Nansen: The Past, Present and Future of NFT Gaming

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

1. Why is gaming the most obvious use case for NFTs?

2. In-depth discussion of the differences between NFT games and traditional games

3. Determine the size of the potential market

4. Explore the prospect of NFT games

5. Identify key drivers and risks that may affect the future of NFT gaming

What are the real use cases for NFTs?

NFT games are nothing new. One of the first games to be deployed on Ethereum, CryptoKitties, launched in 2017. While there has been a recent uptick in interest in NFTs, NFTs themselves need a use case if genuine interest is to be sustained in the long term.

Any concerns that NFTs are a hyped fad can be countered with a legitimate use case. That’s what NFT games are all about.

Just as DeFi has become a major product market for Ethereum, gaming is the most obvious use case for NFTs. So why?

In the modern gaming industry, the rise of in-game purchases known as “microtransactions” enables an additional form of monetization that increases a game’s average revenue per user (ARPU) by selling in-game weapons or cosmetic items.Enthusiastic players are willing to pay extra for these in-game items because they provide unique functionality or more “powerful” properties to help them function in-game.

Similar to NFTs, an NFT token that can be used and provide utility to users will ultimately have reliable intrinsic value. An artwork NFT may have a unique characteristic or name that makes it scarce, but as long as the holder cannot use it, it will remain a collectible. Arguably , the only intrinsic “value” of an art NFT is its (1) story/association, and (2) collection/resale value.

Games provide additional value that artistic NFTs cannot: (iii) availability/player engagement. Usability as an immediate and sustainable use case for NFTs expands the addressable market for NFTs and attracts more mainstream adoption through player participation. You can have a Hashmask NFT in your metamask wallet, but you can’t actually wear or use it.

Nansen: The Past, Present and Future of NFT Gaming

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

True ownership is the key

So, why do games work for NFTs?

In traditional games, the props in the game do not entirely belong to the player. Purchased items are non-transferable and can be considered a form of “lease”, as the item is locked into the game and the real ownership rests entirely with the publisher who has the ability to determine the item’s attributes, usage, Availability and Price.

Traditional games often exist on a centralized platform, and if the game is interrupted or closed, the in-game items will cease to exist. The prop itself can only be used in the specific game it was designed for.

Ultimately, it is the developers and publishers who own the intellectual property of the game and its content. From a cash flow perspective, it’s a zero-sum game that’s good for the developer/publisher.

In contrast, NFT games offer a paradigm shift from zero-sum games to positive-sum games where all parties benefit. Now, in-game items can be tokenized to own:

  1. Interoperability between different DApps and gaming ecosystems so that utility is no longer limited to a single game/single use case
  2. Immutability, i.e. ensuring that the item will exist regardless of the game state it originated from, and preventing it from being tampered with or copied
  3. Having a permanent record verifiable on the blockchain when an item becomes the digital property of the holder, as well as true ownership of the item to freely trade or move


Not only that, the current NFT game adopts a unique business model, which is to accumulate income for players through a play-to-earn model, reward players for participating in the in-game economy, and allow them to exchange in-game items for real-world items. of legal tender.

Games like Axie Infinity go a step further, introducing governance tokens and community treasuries, decentralizing ownership and management of the game, so any decision-making power and accumulation of cash flow will ultimately go to the player community, not the game developers.

Nansen: The Past, Present and Future of NFT Gaming

Value is no longer just for game developers/publishers

Why are game developers interested in blockchain? Because its development potential is unlimited. Developers have the ability to design, make and run their own “digital” economies integrated with the real world, and may charge fees for all transactions in the game.

If DeFi democratizes finance, NFT gaming enables players to own and drive communities, while further legitimizing gaming as a way of earning a living.

Juicy TAMburgers

As the game becomes more mainstream, so does its target market. Digital transformation has brought about the emergence of full-game digital downloads, mobile gaming, microtransactions, subscriptions and eSports.

In fact, gaming has become one of the fastest growing media segments, with the global gaming market expected to grow from $160 billion in 2020 to around $200 billion in 2023.

In 2020, 74% of total game revenue was generated through in-game transactions, indicating that players are generally willing to purchase items in-game.

Nansen: The Past, Present and Future of NFT Gaming

There are an estimated 2.7 billion gamers worldwide in 2020 (expected to grow to 3.1 billion by 2023), with 54% of those gamers coming from the Asia-Pacific region, driven by mobile penetration and the prevalence of free-to-play mobile games. Keep this in mind when we discuss “play-to-earn” mode later.

