The Inevitability of the Format

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Hi friends,

In The Importance of Being Permanent we broke down what it means for a game to be maximally onchain, explored the important distinctions between traditional and onchain games, and took a brief look at the challenges ahead for developers building in this space.

If you’re still with me at this point, I have to assume that you’re at least somewhat intrigued by the potential of fully onchain games. Of course, it’s no use being right if you’re also too early…and the crypto community loves to remind us that “we’re still early.”

True though that may be, there are several historical trends that — when extrapolated — suggest a plausible course for broader acceptance and adoption of fully onchain games.

To be clear, I’m not suggesting that the next Call of Duty will be fully onchain. Rather, my thesis is that these games will establish a foothold among and alongside existing formats.

The magnitude of that presence remains to be seen, but the permanence of it is, in my view, inevitable. 

Let’s explore.

The Inevitability of the Format

Let’s start by stating the obvious:

The critical assumption underlying this essay is that a bet on fully onchain games is a bet on web3.

If you believe we’re progressing towards a “3.0” version of the Internet — where decentralization, autonomy, and ownership underpin our digital lives — then, by extension, you also believe that interactive entertainment will increasingly decentralize.

That might seem like a given by now (with 5,000+ words already behind us), but it’s worth reiterating. The charts aren’t exactly up-and-to-the-right in the world of web3 these days, and companies operating in and around crypto are facing an uncertain regulatory environment. Blockchains and crypto markets are in the Trough of Disillusionment.

However, it’s important not to lose sight of the bigger picture. Digital content (both gaming and otherwise) has been decentralizing for several years already and will continue to do so, regardless of public sentiment around crypto. That is because decentralization offers a better value proposition to both creators and consumers of content.

History has shown us that decentralization places greater ownership in the hands of content creators, offers better value to consumers, and allows for a larger variety of content to flourish. This has occurred under different labels over the years (“indie” content, the “Creator Economy,” self-publishing, etc.), but the throughline has always been the reduction in distance between the creators and consumers of content.

This is not a new idea. Kevin Kelly wrote his now-famous 1,000 True Fans essay in 2008, a year before the launch of Bitcoin and well before the “web3” moniker had taken hold. The central thesis — that the Internet enables creators to earn a living with relatively small audiences by removing intermediaries and reaching true fans wherever they may be — still holds today. Others have since expanded upon these ideas to incorporate new technologies and business trends, and countless startups and investors have sprung up to support creators of all types.¹

In the coming sections, we’ll dive into the key aspects of these trends that are specifically applicable to decentralized gaming. We’ll explore fully onchain gaming’s place in the evolution of the games industry, examine the ways distribution, technology, and game creation itself are changing, and highlight some of the early pioneers in the space along the way.

Notes:

1. I highly recommend Li Jin and Packy McCormick as starting points for additional reading on this subject.

What History Tells Us About Decentralization

Like music, books, and other forms of media, interactive entertainment has historically been constrained to centralized distribution channels controlled by a small group of deep-pocketed publishers and platform holders. These middlemen filled an important role: getting games into the hands of players. For this service, they have been able to capture a large share of industry value.

In the earliest days, games were only played in bars and arcades. With the advent of personal computers and home consoles, interactive entertainment began to demand shelf space in retail stores. This was eventually supplanted by early forms of digital distribution, such as Steam and Xbox Live Arcade. Today, digital distribution is firmly entrenched, with mobile app stores (Android, iOS), console hardware manufacturers (Sony, Microsoft, Nintendo), and PC games platforms (Steam, Epic Games Store) each dominating their respective channels.

With each technological shift, access to these channels has widened and gatekeepers have slowly been eliminated. Arcade cabinet manufacturers, big box retailers, and specialized games retail businesses have all largely been disintermediated, resulting in an ever-greater share of games revenues ending up in the hands of the game creators themselves.

Yet platform holders still extract meaningful (some would argue exorbitant) value from distribution of interactive entertainment. With the proliferation of digital distribution, free-to-play business models, and cross-platform development, a 30% take rate is becoming harder and harder to justify, particularly when it is content that drives so much of that value, not the platform.¹

The latest sea change in these market dynamics has been the emergence of user-generated content (UGC) platforms like Roblox and Fortnite. These platforms don’t just distribute interactive entertainment content to users — they rely on users to create engaging content for them. This user-generated content is key to keeping audiences on these platforms. Fortnite, a game first released in 2017, today draws nearly half of its engagement from user-generated experiences.

