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I recall a surreal moment in 2021 watching one of the founders of Axie Infinity addressing a packed room of blockchain gaming enthusiasts. It was the peak of the last crypto boom, and someone had posed a question about whether he was worried about regulatory action in the Philippines, where officials were fretting over the video game’s impact on the labor market—in particular over young people ditching regular jobs in hopes of making a buck breeding digital critters. The Axie founder waved away the concern, saying “legacy governments”—Manilla in this case—would learn to deal with the new blockchain regimes displacing them.

How times have changed. Today, Axie Infinity is rightfully regarded as godawful when it comes to gameplay and, if anyone thinks of it at all, their first recollection is likely to be about how exploitive it was. Meanwhile, longtime gamers are as addicted as ever to non-blockchain franchises like Resident Evil and the Legend of Zelda.

Even some crypto investors are adopting a sober tone. At a venture capital dinner I attended during the Mainnet conference, VCs spun the usual clichés about blockchain gaming being in “the first inning” or whatever. But some, included a respected investor who made their name in the gaming sector, acknowledged their crypto bets had been “disappointing.” This jibes with comments from a crypto executive at hedge fund Brevan Howard, who said on stage last week that blockchain games are not ready for prime time.

So where does the nascent crypto gaming industry go from here? If there’s hope for its future, it’s in the reality that blockchain technology does offer opportunity for novel innovation, particularly when it comes to in-game currencies and transfering digital artifacts across realms. The investor at the dinner, who had become disillusioned with much of blockchain gaming, said they remain excited about this potential.

The upshot is that crypto gaming is not dead, and could blossom into something that becomes part of the mainstream down the road. For this to happen, though, blockchain executives who work on gaming must do two things: win the trust of ordinary gamers, many of whom harbor a deep suspicion about crypto, and build a game that people actually want to play. To be fair, hit games don’t spring up over night—most blockbuster games take five years or more to develop, and there have been recent signs that some crypto firms are ready to dig in to build something good.

Most important is that executives in the crypto sector are becoming more realistic about the scope of the challenge they face. Today, even the biggest Kool-Aid drinkers in crypto would acknowledge that blockchain games are not going to challenge the government of the Philippines any time soon.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

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