When the top 100 by market capitalization are no longer running out of game tokens, it's time to rethink the narrative

by Ryan S. Gladwin

Compiler: Deep Tide TechFlow

According to CoinGecko, after Impute (IMX) dropped out of the rankings on Monday, there are no gaming tokens left in the top 100 cryptocurrencies by market capitalization. While there are still a handful of gaming tokens hovering at the bottom of the list, CoinMarketCap's ranking is almost unanimous: the performance of the top gaming tokens continues to be sluggish.

While crypto gaming has peaked in the mainstream market and player base over the past year, related tokens have rapidly ebbed and new token releases have struggled to gain traction.

According to Wayback Machine, just a year ago, there were 6 gaming tokens in the top 100 cryptocurrencies by market capitalization. At the time, CoinGecko's gaming token category had a total market capitalization of $29.3 billion. However, despite the launch of more tokens during the period, this number has now plummeted by 68% to just $9.24 billion.

Ethereum gaming platform Immutable was once the last holdout, but its token, IMX, has fallen sharply over the past year.

According to CoinGecko, in December 2023, IMX was the 31st largest cryptocurrency in the world by market capitalization. At the time, investment firm VanEck expressed strong confidence in Immutable and expected IMX to be among the top 25 in 2024. Even a year ago today, IMX was ranked 34th.

However, since then, IMX has plummeted 87% over the past year, due to a general cooling of the crypto gaming market and an investigation by the U.S. Securities and Exchange Commission (SEC) (which Impmutable recently said was closed).

In the past week alone, IMX has fallen by 29%, compared to Bitcoin's decline of just over 10%. IMX became the biggest weekly loser in CoinGecko's Top 100 list until it slipped out of the list and is currently ranked 103rd.

Other major gaming tokens that were once in the top 100 have also suffered heavy losses over the past year. For example, Gala Games (GALA) is down 80% (including a 19% drop for the week) and The Sandbox (SAND) is down 64% over the same period (down 16% over the past seven days).

Those once-glorious old gaming tokens have fallen sharply since their peak in 2021. And even the recently launched mega-game tokens have not been escapable. The Pixels (PIXEL) token, launched last year, plunged 98% from its peak, Notcoin (NOT) fell 94%, and Hamster Kombat (HMSTR) also slipped 68%.

Last week, Gunzilla Games' hit game Off the Grid and its Avalanche L1-based GUNZ network launched the GUN token, the largest in-game token offering in months. However, even though Off the Grid hasn't integrated GUN into the game, the token has fallen 62% from its peak.

Better games are on the rise

Off the Grid was named the best blockchain game of 2024 by Decrypt, and the game shone last fall, fueling a positive perception of the current quality of crypto games.

This is in stark contrast to the Play-to-Earn craze of 2021, when the simple-gameplay monster battle game Axie Infinity was celebrated.

"The crypto gaming market in 2021 can be arguably entirely narrative-driven, with few real products, with a few exceptions like Axie," the founder of Treeverse Games, who goes by the pseudonym Loopify, told Decrypt. "And now, a few years later, there are indeed more products, but they still take time and haven't really made it to the mainstream market yet."

At the time, Axie Infinity was a hit, but its in-game economy, token value, and player base took a hit in early 2022. Today, there are a number of higher-quality games on the market, some of which have attracted millions of players – even if popularity and word-of-mouth don't always keep pace.

Hamster Kombat, for example, attracted 300 million players last summer with its Tap-to-Earn Telegram game, albeit with a simple and repetitive gameplay. However, since the launch of the token in September, players have left the market due to price issues, and the development team has been slow to launch subsequent seasons.

Off the Grid became one of the few success stories in October last year, with its public release becoming one of the most successful in the blockchain gaming space, topping the Epic Games Store's free-to-play charts and even surpassing Fortnite. In addition, the farm-based game Pixels and the card battle game Parallel have also received critical acclaim and attracted a growing audience, while the survival game Crypto: The Game has become a niche hit by going viral.

"I actually think the current state of crypto gaming is pretty solid," the GIA community manager at GIA, who goes by the pseudonym Jaxie, told Decrypt. "We have some great games coming online right now, and those games have the potential to introduce millions of players to the crypto ecosystem."

But there were also mistakes

It takes time to make a great game – just look at Rockstar Games, which has been working on Grand Theft Auto 6 for seven years, with a huge team and financial backing. This explains why, while the crypto gaming craze was on the rise a few years ago, we're only starting to see some results now.

