Blockchain gaming survey: 7 investors discuss regulation, opportunities and NFT hype

The video-game industry has always been on the bleeding edge, but blockchain gaming is still widely viewed as emerging technology.

In October 2021, Valve banned all blockchain-related games from its Steam platform. Meanwhile, within Axie Infinity, an NFT-based online game, new players are paying hundreds of dollars to acquire mythical pets and love potions.

There’s still a haze of uncertainty surrounding blockchain games, so we reached out to several active investors in the space to get a clearer picture of where opportunities exist today and what they see on the horizon. We asked them to share the advice they’re giving their portfolio companies, along with their thoughts on how future regulation might impact the industry.

Interestingly, at least one investor noted that growth wasn’t a key consideration: “We tell our companies to really think about the missing pieces, particularly in gaming infrastructure,” said Banafsheh Fathieh, head of investments, Americas at Prosus Ventures. “What are the pain points we can alleviate for users and builders? Growth is less of a focus now, utility is incredibly important at this stage.”

We surveyed:


Anton Backman, principal, and Kenrick Drijkoningen, general partner, Play Ventures

What was your initial reaction on hearing about Steam’s ban on blockchain games?

It was not an entirely unexpected move from Steam. Incumbents tend to be more wary of adapting new business models and gaming is no different. As a fledgling space, NFTs are beridden with projects of varying quality and we believe Steam wants to do some quality assurance and wait until the situation stabilizes before allowing blockchain games en masse. Interestingly enough, at the time of writing (Nov 14) MIR4, a crypto-enabled MMORPG on Steam, is running at 88,000 concurrent users. Seems that there’s still a gray area in terms of how these games are classified.

What advice have you been giving your portfolio companies to grow? What sort of guidance and assistance do blockchain gaming companies seek from you?

We typically act as a sparring partner for founders in strategy-related matters. With blockchain gaming companies we have mostly assisted the teams in navigating the technology stack, i.e., what blockchains and/or scaling solutions to consider, as well as token economic design. In our view it’s key to embrace a crypto native approach of building and experimenting with the product while also involving your community in the process.

How do you view the regulatory environment for blockchain gaming? Is the uncertainty making you reconsider your strategy?

No. It’s not the first time innovation has outpaced regulation and we see it as a natural reaction to new consumer behavior and ways of building companies. Similarly, Uber fought an uphill battle with regulators before eventually democratizing the taxi medallion system and providing an outsized improvement for end users of taxi services. This doesn’t mean that companies and projects should build products that are against the law but rather engage in healthy discussion with regulators as the adoption of their products increases.

Can you describe any regulatory frameworks that would give you more confidence as an investor?

We see industry self-regulation and regulatory sandboxes as a promising way to allow startups to experiment in a nascent space without having to worry about repercussions from regulators. We are also seeing this self-regulation movement happen on the DAO level, as new projects benchmark their network rules against existing successful projects in order to be attractive to network participants.

Where are you seeing opportunities in blockchain gaming? What types of games lead engagement? Which platforms are they found on? Which demographics consume blockchain games the most? Who are some of the biggest successes in blockchain games?

For the foreseeable future we see opportunities in game genres where gameplay has traditionally been focused on deep progression, such as RPGs and 4X strategy games. The game economies of these genres lend themselves to potentially efficient two-sided marketplaces where players are able to harvest and craft materials that are usable by other players for progression in the game. Furthermore, we predict mid/hardcore games overall to prevail in the near future, given that their dedicated player bases are more likely to go through all the hoops currently required for playing crypto-enabled games, whereas casual gamers are less likely to do so. Needless to say, we see an opportunity in utilizing the best practices of F2P onboarding in order to appeal to an even larger mainstream audience outside of the initial play-and-earn player base.

No clear winners yet in terms of platforms as the entire layer 1 ecosystem is also still in flux, but success cases like Axie Infinity show that studios might opt to build their own solutions to scale.

Setting the hype aside, are you bullish or bearish about NFTs? You can’t scale a product if people are afraid to use it. How do you feel the space is developing and what sort of growth can we expect from NFTs in the next five years?

