This post is a translated version of my writing from June 2022, discussing the trending concept of Play To Earn.
This article compiles personal opinions based on research data and the current market situation. The global crypto community is currently experiencing a rush toward P2E, with games like Axie Infinity, League of Kingdoms, and more recently, STEPN and Illuvium gaining tremendous attention in the market.
The Play to Earn model has garnered significant interest among cryptocurrency users worldwide.
Then, What is P2E and why this topic is gaining huge attention from users?
P2E, short for ‘Play To Earn,’ literally means earning money by playing games. It refers to a structure where players can make money through gaming, and it can be broadly referred to as a way to accumulate wealth through gaming.
To understand the growth of this concept and its potential for the future, we need to take a look at the narrative where it gained attention.
Just before the rise of P2E, Non-Fungible Tokens (NFTs) began to capture the market’s attention in 2021–2022. NFTs demonstrated a new opportunity and influence in the market through the assurance of ‘ownership’ of data.
In other words, the fact that the data belongs to the individual who possesses it, rather than to a company or platform, became a competitive advantage in the eyes of users.
NFTs, such as my second character(avatar/PFP), or items with specific utilities, gained increasing influence and expanded their significance.
In addition to this, the community formed among holders of the same NFTs started creating a new society, the metaverse, where they initiated various attempts and value creation within their own spaces.
This emerging trend caught the market’s attention, and from these changes, I can sense that NFTs would gradually have a significant influence in the market.
In addition to the news and discussions circulating among people, I could observe a significant shift from the perspective of actual revenue related to NFTs.
When I analyze the sales data from 2018 to 2021, the real revenue generated from NFTs in 2021 recorded an astounding growth of approximately 209 times, amounting to $13,982M, compared to $67M in 2020. Now, let’s take a closer look at the proportion occupied by games (P2E) in the data below.
In 2021, the gaming sector(P2E) also recorded a great amount of revenue with a cliff-growing 140-fold, amounting to $2,154M compared to $15M in 2020.
Then, why people are so enthusiatic both P2E and NFT?
In my opinion, one powerful reason for the growing interest in the concept of P2E (Play-To-Earn) can be exemplified by the notion of “ownership,” as I mentioned earlier.
In the past, when a game company went bankrupt or announced the end of service of a game I was playing, my game account and items would disappear along with it, as they were centralized and controlled by the game developer or publisher.
However, with the integration of NFTs and gaming, even if the game ceases to exist, the information about my items and account can be continuously recorded on the blockchain, and my ownership can be proven, enabling me to use them in other platforms or games.
Furthermore, the newfound ability to freely “trade” the items I possess has led to a thriving market and a significant influx of users and money, resulting in tremendous growth.
These essential elements for growth have naturally supported the rise of the P2E concept as a hot keyword. Of course, we can’t ignore the role played by the FOMO-driven market surge caused by expensive PFP NFTs, such as Crypto Punks and BAYC in 2021.
For these reasons, while NFTs themselves were capable of driving the market, it is needed to consider the gaming aspect separately. The nature of “games” should be rooted in providing enjoyment.
However, at present, games that truly captivate and offer high-quality experiences, such as League of Legends or PUBG, may encounter certain constraints when played on the blockchain. Nevertheless, P2E users within the crypto ecosystem find immense enjoyment in a different way.
It’s money as rewards.
The more play, the more level-up, the more creation of items/characters, and the more they make money as rewards.
In other words, the more I contribute, the more I can take through the P2E. People can experience this structure when they play the games on the blockchain. This powerful advantage makes P2E grow more and make money and users keep influxing in this market.
Based on the provided information, the P2E market is expected to continue expanding in the future. Additionally, the funding scale for blockchain/crypto-related ventures has significantly increased, and the proportion of P2E deals among venture deals in 2022 has grown compared to 2021.
It seems to be “super potential” when it comes to the P2E market.
Then, how can we expect?
Market growth indicates the influx of substantial money and users, but it doesn’t necessarily imply that it is a good market. The size of the market is indeed important, but equally critical is the existence of robust products within the market.
