Web3 Gaming Investors Shift Focus from ‘Axie Killers’ to Sustainability

In a significant shift within the Web3 gaming landscape, investors are no longer pouring funds into projects dubbed as ‘Axie killers’ without due diligence. Jeffrey Zirlin, co-founder of Sky Mavis, recently shared insights with Cointelegraph, indicating that the crypto gaming sector is experiencing a tightening of investment conditions. This trend is characterized by a more selective approach to capital allocation, with investors increasingly prioritizing sustainable projects over those driven by hype.

The Changing Dynamics of Web3 Gaming Investments

The Web3 gaming industry has been likened to a ‘game of musical chairs,’ as described by Theodore Agranat, Web3 director at Gunzilla Games. He noted that the same pool of capital is circulating among projects, with little new investment entering the space. This has led to a scenario where users frequently shift from one project to another, seeking to extract value before moving on to the next opportunity.

In February, the highly anticipated Web3 game Illuvium emerged, highlighting the necessity for development teams to adopt a ‘super lean’ approach in the current market. The trend of downsizing is evident, as Sky Mavis announced a 21% reduction in its workforce in October 2024, aiming to optimize its budget for future projects.

Investors Remain Cautious but Optimistic

Despite the challenges, professionals within the Web3 gaming sector assert that capital is still available. Zirlin emphasized that the struggles faced by Web3 gaming are not unique but rather reflective of broader constraints within the cryptocurrency industry. However, he pointed out notable exceptions, such as Fableborne, a mobile Web3 game that achieved an astonishing 16,000% oversubscription, indicating that fresh capital is still flowing into the Ronin blockchain network.

The term ‘Axie killers’ refers to gaming projects that aspire to surpass the success of Axie Infinity, Sky Mavis’ flagship game. As the market evolves, the definition of success is also changing. Sebastien Borget, co-founder and COO of The Sandbox, expressed his disagreement with the notion of randomness in the investment landscape. He stated that while new capital is limited and investor caution is heightened, the unpredictability that once characterized the market is diminishing.

Meeting Traditional Gaming Metrics

Borget highlighted that the success of blockchain games increasingly hinges on their ability to meet traditional gaming metrics. These metrics include delivering engaging content and gameplay, fostering sustainable user acquisition, establishing a robust in-app economy, and cultivating a loyal user base. This shift signifies a maturation of the Web3 gaming space, where the focus is on creating value for players rather than merely capitalizing on speculative trends.

The End of Speculative Investment

Josh Gier, chief marketing officer of the gaming tournaments platform Coliseum, echoed these sentiments, stating that the era of simply adding non-fungible tokens (NFTs) to games for massive investor support is over. He remarked, “The speculative phase of blockchain gaming, where projects could raise millions just by slapping NFTs onto a game, has cooled off. However, this does not mean that capital has vanished.”

Gier noted that investors are now more interested in games that integrate Web3 elements in a manner that enhances the player experience, rather than focusing solely on financial incentives. This evolution in investor expectations reflects a broader trend towards sustainability and player engagement in the gaming industry.

Long-Term Investments in Web3 Gaming

Vineet Budki, CEO of venture firm Sigma Capital, highlighted that some core investors, such as Animoca Brands, are specifically targeting the blockchain gaming segment. He pointed out that game development timelines are longer compared to other niches, meaning that investments in gaming often take more time to yield returns. Despite the complexities of raising capital in the Web3 gaming sector, Budki remains optimistic about the future.

As the landscape continues to evolve, it is clear that the focus is shifting towards sustainable and engaging gaming experiences. Investors are becoming more discerning, seeking projects that not only promise financial returns but also deliver compelling gameplay and a loyal user base. This trend marks a pivotal moment in the Web3 gaming industry, as it moves away from speculative investments and towards a more sustainable future.