We’re definitely bullish on the long-term outlook of NFTs. In recent months we have mostly seen NFT projects focused on profile pictures (PFPs) and digital art but are now seeing more and more teams building games. We feel that games are probably best positioned to provide utility to NFT holders as they are directly usable in game environments. Furthermore, we believe that we are only touching the surface of potential use cases for NFTs and predict that the technology will be used for a variety of digital properties such as event tickets, domain names and access to other content platforms. In the coming 1-2 years we also predict more use cases for NFTs across the decentralized finance landscape, e.g., fractionalized ownership of NFTs as well as their use as collateral for on-chain loans.

What are the prevailing revenue models that blockchain games employ? Which revenue models do you think perform the best in the sector?

Currently teams have opted for primary sales of in-game assets as transaction fees on the secondary sales of said assets. Some teams have also included more traditional F2P monetization such as battle passes to further boost monetization but we believe that transaction fees will be the leading model for the foreseeable future.

Banafsheh Fathieh, head of investments, Americas, Prosus Ventures

What advice have you been giving your portfolio companies to grow? What sort of guidance and assistance do blockchain gaming companies seek from you?

It’s still early days for blockchains and blockchain gaming. While we have some thoughts on where things might go and what the focus areas could be, we are all largely experimenting and exploring together. Our advice to our portfolio companies during this time of intense innovation and exploration is to build something useful. We tell our companies to really think about the missing pieces, particularly in gaming infrastructure — what are the pain points we can alleviate for users and builders? Growth is less of a focus now, utility is incredibly important at this stage.

Blockchain gaming is quickly evolving and on the cutting edge. It’s one grand collaboration among people who want to see it happen. We know what the end goal is — handing power and wealth back to gaming communities — and we’re collectively figuring out how to get there. We, as Prosus Ventures, can be a good thought partner to our portfolio companies in that sense but we’ve found we are most helpful in making introductions to other investors, traditional gaming publishers and ecosystem partners. Additionally, given we have gone through the process a few times, we can provide guidance on how our companies should think about in-game economies and tokenization.

Where are you seeing opportunities in blockchain gaming? Who are some of the biggest successes in blockchain games?

The biggest opportunity in blockchain gaming is play to earn. A whole new genre of games will emerge optimized for play to earn dynamics. Play to earn isn’t a new concept — in fact it has been around in gaming for a long time — but blockchains introduce liquidity around these markets that really enhance the user experience. Companies like Axie Infinity have really innovated here, but in our view, there is much more to come.

Immutable is one of the biggest successes in blockchain gaming and we were one of the earliest investors (dating back to their Series A in 2019). The Immutable team was very early to the NFT trend — it was obvious to them, and subsequently to us, that NFTs would enable digital ownership much like property ownership in the physical world and a whole new set of digital economies would emerge because of this breakthrough. They began building Immutable X, a scalable NFT marketplace solution, to enable anyone to mint, trade and sell digital items. It launched in April 2021 after two years of nonstop development. While it’s still early, we believe it is a very critical and necessary piece of blockchain infrastructure.

Setting the hype aside, are you bullish or bearish about NFTs? You can’t scale a product if people are afraid to use it. How do you feel the space is developing and what sort of growth can we expect from NFTs in the next five years?

We are bullish on NFTs and have been for years. Our thesis on this is simple. There is no ownership on the web and as our world moves more online, the need for ownership and digitally native primitives is an obvious necessity.

Having said this, we’re in the beta version of NFTs; we’re still in the early stages of understanding what’s even possible with these new primitives. In this phase, I suspect a few NFT projects will endure. Some iconic NFT projects will come out of this early-stage, “Wave 1” batch, but the vast majority won’t succeed. It’s similar to what we saw from the ICO craze of 2017. The majority of ICOs didn’t survive or lead to meaningful innovation, but a handful did and those became the building blocks of what is now Ethereum and DeFi and so much more. Similarly, once the NFT hysteria dies down, a small minority of iconic, successful NFT projects will pave the way for the industry in the next few years.

Blockchain gaming will likely be the first breakout, mass-adoption use case for web3. Compared to things like DeFi, that are fraught with regulatory intricacies, blockchain gaming is a low-friction use case. Additionally, the audience of blockchain gaming — the gamers themselves — are digitally native and are familiar with things like in-game tokens and in-game currencies already, even without blockchains. They have been habituated through existing games and intuitively understand how to interact with these primitives. As a result, we believe the pace of crypto adoption in gaming will be higher. This makes us believe that blockchain gaming isn’t a wait and see in five years, but a space that will likely mature more immediately.

