negligible,
the
cognitive
bias
against
unpredictable
and
unexpected
additional
costs
prevents
users
from
engaging
with
dApps
more.
Linking
fiat
cards
to
seamlessly
pay
for
gas
fees
or
even
using
developers’
funds
to
directly
cover
associated
commissions
directly
is
a
major
step
toward
a
better
UX
and
better
user
retention.


Similarly,
Ethereum
vertical
scaling
in
Layer-3
solutions
(also
known
as
application-specific
blockchains)
allows
for
reducing
the
transaction
execution
time
and
radically
decreasing
the
gas
fees
to
achieve
zero-gas
functionality.
Combined
with
Account
Abstraction,
Layer-3
solutions
open
the
door
for
a
completely
novel
experience
in
GameFi—truly
free-to-play,
seamless,
and
indistinguishable
from
the
Web2
gaming
process
UX-wise.


The
Chekhov’s
Gun
of
Investments:
The
Future
of
GameFi


With
the
new
technologies
readily
available
and


substantial
financial
backing
breathing
new
life
into
the
sector,
it
is
only
a
matter
of
time
before
these
fundamentals
become
the
next
major
wave
of
GameFi
products.


Blockchain
gaming
will
become
the
forefront
of
a
new
development
paradigm
that
places
user
experience
first
if
this
comes
true.
Technical
advancements
like
Layer-3
solutions
and
Account
Abstraction
are
coming
into
the
initial
technology
stack
for
most
GameFi
products,
and
Web3
is
headed
toward
a
new


stage
of
widespread
adoption.
Tomorrow’s
blockchain
will
present
itself
as
an
alternative
to
Web2
and
a
strictly
better
option.

Go to Source
Author: Yaniv Baruch


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