The Compelling Case for NFT Gaming



It’s 2045, an 18-year-old Wade Watts climbs through a mountain of twisted metal, squeezing through a gap to reach a hidden cargo van. He opens the rear doors, revealing a hideout equipped with computer parts, gaming gear, and an omni-directional treadmill.

Wade pulls on his haptic gloves, grabs a VR headset from his backpack, places it on his head, logs on, and is then ushered into a metaverse called the OASIS...

Ready, Player One?

For anyone who has watched or read “Ready Player One”, you may have recognized the above prelude that was taken from the start of the movie/novel. For the benefit of the uninitiated, “Ready Player One” is a sci-fi novel-turned-film that depicts a teenager’s search for an easter egg in a virtual reality game, which would grant him control of the game itself, all set in a dystopian future (2045, to be exact).

Why is this relevant? The film depicts an alternate universe in the future, one where society spends a significant part of their lives gaming in a virtual world. In today’s world, gaming has become increasingly mainstream, taking a larger share of consumers’ time / disposable income / attention away from traditional media.

In this article, we will explore the NFT gaming landscape through four sections:

  1. Why gaming is the most obvious use-case for NFTs
  2. Diving into how NFT gaming is different from conventional gaming
  3. Sizing the addressable market
  4. Exploring the NFT gaming landscape
  5. Identifying key drivers and risks that may shape the future of NFT gaming

(1) The real use-case for NFTs?

NFT gaming is not exactly new - CryptoKitties, one of the first games deployed on Ethereum, was launched in 2017. Whilst there has been an uptick in interest in NFTs lately (with the recent buying frenzy of art NFTs), NFTs itself require a use-case if it were to sustain real interest in the long-run.

Any concerns over NFTs being a hyped-up fad can arguably be countered with a legitimate use-case. This is where NFT gaming comes in.

Just as DeFi has become Ethereum’s main product-market fit, gaming is the most obvious use-case for NFTs. Why?

In the modern gaming industry, the rise of in-game purchases known as “microtransactions” have enabled an extra-form of monetization, increasing the average revenue per user (ARPU) of a game via the sale of in-game weapons or cosmetic items. Ardent players are willing to pay extra for these in-game items as they provide unique features or more “powerful” attributes to help them in the game.

Drawing this parallel to NFTs, an NFT token that is usable and provides utility to the user will end up having a solid intrinsic value. An art NFT may have unique traits or a unique name that makes it scarce (and hence some sort of buyer value), but it will still remain a collectible as long as the holder is unable to use it. Arguably, the only “value” that is intrinsic to an art NFT would be its (i) story / association, and (ii) collectability / resale value.

Gaming offers an additional aspect of value that art NFTs are unable to do so - (iii) usability / player engagement. Usability functions as a direct, and thereby a sustainable use-case for NFTs, expanding NFTs’ addressable market and attracting more mainstream adoption via player engagement. You can own a Hashmask NFT in your metamask wallet, but you can’t actually wear or use it (virtually).


Story, collectability, usability are the three pillars of value for an NFT

(2) The holy grail lies in true ownership

Now, why would gaming work for NFTs?

In conventional gaming, in-game items do not out rightly belong to the bearer. Purchases are non-transferable, and can be viewed as a form of “lease” given that the items are locked in the game, with true ownership lying solely at the publishers’ feet as they have the ability to dictate the attributes, usage, supply, and price of an item.

As conventional gaming tends to exist on a centralized platform, if the game is discontinued or shut down, the in-game items will also cease to exist; and the item itself can only be used for the specific game it was designed for.

It is the developers and publishers that ultimately own the intellectual property of the game and its content. From a cash-flow perspective, it becomes a zero-sum game significantly skewed in favour of the developers/publishers (vs. the game’s community of users who pay to play/purchase items).

