What is play-to-earn?

Play-to-earn (P2E) games enable players to earn in-game rewards that can be exchanged for real-world money. Usually, this is achieved by using blockchain technology – tokens or NFTs. These can be sold on exchanges / secondary markets and money can be transferred to a bank account.

Play and earn at the same time? Teach me master!
Source: https://imgflip.com/

There was a fascinating documentary created a few months ago about P2E and how people support their families by playing P2E games.

P2E games examples:

The current state of play-to-earn games (2022)

The biggest advantage of the P2E concept is the attractiveness of earning money by playing games. Until recently this was accessible only to a few selected pro-players or YouTubers, but now, anybody can start playing P2E games and generate some level of income from day 1. What can be better than connecting Entertainment and Income? 

This is the reason there has been such rocket growth (to the moon ) in the industry. Axie Infinity is reaching 2.5 million daily active users. Just for comparison, in free-to-play mobile games, there are only around 50 games that are being played daily by more than 2.5m players – and the mobile market has 2.5bn active players!

However, in recent months, we have seen that the price of many P2E tokens is dropping constantly, which means that the players are earning less and less.

Axie Infinity
Source: https://coinmarketcap.com/

Axie Infinity: Smooth Love Potion lost 97% of value compared to its all-time-high

Source: https://coinmarketcap.com/

CryptoBlases: Skill lost 96% of value compared to all-time-high

Source: https://coinmarketcap.com/

CryptoCars: CCAR lost 99% of value compared to all-time-high

What is the main reason for the significant token price drop of the P2E games? 

Due to the core P2E design, there are many “players” that play the game to earn and not necessarily have fun. These “players” win tokens, of which the majority are created out of thin air (either on the go by smart contracts or at the beginning and stored in treasury) and not bought on the market. Since the primary goal of these “players” is to earn, they hit the market and sell the tokens.

This creates a supply/demand imbalance, where more tokens are being sold than bought. As a result, the price drops significantly – very often they lose more than 90% of value in just a few months.

Sky Mavis publicly admits that its P2E design of Axie Infinity is not sustainable: “In the beginning, the Axie economy will be dependent on growth and new entrants. New players require Axies to get started, Axies price and breeding profitability will be determined by the demand from these prospective Axie players.” On the other hand, we need to give credit to the team which is working hard to balance the economy and introduce mechanics to decrease dependency.

Simply put: Can you generate real-world money out of thin air? Obviously not. Somebody has to pay for the rewards. 

There is no such thing as a free lunch. Milton Friedman
Source: https://quotefancy.com/

The future of Play-to-earn games

Play-to-earn is here to stay, however, it must evolve. As explained above, we need models that are sustainable and will work long-term.

To achieve sustainability we need to follow 4 main directions:

Build games that are fun to play:

I consider this shift to be from “play to earn” into “play and earn”. The main idea behind this shift is that “play” is the crucial part. The game is fun to play even without any “earn” (remember Premium or Free-to-play?). This attracts players that enjoy the game and do not come for the grind. The “earn” is secondary – for invested players, the most active players, the community contributors, and so on.

Focus on collectibles:

Blockchain and NFTs make complete sense for collectibles. Due to the collection aspect, the “earn” element is not the primary focus, although skilled players with a bit of luck, can earn. Sorare is a great example of a digital collection with a game built on top of it – fantasy football.

Example of Sorare collection
Source: https://sorare.com/

New revenue sources:

Currently, we see the secondary market fee is not enough. Studios need to innovate on how they generate revenue for the treasury. Some free-to-play games can generate billions in revenue because people are willing to pay for the fun and we believe blockchain games can learn from their older brothers.

Also within the Defi space, there have been multiple projects generating millions in revenue by providing liquidity, bonding, or yielding with various protocols. This is a good source of inspiration on how to capitalize on the assets within the treasury.

A Healthy treasury balance:

Smart contracts are capable of automatically balancing P2E payouts with income to keep the treasury in a healthy state. This can be balanced based on the number of players, amount of games played, rewards per game, treasury amount, income, and multiple other factors. 

For example, if the playerbase, as well as the treasury, is growing, it means the game and the rewards are attractive. So, in theory, the game could decrease the incentives. On the other hand, if the playerbase growth is below expectation, the game could hand out more rewards to attract new players. The practical application of this will be more complicated than these examples but hopefully, you get the point.

Following these 4 directions, a new generation of play-to-earn (or should I say play-and-earn?) games will be created and I can not wait to see them! Brace yourself, the wild ride continues!