Having foundational projects in the ecosystem and various derivative projects built around them is crucial for creating a healthy and sustainable market structure.
As for the current state of well-known P2E games among numerous options, it’s essential to assess whether they have been steadily growing or if they have experienced a fleeting moment of attention and are gradually being forgotten.
The price chart from CoinMarketCap displayed above shows the current status of tokens of well-known projects that were listed through IDOs/IGOs. Most of these tokens have experienced significant declines, ranging from -60% to -87% when compared to their ATHs(All-Time High). These notable projects, which once received tremendous attention and investments from famous VCs, have faced substantial declines due to several reasons.
Certainly, using the all-time high as the price comparison point may not be the most accurate perspective.
However, it indicates that the market had become highly overheated, and the influx of funds was driven more by short-term hype rather than the actual fun or quality of the games.
Moreover, early investors who achieved high returns during the initial sales might choose to cash out, and during the gap period before the game’s launch, new similar projects might emerge, causing a decline in interest for existing projects and a shift of capital toward projects with new hype.
In reality, most token and NFT sales occur before the game’s release, and many projects enjoy their prime during the promotion phase of their products.
Therefore, becoming famous and securing strong financial backing is undoubtedly positive, but the rapid price surge can also lead to a sudden downturn. Hence, designing an economic structure that ensures sustainability becomes crucial to weather such fluctuations.
How would it go forward?
To successfully launch a P2E (Play-to-Earn) project, it is essential to balance two key elements: the fun factor and the economic incentive. The concept of a game inherently implies that sacrificing fun is not an option.
A successful P2E project should offer an enjoyable gaming experience while also providing a system where playing the game leads to tangible achievements that are entirely owned by the players, and these achievements can be rewarded with actual monetary value. This, in essence, forms the foundation of Play-to-Earn.
Currently, the market seems to lean towards either prioritizing the pursuit of fun over monetary gains or vice versa. Striking the right balance between these aspects is challenging.
Moreover, there is a risk that a project may focus solely on attracting new users to compensate for the earnings of existing users, leading to a shift from valuing the project’s worth to chasing the token’s price. As previously discussed in the “Ponzi structure” mentioned in the earlier post, an imbalance between inflow and outflow can induce the project unsustainable.
To avoid such structures, I think the future direction for P2E projects can be summarized as follows:
1. It needs to be fun.
The gaming experience should be enjoyable, and in cases where it may lack of fun factors, the project should have a purpose-driven theme like M2E to form a narrative.
2. Minimize governance and utility tokens
While token issuance might be necessary for game developers to raise funds or for any reason, it is preferable to minimize the variety and quantity of governance and utility tokens, utilizing network tokens if possible.
3. Design NFT economics with unique users in mind
Careful consideration should be given to NFT economics, especially during the initial stages, to avoid rapid declines in value that may discourage players from engaging with the game.
For example, if the price of assets is already damaged even before the game or right after the game launch, only a few would play the game.
4. Need to have user management strategies
Unlike NFT projects with thousands of holders, P2E games require a consistent influx of users and have proper user retention. The value of P2E is evaluated based on transactions about how many users they have and how many activities they create. Hence, devising methods to onboard more users with reduced entry barriers and how to stay the user in the game ecosystem are the most important factors in P2E.
Wrap-up
Considering the current market status and future expectations, it is evident that the P2E market will continue to grow, attracting more users and new products.
However, for P2E to establish itself as a sustainable product, efforts from all aspects, including users, products, and the market, are essential in building a healthy ecosystem. When evaluating products, it is crucial for everyone to cultivate a perceptive eye and make responsible decisions.
In this fast-growing market, it is vital to remember that with great expectations come significant responsibilities. Let us move forward together, embracing the challenges, and contributing to the building of a robust and thriving P2E ecosystem.
End.
— By Onely.
[References]
1. Samsung Securities Research
2. https://coinmarketcap.com
3. https://nonfungible.com
4. https://www.statista.com