In contrast, NFT gaming offers a paradigm shift, from a zero-sum game to a positive-sum game where all parties benefit; Now, an in-game item can be tokenized to have:

  1. Interoperability between different dApps and game ecosystems so that utility is no longer tied to a single game / single use-case
  2. Immutability which ensures that the item will exist regardless of the state of the game that it originated from, and prevents it from being tampered with or copied
  3. True ownership as the item becomes a digital property of the holder, with a permanent record that is verifiable on the blockchain, as well as the freedom to trade or move the item as they please

Not only that, the current generation of NFT games have adopted a unique business model that accrues income to players via a “play-to-earn” model, rewarding players that participate in the in-game economy and allowing them to monetize the in-game items for real-world fiat currency.

Games like Axie Infinity go even further by launching a governance token and community treasury that decentralizes the ownership and management of the game so that any decision-making power and cash-flow accrual will eventually end up with the player community, rather than the game developer.

Value is no longer accrued to only just the game developer / publisher

And why would game developers be interested in using the blockchain for their games? The upside potential is limitless - developers have the ability to design, craft, and run their own “digital” economy that is integrated with the real-world, and potentially charge a fee on all transactions within the game.

If DeFi democratizes finance, NFT games enables a community that is player-owned and driven whilst further legitimizing gaming as a way to make a living. From B2C to C2C.

(3) Juicy TAMburgers

As gaming has become more mainstream, its addressable market has also grown. Digital transformation has led to the advent of full-game digital downloads, mobile gaming, microtransactions, subscriptions, and eSports.

In fact, gaming has become one of the fastest growing media sub-segments, with the global games market expected to grow from c.$160bn in 2020 to c.$200bn in 2023E (according to NewZoo, a leading provider of gaming market intelligence).

74% of total gaming revenues were generated via in-game transactions alone in 2020, indicating a general willingness for players to spend on in-game items.

Gaming market forecast from Newzoo (Source)

It is estimated that there are about c.2.7bn gamers globally in 2020 (expected to grow to c.3.1bn by 2023E), with 54% of players located in APAC, driven by mobile penetration and prevalence of F2P mobile gaming. Keep this in mind as we talk about the “play-to-earn” model later on.

What about the potential for NFT gaming? I’ve split my top-down guesstimates into three segments: (A) Total Addressable Market (TAM); (B) Serviceable Available Market (SAM); and (C) Serviceable Obtainable Market (SOM)

(A) TAM (largest possible market):

  • ‍c.$200bn in 2023E with a CAGR of c.8%
  • Based on Newzoo’s analysis of the overall gaming market

(B) SAM (segment that fits NFT gaming):

  • c.$155bn in 2023E derived from US$200bn x 77% revenue share from in-game
  • Justified by the increasing dominance of F2P games that monetize via microtransactions

(C) SOM (sub-segment that NFT gaming can conservatively capture)

  • One way to estimate this is by calculating the implied in-game revenue per player and multiplying that with the estimated no. of crypto-native players
  • We can estimate the implied in-game revenue per player by dividing the SAM with the estimated no. of players globally, which gives us c.$50/player in 2023E ($155bn divided by 3.1bn players)
  • How about the estimation on the no. of crypto-native players? There is no obvious answer, but a metric that captures the crypto user base is the monthly active wallet users
  • Players will need a web3.0 wallet to access and play an NFT game
  • We can use the no. of monthly active users (MAUs) on Metamask to extrapolate the crypto user base given its’ leading position amongst web3.0 wallets
  • There were 264k MAUs on Metamask in April 2019 (Source)
  • It was recently announced that Metamask surpassed over 5mm MAUs in April 2021 (Source)
  • We get an implied CAGR of 335% over April 2019-2021; assuming that MAUs will grow at this current CAGR, and applying a haircut of 25-75% gives us the following range of CAGRs and MAUs by 2023E

