More Than Memecoins, Could a Crypto Casino Be Web3’s Next Killer App?

by Kavan Canekeratne and Evan F.

There’s something for everyone in Vegas. For many, though, it’s gambling. According to recent studies from Gambling Industry News, roughly 1 in 4 people around the world have gambled at one point in their lives. From iCasino platforms and to sports betting apps, to prediction markets accessible at users’ fingertips, gambling is attracting a wider audience of individuals who are eager to wager.

Regulated online gambling has grown tremendously the past 10 years. In 2024, there were 224M users driving a TAM of $97B, and by 2029, analytics platform Statista projects 291M users and a $133B TAM. While the market is fragmented by geography and regulation, in the US, DraftKings and FanDuel (a subsidiary of Flutter Entertainment) are some of the leaders in regulated online gambling by revenue. In Europe there is less data, but Bet365, William Hill and Entain are some prominent platforms.

In the past few years, we have also seen the rise of sweeps-based platforms that use alternative game mechanics to circumvent the US Wire Act, which prohibits the transmission of wagers over telephone or internet. As a result, we’ve seen state-by-state segregations of most operators. In the US, Chumba, Fliff, UnderDog, and PrizePicks have taken advantage of this trend, generating over $10B in revenues since 2022 (sources: 1, 2, 3, 4).

Online gambling was a black market activity in Europe and the US until the 2010s. However, in 2012, Europe put together a framework to legalize online gambling which went into effect in 2015. In the US, the Professional and Amateur Sports Protection Act (PASPA) was repealed in 2018, with 85% of Americans in support. PASPA’s repeal paved the way for DraftKings and FanDuel to operate broad platforms, and in the past decade, gambling has become synonymous with sports. Both operators are some of the largest sports advertisers and even have their own venues where users can wager. ESPN shows game lines next to scores and often has segments on experts’ picks for upcoming games. iCasinos have become much less taboo as well, and now people can even buy lottery tickets through their DraftKings app. Most recently, prediction markets like Kalshi have received a lot of attention in the wake of the US Presidential election. Still, there’s a large unregulated market. According to the American Gaming Association, Americans gambled roughly $511B across unregulated platforms like Bovada, Stake.com, and VGW in 2022 — making the total gambling market size much larger.

While these platforms continue to scale, customer acquisition and retention is their biggest struggle. On the surface, they report strong retention numbers. In 2022, FanDuel reported that 77% of bettors from the previous year placed a bet. In its February 2024 shareholder letter, DraftKings reported that 90% of customers engage with the app in the 12 months following signing up. However, both companies’ definition for retention is very weak. We question how the numbers might be adjusted for users who only engage when there is a free or bonus bet promotion. According to mobile advertising company YouAppi, 73% of sports bettors across all ages use at least two betting apps a month. In the core demographic of 25–44, bettors average three apps — and some use as many as six. Users tend to hop around applications because many platforms share the strategy of using free bet campaigns to acquire and then retain users, often in the order of hundreds of dollars (and in some cases in the thousands.) The platforms appear to obfuscate their customer acquisition costs (CACs), but research and speaking to industry experts affirms that it’s likely that DraftKings and Flutter are spending over $1000 to acquire each depositing user. The high level of bet incentives and marketing spend each company employs is why they are still unprofitable, despite Flutter’s $10B in revenue and DraftKings reporting $3B in revenue through three quarters in 2024.

How could blockchain technology help solve some of these problems?

Enter web3

In reading reviews on top gambling platforms like Bet365 and DraftKings, a very common theme is a poor user experience — especially getting funds on and off of the platforms. While crypto can struggle with onboarding as well, once the funds are onchain, the opportunity to use a self-custodial wallet and smart contract-based platforms would enable users to be in control of their funds right until a bet is placed, and immediately after the outcome is finalized. This would remove friction, and also enable users to have flexibility with their funds. For example, a user could keep their balance in BTC until placing a bet, and then move it back in once it’s settled. They could also leverage a platform like Azuro and actually become the house — supplying liquidity to betting markets when they don’t have active bets. Additionally, a token could enable the platforms to better retain users. While airdrops have been a very poor acquisition tool for L1 and L2 protocols, exchanges like Binance (BSC), FTX (FTT), and OKX (OKB) have demonstrated success with their tokens by providing utility on their platforms to holders. Giving users who hold a certain amount of tokens a better vig (the fee that book makers build into their odds to account for the risk of loss), or sharing protocol revenue with them, could be a very powerful retention mechanism.