However, crypto games that rush to success often end in failure. The Illuvium series is a prime example. According to CoinGecko, Illuvium's token (ILV) was first launched in 2021 and quickly soared to a peak of $1,749, which sparked huge anticipation for the project. However, when the team launched three interconnected games in July 2024, the results fell short of expectations.

Illuvium's actual performance has been disappointing, with its co-founder Kieran Warwick admitting in February that criticism of the gameplay was "justified" and that he plans to overhaul the game. Today, the price of the ILV token has plummeted 99.4% from its all-time peak and is currently only $10.60.

The Core Question of Crypto Gaming: Games or Tokens?

"99% of crypto games aren't fun," said a member of the MLG team, a crypto gaming meme coin under the pseudonym Munnopoly, in an interview with Decrypt. "They look more like there's the token first, and then the game. I feel like they've been trying to bridge the gap with Web2 players. ”

The failure of the crypto gaming industry has shown that the development of high-quality games takes time and patience, and that projects that are rushed to launch and lack depth will only disappoint players and cause the value of the token to plummet.

Deadrop, once the highly-anticipated gamer, seems poised to bridge the gap between traditional gamers and Web3. Created by former Call of Duty and Halo developers and well-known streamer Dr. Disrespect was involved in the development, and the game caught the attention of mainstream gamers. However, due to the cooperation between the development team and Dr. Disrespect fell out over allegations of inappropriate conversations with minors, and the studio announced closure after it ran out of funding in January of this year.

"I think the cancellation of Deadrop is a major setback for the space," said content creator Mayor Reynolds. "This game is one of the few projects that has the potential to stand on its own and integrate Web3 features in a way that players can understand."

However, it is not unique for a gaming project to stop operating due to running out of funds. Recently, blockchain gaming ecosystem Treasure announced a massive restructuring and layoffs due to financial issues. And Blockworks reported last week that Neon Machine, the developer of Shrapnel, is also facing a depleted funding.

The development team of the Ethereum game The Mystery Society paused the development of the social reasoning game in February, and its co-founder, Chris Heatherly, bluntly said that the blockchain gaming industry is full of disruptive behavior.

"Greed and stupidity are killing almost all players in the field before they can prove themselves," Heatherly said in an interview with Decrypt. "We need to focus on building a healthy on-chain business model and not continue this fallacy of 'token issuance is a Ponzi scheme'. Every Web3 game founder I know is frustrated, tired, and all they're doing now is just trying to survive, but the real faith is fading day by day. ”

Reinventing the Narrative: Investors' Attention Shifts

According to Loopify, part of the problem with gaming tokens recently is that investors' focus has shifted to crypto assets that are more likely to make a quick profit. He noted that since the last gaming token bull run, investor interest has gone through meme coins, SocialFi, and more recently into artificial intelligence.

With each wave of investment flocking to new asset classes, gaming tokens are gradually losing traction. These tokens continue to exhibit high volatility in the market, but the recent decline has been more dramatic.

"The narrative of crypto gaming has long since disappeared, and with it fewer investors are willing to pay because the crypto industry essentially follows trends," Loopify said in an interview with Decrypt. "Even if these games are of higher quality and offer low-cost investment opportunities in the form of NFTs, tokens, or equity, the market can't price them effectively right away. It will take time to reflect. ”

Jaxie asks a more fundamental question: do crypto games really need their own tokens? He believes that what players really care about is just having their own skins through the blockchain, not the game's exclusive tokens. While these tokens are capable of generating a speculative rush for a project, the negative effects of a token crash are enough to shake the community and create expectations that are difficult to achieve.

"Most games shouldn't use their own tokens at all," he said. "Launching a token is more of a marketing tool or a means of currying favor with existing users – don't get me wrong, I'm going to drop wool as well – but it's not really a useful token for gaming features."

Recently, there has been a wave of token issuance for "tap-to-earn" games, each of which needs to incentivize players to keep clicking through tokens. However, these tokens often lack practical use after issuance, resulting in a rapid decline in value. From "Hamster Kombat" to "Catizen" and "Zoo", similar stories play out over and over again.

In addition, the "play-to-airdrop trend" model, which was all the rage last year, is once again distributing tokens to players, but players have little incentive to hold them for the long term. Like the early Play-to-Earn craze, this model attracted a lot of attention and enthusiasm in the early days, but the eventual collapse was just as painful for the project and players.

"Most Web3 players are really just speculators in the crypto space, and their goal is to make money," Jaxie bluntly said. "Most crypto games have a lifespan of only 90 days, after which the number of players drops significantly – so why contribute to an economy that you know will shrink dramatically in three months?"