Josh Chapman, managing partner, Konvoy Ventures

What was your initial reaction on hearing about Steam’s ban on blockchain games?

While we weren’t necessarily shocked by Steam’s apprehension around blockchain games, we were a bit surprised they took such a firm stance this early. However, given Steam’s vulnerability to regulatory risk and liability as a game distribution platform, their strong reaction was understandable at the time. Either way, we viewed it as a minor PR setback that wouldn’t really have much long-term impact to Steam or the evolution of the blockchain gaming ecosystem. Much like how indie blockchain game studios have tried to establish a lead against AAA publishers (now with the exception of Ubisoft), there will likely be web3 native platforms that try to fill in the gaps left by existing launchers.

What advice have you been giving your portfolio companies to grow? What sort of guidance and assistance do blockchain gaming companies seek from you?

Many of the blockchain gaming teams seek specific help around hiring (gaming specific), marketing (informing the gaming community at large) and specific input around the gaming aspects of their vision (strategy, monetization, product roadmap, etc). This can vary widely depending on the founding team, as some have more gaming and/or blockchain experience than others. In such a crowded market, it can also be difficult to distinguish a game title from the rest of the field and get meaningful attention from the prospective audience. As active investors in this space, we are able to leverage our experience across the competitive landscape to help support our portfolio as they make strategic decisions.

How do you view the regulatory environment for blockchain gaming? Is the uncertainty making you reconsider your strategy?

The future of crypto regulation is incredibly difficult to predict but also impossible to ignore from an investment perspective. When we are making investments in this space, we are critically aware of the implications that aggressive legislation can have on the market. What we have learned is that legislators do not fully understand web3 (much less the gaming aspect specifically), and this will likely continue creating narratives that are out of touch and have very little immediate impact. As we know from historical precedent, legislative change takes a significant amount of time to enact. However, as things progress, the debate over whether or not cryptocurrencies are securities will likely intensify. That being said, even if there are tax implications and trading regulations, the underlying functionality (i.e., true ownership and transferability) of what we’re seeing in blockchain gaming will be unchanged.

Can you describe any regulatory frameworks that would give you more confidence as an investor?

It’s not necessarily a framework, but one thing that regulation may provide is a sense of stability. Right now there is a lot of skepticism and uncertainty that hovers around the entire crypto market. With more regulatory clarity, it takes out some of the unnecessary volatility and centers the investor focus on what matters: the validity and value add of the underlying companies. This would allow assets to be able to settle even closer to their intrinsic value.

Where are you seeing opportunities in blockchain gaming? What types of games lead engagement? Which platforms are they found on? Which demographics consume blockchain games the most? Who are some of the biggest successes in blockchain games?

While games in this segment were initially designed to fit blockchain into their economies and mechanics, the most promising games are now leveraging blockchain technology to create entirely new game experiences. This is at least part of the reason we’re seeing such a rapid rise of RPG titles in this segment — they are a natural fit for the inclusion of blockchain tech as they allow for an approach to land ownership, usable items, cosmetic items and trading that has not been seen before. As blockchain enabled games continue to become more engaging, they will increasingly attract traditional gamers. This network of 3 billion+ players is far more compelling than the much smaller cohort of crypto-native gamers that have historically made up player bases. Although blockchain games have primarily been web based, we will likely see them continue to become increasingly cross-platform (console, mobile, VR, etc.) as they become more ingrained as part of the gaming experience. In terms of successes, Axie Infinity still stands out as the leader in this space. Not only did they create a cultural phenomenon through enabling people to truly earn from playing, but the game continues to support a massive player base despite the numerous competitors that have entered the space. There are a ton of other great games in development now, but despite the wild valuations we’re seeing in the market, we won’t be able to fully evaluate the next wave of leading titles until they’re formally available to the public.

Setting the hype aside, are you bullish or bearish about NFTs? You can’t scale a product if people are afraid to use it. How do you feel the space is developing and what sort of growth can we expect from NFTs in the next five years?

We’re bullish on NFTs that have a viable use case, and we think gaming will continue to lead the charge in terms of adoption. While we’re still early in the consumer education cycle, the biggest hurdle is getting people to interact with blockchain tech for the first time. Gaming will be a great on-ramp, and we think the underlying technology that enables NFTs will continue to grow in importance.

