2025 Collapse of High-Hype, Low-Engagement Web3 Games Shows Us Why Funding Isn’t Enough

• Even with millions in funding, Web3 studios are regularly failing to deliver completed games before closure.
• Studios have promised AAA-level experiences with thriving player-owned economies, while delivering little to nothing.
• The constant disconnect between promise and reality is leading to increased accusations of mismanagement and fraud.

The Web3 gaming boom from 2020 to 2022 promised a revolution.

While cinematic trailers and whitepapers painted visions of AAA-level gameplay and graphics, studios and developers raised millions in funding for upcoming blockchain-driven experiences.

But in 2025, some reports show that 93% of Web3 gaming projects are now defunct. And with more closures being announced every day, gamers are starting to question where all this money is going.

Web3 Game Closures

Despite massive funding during the height of Web3’s enthusiasm, many projects have failed to launch a complete game.

One of the most high-profile examples, Ember Sword, officially shut down earlier this month.

Once hailed as a future AAA multiplayer hit, Ember Sword raised millions through early player investment and token sales.

Yet, it never moved past its pre-launch alpha phase.

Bright Star Studios, the developer behind Ember Sword, cited a lack of funding as the reason for the shutdown.

“We explored every possible path forward, but the current Web3 and gaming market made it impossible,” the studio wrote on its website.

“We’ve now reached the same unfortunate end as many other Web3 gaming projects,” the developer added.

Ember Sword is far from alone. In March, U.S. developer Battlebound also shut down , canceling the development of its flagship title, Anterris, despite having raised $8 million in 2022.

“Ultimately, we’re in the same position as many studios before us, closing our doors due to remarkably challenging market dynamics,” the developer stated.

Anterris promised a rich, open-world experience akin to Pokémon, where players could explore by land, air, or sea and interact with a variety of creatures.

But like many others, it never fully materialized.

Big Promises, Few Deliveries

A recurring pattern among these shuttered projects is the disparity between promises and actual deliverables.

High-budget trailers and ambitious whitepapers sold players on grand visions: immersive virtual worlds, decentralized ownership, and dynamic player economies.

But a real playable product is often unachieved.

Taimur Ijlal, a security consultant at Amazon Web Services, pointed to this issue:

“Large capital injections often land long before a playable build exists, so teams channel money toward token liquidity, marketing, or speculative NFT drops while core game loops remain untested,” Ijlal told CCN.

“That mismatch pushes burn rates high, ties project survival to token price swings, and leaves little room for iterative design.”

Even seemingly close-to-launch projects with positive reviews haven’t been immune.

Nyan Heroes, a multiplayer hero shooter, recently shut down despite its polished playtest builds and good player reception.

According to the developers, securing adequate funding was eventually its killer.

A December 2024 report by ChainPlay found that 93% of Web3 gaming projects are now defunct, with the average lifespan of a blockchain game being just four months.

Over half of VCs surveyed reported losses between 2.5% and 99% on their Web3 gaming investments.

Soaring Costs and Uneven Playing Fields

The financial demands of game development have increased across the industry.

Naughty Dog’s The Last of Us Part II reportedly cost $220 million to make, compared to just $20 million for Uncharted 2 in 2009.

One obvious aspect is that gaming’s pursuit of high-fidelity graphics has rapidly increased costs.

However, gaming journalist Jason Schreier emphasized that it goes deeper than this.

He said the ballooning budgets of games are primarily due to escalating labor costs and extended production timelines.

“Budgets for games are now enormous because those two vectors — more people, more time — have grown so significantly over the last decade,” Schreier explained.

Large studios like Naughty Dog can afford such expenditures due to their longstanding IPs, publishing support , and consistent revenue streams.

In contrast, most Web3 studios are startups with small teams that rely on token sales, NFT drops, or early venture capital without a proven business model.

“Soft Rug Pulls”

As more well-funded projects vanish without releasing a finished product, suspicions of financial mismanagement and even fraud are mounting.

Allegations of rug pulls, where developers abandon a project after raising funds, often leave players with worthless NFTs or tokens, are becoming rife.

At the same time, the failures could be highlighting a lack of financial responsibility and management from many of the startup projects.

The term “soft rug” is now being used to describe projects that fail despite massive funding, where it’s unclear how the money was spent.

“It’s nearly impossible to know where this money went; maybe they even spent some of it in game design,” one X user commented on the collapse of Ember Sword.

“I have seen stories about many founders loading up on mansions and luxury cars and one day they shut doors and say oops, it’s all gone,” they added.

In a recent interview with CCN, Star Atlas creator Michael Wagner said developer transparency is now essential to avoid being grouped in with scams.

“I’m not saying that the studios that are shutting down are actually any of those things,” he said. “I think a lot of them had genuine intention of building something out.”

“But I think it’s really important to be able to show your progress and show your work, because that not only provides credibility, but also stokes enthusiasm.”

Smaller Can Be Smarter

In contrast to large-budget failures, some small-scale projects have achieved success through frugal and focused development, purely by delivering a product that resonates with an audience.

In traditional gaming, Stardew Valley, created by a solo developer in 2016, has earned over $500 million.

Antonio D. R., the founder of upcoming Web3 game Crown Chaser, echoed this sentiment following Battlebound’s shutdown:

“I wonder how it’s possible that a studio that raised $5M can’t get past an early preview, while teams that are bootstrapped and have never raised a single dollar are shipping and launching full-scale games,” he said.

He claims that Crown Chaser was built with zero external funding:

“We were aware that in this industry there are no shortcuts and if you really want to build something that lasts for many years you can’t accept short term solutions and give away the future,” he added.

Balance Is Needed

The 2024 boom of Telegram-based mini-games like Hamster Kombat demonstrated how simple, viral Web3 titles could explode in popularity—but also how quickly they could fade.

Helika, a data analytics firm, noted that user activity declined rapidly by late 2024 as underwhelming airdrops failed to deliver lasting value.

Many relied on idle mechanics and tap-to-earn models but failed to maintain engagement over time.

As the Web3 gaming space grapples with a string of high-profile failures, the industry must confront a brutal truth: funding and hype are not substitutes for player-first development.

However, gamers still need a substantial experience to remain engaged, which will take a certain amount of money, talent and time to build.

It remains to be seen whether gamers have the patience to wait for Web3 gaming to catch up with traditional studios.