Illustrative '23E MAUs based on Metamask's monthly active users

  • Multiplying the implied in-game revenue per player with the estimated range of Metamask MAUs in 2023E gives us a range of c.$1bn - $5bn in yearly serviceable obtainable market size with a player base of c.20-100mm by 2023E

Illustrative market size of NFT gaming by 2023E

As a comparison, Axie Infinity, the #1 NFT game on Ethereum, has only c.58k daily active users (Source), which illustrates how early we are in NFT gaming

Do note that these figures are a guess at best, given our two variables (MAU growth and in-game revenue per player) are exposed to general volatility from the crypto markets; and actual in-game revenue per player (in fiat terms) may be significantly higher than what is estimated above

Illustrative annual market size by 2023E

Whilst this market sizing exercise is a guess at best, one can argue that the numbers are conservative given that we are ignoring the cyclicality in crypto (adoption growth and fiat value). Assuming the full ‘19 - ‘21 CAGR of 335% for MAUs only gives us an implied serviceable obtainable market size that is c.2.4% of the total addressable market.

There is a saying that growth drives 80% of returns - being in the right industry at the right time is half the battle won; and NFT gaming + crypto adoption is clearly still in its early innings.

(4) Navigating through the generations of NFT games

NFT gaming is not exactly new - the release of CryptoKitties back in 2017 marked the start of the first generation of NFT games that received widespread adoption. In fact, CryptoKitties’ popularity became a source of concern for Ethereum scaling as the game accounted for c.25% of network traffic at its peak (Source).

Developers would typically take months and often years to build and ship a game, and with significant costs between development and marketing. For instance, Red Dead Redemption 2, one of the costliest blockbuster titles (referred to as AAA games), cost as much as c.$540mm and eight years to develop (Source).

This development cycle translates into multi-year trends within the gaming industry, and often follows the lifespan of the various “generations” of gaming consoles. Similarly, the NFT gaming landscape should be viewed through the lens of a development cycle.

Using the adoption S-curve to illustrate the various generations of NFT games

First generation (2017 - 2019)

The first generation of NFT games were predominantly based on digital collectibles, many of which were inspired by conventional online collectible card-games such as Hearthstone.

Developers were concerned with the shortage of meaningful applications of the blockchain technology, and the public’s misperception of crypto back then. The team behind CryptoKitties, the first game built on Ethereum, sought to address the lack of functionality that was hindering the sustainability of digital collectibles through gaming. As games are generally free-to-play, developers profited by taking a fraction of all blockchain transactions in the game.

Earlier NFT games tended to have idle / passive game experience, relying on time-based actions that result in the collection of resources over time. For instance, CryptoKitties’ gameplay revolves around the ability of the collectibles to “breed” unique kitties with different traits depending on the combination of the two “parents”. Gameplay was also predominantly 2D in-nature, with basic graphics and animations, with numerous of the titles taking inspiration from classic games such as Pokemon and Neopets.

First gen titles also include games such as EOS Knights (idle RPG game built on the EOS platform, where the main aim is to save villagers from orcs), EtherGoo (competitive idle game built on Ethereum, where users aim to accumulate as much “goo”), Etheremon (Pokemon-inspired version of CryptoKitties, built on Ethereum) and so on.

Nevertheless, first gen titles lacked long-term player engagement as evidenced by CryptoKitties’ decline, with issues such as having a “pay-to-win” model where players have to spend in order to play at a competitive level given the lack of a proper in-game economy, and concerns over digital scarcity.

Transaction activity on CryptoKitties has declined significantly over the years (Nansen)

Second generation (2019 - present)

The current generation of NFT games belong to the second generation - where focus has been on improving long-term player engagement (that the first generation lacked) through their in-game digital economies, particularly with the help of “Play-to-Earn” (P2E).

The P2E model enables players to earn an income in the form of in-game tokens / rewards. These in-game tokens / rewards can either be used in-game, traded on open exchanges, or they can be cashed out for the player’s local fiat currency.

