All roads lead to Web3 gaming in India, but regulation needed: Experts

It's the new sunrise segment in the country's media and entertainment industry

Web3 gaming companies in India have raised $6.7 million in funding between January 1 and August 30 this year — almost three times the $2.4 million raised in all of 2021, according to data from research firm Tracxn. 

Almost every gaming company in the country has either forayed into the Web3 gaming segment or is planning to do so. Dream Sports, the parent firm of India’s gaming unicorn Dream11, invested in Rario, a cricket non-fungible token (NFT) platform. Nazara Technologies, a listed gaming firm, has said that it will look at acquisitions to venture into the category.

“In India the biggest gaming platforms and companies are looking towards Web3 games. Dream11 and MPL, both unicorns, are reported to have either already ventured into Web3 gaming or invested in the sector. There are multiple Indian developers creating NFT- and Web3-based games,” says Roland Landers, CEO of the All India Gaming Federation. “With Web3 gaming and NFTs in play, the player-owned economy will be the new reality. The meteoric rise in investment and adoption is evidence that the sector is the new sunrise segment in the media and entertainment industry.” 

The rise of Web3 gaming comes on the back of a growing gaming market in India. India logged 433 million online gamers in FY21, and the number is expected to climb to 657 million users by FY25, according to the KPMG report, Beyond the Tipping Point, published last year. What’s more, the country’s online gaming industry generated revenues of Rs 13,600 crore in FY21, of which casual gamers contributed Rs 6,020 crore, the report said.

This figure is projected to rise to Rs 29,000 crore in FY25, with casual gamers contributing Rs 16,900 crore. The report also said that consumer spend in the sector is expected to climb from Rs 2,410 crore in FY21 to Rs 6,970 crore in FY25.

The global decentralised app (dapp) store DappRadar stated in its Q1 2022 blockchain games report that investments in blockchain games in Q1 2022 amounted to $2.5 billion. If this pace is sustained, investments in the space will be 150 per cent higher this year over the previous year.

That’s not all. Blockchain gaming has increased 2,000 per cent from Q1 2021, with dapps accounting for 52 per cent of the industry’s activity. DappRadar also recorded the creation of 1.22 million unique active wallets for blockchain games in March this year.

What is Web3 gaming?

What exactly is Web3 gaming? And what makes it a better alternative to traditional gaming? 

The most commonly associated term with Web3 is cryptocurrency (or simply crypto), a decentralised currency. But crypto is just one use of blockchain technology. Web3 can also incorporate decentralisation in gaming. This opens up a host of opportunities for gamers in terms of ownership, interoperability or play-to-earn.

In traditional gaming, in-game assets (acquired through in-game purchases or through playing the game) are the property of the game publisher. “Gamers tend to spend lots of money to acquire these assets,” says Parth Chadha, CEO of the Polygon blockchain-based fan engagement platform, STAN. “But if, for some reason, the game is banned, or the publisher shuts down the central servers, or a player loses interest in the game, these assets are lost, as they are limited to the game.”  

Web3 games allow for the creation of NFTs of these assets, which can be bought and sold, giving the games an element of play-to-earn. Thus, gamers can exercise complete ownership over their assets.

These NFTs can also be traded across different gaming platforms on the blockchain, which is known as interoperability. However, this may not be applicable to all Web3 games. “Interoperability is going to be limited to only certain games. It cannot be implemented in every game,” says Amanjot Malhotra, the head of growth at Tezos   India, a blockchain adoption entity.

The recent cryptocurrency crash may have made some people apprehensive about blockchain. But Landers believes that though Web3 games may see decelerated growth in the short term, they will bounce back much better than other use-cases.

“The reason is that gaming/entertainment is the core of the industry while NFT/Web3 elements are more of an enabler. Therefore, as long as gamers enjoy the games, the industry will keep seeing an upward trend. The prospects in India are quite positive,” he says.

Regulatory hurdle 

The lack of regulations around Web3 gaming in India may prove to be a serious hurdle. Landers says that since Web3 is still a foundational technology, it may take some time for the government to analyse the sector and come up with regulatory policies.

At present, the only Web3 policy in place is the recent taxation regime for virtual digital assets (including NFTs). But this, too, lacks clarity. Web3 games are, therefore, being governed under general laws applicable to traditional online games, says Landers. 

“There is still some apprehension in the government about the cryptocurrency aspect of Web3. But since Web3 gaming is a very different use-case of blockchain, we are hopeful that the government will treat it differently and understand its nuances,” he adds.

Given the prodigious rise in the popularity of online gaming in India, the increasing willingness of consumers to spend money on it, and the immense untapped potential of the crypto-tech industry, a promising future beckons.

As Landers says, “Web3 gaming is an industry which already has a strong vantage point with respect to attracting investments and talent. Affordable internet penetration within the country and a young demography ensures a huge available market. With a positive push from the government, Web3 gaming can catapult India into a new age of the digital economy.”