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November 30, 2021

Steam's NFT Ban: How It's Going

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Steam's NFT Ban: How It's Going
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One month into Steam's ban of NFT games, Valve has been quiet while more and more publishers declare their intent to move into crypto gaming.

A month ago, Valve blanket banned all games with crypto and non-fungible token (NFT) technology.

Almost as if it was waiting for a cue, industry figures en masse started declaring blockchain gaming and NFTs the future of the industry. Ubisoft and EA were among them, the former of which has already joined the Blockchain Game Alliance.

EA and Ubisoft were just the start. Add to the list Take-Two, Activision Blizzard, Nvidia, Will Wright, and more.

I suspect the list is longer than we know, with PR and community management staffers on the sidelines waiting to drop some news when the wider gaming space is more educated as to the inherent benefits of blockchain-based gaming.

Since the ban, we haven't heard much from Valve, leaving us to speculate on their rationale: but you don't need a Black Mesa scientist to see how this happened.

So why did Steam ban NFT games?

A few media voices were quick to assume Valve shared their climate concerns, and if you believe that, I’ve got a cross-chain bridge to sell you.

The climate argument is a bit like “Tell me you don’t know crypto without saying you don’t know crypto,” and I actually trust Valve to know better than that. Financial and moral incentives have aligned for games to get away from Ethereum Layer 1 for a long time now.

So it comes down to this. NFTs in a game imply a marketplace—one that Valve isn’t getting a cut of.

NFT-compatible games are also honest about having real-world value. This is uncomfortable for platforms who’ve pretended their virtual goods are valueless to sidestep regulation -- especially where games of chance are involved.

If you acknowledge your chance-based winnings have value, and furthermore allow those winnings to be traded, that brings you two steps closer to the legal definition of gambling -- not just in the state of Washington, but internationally.

The rub here is that after Steam’s NFT ban, NFT games without loot boxes get treated more like gambling than games that use single-bar slot machines for skins that let you cash out in third-party marketplaces:

csgo case opening.jpg
Opening cases in CSGO is functionally a single-bar slot machine.

To date, there’s been only one man Valve has communicated with on the matter.

Chris LoVerme of SpacePirate Games, a long-time Enjin adopter, had repeatedly talked to Valve over the years while his game, Age of Rust, was on Steam.

He helped Valve understand NFT games over several conversations before Age of Rust was unceremoniously dumped from the platform in October.

Valve has issued no statement, so the best we have to go off is what LoVerme says.

"I truly, fundamentally believe that it has something to do with competition with their Steam marketplace. I think that's what it's essentially grounded in."

— Chris LoVerme, Founder & CEO of SpacePirate Games

So to recap, the company that’s literally been the prime example of cashing out on items with real-world value condemned NFTs for having real-world value, and the person who’s been in closest communication with this company says this is more about marketplace competition.

In the wake of the ban, I predicted that Valve would change its messaging within six months, based on the fact that its messaging makes no sense and no one buys it. Now we can add the fact that most major publishers have openly talked about NFT games as the future.

I’m feeling good about my prediction, and I think it’s not too much longer—perhaps five years—before Valve changes its actual position and not just its messaging.

Too Big to Veil

As Dean Takahashi recently said, NFT games are going to happen because capital is betting on it to happen. Even without the other factors involved, it’d be a self-fulfilling prophecy.

The problem for Valve is it’s happening off its platform.

Games like Axie Infinity operate on a website with low bandwidth requirements for each match, owing nothing to legacy game platforms. It's worth asking whether legacy platforms even could host an Axie.

It’s arguable whether a traditional transaction cut is even compatible with a play-to-earn game, which inherently wants to give that cut to the players. That skimming on every sale, plus the 30% sticker price cut, used to be justified by the massive server infrastructure and userbase.

But life comes at you fast—even for premium games, the server farm proposition isn’t what it once was.

In a GDC survey, two thirds of respondents said 15% or less would be a more appropriate cut. Only 3% of devs said the 30/70 split was acceptable, down from 6% the previous year.

Valve did eventually lower its cut, but only for games achieving US$10 million and $50 million in sales, further establishing Epic’s store as a good option for a premium timed exclusive.

That’s why Tommy Refenes, creator of Super Meat Boy Forever, said Epic is “desperately needed to get Steam to give a shit.”

stormrite boss fight.jpg
Enjin-backed game Stormrite began as a solo project.

Now, with crypto and NFT games, an indie game developer can sustain a secure, fair marketplace without triple-A resources. An item marketplace akin to CSGO’s or TF2’s is not beyond the grasp of a one-person team, and the cut taken by blockchain marketplaces is a fraction of the industry standard.

Just like Unity aimed to democratize game development, Enjin democratizes game marketplaces. For years we’ve had SDKs and plugins to help with implementations in Unity, Godot, Unreal, and Minecraft.

Servers bought the farm long ago, and smart capital knows where the next move is.

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Web3 Won't Wait

There’s usually an inflection point where an innovator becomes a follower. Responsibility increases, growth leads to risk aversion, and it’s hard to maintain a startup mentality. To steal a line from a great boxer, it’s hard to be a hungry millionaire.

Valve has so far staved this off by buying indie experts and “Valvifying” their projects for successes in TF2, Portal, DOTA 2, CSGO, and… Well, let’s not mention Artifact.

But a blanket ban on the technology that industry experts are lining up behind is not very forward-looking. Valve is starting to look less like a big ship that turns slowly, and at risk of missing the boat altogether.

There’s still a lot Valve has achieved, no doubt propelling gaming forward and so I remain conflicted. I love CSGO, but disapprove of the unregulated gambling system attached to winning skins. I love open tools like Source Filmmaker, and pushing forward VR tech with the Vive and Half-Life Alyx, but hate that indie devs are an afterthought.

So far it’s been fine for Valve to rest on its laurels, allowing niche storefronts to pop up. Humble, Itch, Epic, with only the latter’s exclusivity deals making a dent in the monopoly. But now that games can have item inventories and marketplaces with more functionality for a fraction of the cost? I guarantee there’s some chin-scratching in the Seattle office right now.

Let's hope Valve makes the right decision, and doesn't ignore this important movement of returning control to the players and developers. Maybe it'll even join in.

Valve doesn't talk much... but it does occasionally listen. We can only hope.

Steam's NFT Ban: How It's Going
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