In contrast to the majority of Web3 games today, fully onchain games (‘FOCGs’) use the blockchain not as a way to track ownership of digital assets, but as a decentralized computing platform. These games use the blockchain in the same way a traditional server-authoritative game would use a gaming backend, meaning that the entire game logic and state ‘live’ on the blockchain.

The main disadvantage to this approach is that blockchains are slow and expensive, limiting the kinds of experiences that can be built onchain. However, constant technological advancements have resulted in significant improvements in latency and cost, and we expect this trend to continue.

Games that are built fully onchain have a number of unique properties. One is that they are permanent, decentralized and permissionless. FOCGs live forever and are solely governed by their onchain rulesets, which is why some call them ‘Autonomous Worlds’. In addition, FOCGs enable virtually unlimited business model innovation, allowing new types and genres of games to exist. Finally, FOCGs natively allow for the nearly unbound creation and monetization of user-generated content (UGC), which has historically led to some of gaming’s biggest successes.

Because games represent an environment that is both highly demanding and low stakes, they have historically served as a proving ground for a number of emerging technologies. If the Web3 tech stack is to have any significant impact on the internet of the future, we can expect a number of its foundational building blocks to be developed within FOCGs.

It’s too soon to tell what Web3 as a computing platform will bring to the gaming industry. There’s a good chance that FOCGs will remain a small niche. However, because of their unique affordances, we believe that fully onchain games have the potential to be the next major platform shift for games.

New technologies tend to get applied in two different forms, a soft form and a hard form. Generally, soft form applications use new technologies as add-ons or upgrades to products that already exist. Examples are the Blackberry, hybrid cars, and the first news sites. In contrast, hard form applications fully lean into the affordances of new technologies, and often have to accept the downsides that come with those. Examples are the iPhone, fully electric cars, and social media sites.

Because hard form applications need to deal with the many downsides that come with emerging technologies, they initially end up looking like toys, or even products that are strictly worse than their soft form counterparts. As an example, the first iPhone was expensive, had a terribly short battery life, a difficult-to-use digital keyboard, no 3G, and no App Store.

As a result, hard form applications often get mocked by industry participants. One reason for this is that people tend to underestimate technological advancements because they don’t progress linearly, but exponentially. Take, for example, this response from former Microsoft CEO Steve Ballmer when asked about the iPhone: "Five hundred dollars? Fully subsidized? With a plan? I said that is the most expensive phone in the world. And it doesn't appeal to business customers because it doesn't have a keyboard. Which makes it not a very good email machine."

The limitations that hold back hard form applications feel like they will need decades to get resolved, but the reality is that technology progresses faster than we think.

The other reason why we tend to be bad at predicting how successful new hard form applications will be is that they often become successful by solving new problems. The iPhone arguably only became ‘The iPhone’ once we started using it to play games, swipe right on our new fling, and record and share dance videos.

It is through these two mechanisms, exponential technological advancement and the solving of new problems, that some hard form applications manage to outperform their soft form counterparts.

This framework provides a useful tool when analyzing the application of the Web3 tech stack to the world of video games. The vast majority of today’s Web3 games uses the blockchain to track the ownership of in-game assets. Their core game loops are very similar to those of  non-Web3 games, with the key difference that players have ‘True Digital Ownership’ through the onchain ownership of fungible and non-fungible tokens. Tracking the ownership of assets on a permissionless blockchain rather than a centralized database has a number of benefits. It allows players to buy and sell assets more efficiently and freely, which is a good fit for games where ‘what items you own’ is part of the game’s meta (e.g. collectible card games). It also financializes assets by making them exchangeable for ‘real money’. This can bring additional stakes to existing experiences, like extraction shooters, making those games even more thrilling for players. However, giving players true digital ownership of their assets doesn’t fundamentally change game loops and hence we would classify it as a soft form application of Web3 to games.

This brings us to the question: “What is the hard form application of Web3 to games”? In our view, one of the ways this is substantiated is by using the blockchain not as a way to track ownership, but as a decentralized computing platform. A helpful way to think about this is: most Web3 games today use the blockchain as they would Bitcoin – as a digital ledger that tracks who owns what. But in reality, almost all blockchains are Turing-complete smart contract platforms, meaning that they can process any arbitrary logic. This means that they could run any type of computer programs, including game logic.