What is the potential of NFT games? I divided my top-down guesses into three parts: (A) total market demand; (B) serviceable market; (C) available market

(A) Total market demand (largest possible market)

  • $200 billion in 2023, with a compound annual growth rate of about 8%.
  • Based on Newzoo’s analysis of the entire game market

(B) Serviceable market (segment suitable for NFT games)

  • In-game revenue share from $200 billion x 77% is about $155 billion in 2023
  • The growing dominance of F2P games monetized through microtransactions is evidence of this

(C) Obtainable market (sub-segments that NFT games can conservatively obtain)

  • One way to estimate this value is to calculate the implied in-game revenue per player and multiply it by the cryptocurrency native player estimate.
  • We can predict the in-game implied revenue per player by dividing the total market demand by the estimated number of players worldwide. We get the 2023 $50/player result of $155 billion divided by 3.1 billion players)
  • What about estimates of the number of cryptocurrency native players? No obvious answer, but one metric to measure the crypto user base is monthly active wallet users
  • Players need a web3.0 wallet to access and play NFT games
  • Given Metamask’s lead among web3.0 wallets, we can use Metamask’s monthly active users (MAU) count to infer the cryptocurrency user base.
  • 264k MAU on Metamask in April 2019
  • It was recently reported that Metamask crossed 5 million MAU in April 2021
  • We get an implied CAGR of 335% for April 2019-2021. Assuming MAU will grow at current CAGR and applying a 25-75% discount, we arrive at the following CAGR and MAU ranges by 2023

Nansen: The Past, Present and Future of NFT Gaming

  • Multiplying the implied in-game revenue per player with the estimated range of Metamask MAUs in 2023, we get a market size of $1 billion to $5 billion per year attainable by 2023, with a player base of around 20-1 million

Nansen: The Past, Present and Future of NFT Gaming

For comparison, Axie Infinity, the No. 1 NFT game on Ethereum, has only about 58,000 daily active users, which shows that NFT games are still in a very early stage.

It is important to note that these figures are guesswork at best, as our two variables (MAU growth and in-game revenue per capita) may be affected by general volatility in the cryptocurrency market. In reality, the actual in-game revenue per player may be significantly higher than the estimates above.

Nansen: The Past, Present and Future of NFT Gaming

While this market size calculation is guesswork at best, one can consider these numbers conservative given that we ignore the cyclicality of cryptocurrencies (adoption growth and fiat value). Assuming a 335% CAGR for MAU in 2019-21, we get an implied attainable market size of 2.4% of total market demand.

There is a saying that growth drives 80% of returns. Getting into the right industry at the right time is half the battle. The application of NFT games + cryptocurrencies is clearly still in the early stages.

NFT game history navigation

NFT games are nothing new. The release of CryptoKitties in 2017 marked the beginning of widespread adoption of the first generation of NFT games. In fact, the popularity of CryptoKitties became a source of concern for Ethereum scaling, as the game accounted for about 25% of network traffic at its peak.

It often takes a developer months or even years to create and publish a game, and there are significant costs between development and marketing. For example, Red Dead Redemption 2 is one of the most expensive blockbusters (known as AAA games), costing $540 million and 8 years to develop.

This development cycle can translate into multi-year trends within the gaming industry, and often follows the life cycle of different “generations” of consoles. Likewise, the prospect of NFT games should also be viewed from a development cycle perspective.

Nansen: The Past, Present and Future of NFT Gaming

First Generation (2017 – 2019)

The first generation of NFT games were primarily based on digital collectibles, many of which were inspired by traditional online card collecting games such as Hearthstone.

Developers were concerned about the lack of meaningful applications of blockchain technology and the public misunderstanding of cryptocurrencies at the time. The development team of the first Ethereum-based game, CryptoKitties, tried to solve the problem of missing features that hinder the sustainability of digital collectibles through games. Because games are usually free-to-play, developers can profit by taking a small percentage of all blockchain transactions in the game.

Early NFT games had a purposeless/passive gaming experience. For example, CryptoKitties’ gameplay revolves around the collectible’s ability to “breed” unique cats with different characteristics based on the combination of two “parents”. The gameplay is also predominantly 2D, with basic graphics and animations, and many games are inspired by classics like Pokemon and Neopets.

The first generation of games also includes EOS Knights (a casual RPG game built on the EOS platform with the main goal of saving villagers from orcs), EtherGoo (a competitive casual game built on Ethereum, where the user’s goal is to accumulate as much as possible) “goo”), Etheremon (a Pokemon-inspired version of CryptoKitties built on Ethereum), and more.

Nonetheless, as seen in CryptoKitties’ decline, the first generation of games lacked long-term player engagement, with issues such as “pay-to-win” models and concerns about digital scarcity.

Nansen: The Past, Present and Future of NFT Gaming

CryptoKitties’ trading activity has dropped significantly over the years

Second generation (2019-present)

The current generation of NFT games belongs to the second generation. The focus is on improving long-term player engagement (which was lacking in first-gen games) through the in-game digital economy, especially with the help of Play-to-Earn.

P2E mode allows players to earn income in the form of in-game tokens/rewards. These in-game tokens/rewards can be used both in-game, traded on public exchanges, and cashed into the player’s local fiat currency.

The pioneer of the second-generation P2E model is Axie Infinity. This is a Pokemon-inspired NFT game where players fight, collect, nurture and build a land kingdom for their digital pets in an open universe. The game is currently the No. 1 game on Ethereum, with about 58,000 daily active users and a cumulative revenue of over 7,000 ETH since its inception.