What are the prevailing revenue models that blockchain games employ? Which revenue models do you think perform the best in the sector?

In the long term, we think transaction fees on digital asset sales will continue to be the most sustainable blockchain-enabled gaming model. True play-to-earn economies require significant rebalancing over time, whereas marketplaces are much more flexible and understandable for the whole community. The important functionality that NFTs enable for game publishers is the ability to take a portion of secondary sales into perpetuity.

Eddie Thai, general partner, 500 Startups and general partner, Ascend Vietnam Ventures

What was your initial reaction on hearing about Steam’s ban on blockchain games?

Here’s my actual initial reaction (internal Slack message on the news): “Awesome. Sky Mavis has talked about building a Steam for NFT games. This makes their effort one step closer to reality.”

Sky Mavis is the team behind Axie Infinity, the NFT gaming sensation started in Vietnam and that recently announced a close of a $150 million Series B led by Andreesen Horowitz. The Axie Infinity title has done phenomenally well, going from $100,000 of revenue in January 2021 to $200 million monthly revenue in the past few months. But this title was just the start. The team has been hard at work building all kinds of infrastructure around NFT gaming. Their mission in their words: “We build both the virtual worlds of the future and the infrastructure that makes them possible.” I’ve been fortunate enough to be a part of that since their seed round in 2019.

What advice have you been giving your portfolio companies to grow? What sort of guidance and assistance do blockchain gaming companies seek from you?

Initial caveat that startups largely succeed or fail on their own merits more than the value-add of investors, advisers, etc.  And often, founders — particularly in blockchain gaming — are more on top of the trends, dynamics, etc. than investors.  This was certainly the case when we first spoke with Sky Mavis (the team behind Axie Infinity) in 2018, and I imagine still the case now.

So what we have done is focused our efforts around helping build the foundations of any startup’s long-term success, especially:

  • building a great people engine (how to attract, develop and retain world-class talent).
  • building an authentic growth engine (predictable, repeatable, scalable growth).
  • building a robust capital engine (how to bring on the right capital partners at the right time).

For blockchain projects in particular, we want to make sure that people take the long view rather than be too focused on or distracted by near-term matters or considerations. As difficult as it may be, think decades, not days.

As an example, Sky Mavis joined our Silicon Valley-inspired, Saigon-based accelerator program, Saola ([named after] the rare deer found almost exclusively in Vietnam that has been called the “Asian unicorn”). Reflecting on his journey, co-founder and CEO Trung Nguyen recently shared (translated and edited for brevity and clarity):

Doing business you have to think about development, but Saola forced us to understand ourselves, understand the market and understand the problem that we’re solving. Now, whatever I do I think more carefully about whether this is leading me to the right destination.

Which demographics consume blockchain games the most?

That’s one of the exciting things about blockchain games, and one of our theses for investing in Sky Mavis in the first place: that blockchain games could drive adoption of well past crypto natives. That has proven true: We’ve seen reports of players from teens to their 70s, from Indonesia to the U.S. to Venezuela; that 25% of players in the Philippines don’t have a bank account, and that there are more people with Ronin wallets than there are with credit cards. This is all happening despite the notoriously difficult onboarding. (It took me nearly one hour and $700 to get going). Imagine what will happen when the Axie Infinity mobile apps are launched.

In the near term, I suspect play-to-earn will probably find more take-up among folks in emerging markets (where the opportunity cost is lower and therefore the economic incentives can be life-changing).

But almost everybody’s already a gamer, and a shift from “play-to-earn” to “play-and-earn” will attract more and more gamers around the world.

Ultimately NFT gaming is not a winner-take-all space; the world is too big and diverse. There are multiple segments and each segment should have multiple choices.

Setting the hype aside, are you bullish or bearish about NFTs?

I think we’re at the peak of the hype cycle right now and I’m expecting a deep trough of disillusionment sometime, particularly around certain collectibles of artificial value let alone hastily founded projects or outright rugpulls.

But I do believe that if the NFT space survives the trough it will be a meaningful part of our future.

