Investment in Web3 Gaming Slows Down as Hype Loses Its Grip

The Web3 gaming industry is going through a period of tighter investment conditions. Investors have become more selective, prioritizing sustainable projects over those driven by hype. Capital is still available, but it no longer moves as freely as before.

A “Game of Musical Chairs” in Blockchain Gaming

Blockchain gaming is a "game of musical chairs," according to Theodore Agranat, director of Gunzilla Games Web3 in February. He emphasized that the same funds are transferred from one project to another without drawing in fresh funding. Players also follow this pattern, extracting value from one game before leaving to find another.

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That same month, Illuvium, a highly anticipated Web3 game, laid off 40% of its staff to streamline operations. Sky Mavis co-founder and CEO Trung Nguyen made a similar move in October 2024, cutting 21% of the company’s workforce to optimize its budget. These events show that teams must operate leaner to survive in today’s market.

Sky Mavis co-founder Jeffrey Zirlin said the capital constraints in Web3 gaming reflect the broader crypto industry’s struggles. He emphasized that investment has not disappeared entirely but has become more cautious.

Some projects still attract strong investment. Fableborne, a mobile Web3 game, was oversubscribed by 16,000% during its fundraising. Zirlin pointed to this as evidence that fresh capital is entering the space, particularly within Ronin, the Sky Mavis blockchain network. He noted that investors are no longer blindly funding projects, especially those labeled as “Axie killers.”

The Hype-Driven Cycle Is Slowing Down

The Sandbox co-founder and chief operating officer Sebastien Borget disagreed with the idea that Web3 gaming operates like a random cycle of capital. He acknowledged that new money is more limited, but he believes the unpredictability caused by hype has decreased.

Borget said the success of blockchain games now depends on meeting traditional gaming standards. Projects must offer compelling content, sustainable user acquisition, strong in-game economies, and a loyal player base.

Josh Gier, chief marketing officer of gaming tournaments platform Coliseum, said the days of projects raising millions just by adding NFTs are over.

He explained that while the speculative phase of blockchain gaming has cooled, capital is still available for projects with strong fundamentals. Investors are looking for games that integrate Web3 elements in ways that enhance gameplay rather than focusing solely on financial incentives.

Vineet Budki, CEO of venture firm Sigma Capital, highlighted that some investors, like Animoca Brands, remain committed to blockchain gaming. He noted that games take longer to develop than other crypto projects, which means investments take longer to show results.

Budki also said raising funds for Web3 gaming has become more difficult. In the past, projects could secure capital by showcasing a gameplay video and attractive tokenomics. Now, investors look for teams with the skills to build great games and distribute them effectively.

Web3 gaming is moving past its speculative phase. Investors are becoming more strategic, and projects must demonstrate real value beyond hype. The focus has shifted toward sustainability, strong game design, and player retention. The industry is evolving, and only well-built games with solid business models will continue to thrive.