A pioneer of the second generation P2E model is Axie Infinity. It is a Pokémon-inspired NFT game where players battle, collect, raise and build a land-based kingdom for their digital pets (called Axies) in an open-ended universe. The game is currently the #1 game on Ethereum, with c.58k daily active users (>10x since October 2020) and over 7k ETH in cumulative revenue since inception.

Its popularity is underpinned by a variety of well-crafted options for players to earn an income, including:

  • Earning Smooth Love Potions (SLP, a utility token required for breeding new Axies) via daily quests, PvP, and PvE gameplay which can be subsequently traded or cashed out
  • Earning Axie Infinity Shards (AXS) governance tokens from gameplay rewards
  • Breeding and trading of individual Axies for profit
  • Accumulation of resources (and potential capital appreciation) via ownership of in-game land
  • Eventually earning a yield on staked AXS tokens from in-game fees via the community treasury

All of these can be traded on open exchanges (such as Uniswap, OpenSea), or cashed out for fiat currency (an example would be the SLP/PHP pair on Binance P2P).

Axie Infinity has witnessed exponential growth in the last 12 months (Nansen)

Unsurprisingly, a large proportion of Axie Infinity players come from developing countries such as the Philippines and Indonesia, attracted by the earnings potential that may sometimes pay significantly above the daily minimum wage.

This man used to drive a taxi, but he had no customers during COVID. He started playing Axie and making up to ~$300 a month. For reference, minimum wage in the Philippines is about $170 per month.— Rex Woodbury (@rex_woodbury) May 21, 2021

Incentivizing players with an innovative play-to-earn ecosystem expanded the addressable market of NFT games, bringing more players into the crypto ecosystem (who otherwise would not have an interest in crypto), and drive up engagement levels as the game essentially becomes part of a person’s livelihood.

Other second generation games include Gods Unchained (the first NFT online trading card game where players earn packs of digital cards that can be sold for ETH), AlienWorlds (browser-based simulation game where players mine and compete for the in-game resource, Trilium), as well as the various sandbox platforms (such as Decentraland, and The Sandbox).

Whilst the current second generation of NFT games fare better in terms of playability and game experience, with open-ended universes that allow for land gameplay, higher graphics, and player-generated content, it still lacks the level of sophistication that traditional AAA games have in terms of user experience, game design, and graphics.

Third generation (upcoming)

The upcoming third generation of NFT games is expected to come with a more refined gaming experience, leveraging on the strengths of play-to-earn combined with better game design/graphics that would align it with lower-budget AAA games.

If play-to-earn is the driver for popularity of the current generation of NFT games, the upcoming third generation of games will start bringing in the larger mainstream gaming community as production value increasingly aligns with traditional AAA games (together with the economic incentives that come with play-to-earn).

This is where we might expect to see rapid growth along the NFT gaming adoption S-curve, and could potentially be the last generation of NFT games prior to the direct arrival of large game developers.

Several upcoming high-profile titles to look out for include:

  • F2P MMORPG based on the fantasy metaverse of Thanabus, built on Ethereum (Polygon)
  • Developed by indie developers, Bright Star Studios (backed by Play Ventures)
  • Positions itself as the “ultimate sandbox MMORPG” with customizable skins, items, and land, as well as a classless and fast-paced PvP and PvE gameplay
  • Will also have an ERC-20 premium currency that players can use to trade or cash out
  • Land gameplay and ownership (50% of revenues generated inside EmberSword is expected to be distributed to the landowners in the form of the ERC-20 premium currency (Source)
  • Scheduled for launch in 2022, with alpha/beta testing in 2021
  • Upcoming land sale on May 27th, with 12k out of 40k land plots available
  • MMO space exploration RTS and RPG where three factions cooperate or compete for resources, built on Solana
  • Developed by a team of c.40 members, partnerships with other Solana projects such as Serum, Stardust, Raydium
  • Positions itself as an AAA-quality metaverse, developed using Unreal Engine 5 (cinematic quality visuals) and VR enabled; with NFTs, DeFi, and an element of gambling via “Play-for-Keys” where an NFT will be burned off the chain if a player loses an engagement in the deep space (akin to Runescape’s Wilderness)
  • Within the game, players collaborate through a DAO-based guild system (recently announced a partnership with Yield Guild Games)
  • Dual token economy via ATLAS (in-game transactional currency) and POLIS (governance token for the game)
  • Earliest pre-alpha version scheduled for Q1/Q2 2022
  • Upcoming token generation event, “Galactic Asset Offering” and launch of an in-browser minigame on July 24th