There are certain use cases that seem obviously utilitarian even if not giant commercial opportunities (such as software licensing). And certain use cases around sentimentality should sustain. (20+ years later I still keep my sports cards and postage stamps in my closet).

The most persistent and highest-potential use cases will be the ones that nail the intersection of sentimentality and utility. This is most apparent at the moment is NFT gaming. Especially where NFT games become not just “play-to-earn” but “play-and-earn,” they’ll stick. I believe it not just because of what I’m seeing from the Sky Mavis team, but from my own personal pain. I’m a long-time player of a particular mobile game, and while I appreciate the developer for making it, I hate that for all the time and money I’ve spent on it I don’t truly own my in-game assets. (My wife would probably love it if I had the ability to sell them too!)

I have also heard rumblings of using NFT-gaming-style constructs for “work-and-earn,” “study-and-earn,” etc. Sky Mavis folks go as far as saying that “there are mostly artificial distinctions between work and play.”

And there is the (theoretically) crucial role of NFTs in the metaverse or the metaverse for NFTs, permutations of which we’re only beginning to work through. I’m still developing my thesis around this.

And finally there is infrastructure to be built around NFTs. Search. Validation. Finance (NFTs as collateral; derivatives to hedge or speculate on NFT price movements). Etc.

Long story short: There’s a lot to be done still.

Beryl Li, co-founder, Yield Guild Games

What was your initial reaction on hearing about Steam’s ban on blockchain games?

Those that are in Web 2.0 have a very difficult time migrating to web3. This is because Web 2.0 has already accumulated a number of users. Steam’s business model has been working for all these Web 2.0 publishers and developers, so they see it as a very big risk to migrate to web3 and risk losing their current clients.

What advice have you been giving your portfolio companies to grow? What sort of guidance and assistance do blockchain gaming companies seek from you?

YGG does not have portfolio companies per se. YGG is a guild built for gamers, so when YGG purchases assets in any game, it’s because the gamers think that game is going to be great. So, we try to provide those games the advice that best matches our community.

For these blockchain games to be really successful, they must be able to attract a wide community to play the game. That’s why YGG has been focused on building its own player base, so that we, as a guild, can help to communicate to the game developers what users want and expect from these virtual economies. For example, the YGG community can beta test an early-stage game, allowing the developers to gain firsthand feedback from the players themselves and quickly iterate to improve their game mechanics, ahead of an official launch.

How do you view the regulatory environment for blockchain gaming? Is the uncertainty making you reconsider your strategy?

It’s just a fact that uncertainty and this space go hand in hand, and YGG is prepared for sudden changes. We would love greater clarity in this space so we can be maximally compliant, and we look forward to those developments. YGG has a great legal team to execute the safest and most compliant strategy for its growth and development with the regulatory environment as it currently is. But, like all good projects in a new space, we have to be nimble to adapt our strategy if the regulatory environment changes. Ultimately, YGG is a community of gamers for playing games, and we believe that this sort of project will find a home in the regulations to come.

Can you describe any regulatory frameworks that would give you more confidence as an investor?

YGG considers itself primarily a participant in the play-to-earn space. However, as a general matter, we would like to see more of a consistent approach to the blockchain space coming from regulators as well as a deeper understanding of the already huge divergence in the space. NFTs are not Bitcoin, which isn’t play-to-earn, which isn’t DeFi.

Where are you seeing opportunities in blockchain gaming? What types of games lead engagement? Which platforms are they found on? Which demographics consume blockchain games the most? Who are some of the biggest successes in blockchain games?

The main reason why blockchain has been successfully applied to gaming is because of the idea of digital ownership, which was never possible with traditional centralized games. A good example is Axie Infinity, which was the first to prove that the play-to-earn model really works. Axie is now approaching three million daily active users and it’s not even downloadable via any centralized platforms such as the AppStore or Google Play, demonstrating the power of player communities and gaming guilds such as YGG, to share and distribute these games among themselves. And it’s been adopted by mostly emerging markets, like the Philippines, where income levels are lower than the potential rewards to be earned in play-to-earn games.

Additionally, I’d say there are three aspects that drive engagement in play-to-earn games:

  1. Gameplay. It’s crucial that people actually want to play the game. Not just make money from it. They have to enjoy the game and really want to play it.
  2. Community. There must be a strong, engaged community surrounding the game, that contributes time and effort to building the game’s economy and culture.
  3. Tokenomics. Because if the tokenomics are bad, no matter how good the gameplay, users will move to other games where the potential earnings are higher.

