The web3 gaming sector is facing a potential crossroads as user numbers decline and funding slows down. In the second quarter of 2025, daily user activity dropped by 17% and over 300 decentralized gaming applications became inactive. Despite this downturn, traditional gaming giants like Sega, Ubisoft, and FIFA are still making moves into the web3 space.
Analysts believe that while the market is currently struggling, the long-term potential of web3 gaming remains strong. Some developers and brands are quietly preparing for the next big breakout in the industry.
Data compiled by DappRadar’s blockchain analyst Sara Gherghelas revealed that many early web3 games are still fragile. Funding for crypto games hit a two-year low, and user activity declined across the board in the first quarter of 2025. This resulted in the shutdown of numerous web3 games due to factors such as lack of investor backing, poor retention rates, and unsustainable tokenomics.
The broader crypto market conditions also added pressure on the web3 gaming sector. Most crypto sectors performed worse than Bitcoin, with AI frameworks, agent-based projects, memecoins, and gaming infrastructure experiencing significant losses. In comparison, Bitcoin, Ethereum, and Solana had relatively smaller declines.
Despite the challenges, there are signs of momentum building behind the scenes. Immutable co-founder Robbie Ferguson mentioned that several gaming companies worth over $1 billion are considering launching their own tokens. This shift could lead to higher-quality blockchain games and more useful token economies for players.
While Q2 saw a decrease in gaming activity, certain chains and games showed strength. Newer chains like opBNB, WAX, Aptos, Sei, and SKALE saw increased gaming traffic. The game “Off the Grid” gained momentum on GUNZ, a custom Avalanche subnet, despite still being in testing.
However, not all web3 games survived the challenges of the market. Over 300 games listed as active in Q1 had no on-chain activity in Q2, indicating closures or pauses in development. Some notable closures include Ember Sword, Nyan Heroes, Realms of Alurya, Mojo Melee, and The Walking Dead: Empires.
In the metaverse space, trading volume for NFTs fell while the number of sales increased. Yuga Labs, Animoca’s Mocaverse, Pixels, and The Sandbox made significant moves in the metaverse space despite the mixed results.
Funding for web3 games has decreased, with most of the money going to infrastructure projects rather than games. Strong infrastructure and patient development will be crucial for the future of web3 gaming, as the industry moves away from hype towards sustainable growth.