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Understanding Staking in Web3 Gaming

February 22, 2023
6 min read


Web3 gaming is a revolutionary new subset of games that incorporates blockchain technology to give real-world economic value to in-game assets, creating a true open economy where players are free to trade in and out. While the integration of Web3 technology into gaming is inevitable and beneficial for the industry, developers are still figuring out the optimal way to design these games and their economies.

One of the exciting new features of Web3 games is the ability to reward players with financial incentives just for playing. However, this has given rise to a primary problem in which the type of player attracted to these early Web3 games was the hustler - individuals who interacted with the game solely to earn money. The vast majority of these players would play, earn rewards, and then cash out of the ecosystem. While this behavior does not cause a problem as long as new money keeps flowing into the game, it is in the game's best interest to keep players in the ecosystem for as long as possible.

To address this issue, Web3 game developers have turned to staking. Staking is a concept that emerged in decentralized finance, where investors lock some of their cryptocurrency holdings into a protocol's smart contract for a definite period of time in exchange for more token rewards. In Web3 gaming, staking provides players with additional incentives to keep their tokens locked into the game's ecosystem for longer periods, thus creating a more stable in-game economy.

What is staking?

Staking in Web3 gaming is a fundamental pillar for the in-game economy, ensuring sustainability and long-term success. In order to maintain a thriving in-game economy, games require a liquid currency with a stable value. This is where staking comes in, incentivizing players to hold onto their tokens by rewarding them with even more. By providing these incentives, games can cultivate an organic economy that encourages players to stake more tokens for longer periods, leading to even greater rewards for the most dedicated and active players.

Games often incorporate mechanisms that encourage players to delay rewards for the potential of a higher payout. There are several forms of staking available in Web3 gaming, offering players a variety of ways to enhance their gaming experience and improve their chances of success. As a player stakes more tokens, they end up with a larger pool of resources to reinvest in the game, creating a snowball effect that can lead to even greater rewards.

By embracing staking in Web3 gaming, players can contribute to the health and growth of the game while also reaping the benefits of their investment.

There are different types of staking in web3 gaming, including:

  1. Proof of Stake (PoS) - This involves locking up cryptocurrency in a wallet to support the network and validate transactions. In return, players earn rewards in the form of additional cryptocurrency.
  2. Non-fungible token (NFT) staking: In some Web3 games, players can stake NFTs instead of cryptocurrency. This helps to support the game's economy and can provide players with additional in-game benefits.
  3. Liquidity Staking: This involves staking a certain amount of cryptocurrency in a liquidity pool to provide liquidity for trades on decentralized exchanges. Players can earn rewards in the form of additional cryptocurrency or in-game items for providing liquidity.

What are stake rewards?

Staking rewards are the incentives earned by stakeholders for participating in the network and supporting its operations. Staking rewards are calculated based on a number of factors, including the amount of cryptocurrency staked, the length of time it is staked for, and the current market conditions. The amount of staking rewards earned can be affected by a number of factors, including changes in the market price of the staked cryptocurrency, changes in the network's inflation rate, and the overall level of network participation.

Staking in Web3 games

Here are some ways in which staking is used in Web3 games:

  • Staking game tokens to unlock exclusive in-game items and properties that can help players enhance their characters and improve their in-game performance
  • Staking game tokens to earn other tokens, which can be used as in-game "energy" or activity points to perform various actions.
  • Providing liquidity to in-game markets with tokens to earn additional in-game credits or participate in leaderboard competitions to access seasonal game items
  • Staking game tokens or non-fungible tokens (NFTs) to upgrade special items or increase the level of a player's character in the game
  • Staking game tokens to receive rewards in cryptocurrencies, such as ETH or stablecoins, which can be used outside of the game for trading or monetization.
  • Staking game tokens to earn governance tokens, which allow players to vote on the usage of the game's treasury and influence the game's roadmap prioritization.
  • Staking game tokens to ensure the stability of the underlying blockchain and increase decentralization
  • Staking the gaming platform token allows players to receive multiple tokens as rewards, which could be a mix of in-game tokens and cryptocurrencies.

Risks of staking in Web3 gaming

Staking can be a lucrative way to invest your money in the crypto market. It can yield significant returns, but as with any investment, it comes with risks. One example of the potential pitfalls of staking can be seen in the rise of staking DAO projects in 2021. Projects like Olympus DAO allowed early investors to see life-changing returns, which drew in a wide range of new investors looking to try their luck.

However, when the early investors began pulling out their profits, the price of the token plummeted, and new money entering the project slowly but surely came to a halt. This crash ultimately led to significant losses for those who invested later, serving as a cautionary tale for the potential risks of staking.

To mitigate these risks, it's essential to do your research and understand the market dynamics before investing. It's also important to keep a close eye on the market and be prepared to make quick decisions based on market fluctuations. Overall, staking can be a rewarding way to invest your money, but it's crucial to approach it with caution and informed decision-making. A few specific risk you should keep an eye on are:

  • Smart contract risks: Staking involves interacting with smart contracts, which can be subject to vulnerabilities and other security risks.
  • Market risks: The value of the staked cryptocurrency can be subject to market volatility and may decrease in value, resulting in a loss of funds for the staker.
  • Staking pool risks: Staking pools can be subject to risks such as poor governance, centralization, and hacking attacks.

In Closing

Staking has become an integral aspect of Web3 games, offering players various benefits such as in-game rewards, access to exclusive items, and even the opportunity to earn cryptocurrencies. By staking game tokens, players can unlock new features and advance their in-game performance while also contributing to the stability of the underlying blockchain.

We hope this article has provided you with a comprehensive understanding of staking in Web3 games and how it works. If you enjoyed this piece, be sure to check out our other articles on blockchain and Web3 gaming basics for further insights and knowledge. We look forward to bringing you more valuable content in the future!