This trend is not limited solely to UGC platforms, either. Incumbent IPs are increasingly turning to modding integrations, such as those offered by mod.io or Overwolf, in an effort to introduce UGC elements to their games and incubate their own creator ecosystems. A prominent example of this is Overwolf’s recent partnership with EA to create a modding hub for The Sims, injecting new life into an aging IP while simultaneously enabling creators to monetize their contributions to The Sims community.

Now that we’ve traced the historical arc of gaming distribution to the present day, let’s return to our foundational hypothesis from the start of this essay: that gaming will increasingly decentralize as the Internet shifts to a “3.0” version.

Interactive entertainment content — be it entire games, discrete mods, or even cosmetics and avatars — has never enjoyed greater access to a wider variety of distribution channels than it does today.

Furthermore, the demand for that content (and the ability to get paid for creating it) has given rise to new types of games businesses, ranging from hobbyist solo developers to venture-backed multi-platform operators like Voldex, Infinite Canvas, and Supersocial.

In many ways, the aforementioned modding platforms and UGC virtual worlds represent interesting points of comparison for fully onchain games:

• They allow creators to capture value for their contributions (…but still impose a take rate)

• They are composable (…but not permissionless)

• There is often no need to download and install a game individually; users can jump in and out of experiences seamlessly (…but still need to run the virtual world’s application locally)

• Users may purchase the platforms’ native currency and utilize it for a variety of different transactions (…but may not use it beyond the limits of that virtual world)

These distribution platforms are indicative of a new phase in this broader trend of decentralization: one in which the supply of game content has been aggregated and commoditized, shifting focus towards the best user experience.

For passive players, the best user experience can typically be generalized as the most engaging content and/or the most dense network of social connections. In other words, which platform has the best games? And are my friends also playing those games?

However, when users can also be content creators, the best experience shifts to become the one that is easiest to use (i.e. has the most accessible creator tools), offers the best revenue split, enables content discovery, and so on.

We already see this playing out among platform incumbents, where companies now compete on the basis of creator revenue splits to attract creators to their ecosystem. If we project out into the future, we should expect the competition over creators to heat up even further.

Creators are already exercising ever-greater power in the games industry. Influencers and streamers, esports organizations, and even musicians are increasingly joining the ranks of game developers in creating interactive entertainment. These “New Creator Auteurs” will command an even greater share of content value moving forward.

Eventually, web3 broadly — and fully onchain games specifically — will offer the best value proposition to these enterprising gaming creators.

Web3 protocols offer multiple distinct advantages to creators as compared to current games distribution platforms. Aside from the benefits offered by permissionless composability discussed in the last newsletter, creators also benefit from hyper-efficient crypto payment rails. Through the use of smart contracts, royalty earnings and revenue splits can be distributed and settled near-instantaneously.²

No longer will creators need to hit some arbitrary minimum earnings threshold in order to cash out, nor will they need to concern themselves with how their payouts are calculated. The transparency of the blockchain ensures that creators always have full visibility into how game revenues are divided among stakeholders.

In a “race to the bottom” scenario where UGC platforms increasingly compete to offer the most favorable creator revenue splits, no web2 business will ever be able to match the financial efficiency of a decentralized solution. There will always be cost overhead for navigating traditional payment rails, tax laws, and regulatory requirements. In web3, these can be disaggregated across multiple specialized providers and protocols. In fact, there are already many companies working on payment onramp solutions.

However, the competition over user-generated content will play out across other vectors beyond simply creator splits and payments will not be the only element of UGC platforms to be unbundled and decentralized. Over time, new blockchain protocols will be created in an effort to offer distinct benefits to content creators previously unavailable via today’s incumbent platforms.

Already, we are seeing developer tools for fully onchain gaming improving at a rapid pace (a topic we’ll cover in greater depth in the next section). Web3-native offerings like token curated registries and decentralized governance present potential alternatives to centralized content discovery and moderation.³ Permissionless composability and transparent data allow creator-friendly services such as content analytics, sovereign gaming identity, or social graphs to be rapidly deployed and distributed by anyone.

