Web3 Gaming is in a Rut—and Here’s How We Can Break Free

The Web3 gaming landscape has reached a breaking point. What was once a frontier for innovation is now saturated with low-value projects, each fighting for a slice of the same pie without adding much new to the conversation. A 2023 report by DappRadar revealed that nearly 40% of all blockchain games that launched in the last year have failed to attract meaningful user engagement. This glut of subpar projects is not only stifling creativity but also discouraging serious investors and developers who could help bring the industry to its full potential.

At the core of the problem is a narrow focus on the blockchain layer of gaming. Many projects in this space have been too reliant on the novelty of NFTs, tokens, or play-to-earn mechanics. In the rush to capitalize on these concepts, they've neglected the most important aspect of any game: making it fun, accessible, and valuable to a broad audience. Instead of addressing gaming’s core challenges—gameplay innovation, user experience, and community-building—many Web3 titles have devolved into glorified financial experiments, resulting in short game lifespans where users frequently jump in to exploit simple game loops, seeking the highest possible ROI before exiting. This approach undermines the potential for creating engaging, sustainable gaming experiences in the Web3 space.

The consequences are stark: investor interest in Web3 gaming has waned, with funding plummeting by 82% in the first half of 2023 alone, according to a report by Animoca Brands. And it’s no wonder—investors want to back projects that will attract mass user bases and generate long-term engagement, not just speculative hype. One key lesson that the Web3 gaming space seems to have missed is that successful games aren’t just built for crypto-native players—they need to appeal to broader audiences.

The Hybrid Path to Mass Adoption

For Web3 gaming to mature and thrive, projects must evolve beyond their narrow blockchain-first focus. Hybrid models that blend elements of Web3 with popular features from Web2, legacy gaming, esports, and lifestyle sectors offer a more compelling vision of the future. These projects tap into existing audiences and culture, which is exactly what investors are looking for right now.

For example, Yuga Labs has been building bridges between traditional gaming and Web3 by incorporating NFT functionality into mainstream entertainment. Their Otherside metaverse project doesn’t just rely on blockchain—it also includes partnerships with gaming studios that create immersive experiences. By involving established game developers and engaging with audiences outside the Web3 echo chamber, Otherside is positioning itself for a far wider reach than typical blockchain-based games.

Real Utility, Wider Audiences

A common refrain from investors these days is simple: where is the utility? Projects that merely use blockchain as a gimmick will struggle to secure funding. However, those that expand beyond the blockchain niche and offer real utility—both in the gaming world and beyond—are gaining traction.

One project that has caught the eye of investors is Mythical Games. By marrying blockchain with traditional gaming industry know-how, they’ve created Blankos Block Party, a game that appeals to Web3 enthusiasts and traditional gamers alike. This kind of crossover appeal is crucial. As Gabby Dizon, co-founder of Yield Guild Games, put it in a recent interview: "The next wave of successful Web3 games will be those that have one foot in the traditional gaming world and another in blockchain. Investors want to see broader horizons and the merging of Web2 players into Web3 landscapes, not narrow crypto ecosystems."

Additionally, investors are increasingly drawn to projects that embrace Web2 gaming mechanics or leverage partnerships with established gaming and entertainment brands. Take “Big Time” as an example: this sci-fi game seamlessly combines AAA-level graphics with blockchain functionality, appealing to both Web2 players and crypto enthusiasts. Its dual emphasis on delivering high-quality Web2 gameplay while integrating a Web3 economic model exemplifies the hybrid approach that investors are actively seeking.

The Case for Collaborative Ecosystems

A final, critical piece of the puzzle is collaboration. Gaming companies in the Web3 space should not see themselves as lone wolves in a competitive market. Rather, they need to build interoperable ecosystems that allow for cross-project integrations. By fostering partnerships with legacy gaming companies, lifestyle brands, and even sectors like luxury and entertainment, Web3 games can reach new audiences who aren’t necessarily looking for blockchain features, but who might appreciate the added value of decentralized ownership or new ways to engage with digital content.

In summary, the future of Web3 gaming depends on its ability to transcend the limitations of blockchain-only focus. Hybrid models that include Web2, competitive esports challenges & leaderboard, and lifestyle elements not only offer more value to users but also attract a wider base of partners who are tired of watching money disappear into projects with no long-term utility. Web3 gaming doesn’t need more clones of play-to-earn or NFT-centered projects, it needs bold, hybrid platforms that can serve broader audiences, enrich gaming experiences with multiple game titles tied into a unified rewarding system, that's the only route to bring us closer to mass adoption.

The question is no longer whether Web3 gaming will go mainstream, but how we will make it happen. The way forward is clear: we need to think bigger, connect more dots, and seamlessly integrate Web2 and Web3 capabilities. Instead of relying solely on attracting traffic to individual games, games should be embedded within native environments where traffic already exists. Enhancing those environments adds real value and supercharges user engagement. It’s not Web2 versus Web3 anymore; it’s about making them work in tandem. When Web2 and Web3 co-exist, you unlock a whole new level of interaction, with natural rewards flowing across both. That’s how you drive real adoption—and create the future.

About Jassem Osseiran

Jassem "J" Osseiran is a serial entrepreneur specializing in global economics and emerging technologies. As the founder and Chief Strategy Officer of PlaysOut Technologies, he leads the integration of mini-games into global super app ecosystems, leveraging Web3 technology to revolutionize digital experiences across key markets. Jassem also serves as a trusted advisor and partner for emerging challenger brands and technology platforms, with expertise spanning the technology sector, alternative assets, and sports & gaming.

About Ezra Strauss

Ezra Strauss, formerly of Immutable, is General Manager of Portal, the leading builder of the distribution layer for Web3 and beyond. Portal is an ecosystem that is bringing together users from every chain and connecting them with the best dApps in the space – starting with gaming. Via frictionless products, a pioneering liquidity layer and a world-class network, Portal is aggregating users into a single, vibrant ecosystem. Builders of top-level games and dApps can now focus on creating AAA experiences on any chain – Portal is connecting them to users from around the world. Portal’s advisors include Jamie King, Rockstar Games Co-Founder, Russell Hanson, former CSO of Consensys, Matt Dixon, former Head of BD, EA Games, and John Yao, CEO Team Secret eSports. Portal is proudly represented by WME. For more information, follow Portal on X: https://x.com/Portalcoin