93% of Web3 game projects are now in what Caladan describes as an “effectively dead” state. In its latest report, the market-making and trading firm argues that a sector once pitched as blockchain’s path to mass adoption has instead left behind a $15 billion lesson in failed product demand, collapsing token prices, and shrinking user activity.
According to the report, gaming tokens tied to the sector have fallen about 95% from their 2022 peak. Venture funding flowing to game studios had also dropped 93% by 2025. Caladan said destruction hit capital across the stack, from venture investors and retail NFT buyers to gaming guilds and the Tap-to-Earn wave that spread through Telegram’s 300 million users.
Major names show the scale of user and token losses
The downturn is visible in some of the best-known projects from the cycle. Hamster Kombat lost 96% of its users within six months of launch. YGG, once a flagship gaming guild token, now trades 99.6% below its November 2021 all-time high. Axie Infinity, a former Play-to-Earn leader, saw daily active users fall from 2.7 million at its peak to about 5,500, based on DappRadar data.
Several heavily funded projects also failed to deliver meaningful results. Pixelmon raised $70 million through NFT sales in 2022, yet still had not released a public game four years later. Ember Sword shut down last May after seven years of development and $18 million spent, while refusing refunds. Gala Games is dealing with a lawsuit tied to alleged misappropriation of $130 million in tokens by a co-founder. Square Enix also ended its Web3 experiment Symbiogenesis last July.
Financial loop failed to match what players wanted
Caladan frames the collapse as more than a weak market cycle. Its report points to a structural mismatch in product design. The Play-to-Earn model depends on a closed financial loop: players buy NFTs or tokens, earn more of the same assets, and cash out. That math works only while new money keeps entering. Once inflows slow, token prices weaken, rewards shrink, users leave, and the in-game economy starts to break down.
Player demand pointed elsewhere. They wanted entertainment, not financial engineering. A survey from Coda Labs found that even at the height of the boom, only 12% of traditional gamers had tried crypto games. Caladan said many studios raised tens of millions of dollars before proving they could ship a game people actually wanted to keep playing, removing pressure to build strong gameplay first.
Capital has rotated into AI, RWA, and Layer-2 infrastructure
The shift in venture allocation shows how sharply sentiment has changed. In 2022, gaming accounted for 62.5% of total Web3 venture funding. By 2025, that share had fallen to the single digits. Capital that once crowded into GameFi has moved into AI, tokenized real-world assets, and Layer-2 infrastructure, according to the report.
Even Animoca Brands, one of the sector’s most active backers, has cut gaming to about 25% of its portfolio and redirected attention toward stablecoins, RWA, and AI. For game studios working on timelines of three to five years, while tokens are priced every hour in secondary markets, Caladan suggests the mismatch between product development and market speculation has become impossible to ignore.