As broader web3 adoption grows, a new cadre of protocols and web3-native companies will emerge with specialized offerings to unbundle these products and systems from monolithic platforms. This will all culminate in an increasingly creator-friendly environment, making web3 content development a more attractive proposition for game developers, modders, and other ecosystem participants.

However, this all assumes that there will be a meaningful audience of creators in the fully onchain gaming space able to utilize these innovations. In the next section, we’ll examine the current crop of fully onchain game creators and unpack the work they’re doing to overcome the format’s Cold Start Problem.

Notes:

1. For a deeper examination of the history behind 30% take rates, I recommend reading Matthew Ball’s “The Metaverse: And How it Will Revolutionize Everything.”

2. Creator royalties have been a controversial topic in web3 broadly, with many weighing in on both sides of the argument. You can find a good explainer here. In the world of web3 games, Limit Break has been a prominent voice in seeking to provide creators with greater control over royalties.

3. We will discuss decentralized governance in greater detail in a forthcoming piece.

The Autonomous Worldbuilders

In the introduction to this essay, I posited that blockchain gaming is in the Trough of Disillusionment. According to Gartner, it is during this phase of the Hype Cycle that surviving operators must “improve their products to the satisfaction of early adopters.”

In the case of fully onchain games, these “early adopters’’ have been extremely technical in nature. The seminal early works in fully onchain gaming have been spearheaded by engineers, crypto-natives, and computer scientists seeking to explore a complex new computing paradigm.

This has been (at least in part) by design. Games like 0xMonaco and Dark Forest more closely resemble AI programming games or developer games (games made by developers, for developers) than they do a typical consumer-facing experience.

Considered in context, this makes a lot of sense: these projects’ experimental nature make them a natural fit for an audience of developers and crypto-natives that already know how to write code and manipulate smart contracts. Given the potential benefits of permissionless composability that these nascent gaming ecosystems hope to tap into, it should not be surprising that their earliest adopters have featured a high ratio of active creators to passive players.

Yet even classically trained game developers would find creating a fully onchain game to be onerous. Tools native to traditional game development, such as event handling systems, networking logic, game tick, and so on have been unavailable to early builders in the fully onchain gaming space. Instead, developers have been forced to start from scratch with each new project, effectively nullifying the potential time savings afforded by permissionless composability and thereby limiting the size of the early adopter pool.

So, if creation of fully onchain gaming content is so inaccessible — even for early adopters — then why is the format inevitable?

The answer lies in understanding how networks grow. Within the larger market of blockchain gaming participants — players, investors, builders, and so on — an atomic network of creators is forming.

Part developer, part player, these crypto-native creators are the first Autonomous Worldbuilders.¹ By incubating fully onchain ecosystems, Autonomous Worldbuilders are increasing the density and velocity of the central network that will drive a powerful flywheel of content creation, player engagement, and developer lock-in.

Networks all have “easy” and “hard” sides to them, to borrow a concept from Andrew Chen.

The aforementioned Autonomous Worldbuilders — the early adopters prototyping nascent fully onchain experiences — represent the “hard side,” or supply side.

In order to begin unlocking the network effects of a composable onchain ecosystem driven by user-generated content, builders must first nurture this “hard side” of the network by solving a “hard problem” for those users. Fortunately, there are already multiple efforts underway with this in mind.

The most prominent of these initiatives is the MUD engine from the Lattice team. MUD is an open-source, free-to-use “Engine for Autonomous Worlds.” As you’ll see in the graphic below, MUD solves a number of problems for developers of onchain games, freeing their time to focus on other challenges.

In the brief period since MUD was released in late 2022, we’ve already seen it adopted by word games, RPGs, survival games, idle pet sims, RTS games, and more. In fact, MUD is explicitly genre agnostic, making fully onchain gaming more accessible to a wider range of developers while reducing friction for the hard side of the Autonomous Worldbuilder network.

While MUD is focused on Layer-1 (L1) Ethereum applications, a parallel effort is underway by the Dojo team to bring developer tools and standardizations to Starknet’s Layer-2 (L2). Similar to MUD, Dojo is an open-source toolkit for developers of autonomous worlds, aimed at simplifying the development process through use of an Entity-Component System, optimized smart contracts, a web GUI, and various other tools and improvements. Best of all, Dojo is intended to be fully compatible with the MUD network stack.