Its popularity is due to a variety of well-designed options that enable players to earn income, including:

  • Earn SLP through daily quests, PvP and PvE gameplay, which can then be traded or redeemed
  • Earn AXS governance tokens through game rewards
  • Breed and trade Axies for profit
  • Accumulate resources (and potential capital appreciation) by owning in-game land
  • Ultimately earning the benefits of staking AXS tokens from in-game fees through the community treasury
  • All of these can be traded on public exchanges (like Uniswap, OpenSea), or cashed into fiat (an example is the SLP/PHP combination on Binance P2P).

Nansen: The Past, Present and Future of NFT Gaming

Axie Infinity has witnessed exponential growth over the past 12 months

Unsurprisingly, a large portion of Axie Infinity’s players come from developing countries such as the Philippines and Indonesia, who are attracted by the earning potential that can sometimes be well above the minimum daily wage.

Exciting players through an innovative play-to-earn ecosystem, expanding the addressable market for NFT games, bringing more players into the cryptocurrency ecosystem (otherwise they wouldn’t be interested in cryptocurrency), and as the game basically Becoming a part of people’s lives increases participation.

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

While the current second-generation NFT games perform better in terms of playability and gameplay, with open universes that allow for land-based gameplay, higher-definition graphics, and player-generated content, they still struggle in terms of user experience, game design, and graphics. Lacks the maturity that traditional AAA games have.

Third Generation

The third generation of NFT games promises a more refined gaming experience, taking advantage of play-to-earn combined with better game design/graphics to bring it in line with lower-budget AAA games.

If play-to-earn is the driving force behind the current popularity of NFT games, then third-generation games will start to appeal to a larger mainstream gaming community, as their production value is getting closer and closer to traditional AAA games.

We may see rapid growth in the s-curve of NFT games here, which may be the last generation of NFT games before big game developers go straight into it.

A few games to watch include:


  • An F2P MMORPG based on the Thanabus Metaverse, built on top of Ethereum
  • Developed by indie developer Bright Star Studios
  • Position yourself as the “Ultimate Sandbox MMORPG” with customizable skins, props and lands, as well as unranked and fast-paced PvP and PvE gameplay
  • ERC-20 currency for players to trade or cash out
  • Land Games and Ownership

Star Atlas

  • Solana-based MMO space exploration RTS and RPG game
  • Developed by a team of about 40 people in collaboration with other Solana projects such as Serum, Stardust and Raydium
  • Positions itself as a AAA-quality Metaverse, developed with Unreal Engine 5, and supports VR; has gambling elements of NFTs, DeFi, and Play-for-Keys, and NFTs will be burnt if players lose the engagement
  • In the game, players cooperate through a dao-based guild system (recently announced with Yield guild Games)
  • Dual-token economy through ATLAS (in-game transaction currency) and POLIS (in-game governance token)


  • Gala Network-based MMORPG
  • Developed by Gala Games, a blockchain game developer led by Zynga co-founder Eric Schiermeyer
  • Land ownership is in the form of an ERC-1155 NFT with a maximum of 1625 title deeds in total; the in-game currency will be used with Gala Network’s Gala Token and Brave’s BAT Token
  • The game is based on html5 and is a web game that can be experienced instantly. The developer does not need to pay the 30% platform tax charged by Apple and Google Play

Fourth generation (near future)

In the past, large game developers have taken a passive approach to NFT games, mainly funding cryptocurrency-native developers through incubation labs (such as Ubisoft’s Entrepreneur Lab). The development costs of AAA games are very high, so these large developers will only take risks for big budget projects after NFT games become mainstream.

With the foundation that crypto-native indie developers have laid for mainstream adoption, it seems reasonable to assume that subsequent generations of games may see major developers directly involved in the production of large AAA games.As cryptocurrencies become more mainstream, we will see more and more traditional gaming companies jumping into NFT gaming.

Key Considerations

Here are some of the key factors I consider when evaluating this field:

Player base (and growth): Online multiplayer modes are great because the network effects they bring can be a great source of competitive advantage. The more people playing the game, the better the gaming experience, creating a virtuous cycle, especially for large developers.

Engagement: The flip side of 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 in engagement level. Is this a game you want to keep playing for hours on end?

Tokenomics: Is there a well-functioning and open value economy in the game? Is there an in-game token that captures the ecosystem, and can it be easily traded and redeemed for real-world currency? What about inflation rates and the digital scarcity of in-game items?

What are some of the key drivers of NFT gaming?

  • Mainstream adoption of cryptocurrencies will increase the popularity of NFT games
  • Using DeFi as a “currency Lego” for players to cash out/earn extra income
  • Better infrastructure (in terms of technical tools and blockchain scalability)
  • Esports will help promote NFT games while expanding wallet size
  • Mobile versions of NFT games will help target a more diverse audience

What are the major risks in the near term?

  • The slowdown in mass adoption of cryptocurrencies
  • Poor UI/UX of existing games and apps, leading to difficult access and decreased engagement
  • High transaction gas fees (may be solved by L2/sidechain and 3rd generation L1)


Taken together, gaming presents a compelling use case for NFTs. It allows players to truly own their in-game items, enjoy the added value of the in-game economy, and still earn a living by playing the game. Developers are given the privilege of creating a vibrant virtual economy, from which they can potentially reap huge profits if carefully designed.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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