Sector primer: Blockchain-based gaming

Sector primer: Blockchain-based gaming

This article is part of our sector indices primers. Find out more about this series here and get the full report here.


Blockchain-based games operate on decentralised platforms. This facilitates different economic models where revenues can accrue to tokenholders and users of the platform, and it allows gamers to have control over their in-game items. The blockchain infrastructure also enables interoperable profiles that users can take from game to game.


Peer-to-peer gaming was a predecessor of blockchain-based gaming – a gaming architectural method where players connect to and rely upon one another to keep an online network going, negating the need for a dedicated server.

Gaming developed very much in parallel with the development of cryptocurrencies. Very soon after Bitcoin launched in 2009, a game called Dragon’s Tale rewarded players with Bitcoin for performing tasks.

The blockchain-based betting game SatoshiDICE was developed in 2012 by the crypto pioneer Erik Voorhees. The game became wildly popular, and it was responsible for more than half of Bitcoin’s transactions up until the end of 2013. The first play-to-earn blockchain game, Huntercoin, was also developed around this time and launched in 2014. The game involves moving around on a map, killing other players and collecting coins that are banked in the players’ wallets.

During the ICO boom, many more decentralised gambling applications were launched. This period also saw the development of the first NFT game combining collectables and strategy, Cryptobots. The most influential gaming project of this time, however, was CryptoKitties, a game where players could collect, breed and sell virtual cats. The game became a viral sensation to the point that it clogged the entire Ethereum network.

The success of CryptoKitties spawned many copycat blockchain games, and it also inspired innovation in the blockchain-based gaming space. The most successful of these, Axie Infinity, launched in 2018. The game involves the breeding of digital pets that battle with each other, with an active in-game economy where players can trade, lend and borrow in-game items.

As the bull market got underway in 2020, play-to-earn games have gained enormous popularity. The token price increases attracted more players and allowed some, in developing countries in particular, to generate enough income to live on. During this time, gaming projects saw a large influx of Venture Capital (VC) funding relative to other categories in the blockchain industry, and the ‘to-earn’ concept was expanded to other activities, such as move-to-earn or learn-to-earn.


Blockchain-based games have penetrated many game genres. The most popular ones are digital collectable games, strategy games and simulation games. There is also a vintage revival that includes arcade games and blockchain-based versions of classic games.

Another subsector is blockchain-based gambling and skill-based games, such as poker. Move-to-earn projects have also grown into a subsector as the blockchain gaming industry explores other applications of the ‘to-earn’ concept.

Projects supporting gamers, such as gaming guilds that coach players and lend in-game items in return for a share of the gamers’ earnings, and related ‘GameFi’ applications are also becoming important parts of the gaming sector. There are also projects focusing on decentralised esports.


The primary users of gaming platforms are, of course, the gamers. The GameFi applications also allow users to lend out their in-game NFTs or to trade them.

Some of the ‘to-earn’ platforms target advertisers to fund the distributions to the users. As esports projects develop, they also engage the viewing audience and sponsorships.

Opportunities & Challenges

The primary opportunity of blockchain-based gaming is to create different economic models and greater flexibility for gamers, with interoperability as a core tenet, and to allow community involvement in shaping a game’s development.

The play-to-earn model has provided tremendous fuel to the growth of blockchain games during the last bull market. Play-to-earn is a powerful concept for incentivising early adopters and perpetuating interest in a game through rewarding highly skilled players. However, it is a viable model in the long run only if it is complemented by income streams that exceed what is paid to gamers. A sufficient number of players need to be happy to spend more on in-game items and on fees for trading these items than what they earn from the games, or there need to be external revenue streams (which could include revenue from advertising, sponsorships or esports ticket sales).

Most play-to-earn games have applied the pay-to-play-to-earn model, where an initial investment in certain in-game items is required to play the game. To lower the bar for new players, gaming guilds have been lending the initial items for a share of the gamers’ earnings. As crypto prices fell, the focus has shifted towards the free-to-play-to-earn model in order to minimise barriers to entry for new users.

In the traditional gaming world, free-to-play has proven more profitable than pay-to-play through either the freemium model or external revenue sources (primarily advertising). The right economic model can help optimise the size of the revenue stream and the speed of adoption, but it is important to recognise that blockchain-based gaming projects do need revenue streams to remain viable. If the gaming projects’ tokens are not linked to any economic benefit, then ultimately, they become worthless, and handing these tokens out to gamers becomes an ineffective incentive to attract and retain users.

Although blockchain-based gaming allows the distribution of revenue streams and sharing of the project economics in ways that are more advantageous to gamers, the sector has not yet found a stable, sustainable model. Experimentation continues with models such as play-to-own, or a pay-to-play model where the best players earn at the expense of the weaker players.

Although financial incentives are important, ultimately, the most crucial aspect of any game is the quality of the gaming experience. In this regard, blockchain-based games have been lacking. The 2020 to 2021 bull market phase was beneficial in attracting very significant VC investment to the sector and catching the attention of traditional gaming studios. The quality of the games has been improving, and with recent large investments in the sector, many more truly high-quality games are likely to be launched. But blockchain games have not yet achieved the smooth integration of high-quality gameplay and blockchain-enabled features that further enhance the gaming experience.

There is also resistance from traditional gaming studios and gamers who object to an ‘investment mentality’ that could detract from the gaming experience.

The underlying infrastructure is extremely crucial for gaming, with scalability as a vital concern. Gaming projects (such as SatoshiDICE or CryptoKitties) have repeatedly caused network congestion on the underlying blockchains in the past. This need has led to the creation of tailored scaling solutions and specialised exchanges, such as the Ronin sidechain and the Katana exchange in the Axie Infinity ecosystem or the ImmutableX layer 2 solution. However, bridging to these chains has created vulnerabilities, with the Ronin bridge hack setting a record for the largest crypto hack at the time.

Governance of blockchain-based games is maturing, with decentralised autonomous organisation (DAO) structures becoming more common, in particular for gaming guilds and gaming communities. Large gaming projects such as Axie Infinity are also gradually transitioning to a DAO structure.

Blockchain-based games have not yet been specifically regulated, nor have they received much regulatory scrutiny. There is regulatory risk around these projects being subject to gambling laws, and the GameFi aspect of token transfers and trading may fall under financial regulations.

Value drivers

Improvements in the quality of the games and the gaming experience will be an important driver of sector performance. This, in turn, is influenced by the funding available for in-house game development and acquisitions. Entry by traditional gaming studios is an important signal.

As the sector grapples with various revenue and incentive models, it will be important to find a balance between attracting and retaining users with incentives and ensuring that the project and its token are backed by revenue streams. Beyond the balance of users paying versus earning from games, developments in terms of engaging advertisers, esports audiences and sponsors are also highly relevant.

As scalability is particularly important for gaming applications, protocol layer enhancements and purpose-built layer 1 or layer 2 protocols are important to track, as are the interoperability applications and their progress in resolving remaining security vulnerabilities.

Regulation has not yet clarified the status of blockchain games, and regulatory announcements or enforcement actions are important guides of what we can eventually expect from regulators.

As blockchain-based gaming overlaps with, and benefits from, metaverse and NFT trends, developments in these areas also provide signals for the sector.

This article is part of our sector indices primers. Read our previous sector primer on DeFi here.


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