While a full discussion of L2 solutions is beyond the scope of this essay, it’s worth pausing a moment to highlight two significant points related to Dojo’s use of Starknet:²

• First, bringing development of fully onchain games to a Layer-2 like Starknet is critical to solving the scaling issues we discussed in The Importance of Being Permanent. By batching transactions together, L2s enable Autonomous Worldbuilders to design experiences that leverage greater transaction throughput (i.e more game actions) while minimizing the risk of congestion and the resulting high gas fees.

• Second, Starknet is based on zero-knowledge rollups, an important technical solution that we will discuss in greater detail in a follow-up essay.³ For now, we need only acknowledge that this clever bit of technology has critical implications for how fully onchain games can be designed and secured. Put simply, without zero-knowledge, pioneering experiences like Dark Forest could not exist.

A final example of a team serving the needs of early adopters is Curio Research. Though Curio is also building at the engine level, the company’s earliest efforts have focused on the idea of “user-generated logic”: a type of social contract enforced on the blockchain. In the team’s debut title, the appropriately named Treaty, players were encouraged to write and deploy their own smart contracts as a means of codifying strategic relationships. Examples here include forming alliances, issuing embargoes, contributing to a collective defense fund, or hiring mercenaries, to name just a few.

The larger idea at work here is that user-generated logic allows participants of onchain games to programmatically dictate how other network participants may interact with them. Other stakeholders are then able to compose freely, alongside or in parallel, building any sort of tooling, applications, or social constructs into the world that they see fit.

The projects mentioned above are just a few examples of the small but growing group of Autonomous Worldbuilders. Other noteworthy products include the World Engine from Argus Labs and the Paima Engine.⁴ These early adopters are pushing onchain gaming forward to the point that previously siloed experiments have now begun to converge around a set of shared standards and tools.

This forward momentum will only accelerate as a result of the interoperability and permissionless composability offered by blockchains. Smart contracts deployed in one onchain game can be forked and redeployed in another with relative ease. As a standardized development pipeline begins to solidify, Autonomous Worldbuilders will be free to mix and match tools to their preferences, reshaping virtual worlds at scale.

Notes:

1. The distinction between “fully onchain games” and “autonomous worlds” is both nuanced and contentious. I plan to discuss this in greater depth in a future newsletter, but for simplicity’s sake, they have been used more or less interchangeably in this piece.

2. To learn more about Layer-2s and their role in blockchain ecosystems, check out this handy explainer from Coindesk.

3. For all things ZK, a16z Crypto’s “Zero Knowledge Canon” is an excellent learning resource.

4. For an in-depth examination of the differences between the various onchain game engines, I highly recommend this detailed comparison by Ishanee Nagpurkar from IOSG Ventures.

In Conclusion

The world of fully onchain games is rapidly evolving. Though the small set of games available today may seem unimpressive in comparison to the AAA experiences consumers are accustomed to, it’s important to view these with an eye towards the future.

The long historical arc of decentralization in gaming is unlikely to revert any time soon. Prior experience has shown us that the distance between gaming content creators and consumers will continue to shrink. Concurrently, the ongoing strengthening of the Autonomous Worldbuilders network will persist, resulting in continued improvement of the underlying technologies that support fully onchain gaming. Over time, the community will rally around shared sets of development standards in much the same way that today’s game developers have congregated around Unity and Unreal Engine.

The onchain gaming ecosystem is in the midst of a seismic shift — one in which the community will increasingly move from a mindset of scarcity and constraints to one of abundance and allowance. As technology improves, so too will the capabilities of those building fully onchain games.

While I am definitely not an engineer by training (a fact that I’m sure is painfully obvious by now to the technically-minded among you), I have done enough research to know that the technological experiments occurring within and around fully onchain games have meaningful implications for the continued development of web3.

In the next essay, we’ll explore the ways in which fully onchain games are set to drive technological improvements across the web3 ecosystem, taking their place in a long line of historical precedents. Gaming has a deep and storied history of pushing the limits of available technologies and fully onchain games will be no exception. In many ways, they represent the optimal sandbox for experimentation.

I hope you’ll join me as we continue down these Dark Tunnels.

Thanks for reading.

Special thanks to Brian at Pocket Gems, Bruce at EA, Martin at RockawayX, and many others for their feedback and contributions to this essay.