Chapter 5: Okay, so maybe web3 enhanced games and NFTs aren’t dead!
5.3 Web3 Community & Bringing Non-Spenders into Game Economies
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fundamentally different than participating on most web2 platforms, where all value accrues to the platform.168
Community is Great!
…Until it isn’t
To be fair, web3 communities aren’t all sunshine and rainbows. While it can be hard to leave a physical community (e.g., sell your house, pack up your kids, move to a different community), it’s comparatively easy to leave a digital
community. And, if the market for the fungible and/or non-fungible token of a
particular web3 community is liquid, it’s very easy to exit the community with a one second, “sell” click. In these very early days of web3 — replete with scams, rug pulls, and the like — community building, maintaining, and retaining is not for the faint of heart. As noted above, certain aspects of web3 come with a pesky set of speculative “extractors.” On this topic, Bobby Hundreds, co-founder of the iconic Hundreds streetwear brand, says169:
"Building an NFT collection is like building a company in reverse. You collect all the money upfront and then you spend the rest of your life proving your worth to your customers. The way it's designed now, it's an unpleasant
process, if not a doomed model. Founder energy is finite, yet consumer avarice is infinite. If the collector's expectation is to make money from the NFT, no amount of return will ever be satisfactory - which spirals into FUD.
Furthermore, floor prices spend most of their time descending or flatlining, punctuated with spikes of bull runs. So, if the sole purpose of buying the NFT is investment, the majority of the holder's experience monitoring markets will be consumed by worrying about money and wondering when the line will move up again."
While I don’t necessarily think the correct way to judge the health of a web3 community is by the “floor price”170 of its NFT collection, plenty of other people do!
In recognition of that, below are floor prices for a few prominent NFT collections from around the time I started and ended this essay:
168 I use “mostly” because there are some game developers like Fortnite and Roblox that do share value with creators. See Democratization; UGC on Steroids below.
169 Hundreds, Bobby. NFTs are a Scam / NFTs are the Future: The Early Days. 1st Ed. New York, NY: MCD, 2023. (Bobby Hundreds legal name is Bobby Kim)
170 Floor Price is the lowest price for an NFT collection on the secondary market.
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Most of these collections / communities have faced floor price reductions, but all have continued to host vibrant communities and healthy volumes despite these price drops. Pudgy Penguins172 and ON1 Force173 have even seen modest growth.
(Interestingly, NFTs are perhaps the one place where a crypto asset – ETH – is the genuine currency of account. This is quite significant because even folks who are
“down bad” on their NFTs determine their value in ETH, not USD, terms (which is why I have listed ETH in the chart instead of the corresponding USD values)).174 As Hundreds notes, some NFT holders aren’t really “community members”; they are there for speculative proposes and ruthlessly trade in / out of NFTs. This is why fun games with solid core game loops are essential to keep gaming economies balanced with true community members who love the game first and foremost. Further, it’s important to note that speculative extractors aren’t exactly unique to web3. In November 2022, scalpers used bots to purchase a significant number of tickets to Taylor Swift’s Eras Tour. Scalpers, who consequently held a material supply of tickets, then listed them on ticket resale websites for exorbitant prices, which the scalpers profited handsomely on. Taylor Swift, the creator, did not share in any of
171 This NFT is based on my Adam Bomb Squad NFT #19436. The story behind this NFT, Pineapple Adam, is that for several years, the company that Bobby Hundreds co-founded, The Hundreds, compiled a collection exclusively for Hawaiian retail partners, The Hundreds Hawaii. Pineapple Adam was part of that collection.
172 Pudgy penguins made an interesting transition from solely digital to creating “phygitals” – Pudgy Penguin animals linked to NFTs. According to Pudgy Penguin CEO Luca Netz, Pudgy Penguins saw over $500,000 in purchases over the first two days after going live, surpassing 20,000 individual toys sold on Amazon. I discuss the concept of “phygitals” in depth below in The Institutions are Coming, Just Not the Ones you Expected.
173 Beginning in February 2023, On1 Force changed its leadership and presented a new roadmap to its community, which has likely contributed to the floor price increase.
174 While I would like to take credit for this astute observation, I cannot — full credit to my friend and colleague, Lewis Cohen, co-founder of DLx Law.
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these profits and her fans certainly suffered by paying higher prices for their tickets. At least in web3 when NFT holders sell and negatively impact the market and community, value still accrues to the creator through royalty fees. Note
however, that creator royalties are currently under pressure with major third party NFT exchanges no longer enforcing them. Given the critical importance of creators in web3, I am confident the industry will come up with a solution to compensate creators for their work with royalties, whether through on-chain enforcement, use of internal versus third party marketplaces, and/or through licensing structures
embedded in smart contracts. Generally, it’s going to take a few years to figure out how to best harness the superpower of community owners while mitigating the unpleasantness of community extractors.
Bringing Non-Spenders into Game Economies
Enhancing games with web3 is a significant opportunity for game developers who understand that web3 communities have the potential to be very different than traditional gaming communities, which are also passionate but not owners. When gamers are given the ability to mint free175 NFTs, earn them, or buy them, they become owners in that gaming community and are aligned with each other and the game developer. This applies equally to “non-spenders” or most F2P gamers who typically do not spend in games.
• In 2022, there were ~299 million gamers on console and ~458 million on PC who played but did not spend money.176
• The data is murky on the percentage of gamers who make in-game purchases, but the number 5% is often cited.177
Whatever the actual number is, monetization from in-game purchases in F2P games is exceptionally low, which means that most F2P gamers are not participants in these game economies. This changes in web3 when non-spenders are given the opportunity to mint free NFTs or earn NFTs that they now own, which brings them
— for the first time — directly into the game economy and community. As noted above, giving away NFTs comes at a cost to the game developer. One risk is that these new owners become extractors only, but I think granting ownership is like a sprinkle of magic that sparks the desire to invest further in the game and to
eventually spend. This is commonly referred to as the “endowment effect”178 and my thesis is that ownership will cause some portion of the 95% of gamers who don’t
175 Blockchain transaction costs will apply – to both the minting transaction and storage of the NFT itself, which could happen on another blockchain such as Arweave or on plain web2 server, both of which have ongoing expenses associated.
176 Newzoo Global Games Market Report 2022,
177 https://martech.org/app-purchases-dominate-ads-app-store-lifetime-revenue-hits-71-billion/
178 https://en.wikipedia.org/wiki/Endowment_effect
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spend to start spending. Consider the difference in behavior when you have a fender bender in a rental car versus a car you own. If you rent, you will likely go to the nearest Home Depot, get some Krazy Glue, and do the bare minimum to get the bumper looking okay enough that the rental company doesn’t notice when you return it. If you own the car, you will probably find the best mechanic available and spend whatever it takes to make that bumper look even better than before it was hit. Ownership is a fundamentally different feeling. (Note that the preceding applies equally to using fungible tokens in games, which I discuss below in Ownership of the Game.) Not only do crypto rails bring non-spenders into game economies through NFTs and fungible tokens, but they also expand the aperture of who can spend. As noted above, there are ~1.7 billion underbanked people globally.
Accordingly, if a game developer links its games to crypto payment rails, 1.2 billion adults who are unable to spend via traditional means in games today, may be able to spend by using crypto assets like stablecoins.
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