Additionally, a huge value proponent for gambling platforms lies in the business model efficiency that the operators could gain. Flutter and DraftKings have gross margins of 48% and 37%, respectively while public internet software companies average 60%. The companies don’t share their cost of goods sold (COGs) components explicitly, but do mention transaction processing costs and taxes as their main drivers. From our calculations based on publicly available information, the platforms spend 15% or more of their revenue on transaction processing costs alone. Switching to a blockchain settlement rail like Solana or Arbitrum could enable massive cost savings, as we have diligenced web3 gambling companies with over 70% gross margins, and some with as high as 90%.

There are already a number of notable web3 gambling platforms already operating across three main verticals: iCasino, Prediction Markets, and Sports Betting.

1. iCasino

Web 2.0 online casinos like Bovada and Stake.com have achieved notable success by accepting crypto for pay-ins and payouts. Most of the platforms we discuss in this section appear to be following the same strategy, and may potentially add a token. It’s not clear how much blockchain technology they are using otherwise, which may be a huge opportunity for future builders.

Monkey Tilt launched in 2024 after raising $50M to bring multivertical gambling to non-US users. The platform accepts crypto and permits wagers , but it’s unclear if they plan to build onchain. They have self-reported $200M in monthly volume. MyPrize also raised earlier this year, offering an online casino to US and global users, and aims to offer multiplayer experiences. Although their blockchain usage is not super clear, the platform enables users to earn XP — which hints at a future airdrop. Additionally, Rollbit is a multi-vertical gambling platform, but most of its volume comes from its casino. The company’s token received a lot of attention because Rollbit uses 10–30% of its revenue to buy back and burn its token.

2. Prediction Markets

Polymarket is by far the most well-known to emerge in this category. It is a fully decentralized prediction market, meaning that odds are set by how much is wagered on each side of a respective bet. The platform did $2.6B of volume in November 2024 and even made it to the Bloomberg Terminal for its U.S. Presidential election odds, which turned out to be more accurate than most national election polls. However, interest has waned post-election. Their open interest dropped from $511M the night of the election, to $88M at the time of writing. It will be interesting to see what other types of bets prediction markets become popular for other than politics.

On the infrastructure side, there’s Azuro, mentioned earlier — another prediction market platform that other developers can build betting platforms on top of. Their markets range from sports to popular culture. One interesting feature of their platform is that they allow token holders to be market makers, essentially becoming the house. They did ~$200M in volume in 2024 and have $6M TVL.

3. Sports Betting

SX Network is the largest decentralized, onchain gambling exchange based on betting volume. They processed ~$175M in bets in 2024. Thanks to decentralization, the platform never charges more than a 1% vig, which enables it to have better odds than traditional book makers who generally have a 5% vig on point spreads, totals, and moneylines. The vig on parlays can even be higher than 10%. SX connects bettors to professional market makers who operate as the house, this gives the market makers all the upside but also forces them to bear the risk of loss. While they’ve yet to launch, Levr proposes to combine DeFi and sports betting to enable the use of leverage in betting. If successful, they would be one of the first platforms to incorporate leverage — with a plan to have a 0% vig.

Challenges to scale

Today’s web3 gambling platforms have been built for crypto natives. Many are on new blockchains and require users to download a self-custodial wallet, set up their passphrase, and bridge across chains to get their funds in. These steps are incredibly daunting for new users, and not likely worth it for someone who wants to wager $10–1000 on sports or casino games. Providers need to take advantage of web3 infrastructure for onboarding and off-ramping like Privvy’s wallet, Coinbase and Apple Pay’s Integration, or Coinflow’s checkout. Giving users a Web 2.0 experience on web3 rails could enable a gambling app to quickly become one of the most used in web3.

Existing Web 2.0 and web3 gambling platforms have very similar game types and user experiences. Anecdotally, most users move from platform to platform, searching for promotions. Blockchain platforms have the ability to improve the deposit and withdrawal experience and have more efficient businesses which will enable them to outcompete in the long run. Incorporating a utility token may also enable them to have far better retention numbers.

In the past two years, there have been numerous web3 gambling projects funded, and we are hoping there will be many more. With advances in onchain infrastructure and improving regulatory clarity around the world, the time is right for builders to launch the next great gambling application. We expect that there will be platforms launching that leverage blockchain to create a much better UX. Some builders may even figure out ways to improve upon traditional casino games and give users a unique experience they can’t get on Web 2.0 platforms. In the next 2–3 years, it’s likely that a blockchain-based platform becomes a notable player in online gambling on the global scale, and potentially even becomes crypto’s first ‘killer app.’ If you’re building something in the vertical, we’d love to hear from you!