Over the next few years, we expect to see the rise of a new generation of Web3-native games. Instead of using the blockchain as a way to track ownership of assets, these games will put the entire game logic and state on the blockchain. This means that there are no traditional servers or databases. What is recorded onchain represents the true state of the game. The term that our industry has been using for these types of games is ‘Fully Onchain Games’ (FOCGs), or as they’re sometimes referred to, Autonomous Worlds (AWs).

A lot has been written about FOCGs in the past couple of years, and terms like ‘composability’, ‘extensibility’, and ‘interoperability’ are often used to describe their affordances. Terms like these can be handwavy for the non-crypto-natives among us. In what follows, we will do our best to reason from first principles and use layman’s terms to describe why FOCGs are worth paying attention to. Before that, let’s address some of the obvious downsides of putting a full game on top of the blockchain.

Like all hard form applications, FOCGs don’t compromise in the usage of the Web3 tech stack. As a result, they suffer from many of the drawbacks that other decentralized applications also suffer from, like high transaction fees, high latency, and noisy neighbor problems. What’s more, current blockchain infrastructure is mostly optimized for one-off transaction-based applications like swapping tokens in an AMM or minting an NFT. This means that many of these problems are even worse for games, which often require large amounts of operations with fast response times. For this reason, the majority of FOCGs today are either designed around a low frequency of player actions, or they’re played on ‘testnet’ blockchains. As a result, many games industry participants dismiss FOCGs as a niche category that will only work for a small number of genres and will never scale to a mainstream audience.

Earlier in this essay, we made the case that all successful hard form applications require exponential advancements in their underlying technology stacks. Web3 as a computing platform has this potential. Today’s blockchains are being made more performant through solutions like sharding and rollups. There’s also work being done on developing game-centric execution environments, where smart trade-offs are made around the blockchain trilemma to allow for high actions-per-minute (APM) games to be played onchain. As an illustration: in the beginning of 2022 we made our first bet in a FOCG studio called Playmint. One single move in their first game, The Crypt, cost players $20. Today, a move in their newest game, Downstream, costs less than a penny.

Another promising evolution is the emergence of standardized open-source development frameworks to build onchain games. Similar to gaming engines like Unity or Unreal, these toolsets aim to abstract away much of the complexities of the blockchain, and they allow developers to build FOCGs far more quickly than if they had to build them from nothing. In a previous research piece, our teammate Ben compared the two leading onchain game development frameworks, MUD and Dojo, while using them to build a turn-based strategy game from scratch.

As has occurred with other technologies in the past, we expect these incremental improvements to compound over time, and before long players won’t even notice they’re playing a game that lives entirely on a blockchain. 

In order for hard form applications to be successful, they need to do new things or solve new problems. Predicting what kind of games will be most successful when built fully onchain is almost impossible. However, there are a few existing genres that are a good intuitive fit to being fully onchain, as their core game loops fit within the constraints and affordances of today's Web3 stack. An example is Soccerverse, a football management simulation game where the player spends more time doing research than ‘making moves.’ Another example is Wolf Game, a high-stakes financial game that involves making a low number of high-impact transactions.

What’s even more interesting to us are games that lean into the affordances of being fully onchain. These are games that could not exist without the Web3 tech stack. An example is Loot Survivor, a fully onchain roguelike arcade game that rewards the top players on the leaderboard with a fraction of each players’ entry fee. Another example is Words3, a financialized global Scrabble game. A final example is Yonk, a fully onchain app that forces your friends to listen to you.

History teaches us that if the category of FOCGs is to be successful, then the biggest successes will be games that truly lean into its affordances. It will be games that use the Web3 tech stack to do new things, games that could not have existed in a pre-Web3 world. They will be the Angry Birds of Web3 games. In what follows, we’ll dig deeper into some of these affordances, and share why we believe fully onchain games have potential to be the next major platform innovation for the gaming industry.