Setting the hype aside, are you bullish or bearish about NFTs? You can’t scale a product if people are afraid to use it. How do you feel the space is developing and what sort of growth can we expect from NFTs in the next five years?

Long term, I’m bullish. Particularly because it’s the younger generations that really understand the power of NFTs to deliver true ownership of digital assets. The Roblox users, for example, are now very curious about NFTs, and so they should be, as the platforms they are using today do not afford them any digital rights. It’s that demographic that will represent the next massive wave of users onboarding to the web3 solutions that we’re building today.

What are the prevailing revenue models that blockchain games employ? Which revenue models do you think perform the best in the sector?

Traditionally, revenue models in games have been extremely centralized. Whether it’s pay-to-play, or even free-to-play, these games have always been designed so that the publisher or the developer takes all the revenue and nobody else can share in that value. Conversely, blockchain games are all about establishing player-owned economies, where the players can be part owners in the games that they love, and the community gets to share in the value that they bring to the game.

Rajul Garg, founder and managing partner, Leo Capital

What was your initial reaction on hearing about Steam’s ban on blockchain games?

We understand it philosophically. They have stayed away from real money gaming and NFTs and blockchain games make it real. I think the casual genre will have to make this choice if they want to stay casual.

What advice have you been giving your portfolio companies to grow? What sort of guidance and assistance do blockchain gaming companies seek from you?

We have been advising our portfolio companies, especially in the consumer space to evaluate web3 more deeply. The de-centralized ownership aspect makes it very attractive for community-type products. For example, we have Sheroes in our portfolio, which has always been a community content app for women, and it makes sense for them to evaluate how they can generate even more value for the community. Similarly BombayPlay, in the casual gaming genre, is looking to how to make the game play even more interesting. But it’s still early days.

How do you view the regulatory environment for blockchain gaming? Is the uncertainty making you reconsider your strategy?

The regulatory environment is complex and evolving. The complexity also comes from multiple jurisdictions that our products reach out to. We have to be cognizant of the regulatory risks while making investments.

Can you describe any regulatory frameworks that would give you more confidence as an investor?

I feel any clarity is great, even is its commercially taxing. The government seems to be making a policy framework in taxing crypto trades, i.e., dissuade trading but acknowledging it as a store of value. We believe the policy will keep evolving, but clarity and directional consistency is more important that the policy itself.

Where are you seeing opportunities in blockchain gaming? What types of games lead engagement? Which platforms are they found on? Which demographics consume blockchain games the most? Who are some of the biggest successes in blockchain games?

Gaming offers a fertile ground for blockchain. It’s ahead of the rest of the internet in adoption. One use case that is interesting is play to earn, Our portfolio company Totality is launching play-to-earn NFTs for their metaverse. This is conceptually very interesting. NFTs (by virtualizing assets and legitimizing uniqueness), digital collectibles and in-game marketplaces are other use cases that companies are experimenting with.

Setting the hype aside, are you bullish or bearish about NFTs? You can’t scale a product if people are afraid to use it. How do you feel the space is developing and what sort of growth can we expect from NFTs in the next five years? 

Firstly, we are definitely in a hype cycle. From stock markets to crypto, the appreciation in assets brings forth more and more people to invest in wider and wider class of assets. I am personally long on web3 — crypto, blockchain and NFTs. However, the market will grow in fits and starts. Regulation will keep catching up, but the use cases are real and compelling. In five years, I see NFTs still being there, individual prices to flatten, but the market to have grown significantly.

What are the prevailing revenue models that blockchain games employ? Which revenue models do you think perform the best in the sector?

Historically, games have had three revenue models — sale price, ads and in-app purchases. With mobile and community games, they are free, hence ad and in-app purchases have been the main revenue generator. With blockchain games, there is an element of trading commission on trades — and that becomes an attractive revenue generator. As you generate more value for the community, you can take a piece of it.

If there’s anything else you would like to add about the space outside the scope of these questions, please feel free. 

I always get excited by use cases. When you marry a compelling use case, which includes user value, excitement and retention or enhance the product value itself, while fitting blockchain naturally, that is where the most compelling companies are.