The recent crash of cryptocurrency markets and loss of trust after spectacular failures like FTX haven’t changed the promise of what blockchain can bring to the $300 billion gaming industry, according to digital asset investment firm Pantera Capital.

Early innovators like Axie Infinity, whose approach of letting users earn income by playing the game brought in $10 million in daily fees at its peak, have since shown to be unsustainable, Pantera Investment Associate Sehaj Singh wrote in the firm’s most recent blockchain letter. Axie introduced non-fungible tokens (NFTs) and secondary markets that allowed players to truly own their in-game assets yet failed to think long term, or make the games enjoyable to play, rather than tedious versions of yield farming. The platform brought in about $5,000 a day as of last month, Singh said.

“These ‘games’ were far from being fun or engaging and 2022 has (thankfully) seen their inevitable demise,” Singh said in the letter.

Yet that doesn’t take away from the bigger-picture effect blockchain can have on the gaming industry. “By empowering gamers to truly own their in-game assets, blockchains turn the value-extractive framework of the traditional gaming industry on its head,” he said.

Read more: Crypto Games Need to Be, You Know, Fun. Daniel Paez and World Spark Studios Are Here for Just That

The global gaming industry is now worth over $300 billion with 2.7 billion people playing regularly, according to a 2021 report by Accenture. Growth, which shows no signs of slowing down, has been spurred by mass mobile phone adoption, increased screen time and a greater need for social interaction during the pandemic. The blockchain part of the gaming market is expected to grow to $65.7 billion by 2027 from $4.6 billion in 2022, according to research by MarketsandMarkets.

A new tact in blockchain gamins is to give NFTs to users for free in the hope that they go out and promote the game to bring in new players and therefore increase the value of their NFTs. Called “free-to-own,” it’s being pioneered by web3 gaming firm Limit Break, Singh said.

“This is a tectonic shift from how marketing/distribution occurs in traditional studios and a trend we expect to see more of in 2023,” the analyst said. “Gaming is a dynamic industry that continues to evolve to suit players’ needs and we think the blockchain-enabled future is already here to stay.”

Another approach to blockchain-based gaming is to form decentralized autonomous organizations (DAOs) to pool resources for games that may be too expensive for players to play on their own. NFTs are used and players can gain crypto tokens and rewards for advancing through the games. The NFTs can be rented out, loaned or sold for a profit. In its 2021 end of year industry report, DappRadar found that 49 percent of unique active crypto wallets were connected to blockchain games, with trading volume of game-related NFTs hitting $4.5 billion that year. 

Play It Forward DAO is one approach, which we wrote about last year. Play It Forward’s business model is simple. The DAO purchases several access-pass NFTs for a game like Axie Infinity and then rents them to their player groups called guilds, enabling them to compete. PIF DAO takes a revenue share of any winnings the guilds make. As a community, PIF DAO offers further support by way of educating newcomers as well as training to help guilds improve their chance of success.

But don’t expect big gaming studios like Activision-Blizzard or Mojang to embrace NFTs soon. There are too many potential pitfalls for incumbents, Singh said.

“For these companies, the risk of integrating web3 via ownable assets (custody risk, smart contract risk, or anti-blockchain players churning away) still outweighs the rewards from any added monetization capabilities or player engagement,” he said. Without the gaming giants paving the way, Pantera expects many smaller blockchain-based gaming studios to go under.

“The web3 native studios that survive will go on to become much larger and pave the path for sticky business models that will be adopted by traditional gaming studios for years to come,” Singh said.