Since the dawn of online gaming, gamers have understood that digital items can have meaningful real world value. Rare in-game items that give their owners an edge (or sometimes more importantly: bragging rights) have been sold for more than the price of a car. During the boom of NFT games like Axie Infinity, we saw the amounts that people were willing to spend on gaming items increase even more. The reason that, to some, a gaming NFT is more valuable than a regular in-game item is the idea of ‘True Digital Ownership’.

Ownership of in-game items in traditional games is permissioned and centralized. This means that you depend on the game developer to uphold your ownership. This poses some risks and limitations. You could lose access to your item if you lose your account or the game gets discontinued. 

Conversely, the ownership of in-game assets in NFT-based games is permissionless and decentralized. The record of ownership is recorded on a blockchain, and no one can take your in-game item away from you. You can sell it, rent it out, use it as collateral, fractionalize it, or even destroy it at your heart’s content.

However, although NFT games decentralize ownership of your game assets, they still control the way those assets are used inside the game. In other words, there is decentralization of ownership, but no decentralization of utility (see figure 2 below). You’re free to do whatever you want with your NFT, and its creator would not be able to take it away from you. However, they would be able to stop you from using it inside their game (for example by banning your account or your NFT). And because these games are centralized, if the developer shuts down the game, or pivots away from Web3, you’ll still have your NFT, but there won’t be a game left to use it in.

This brings us to fully onchain games. These games live entirely on the blockchain, which means their rules and state are recorded and updated on a decentralized, permissionless computing platform. Being ‘decentralized’ means that the game cannot be shut down by one single counterparty, as the game is being run on countless nodes all over the globe. Being ‘permissionless’ means that no one needs permission to interact with the game. Anyone is free to spin up their own node or client, run the game, and play it whichever way they want (limited by the rules, of course). 

Items within FOCGs are fungible tokens or NFTs (there is no centralized server to keep track of ownership) and hence players benefit from having decentralized and permissionless ownership. But what’s even more important is that the way these items interact with the game is also decentralized and permissionless. The game ‘lives on the blockchain,’ and as long as there is at least one node validating transactions the game will be live and playable, the way it was defined in code.

If you’re asking yourself: “running a game costs energy, who’s paying the Web3 equivalent of gaming server costs?”, you’re asking a good question. In essence, players are paying node operators to ‘run the game’ through transaction fees (which is exactly how blockchains work as well). There is no company that can go bankrupt, block access to the game or shut it down. The game runs autonomously, and will exist as long as the blockchain exists, which is why some have begun describing fully onchain games as ‘Autonomous Worlds’.

Importantly, we’re not arguing that all in-game items should have decentralized and permissionless ownership and utility. There are very good reasons why almost all gaming companies limit what players can do with their items. Putting items on the blockchain invariably financializes them. However, most games are fun partly because they let us escape our economic realities. Making every in-game transaction a financial decision would make the majority of games far less enjoyable.

As humans spend more time online and playing video games, we expect that the amount of economic activity taking place in virtual worlds and economies will only increase. The economies of today’s MMOs have already started rivaling those of small countries. That said, a key limiting factor to this economic activity is trust. Using Web3 to ensure permissionless and decentralized ownership of digital assets is a first step in allowing games to become ‘virtual nations’ where players can partake in real world economic activity. 

As a natural next step, we expect that introducing permissionless and decentralized utility will increase trust, enable even more economic activity, and allow these permissioned virtual nations to grow into Autonomous Worlds.

Few industries have seen as much business model innovation as the gaming industry. Over its history, we’ve seen things like the arcade model, the retail sales model, the subscription or Pay-to-Play model, and the Free-to-Play business model.

Almost invariably, new business models are enabled by new platforms. For example, the internet allowed distribution to shift from physical retail to digital, drastically reducing production and distribution costs. It also enabled the games-as-a-service model, which allowed developers to monetize games after their initial sale. In mobile, the payment rails that came with the Apple App Store and Google Play Store enabled microtransactions, while ad networks allowed games to monetize by showing players ads.

Historically, these business model innovations then allowed for the emergence of new types of games. Games like Candy Crush would not be as successful as they are today without the F2P business model. And Fortnite would not have been able to make an estimated $20 billion in revenue if Epic Games hadn’t been able to distribute the game for free, and monetize through digital cosmetics and battle passes. 

