# Background

## **Opportunities**

**Web3 games leverage cryptographic blockchain technology, integrating elements such as non-fungible tokens (NFTs) and cryptocurrencies. This allows players to buy, sell, trade, and earn income within the game, providing a transparent environment for trading in-game assets and creating new opportunities.**

**Blockchain technology brings new opportunities: secure and transparent transactions, innovative game mechanics, and novel gameplay experiences.**&#x20;

**Capverse believes it has the potential to disrupt the traditional gaming industry. Currently, the Web3 industry is characterized by:**

#### **Global Regulatory Compliance**

* On June 1, 2023, the Hong Kong Securities and Futures Commission (SFC) implemented the "Guidelines for Virtual Asset Trading Platform Operators."
* On January 11, 2024, the U.S. SEC approved the listing of 11 spot Bitcoin ETFs.
* On April 30, 2024, Hong Kong launched its first spot Bitcoin and Ethereum ETFs on the Hong Kong Stock Exchange.

These developments signal robust growth for blockchain-related industries under a compliant framework, potentially unlocking the true potential of Web3 games.

#### **High-Growth Web3.0 Gaming Sector**

According to a report by Fortune Business Insights, the global Web3 gaming market size was $128.62 billion in 2022. It is projected to grow from $154.46 billion in 2023 to $614.91 billion by 2030, with a compound annual growth rate (CAGR) of 21.8% from 2023 to 2030.

Web3.0 games break traditional gaming industry barriers, offering richer experiences and greater autonomy. Blockchain and cryptocurrency technology enable the permanence, genuine ownership, and trade of virtual items and assets within the game.

#### **Technological Advancements Leading Industry Transformation**

In recent years, we've witnessed rapid iterations in technologies such as blockchain, VR, AR, and AI. We anticipate that AI will profoundly impact this industry in the near future. Capverse aims to take a crucial step in integrating AI with the Web3 gaming sector.

#### **"Play-to-Earn" Demand Amid Global Inflation**

Amid global inflation, the crypto sector provides a new avenue for asset preservation and growth. Blockchain technology introduces new business models to the gaming industry. Play-to-earn games offer a relatively low-cost way to enjoy entertainment and social experiences while enabling players to earn virtual currency or NFTs, which can be traded in the market for direct benefits.

## **Challenges**

**Capverse views Web3 games as a critical catalyst for mainstream blockchain adoption, simplifying complex concepts and helping people understand blockchain technology. Unlike other sectors, traditional gaming already familiarizes people with concepts like in-game currency and items, making Web3 games an easier entry point for the general public. However, to achieve this goal, Web3 games must address the following challenges:**

#### **Trust Issues**

In the rapidly evolving blockchain field, the diversity of projects, technical complexity, and imperfect regulatory systems make it difficult to verify project authenticity and quality. Scams and frauds harm player interests and industry reputation. Web3 games, in particular, face significant trust challenges, as players must consider the game's authenticity, transparency, and sustainability. Therefore, Web3 game projects must enhance technical security, community management, and transparency to earn player trust.

#### **Lack of Gameplay**

Despite the advantages of blockchain technology, such as decentralization and asset ownership, Web3 games often lack engaging core gameplay compared to Web2 games. Poor gameplay leads to decreased player retention, creating a negative feedback loop. To succeed, Web3 games need more innovation and effort in functionality and gameplay to surpass Web2 games, attract more players, and increase retention rates.

#### **Customer Acquisition Difficulties**

The Web3 gaming industry is gradually shifting from focusing solely on native crypto players to a broader mainstream market. However, the unique and complex nature of blockchain technology creates a natural barrier between Web2 and Web3 games. This challenge in attracting new users continues to hinder industry growth.

#### **Value Creation**

The booming NFT market faces issues like low-quality, copied, and plagiarized content, with numerous worthless NFTs flooding the market. Creating value for issued NFTs has become increasingly important.

#### **Death Spiral**

Flawed in-game economic models can lead to insufficient player earnings, increased attrition rates, and economic collapse. This typically occurs in games with imbalanced economic models or lacking professional support. Game developers must prioritize the design and measurement of economic models to ensure fair, reasonable, and stable environments, maintaining long-term operation and healthy player community development.
