The web3 gaming industry, once a beacon of excitement, now faces a significant turning point as user engagement declines and funding opportunities dwindle. In the second quarter of 2025, blockchain gaming experienced a notable setback, with daily user activity plummeting by 17%, leading to the deactivation of over 300 gaming decentralized applications. To compound the challenges, investments in cryptocurrency-based games fell to their lowest levels in two years. Despite these setbacks, major players in the traditional gaming sector, including Sega, Ubisoft, and FIFA, continue to invest in web3 technologies. Analysts suggest that while the current market conditions are tough, the long-term outlook remains promising, with some developers and brands quietly gearing up for a resurgence in the future.
Fragility of Early Web3 Games
Data from DappRadar, analyzed by blockchain expert Sara Gherghelas, highlights the vulnerability of numerous early web3 games during the first quarter of 2025. “Numerous Web3 games have shut down, funding has continued to decline, and across the board, user engagement has decreased. Many titles, ranging from overhyped MMORPGs to play-to-earn combat games, have struggled to endure the challenging market landscape, facing issues such as lack of investor support, poor user retention, and flawed economic models,” noted Gherghelas.
Broader Market Pressures
Wider cryptocurrency market trends have also contributed to the difficulties facing web3 gaming. Research from Delphi Digital indicates that various crypto sectors have underperformed compared to Bitcoin (BTC). For instance, AI frameworks saw a staggering loss of over 84% in value, while agent-based projects fell more than 70%. Memecoins dropped by 51%, and gaming infrastructure experienced losses exceeding 50%. In contrast, Bitcoin only saw a modest decline of about 5%, with Ethereum (ETH) and Solana (SOL) each falling around 25%.
Unexpected Market Decline
The recent downturn took many by surprise, especially following a Binance survey last year in which nearly half of respondents anticipated that AI tokens and memecoins would lead the market in 2025. However, that optimism did not materialize, as many sectors became oversaturated or struggled with inflated expectations that did not align with actual usage. This trend was similarly evident in web3 gaming, where early “play-to-earn” models failed to sustain themselves over time.
Signs of Continued Development
Despite the current challenges, there are indications that momentum is still building behind the scenes. In February, Robbie Ferguson, co-founder of Immutable, revealed that several gaming companies valued over $1 billion are now considering launching their own tokens. He mentioned that some of these companies are publicly traded and would not have contemplated token launches just a year prior. Ferguson believes that 2025 is compressing years of development into a much shorter window, potentially leading to higher-quality blockchain games and more viable token economies that genuinely benefit players.
Positive Trends Amidst Declines
During the second quarter, there were some encouraging signs despite the overall drop in gaming activity, which fell to 4.8 million daily users—the lowest figure since early 2023. Certain blockchains and games demonstrated resilience, with DappRadar reporting that the opBNB blockchain led in active wallets while WAX excelled in transaction volume, indicating deeper player engagement. Emerging chains like Aptos, Sei, and SKALE also attracted more gaming traffic, and the game “Off the Grid” gained traction on GUNZ, a customized Avalanche subnet, where some users began utilizing its mainnet during testing.
Survival of the Fittest
However, not all projects managed to endure. DappRadar noted that over 300 games that were active in the first quarter exhibited no on-chain activity in the second quarter. Some may have ceased operations entirely, while others might have paused updates, transitioned to different blockchains, or struggled to keep pace with smart contract upgrades. Gherghelas pointed out that this rapid change reflects the dynamic nature of a still-nascent and experimental industry. High-profile closures included Ember Sword, which failed to secure additional funding despite previous excitement; Nyan Heroes, which collapsed after its token plummeted in value; and Mojo Melee, whose team pivoted to developing AI tools instead of games.
Mixed Results in the Metaverse
The metaverse sector also experienced a mix of outcomes. Trading volume for metaverse NFTs saw a 26% decline this quarter, while the number of sales increased by 54%, indicating a drop in prices but a rise in activity. Yuga Labs provided round-the-clock access to its Otherside metaverse, while Animoca’s Mocaverse introduced its own layer 1 chain focused on identity and data ownership. Meanwhile, Pixels shifted its focus from aggressive growth to enhancing gameplay, planning a mobile spin-off named Pixels Pals for later this year. The Sandbox launched an extensive 40-experience season and began collaborating with Cirque du Soleil for a metaverse crossover.
Funding Trends in Web3 Gaming
According to Gherghelas, while funding for web3 games has declined significantly—only $73 million was raised in the second quarter, a staggering 93% drop from the previous year—most of the capital raised has been directed toward infrastructure projects rather than games. Notable examples include Ultra, which secured $12 million to enhance its publishing platform, MagicBlock with $7.5 million for a real-time gaming engine on Solana, and Cooking.City with $7 million to develop a cooking game featuring token rewards. Gherghelas emphasizes that robust infrastructure and patient development will be more critical than fleeting hype in the current landscape. Although the flashy cycles of 2021 and 2022 may have ended, the foundational work for the next phase is actively being established now.