The high level trend is this: platform innovation leads to business model innovation, which in turn leads to genre/content innovation. And what’s great about the games industry is that this innovation tends to be mostly additive to the global games industry revenue, as is illustrated by figure 3 below. What this means is that platform innovation allows for new types of content to exist profitably.

Similar to what happened with previous platform innovations, we believe Web3 as a computing platform will enable the emergence of new business models. 

As a decentralized computing platform Web3 enables the existence of permissionless digital scarcity. Thanks to the blockchain, we no longer need trusted third parties (like banks, PayPal or the government) to conduct commerce online. Web3 is a value layer native to the internet. What this means is that we now have a Turing-complete decentralized computing platform that we can use to do any sort of financial transactions we can dream of.

Because fully onchain games are built on top of the Web3 tech stack, they natively inherit this property and can monetize in a multitude of ways. If you can dream it, you can build it. To give a few examples: in addition to using every existing business model, FOCGs have the ability to monetize through: 

• Nano-transactions (i.e. players pay a fraction of a cent per move)
• Mega-transactions (i.e. players can now pay thousands or more in one transaction)
• Fractionalized transactions (i.e. groups of players can purchase and manage assets together)
• Renting out digital assets
• Earning interest on deposited player tokens

It’s very likely that some of these are bad ideas, and risk leading to yet another crypto fiasco. However, our thesis is this: by being built on the ultimate monetization platform (Web3), FOCGs will allow a new generation of games to exist. These games would not be able to exist (profitably) today, just like hypercasual games could not exist before the F2P model. It will take time to figure out what these games, genres and business models are, but chances are that the next major new gaming genres will be built on top of the blockchain.

Mods and other types of user generated content (UGC) have had a crucial role in the evolution of the games industry.. Some of the most successful games ever, like League of Legends and Counter Strike, have their roots in mods of other games. UGC taps into the combined creativity of the player base. A large number of today’s games (e.g. on Steam) give modders the ability to enhance the game, and allow players to choose what mods they’d like to add to the game. UGC gaming platforms like Roblox and UEFN take a different approach, they give creators user-friendly tools to build their own games from scratch.

Creating a thriving UGC ecosystem on top of a game or platform is not self-evident. It famously took Roblox more than a decade before it managed to reach a critical mass of both game creators and players. And from a technical perspective, enabling players to create content on top of an existing game is not a matter of just ‘turning on mods.’ Building a game to have a successful modding ecosystem requires developers to design and build around that from the very start and is expensive both from a time and cost perspective.

The variety and success of UGC in gaming is limited by two factors. One is the affordances of the tools provided by the game developer. What are creators able to build? Today's modding frameworks and UGC game creation platforms are inherently limited. Many of these limitations are caused by technical, regulatory or IP-related constraints. Some are a consequence of limited resources (building broad modding support is expensive and takes a lot of time). Others are caused by limits in the imagination by the original game developers.

The second limitation to UGC in games is monetization. Even if creators have the tools to build a wide range of content, they’re often restricted in the ways they can monetize their creations. Similar to the case we made in the previous section, we believe that expanding the availability of business models for in-game creators will lead to more and better content being created.

This brings us to fully onchain games. Because these games exist on a blockchain, they are both open source (anyone can read the game’s code) and open state (the state of the game world is known, or unknown but usable). This has a variety of advantages for in-game creators:

1. Onchain UGC has virtually no limits. Because the game exists on a Turing-complete computing platform, in-game creators can extend the game in pretty much any way they want. Want to bring communism to Minecraft? Sure. How about building a social deduction game inside an onchain MMO? No problem.
2. Everyone is able to extend the same game world. Most traditional multiplayer games that enable UGC fragment the user base over different shards (servers). Modders are not allowed to build on top of existing servers, so they have to create a new one. Extending FOCGs allows creators to build on top of existing servers, with all the context around world state and player progression that comes with that, again increasing the variety of UGC possible.
3. Onchain UGC is permissionless. The moment the original creator of the game publishes it on the blockchain, anyone is free to build upon it whichever way they like.
4. Onchain UGC monetization has no limits. As discussed previously, building onchain allows creators to implement a theoretically infinite variety of monetization strategies, leading to more content being able to exist profitably.

