Blockchain gaming generation: Dreams shattered between technology and legality

2025 marks a dark milestone for the Web3 gaming industry. A series of projects that once promised a bright future have gone silent—Tatsumeeko, Nyan Heroes, Blast Royale, and even Ember Sword with over $200 million raised—all forced to cease operations. The NYAN token plummeted 40% in a single day, with market capitalization dropping up to 99% from its peak. But behind these numbers lies an even harsher truth: the promises of true asset ownership touted by blockchain games are merely an illusion.

According to DappRadar, Q2/2025 saw at least 8% of Web3 games shutting down consecutively, driven by a 93% decline in venture capital investment and increasing market saturation. However, the problem isn’t just the bleak figures. It also involves a barrier that few studios are willing to face: the legal framework.

The Blurred Line Between Gaming and Finance

Players are told they can permanently control their items, tokens, and NFTs. But when the game shuts down, that ownership also disappears. At first glance, the issue seems to lie with the development teams. In reality, it’s something else.

So, what defines a blockchain game crossing the line? As soon as a game allows players to exchange in-game assets for real money, it ceases to be just entertainment. In the eyes of regulators, it is reclassified as a financial service. Magnus Söderberg, CEO of Triolith Games—a consultancy specializing in compliance for Web3 games—asserts this is a turning point.

“Currently, the level of regulatory compliance in the Web3 gaming space is very poor. Few studios take this seriously, and that will be disadvantageous for them later,” Söderberg warns.

The Legal Trap: Vague MiCA Regulations and Extralegal Costs

When a Web3 game platform offers features like fiat conversion, custodial services, or controlled token transactions, regulators classify it as a financial service provider or a crypto asset service provider (CASP). This status triggers strict anti-money laundering (AML) and Know Your Customer (KYC) requirements, including identity verification, transaction monitoring, secure asset custody, and audit obligations to protect users.

In Europe, these platforms fall under the scope of MiCA—a relatively new legal framework, with many aspects still unclear. In the US, they are regulated under FinCEN’s money services business (MSB) framework and state money transfer licenses. Meeting these standards can cost millions of dollars—even before anyone is officially allowed to participate.

For small Web3 studios, this is impossible. Triolith Games’ CEO believes small studios are most affected because they can hardly afford legal teams or the millions of dollars needed to launch a global game. When regulators step in, the excuse of “we didn’t know” will no longer be a winning card.

Double Impact on Both Sides

The consequences of operating a non-compliant Web3 game extend beyond developers. Publishers can face fines or removal from platforms, but players bear the real damage. They face broken tokenomics, developer-prioritized internal distributions, and sudden sell-offs that completely erode trust.

“Stricter regulation could ultimately help curb these behaviors,” Söderberg notes.

The Road Ahead: Compliance as a Service

Is there a way to balance regulatory power with game innovation? Some experts believe the answer lies in licensed infrastructure.

Instead of handling all financial aspects like a bank, studios can shift the legal burden to third-party compliance service providers. “This means we handle KYC/AML, asset custody, and even token economics—so developers don’t have to operate like banks or exchanges,” Söderberg explains.

This mechanism embeds compliance into smart contracts: before any on-chain action, wallets, transaction limits, and regional restrictions are automatically checked. The goal is for players not to feel the influence of legal oversight, while developers remain compliant in real-time.

“For players, everything feels natural—the game experience remains smooth. For developers, every on-chain action is legally verified in real-time. This is compliance designed from the ground up, not a patchwork solution afterward.”

Why This Matters

The collapse of Web3 games shows that without legal oversight, true ownership of digital assets will never materialize. As game studios struggle with compliance costs, the line between gaming and finance becomes increasingly blurred. Only adaptable studios will survive the next wave of Web3—this is the lesson of 2025.

Frequently Asked Questions:

What is “true ownership” in Web3 games?

In theory, Web3 games promise players full control over their assets via blockchain—items, tokens, or NFTs that belong entirely to the player, not the developer. In practice, once a game shuts down or servers go offline, that ownership often vanishes.

Why can’t Web3 games provide true ownership?

Most in-game assets depend on centralized servers or smart contracts controlled by developers. When the game ends or the contract becomes invalid, these NFTs or tokens lose functionality and value, shattering the illusion of ownership.

How does regulation impact Web3 games?

Once a game allows players to exchange in-game assets for real money, it is no longer just entertainment. Regulators classify it as a financial service, triggering compliance requirements like KYC, AML, and licensing under MiCA in the EU or FinCEN regulations in the US. The ambiguity of MiCA and related legal frameworks adds pressure on developers.