When investing in Web3 games, investors should consider doing due diligence on the game’s long-term potential, looking at factors such as user-related data, team, governance, liquidity of game assets, and more. Investors should also consider larger market movements, such as tracking smart money and monitoring public sentiment about the project.
We have compiled for you the things to consider when investing in Web3 games…
Things to consider when investing in web3 games
The monthly gaming volume in the Web3 market has decreased significantly since the peak of the bull market. But innovation in the Web3 gaming space remains alive, and developers are focusing on long-term trends as they continually grow their products.
Currently, the web3 gaming industry displays a vibrant outlook with more than 2,500 active game projects and a market value of 5.6 billion dollars as of August 2023. This dynamic sector also has an active user base of 820 thousand, which shows its potential. Also, significant investment continues to come into the industry, as evidenced by companies like Sui and Mysten Labs, which have raised $300 million in funding and plan to offer high-end games.
The GameFi ecosystem offers a wide variety of opportunities, such as investing in game tokens, play-to-win models, and investing in projects. However, it is important to understand that every investment comes with its own potential returns and risks. Therefore, the use of powerful on-chain analytics is essential to effectively analyze investment performance, market liquidity, and user engagement in specific projects.
Managing risks and leveraging speed in the GameFi market
Independent investors can make enlightening decisions about the gaming market, even if they do not have the extensive research facilities that institutions do.
Financing and resource constraints can naturally lead individual investors to speculate. This has risks, because in addition to high rewards, there can be significant losses.
On the other hand, the direct control that individual investors have over their investments can enable faster decision making. This agility can often be useful in the fast-paced and ever-evolving game world. An individual investor’s ability to quickly adapt and respond to market changes is an advantage that can be leveraged for potential profit, although it requires careful management to mitigate risk.
Due diligence on projects
In the Web3 playground, the need for long-term investors to conduct comprehensive due diligence and analyze on-chain metrics is critical. This approach facilitates comprehensive understanding, risk reduction and more informed decision making.
Long-term investing requires a substantial capital commitment, a higher level of patience, and a solid risk tolerance from investors. As a result, these investors often base their decisions on careful research and analysis. This includes examining the fundamentals of the game (or a company’s equivalent), growth potential, competitive position, and other relevant factors.
In the field of web3 games, long-term investors are targeting a wide variety of meticulously researched projects. By doing rigorous due diligence and analyzing on-chain metrics, they can make data-driven decisions that align with their investment strategy. This methodical approach is also key to navigating the complex and dynamic world of blockchain gaming investments.
long-term potential
In the rapidly evolving web3 gaming industry, it’s important to distinguish between hyperbole and longevity potential. Not all resounding projects can sustain themselves in the long run. Identifying games with solid foundations and lasting potential is the key to a successful investment.
Long-term potential is often found in games that have a strong foundation, increased user engagement, and a history of continuous innovation and updates. A vibrant and interactive community also signals longevity and can offer potentially significant returns over time. Therefore, long-term investors need to look beyond the current exaggeration and evaluate the key features that make a game promising for the future.
User-related data
The user is the basis of any game project and this principle is extremely important in the field of web3 game ecosystems. User behavior and feedback not only shape the course of the game, but also form the pillars that support the entire ecosystem.
In the early stages, it is critical to carefully monitor the flow of new users. Tracking these early participants allows us to gauge the game’s initial appeal, which is a litmus test for potential success.
In turn, our focus should shift to monitoring active users during the mid and later stages of the game’s lifecycle. This shift is critical because it is these engaged users who determine the momentum of the ecosystem, and through their activities we can assess the impact and retention rates of certain events. It is also an important criterion for evaluating the effectiveness of the game’s design.
In addition, the behavior and activities of new and old users can affect the economic ecosystem of the game. Therefore, tracking users’ activities can provide critical clues about the course of the game.
Such careful monitoring of active users gives a strong signal of the game’s long-term potential. Games that successfully maintain and even grow their active user base have a better chance of continuing their success over time, underlining the strategic importance of user-related data in the web3 gaming world.
Game design and economic system
Game design—including overall gameplay, tokenomics, and ecosystem design—is a critical factor in the longevity and success of Web3 games. Usually, we can get a game design overview from their whitepaper.
For example, a typical web3 game contains elements such as NFTs, tokens and other game materials. This understanding can help investors identify which tokens or NFTs have the potential to appreciate. You can also evaluate the sustainability and potential of this monetization opportunity.
Tokenomics and token distribution
Another aspect to consider is the tokenomic aspect of the game, which is part of the game design.
Tokenomics is a unique aspect of blockchain-based gaming that shapes economic interactions and incentives within the game and plays a critical role in player engagement and retention. This understanding of tokenomics allows people to actively participate in the gaming economy, allowing them to adapt to the dynamic changes in the ever-evolving gaming market. With tokenomics as its foundation, players are motivated to be an integral part of the game’s ecosystem, fostering a vibrant and sustainable gaming community.
In addition, the rich and innovative game design increases the attractiveness of the game, making it more fun and engaging for users, thereby increasing its long-term potential. The ability to deliver unique and immersive experiences is at the heart of every successful game and is even more important in the web3 environment. Robust game design is required to take full advantage of web3 features such as decentralization, interoperability and player dominance that distinguish these games from traditional games.
Token distribution is an indispensable element when analyzing the long-term potential of a game and the integrity of its economy. It refers to how the game’s native tokens are distributed among various stakeholders such as players, developers, and investors.
The distribution of tokens is usually determined by the team. However, we can still analyze the data and look at the overall distribution of tokens, not just by team ownership and user. Data analysts can determine the token distribution based on each person’s wallet balance. For example, if 1 percent of people own 90 percent of the tokens, that would be very dangerous and the token price would change quickly because of a small group of people.
Ideally, a distributed token economy is one in which no single organization controls an excessive number of tokens. This not only ensures a level playing field for all participants, but also protects them from the risk of price manipulation by a single entity.
governance
Another important aspect that investors should consider is the governance of the project. In the context of a web3 project, governance refers to decision-making mechanisms and processes within the project. In a truly decentralized system, token holders often have the power to vote on critical issues affecting the project. Information about a project’s governance model can often be found in the project’s white paper or official documentation.
Projects with a decentralized and inclusive governance model are generally considered to be more protecting the interests of investors. This is because a decentralized governance model promotes transparency and fairness and reduces the risk of decisions being made that will benefit only a few.
Investor protection
In the rapidly evolving web3 world, investor protection often depends on numerous factors.
In addition to smart contract security and regulatory compliance, token distribution and project governance are the most important. Investors should stay vigilant by monitoring data exchanges and examining token distribution patterns to avoid falling victim to market manipulation by “whales,” the major stakeholders that hold a significant portion of the tokens.
Decision making by focusing on market movements
Investing in web3 games, an industry known for its high risk, high reward paradigm, requires extensive research and a deep understanding of the industry’s complexities. The speculative nature of this nascent industry requires careful decision making, always in line with an investor’s risk tolerance.
As noted above, it is critical to carefully consider all elements and details, conduct thorough due diligence, and analyze in-chain metrics to make informed decisions and minimize risk. By taking these steps, you can ultimately make a comprehensive decision that maximizes profits while minimizing risk.
