Imagine spending countless hours upgrading your race car in your favorite game, fine-tuning every detail and unlocking new features as you play to make it both beautiful and blazingly fast…only to lose it forever when you stop playing the game.

What if you could truly own and monetize your in-game creations? Enter the world of tokenized user-generated content (UGC).

Throughout history, humans have prized self-expression and individuality. And in the gaming sphere, this desire has reached new heights with the rise of UGC. Games like Roblox and Minecraft — which average hundreds of millions of players monthly — have revolutionized the industry by empowering players to create worlds, characters, and experiences.

Yet, one key aspect is missing in the majority of these types of games: true ownership.

While players can create and share content, they have little control over how it’s used or monetized. They spend hours making worlds and upgrading in-game items that add massive value for a studio, driving player retention and enjoyment, without benefiting from the rewards.

Think about it. The average Fortnite player spends a whopping ten hours a week playing, and some of the most popular builds in the game are player-created. Epic Games (its creator) is directly benefiting from the time these players put into playing and building in the game.

How can we address this challenge and empower players with real ownership and fairer rewards for their creations?

Tokenization offers a transformative solution.

By representing in-game assets as unique non-fungible tokens (NFTs) on the blockchain, players can assert ownership rights and track their creations’ provenance securely. Smart contracts can automate royalty payments, ensuring fair compensation for player contributions.

To demonstrate this further, imagine if my daughter’s Lego car creation was tokenized. By creating a digital token or NFT of the car, she can formally certify it as her own and earn rewards when it’s traded. She could even receive royalties if someone used her car in their own game. Tokenization makes this possible in the digital realm.

The billion-dollar opportunity

Deloitte predicts that UGC gaming platforms will pay out nearly $1.5 billion to content developers in 2024. But to realize tokenized UGC’s full potential, we must address negative perceptions surrounding blockchain technology in gaming.

To begin, we need to address the user experience issue. Many early blockchain games suffered from clunky interfaces, complicated wallet setups and a lack of intuitive design. Layer this with exploitative microtransactions (think Axie Infinity), and it’s no surprise mainstream gamers were left wary.

Imagine a gamer having to manually manage private keys or decipher cryptographic hash functions just to play. That’s a surefire way to deter adoption.

Instead, the focus should be on creating immersive worlds where the blockchain functions invisibly in the background, enabling ownership and monetization without compromising the gaming experience.

The NFT market has also been prone to wild speculation, with some assets selling for eye-popping sums while others go to zero. While this has generated buzz, it has also led to concerns about market stability and the potential for bubble-like behavior.

For tokenized UGC to gain mainstream acceptance, it’s crucial to foster a more stable, sustainable market driven by the inherent utility and value of the assets rather than mere speculation. This means designing in-game economies with balanced incentives, sinks and faucets to ensure long-term viability. By shifting the focus from speculation to utility, we can build trust and stability in the market.

As more games embrace tokenized UGC, blockchain networks will need to handle a massive influx of transactions. If the infrastructure can’t scale to meet demand, we risk congestion, high fees and a degraded gaming experience.

We want to avoid another Crypto Kitties-style Ethereum network breakdown. To prevent this, developers must choose scalable blockchain architectures that can grow with their player base. This may involve using layer-1 solutions that can bridgelessly connect to other blockchains, sharding or other techniques to increase throughput without sacrificing decentralization or security. It’s also crucial to optimize smart contracts and game logic to minimize unnecessary transactions and reduce the load on the network.

One of the most important prospects of tokenized gaming is the ability for a users’ in-game assets to move seamlessly between different game worlds. Imagine being able to take your hard-earned sword from one game and use it in another, or having your spaceship navigate through various universes. This level of interoperability would unlock incredible possibilities for player expression and engagement.

The road to mainstream adoption

Achieving this vision requires overcoming significant technical and coordination challenges. Different games may use different blockchain networks, token standards and data models. Bridging these gaps requires robust cross-chain communication protocols and standardized metadata formats.

It will take a concerted effort from developers, players and the wider blockchain community. But if we get it right, the future of gaming will be a more open, collaborative and rewarding space for all.

And we’re on the right track. Over the past two decades, the UGC gaming landscape has undergone rapid transformation, with what once seemed improbable now on the brink of becoming commonplace, thanks to the integration of blockchain technology.