Fundamentally, we believe that giving creators more freedom and monetization mechanisms will lead to more and better content. FOCGs have come further than any other type of game in enabling this. We’ve already seen sparks of what this could look like, albeit on a small scale, which leads us to believe that UGC will play an even greater role for fully onchain games than it already has for traditional games.

We made the case that Web3 as a computing platform brings unique affordances to the games that are built on top of it. In this section, we’ll make the case that the technologies used in FOCGs will likely be the cornerstones of the future internet. 

Video games have historically served as a proving ground for emerging technologies, like GPUs, physics simulation engines and AI. One reason for this is that games are both highly demanding and low stakes. Gamers will find and exploit every vulnerability in a game, and are sure to let the devs know if the game doesn’t work as it should. But they’re also quick to forgive mistakes and provide (mostly) constructive feedback. As a consequence, games have fast feedback loops (compared to many other products), which helps companies find product-market-fit faster. The result is this: when building on top of a blockchain, we can expect that a team building a game will have an order of magnitude more ‘shots on goal’ with faster iteration speeds than a team building a DeFi protocol. Mistakes are less costly, so game builders can ship faster and get feedback earlier.

Another way to think about this is through the Pace Layering framework. The pace layering framework posits that different parts of society move at different speeds. The lower the layer, the slower it moves. It allows us to experiment at the highest layers, while keeping the foundations of our society intact. Once a new technology finds sustained impact in a higher layer, it can seep down to the layer below. It’s the reason why we can permissionlessly trade meme coins on the internet, but still need to be physically present to cast our election vote.

Because games are playful and have low stakes, they live on the fashion layer. In that fashion layer, new technologies get to ‘prove’ themselves before they start impacting ‘lower’ levels of society. It is why we were playing Angry Birds long before we could use our phones to pay, and it’s also why OpenAI developed a team of AIs that could beat the world champions in DOTA2 years before launching ChatGPT. 

Bitcoin was invented as a peer-to-peer electronic cash system, aimed at building a payment system that did not require any third parties. The following generations of blockchains took it a step further and wanted to replace the current financial system with decentralized finance. Pace layering is the reason why we still need to wait days for international wires to arrive, and why we still put up with banking apps that look like they were built in 2010. Commerce and infrastructure move slowly. Before our society starts accepting Web3 as a useful financial technology stack, we will need to prove product-market-fit at the highest layer: fashion.

Games are where Web3 will need to prove itself before it can further impact society. Even more so, if you believe in a Web3-enabled internet, with more control in the hands of consumers, then much of that tech stack will need to be built out in fully onchain games first. As an example, the Web3-enabled internet will need privacy. There’s a good reason why bank balances and brokerage accounts are private. Today's Web3 wallet system, where everyone can see the contents of any wallet at all times, is not a sustainable solution for what’s supposed to be the financial backbone of the future. We will need privacy primitives to allow protocols to interact with and use data, without knowing the details of that data. FOCGs are the ideal sandbox to develop these primitives. As playgrounds for social cooperation and collaboration, games have historically broken down the concept of hidden information to its most granular pieces. They natively distinguish between:

• Information that all players know (e.g. the world state in an MMO)
• Information that some players know (e.g. teams within RTS games)
• Information that one player knows (e.g. a poker hand)
• Information that no one knows, but exists (e.g. the Fog of War in RTS games)

Our expectation is that whatever privacy primitives are used in the different decentralized applications of the future, they will have found their first usage in FOCGs. And we expect that the same will happen for other primitives. We don’t know what the viral apps of a Web3-enabled internet will be, but our guess is that they will draw strong inspiration from the FOCGs that will be built over the next few years.

There are many reasons why we’re excited about the potential of Fully Onchain Games. But we’re also keenly aware that there’s a risk that we are ‘right but too early’. The FOCG tech stack has quite a long way to go before it can compete with the traditional gaming tech stack, and so we are looking for teams that are working on ideas that strongly lean into the affordances of this new technology. Just like we saw throughout gaming’s history, the most successful games on a new platform are most often the ones that couldn’t exist without it. To date, we’ve only made a small number of bets in this space, including investments in Playmint and CCP Games’ Project Awakening. We like experienced teams with big visions. If you’re building something, let us know.

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