Mirandus (website)

Fourth generation (near future)

In the past, large game developers took a passive approach towards NFT gaming, largely by funding crypto-native developers through incubation labs (such as Ubisoft’s Entrepreneurs Lab). The development cost of an AAA game is significant, and hence these large developers would only take the risk of a big-budget project once NFT gaming becomes mainstream.

With the groundwork for mainstream adoption laid out by crypto-native indie developers, it would seem reasonable to assume that subsequent generations of games may potentially see large developers directly participate in the production of large-scale AAA titles (incorporating the lessons learned over the past generations, especially with play-to-earn). As crypto becomes increasingly mainstream, we will see an increasing number of traditional game companies take the plunge into NFT gaming.

Following the news from the likes of @SEGA @GAMEVIL @Nexon_America @Hasbro etc, I think it's time to break out our #BlockchainGamingBingo card. Eyes down, bingo dabbers at the ready...— jon jordan 🇹🇼 (@blockchaingmg) April 28, 2021

(5) Key considerations

To end this piece, below are some of the key considerations that I take into account when evaluating the space and particular titles in general:

What are some immediate things to look out for in a game?

Player base (and growth): online-multiplayer modes are great as the network effect they bring can become a vital source of competitive advantage. The more people play, the better the experience, thus creating a virtuous cycle especially for the large incumbents

Engagement levels: the flip-side to relying on network effects is the need to build and maintain the player base itself. This is where gameplay and in-game economic incentives come into play

Gameplay: an important factor of engagement levels; is this a game that you would enjoy playing for hours / consistently?

Tokenomics: is there a functioning, open value economy in the game? Any in-game token that captures the value of the ecosystem, and whether it can be traded and cashed out for real-world currency easily? Inflation rate? Digital scarcity of the in-game items

What are some key drivers for NFT gaming?

  • Mainstream adoption of crypto will increase the profile of NFT games
  • DeFi adoption as a “money-lego” for gamers to cash out / earn additional income (on top of play-to-earn)
  • Better infrastructure (both in terms of technology tools and blockchain scalability)
  • eSports will help promote NFT games whilst expanding the wallet size at the same time
  • Mobile versions of NFT games will help target a more diverse audience

What are some key near-term risks?

  • Broader slowdown in mass adoption of crypto
  • Poor UI/UX of existing games and applications resulting in accessibility difficulties and decline in engagement levels
  • High gas fees for transactions (potentially solved via L2/side-chains & third-gen L1s)


In summary, gaming offers a compelling use-case for NFTs - it allows players to truly own their in-game items, enjoy the value accrual of the in-game economy, and at the same time, earn a living by playing. Developers are given the privilege of creating a vibrant virtual economy, in which they potentially stand to profit enormously from if carefully crafted.

From a zero-sum game to a positive-sum experience.

Wade Watts gets to have his fun whilst earning income, and James Halliday enjoys the fruits of his labour.

Disclaimer: Any information contained in this article is for information purposes only, and does not constitute financial advice. It is based on current publicly available information, internal data and other sources that we consider reliable but which may not have been verified independently. While every effort is made to ensure the accuracy and completeness of this information, we do not represent that it is accurate or complete. Reliance upon information in this material is at your sole discretion.