The NFT gaming crossroads: regulation as a lifeline or a graveyard?

The Web3 gaming industry faces an existential dilemma that goes beyond mere business failure. In 2025, at least 8% of active blockchain games shut down, according to DappRadar, while venture capital funding plummeted by 93%. But the real reason isn’t that the idea is bad: it’s that no one has built it correctly from a legal standpoint.

Once-celebrated titles—such as Nyan Heroes, Blast Royale, Stephen Curry’s game, or the MMORPG Ember Sword, which raised over $200 million—simply disappeared. With them, tokens, NFTs, and the promise of “true ownership” sold to millions of players evaporated. The NYAN token collapsed 99% from its peak, and players uncovered an uncomfortable truth: their “assets” only exist as long as someone keeps the server alive.

Why do Web3 games die? The answer is law, not technology

Magnus Söderberg, CEO of Triolith Games, a company specializing in compliance for blockchain games, explains it convincingly: the problem isn’t the developers, but that they are operating in a legal gray area that simply doesn’t exist.

The moment a Web3 game allows players to convert their assets into real money, it ceases to be pure entertainment. For regulators, it becomes a financial service. If players can exchange tokens, buy NFTs with fiat currency, or use custody systems, then the game automatically falls under the regime of crypto-asset service providers (CASP).

The consequences are immediate: KYC requirements (know your customer), AML controls (anti-money laundering), security audits, identity verification, and transaction monitoring. In Europe, this means complying with MiCA. In the United States, falling under FinCEN jurisdiction and needing state money transmission licenses.

Most Web3 game studios simply chose to ignore this.

The invisible cost no one wanted to pay

For a global operator wishing to operate legally across multiple jurisdictions, compliance costs range between $10 million and $15 million before even registering a single player. This includes specialized lawyers, auditing systems, compliance infrastructure, and license management in different regions.

Small studios could never afford this. So they took a shortcut: they built their NFT games with native blockchain features—without regulation, oversight, or accountability. Initially, it worked. NFT games thrived without bureaucracy.

But Söderberg warns that this strategy has an expiration date: “When regulators start enforcing the law, the excuse of ‘we didn’t know’ will no longer work.”

For developers, the consequences will be fines or market expulsion. For players, it will be much worse: they have invested money in faulty token economies, NFTs that will never have real value, and projects built on regulatory sand.

The illusion of digital ownership

The central promise of Web3 games was simple: players would own their assets. Not like in traditional games, where everything belongs to the developer. In blockchain, they reasoned, ownership is real and immutable.

The reality was different. Players discovered that their digital assets depended entirely on:

• Centralized servers controlled by developers
• Smart contracts that could be updated or deleted
• The game’s economic viability itself

When the game closes, when the developer goes bankrupt, or when they decide to change the terms: NFTs and tokens are orphaned. Without function, without value. Ownership disappears.

In reality, it never truly existed.

Is there a way forward?

The paradox is this: regulation, which seems to be the enemy of Web3 games, could be their only hope for real survival.

Söderberg proposes a model: compliance as a service. Instead of each developer studio acting as a regulated bank, they can outsource the entire compliance layer to specialized infrastructure providers.

These providers would handle:

• KYC/AML verification
• Secure custody of assets
• Designing token economies that meet regulations
• Automatic wallet monitoring
• Regional restrictions

The result: developers build innovative games. Regulators gain oversight. Players—unaware—play within a complete legal framework.

“It’s compliance from design, not a post-hoc solution,” Söderberg explains. “For players, the experience remains seamless. For regulators, every blockchain transaction passes legal controls in real time.”

The future: natural selection

What is happening in 2025 is natural selection. Studios that build NFT games without considering regulation will disappear. Those that manage to adapt—either by internalizing compliance or using specialized infrastructure—will survive.

The “true ownership” of digital assets will no longer be a marketing slogan. It will be a right guaranteed by regulation, asset protection, and legal frameworks that make tokens and NFTs hold real value even when the original game disappears.

Until then, Web3 games will remain what they have always been for most players: a sophisticated illusion.

Frequently Asked Questions

What is the difference between a regulated Web3 game and an unregulated one?

A regulated Web3 game operates under the supervision of financial authorities, implements identity verification, controls money laundering, and protects players’ assets. An unregulated game can shut down overnight without legal consequences, leaving players without recourse. The difference is the difference between an investment and a gamble.

Why do NFT games have such fragile token economies?

Many were designed without external regulation or auditing. Developers could create unlimited tokens, set internal sales schemes without transparency, and manipulate supply. With real regulation, these systems should pass viability tests and ongoing audits.

Can Web3 games truly offer genuine digital ownership?

Only if they are built under regulatory frameworks that guarantee: (1) secure custody of assets, (2) portability beyond the specific game, (3) legal responsibility of the developer, and (4) mechanisms to maintain value even if the original project fails.