The Web3 gaming industry is facing tighter investment conditions

The Web3 gaming industry is facing tighter investment conditions as capital flows become more selective

The Web3 gaming industry is facing tighter investment conditions as capital flows become more selective, and investors are prioritizing sustainable projects over hype-driven fundraising.

In February, Gunzilla Games Web3 director Theodore Agranat described blockchain gaming as a “game of musical chairs” in which the same capital cycles through different projects and “no new money” comes in. The executive also said users go from project to project to extract value. After that, they leave and search for the next project.

In the same month, the much-anticipated Web3 game Illuvium announced a 40% layoff, demonstrating the need for teams to go “super lean” in today’s market. Sky Mavis co-founder and CEO Trung Nguyen announced a similar move in October 2024, cutting 21% of its staff to optimize its budget for upcoming projects.

Despite these events, Web3 gaming professionals said that capital still exists, and explained some of the factors contributing to the industry-wide trend.

Investors no longer blindly throw their money at projects

Sky Mavis co-founder Jeffrey Zirlin told Cointelegraph that Web3 gaming is not uniquely struggling but rather experiencing the same capital constraints affecting the broader crypto industry.

The executive said Web3 gaming is not facing a unique challenge as the landscape is “tight across the board.”

Still, Zirlin pointed out exceptions. He cited Fableborne, a mobile Web3 game that was oversubscribed by 16,000% despite the market downturn, as demonstrating that “fresh capital was indeed flowing into Ronin,” the Sky Mavis blockchain network. He added:

“We're also seeing interest from traditional venture capitalists and institutions who are increasingly exploring the Web3 gaming space. For instance, last year, we saw several large institutions participate in the token generation event for our flagship game, Axie Infinity, which is a testament to their growing belief in the industry.”

Axie Infinity is a blockchain-based game that allows players to collect, breed and battle creatures called Axie. The game was a major success in 2021, but it faced difficulties later that year with the Ronin bridge hack and the crypto winter.

During the height of the bull market, several projects claimed to be the "Axie killers," promising to outdo Axie Infinity in terms of user acquisition, gameplay and tokenomics. These projects, such as DungeonSwap and Chainsmonsters, attracted significant attention and investment from the crypto community.

However, as the market downturn unfolded, many of these projects struggled to meet the high expectations and failed to achieve the same level of engagement as Axie Infinity.

Zirlin explained that the term "Axie killers" was used to describe gaming projects that claimed to be the next big Web3 game that would surpass Axie Infinity, Sky MAVIS' flagship Web3 game.

"It was a bit of a hype house term used to generate attention and buzz around new projects that were emerging in the blockchain gaming landscape," Zirlin said.

The executive added that while there were certainly projects aiming to capture a larger share of the market, the competitive landscape was broader than just "killers."

"We saw projects in diverse genres and stages of development, all vying for the attention of gamers and investors. The industry was, and still is, brimming with innovation and potential."

The Sandbox co-founder and chief operating officer Sebastien Borget told Cointelegraph that the “game of musical chairs” description suggests a level of randomness.

"I prefer to think of it as a natural evolution of the investment climate in Web3 gaming, driven by a few key factors."

Borget said that while there is less capital available and investors are more cautious, there is now less of the unpredictability previously fueled by hype cycles.

"The success of blockchain games increasingly depends on the ability to meet traditional gaming metrics. These include delivering compelling content and gameplay, fostering sustainable user acquisition, establishing a strong in-app economy and building a loyal user base."

Projects can’t just ‘slap NFTs’ into a game and raise millions

Josh Gier, chief marketing officer of the gaming tournaments platform Coliseum, told Coटेलीग्राम that the days of simply adding non-fungible tokens (NFTs) to a game and earning massive support from crypto investors are over.

"Yes, the speculative phase of blockchain gaming, where projects could raise millions just by slapping NFTs onto a game, has cooled off. But that doesn't mean capital has disappeared," Gier said.

The executive said the capital is becoming more selective and flows toward projects with strong fundamentals and sustainable economies.

"We're seeing less of the hype-driven projects and more of the projects that are building interesting and deep games with strong communities and a vision for the long term," Gier added.

"Investors are showing interest in games that integrate Web3 elements in a way that enhances the player experience rather than focusing solely on financial incentives."

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