Tokenization is the catalyst for creating this billion-dollar gamer-driven economy, where players have unprecedented control over their creations.

The ownership revolution is here; it’s up to us to seize it.

Standard Chartered’s recent prediction that the tokenized RWA market could rise to $30.1 trillion by 2024 will likely fuel the crypto industry’s hankering to tokenize everything it can lay hands on. And with BlackRock spearheading the charge, there’s no chance of a slowdown any time soon.

But caution must come. If we tokenize all assets in a speculative rush, the risk of creating illiquid markets and trapped value will manifest on a large scale. The result? More volatility and less external capital flowing into Web3.

Most RWA projects are all fighting for the same liquidity pools, which aren’t as big as perhaps first perceived. It’s red pond syndrome. The RWA industry needs to start looking at the blue ocean of fresh new capital from outside of the Web3 ecosystem if it really wants to expand the whole pie.

What will that take? True liquidity and broader access in the market, but also accountability in reclaiming the narrative from Wall Street and traditional finance, who’ve been doing a lot of the heavy lifting. Web3 needs to bring better awareness to the benefits of tokenized access so that institutional investors can come in to properly support the maturity of the market.

Tokenization doesn’t promise success

Firstly, though, there needs to be a reassessment of how assets are evaluated and qualified as being a sensical tokenization option. Just because the technology to tokenize complex assets exists, doesn’t mean it should be deployed frivolously.

To gauge whether something should be tokenized, we should be asking the following question: Does this asset have intrinsic value and will its tokenization address the market by solving a problem?

We can already see that speculative RWA tokenization doesn’t always guarantee (and often fails to deliver) liquidity. Take the real estate market, for example. The surface gleams with promise to disarm economic disparity and put the underprivileged on the map through fractional ownership opportunities. But what good is it to own 0.001% of a property in a system that lacks any meaningful dividend structure? Value gets trapped, liquidity stagnates. It is therefore not surprising to see that onchain real estate is the slowest growing RWA category.

Careful assessment is necessary

Making previously inaccessible assets accessible to the majority is a clear potential benefit of tokenization. But the initial spike in demand that we’re now seeing won’t be sustained if there’s no emphasis on deriving true intrinsic value. There’s not much point in tokenizing an asset without clarifying if it actually has commercial viability. It’s simple supply and demand principles that seem to be ignored.

That said, on the other end of the spectrum, I hope there’s no need for me to protest against any encores still circling the likes of Pokemon cards. We should’ve all passed that checkpoint by now. Instead, mature assets such as private equity and private credit can consolidate the upward trajectory of the RWA market by providing serious utility to investors.
Private credit loans are one of the fastest growing categories, worth over $2 trillion as of last year.

Secondly, once a genuine demand for real value has been identified, we need responsible approaches to bringing the assets onchain. There must be a presence of market makers who can conduct comprehensive risk assessments around the underlying price discovery. This is how any inherent volatilities can be managed and accounted for. Otherwise, in spite of any real world success, the nature of an asset becomes susceptible to fluctuations in the wider market.

Web3 must also play to its strengths as well. How many assets in the real world lack self-custody and transparency around existing transaction data? Too many, is the answer.

High-value artwork is a particularly good example. Owners often lack direct access to their artwork and rely on third parties for custody and care — often locked away in specialized facilities to protect it from theft or damage. The art world is also notorious for its market opacity, with undisclosed fees and disputes over provenance and authenticity factors often clouding the landscape. Tokenizing art makes for a very promising case study of how bringing assets onchain can directly solve the real world problems that are attached to them. Having digital proof of ownership circumvents the need for geographic access to the piece; the need for intermediaries within transaction processes is minimized; and decentralized storage solutions can further prevent fraudulent activity.

Education is key

Educational initiatives must be brought to the table in order to make the natural qualities of the blockchain more known to institutional investors.

A Bain study conducted across high-net-worth individuals found that enhanced transparency was one of the top three reasons for considering an investment opportunity.

Surely, those who lack the autonomy that they want over their investments would find genuine (albeit fractional) ownership more appealing. Tokenization will therefore attract more investors and thus more capital — especially when it’s combined with blockchain’s ability to clearly show an asset’s history.

With the RWA industry clearly picking up steam, it will undoubtedly play an astronomical role in determining global economic developments over the next decade. That is why it is so important to get it right now, rather than having to try and correct it later.