Decentralization on a Spectrum: How Fully On-chain Games Are the Future of Web3 Gaming

These days, Web3 games are looking more and more like Web2 games. The graphics are way cooler than we knew back in 2021; the gameplay loops aren’t just about grinding; and, as every founder has reiterated ad nauseam, the games are more fun. Onboarding processes have also been streamlined; dumbing them down to the point that most games don’t even require players to connect a wallet, let alone buy or borrow an NFT to get started, and an increasing number of Web3 games are accessible via Web2 distribution platforms such as Google Play, AppStore and the Epic Games Store. Many are making the blockchain stuff opt-in, so players needn’t worry if they just want to play and have fun without all the responsibility that goes along with being a digital asset owner. Even the words — Web3, NFTs, crypto and blockchain — have been deleted from their websites, their pitch decks and press releases.

Leah Callon-Butler, a CoinDesk columnist, is the director of Emfarsis, a consulting firm focused on the role of technology in advancing economic development in Asia.

This has been widely applauded as a step in the right direction toward mainstream adoption, particularly for Web3 investors eyeing a slice of the $334 billion market for traditional video games. Especially, amid the bear market, when the number of active wallets only continues to shrink, if founders of Web3 games want to grow their player base they must tailor their products to appeal to people outside the blockchain bubble. That’s why we’ve seen a large part of the Web3 gaming industry stop promoting the benefits of blockchain and NFTs to adopt a new mantra instead: just make a great game. But in doing so, Web3 games are merely positioning themselves to compete amongst the much bigger, much more competitive Web2 market — while neglecting what makes Web3 games special in the first place.

Fully on-chain vs partly

One obscure corner of the gaming ecosystem that has shown the courage to put the Web3 back in Web3 games is: fully on-chain games. As the name suggests, these games use the blockchain as an alternative to a centralized game server and put every aspect of the game on-chain, including assets, logic, state and storage. When the game logic is on-chain — that is, the set of rules and instructions that control how a video game behaves and responds to player actions — this opens up endless possibilities for permissionless interoperability and composability. Once they are deployed, they are community-owned, censorship resistant, autonomous of their original creator, and anyone can build on top of them (which is also why they are also often called Autonomous Worlds).

By making games trustless, open-source and composable, with the game’s state always immutable and transparent on the blockchain, we are not simply augmenting traditional video games with select Web3 features but completely reimagining how they are built. This means we can invent new game loops and mechanics to come up with entirely new gaming experiences.

The reality, however, is that the idea of putting an entire game on a blockchain is probably enough to trigger an aneurysm for a traditional game developer. Blockchains are notoriously bad at speed, scalability and storage — all the things that make for a smooth, seamless video game experience. As such, in their current form, fully on-chain games really only work as turn-based games that require fewer player actions, like grand strategy, simulation, and board games, or games that are centered around one simple game loop; think Flappy Bird or Pac-Man.

Additionally, with a fee associated with each blockchain transaction, the cost to play a fully on-chain game stacks up since every player action is a transaction in itself. Add to this the dreadful user experience (UX) you’d expect of most crypto-native applications, and an onboarding process that feels a bit like pulling teeth, and it’s no surprise that very few people are actually playing these games.

With blockchain posing so many challenges for designers, developers and players alike, it’s understandable why so many Web3 projects are implementing only select parts of their game on-chain. Usually, anything that’s freely tradeable on Web3 exchanges and marketplaces, like utility and governance tokens as well as NFT game assets, goes on-chain. The rest stays off-chain, which makes games much easier to design and build, at least, in the traditional sense.

I understand the temptation to go this route, but it’s reflective of once-bullish Web3 founders losing faith in the strong form of blockchain technology. The problem is: these weakly on-chain games are surrendering to the convenience of web2 centralization at the expense of embracing the uniqueness that blockchain can bring. Alternatively, by making full decentralization non-negotiable, fully on-chain games are more likely to help us answer the question: what makes a great Web3 game?

Currently, there are a few key benefits we can point to when talking about the value that Web3 brings to games, including digital asset ownership, open and permissionless marketplaces, interoperability, transparency, provable scarcity, and community building. But earlier this year, Philip La, a former product manager for Axie Infinity and Pokémon Go, delivered his assessment of these and other purported benefits, grading their performance on an A to F scale. With results ranging from D at worst to B+ at best, it was a thoroughly mediocre report card. Even real-money gameplay only got a B, which is bound to raise eyebrows since much of the original value proposition for Web3 games was for players to make money off of them.

Rather than getting so hung up on blockchain’s failings, we need to identify where it can score an A+

Love or hate it, we’ve never seen another blockchain gaming adoption craze like play-to-earn (P2E). In its heyday, Axie was raking in more protocol revenue than Ethereum, Bitcoin, and the next 11 top-ranking dapps combined. Its predecessor, CryptoKitties, was so popular that the Ethereum blockchain buckled beneath it. Back then, astronomical gas fees were the norm. Strategic players would wake at 2 a.m. to process their transactions, staying up for hours while they waited for their confirmations. Of course, this was only after they’d jumped through all the usual hoops: setting up MetaMask, learning the difference between hot and cold wallets, getting to know the ins-and-outs of Uniswap, figuring out how to on/off ramp, and possibly getting scammed in the process. Despite the headache, people loved it.

When CryptoKitties and Axie first launched, they looked very similar to the way that fully on-chain games look now: wildly experimental, ridiculously niche, unabashedly crypto-centric, and horrendously clunky to use, with very few users, and yet, they went on to spur the development of an entirely new industry. Today, they are enshrined within blockchain adoption lore as the kooky catalysts that led millions more noobs to get into crypto. And soon, thanks to recent technical advancements, the onboarding friction associated with those early games will be nothing but an inside joke between OGs.

Even in the past year, developer tooling has vastly improved, Layer 2s are making transactions faster and cheaper, account abstraction is allowing for more flexible wallet authentication and recovery, and session keys make it so MetaMask doesn’t keep popping up every damn minute. Rather than reverting to Web2 infrastructure, these innovations improve ease of use without sacrificing blockchain’s true ethos of decentralization.

The improvements in efficiency will come – we should be confident of that. And ultimately, in the future, Web3 games will be a mix of on and off-chain elements, depending on game design. But what’s the point in doing Web3 in games at all, if it’s seen to be so mediocre in terms of what value it brings?

Rather than getting so hung up on blockchain’s failings, we need to identify where it can score an A+ before we rush to bundle it under the hood. In the short term, I applaud those game builders that are leaning into blockchain for blockchain’s sake, and the investors who are funding them — not just with money — but time and space to tinker freely without stressing about growth. This is where the new ideas will come from, our industry’s R&D sector, and all future Web3 games will benefit. Of course, traditional gamers will complain that fully on-chain games aren’t just better versions of what they already know. So what? As Henry Ford famously put it: ask a customer what they want and they would’ve said faster horses.

Massive thanks to David Z. Morris, Nico Vereecke and Nathan Smale for their help to review this article.