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The birth of play-&-earn

Until their recent ban of NFTs, Minecraft was seen as one of the open metaverses in which crypto communities could build upon. Maybe a new narrative gets them back into NFTs.

2021 was the year of NFTs with a noticeable narrative: play-to-earn. The crown jewel is, of course, Sky Mavis. With the permission of many other successful projects, the launch, growth and equity story of Sky Mavis in such a short period of time (4 years!) has raised the tide for everything NFT. Yet it has not been enough to onboard the mainstream gaming industry and the next 500M users into web3.

Contrary to everyone’s intuition, the promise of asset ownership and removing power from game developers has not been picked up by mainstream gamers yet. According to this report, most game developers view web3 games / NFT as a threat that will break game economies and hyper-financialize what they view as their leisure time. No one wants money to corrupt that space and time of the day where you just want to have fun and relax.

Everyone within crypto and in the gaming industry agree that the opportunity is still there, but a new narrative is necessary. Many game developers are definitively taking steps towards introducing web3 technology in some of their games, and the crypto community is trying to come up with its next — maybe mainstream — use case.

Why aren’t we there yet, and what is going on?

Sky Mavis was established as a company in April 2019 in Singapore. Sky Mavis began developing Axie Infinity in late 2017 and started rolling it out to players in 2018. It remained a relatively small project for a couple years despite a fervent fanbase. Their first 18–24 months were essentially bootstrapped.

In August 2019 they announced a seed round of $1.5M led by Amonica Brands (owner of The SandBox) and other Crypto VC funds, so they quickly established a legal entity to raise from VC. At this time of pre-growth, Axie Infinity had around 15k-17k MAU. Keep in mind most proper funds have strict KYC processes and restrictions from their own investors (LPs or Limited Partners), so most VC cannot invest directly into a crypto project without some formalized legal entity (a DAO or a company).

Sky Mavis probably raised at a valuation of $10M (assuming typical 20% share for these VC rounds). Sales accounted for the companies income: NFT mints, secondary market fees, game fees. Axie takes just 4.25% off each transaction, and 80% when breading (minting fee). Its in-house marketplace has processed over 25,000 transactions with a total value of about $2.62 million. Notice the pitch here to investors was ‘traditional gaming take rate is 100%, ours is 4.25% and allowing NFT owners to participate: we are changing the gaming industry’. And they certainly have!

In Q1 2021 they were making $100k/month with 3.000 daily active players, so it seems like initial rounds were for game development, not growth. But then the crypto bull market came, and revenue skyrocketed:

  • Jan2021: $100k
  • July2021: $196M
  • Aug2021: $370M
  • Sept2021: $70M

In November 2021, Ronin — an independent, EVM compatible, Ethereum fork blockchain that SkyMavis built in order to lower gas fees — had 300k unique NFT holders a month. In the same period, Ethereum had 15k-30k unique NFT holders. Speak of adoption.

Arianna Simpson from A16Z lead the most recent round when SkyMavis was making $33M a day of revenue to the whole ecosystem. Only $7.5M had been raised previously, so all growth was triggered by crypto tidal wave and organic growth of players.

According to this VentureBeat article, Sky Mavis only owns 20% of Axie Infinity the game, where the rest is owned by players, crypto investors etc. Their latest round valued Sky Mavis at $3bn. As a reference — I’m aware they are quite different — Epic Games is currently valued at roughly $30bn, EASports is currently worth $32bn. Axie Infinity now on the top charts of games played in terms of DAU, and given its growth in 2021, this valuation could make some sense. There are 3bn players in the world, less than 10m play anything involving blockchain.

AXS is Axie Infinities’ governance token Axie. Token holders still hold governance power on what to do with treasury funds (the treasury currently holds 40k ETH or $7.5bn). All of the game fees (mint fees and marketplace fees) in Axie is go to the treasury wallet. A portion of supply is dedicated to play-to-earn rewards. Sky Mavis has a large amount of AXS to align incentives with game development. Its definitively transformational is how Sky Mavis has involved VC money and still kept some degree of decentralization in ownership and governance of its game.

It seems like Sky Mavis is holding true to its commitment of building games differently. Even after the $650M Ronin hack, the team decided to raise again, diluting their share over the studio, instead of using the treasury funds to refund the people affected in the hack.

So why are we rethinking the play-to-earn narrative? Why don’t traditional game developers buy into this massive success in terms of metrics, growth, and funding? Hasn’t Axie Infinity proven that there is a new way of making games, which engages players more, takes away power from developers and gives it to asset owners, and can scale with less capital? Haven’t they been able to build a game which is fun to play? Why aren’t we there yet?

During my research I had the chance to discuss this with entrepreneurs in the gaming industry, as well as the blockchain director in one of the largest game publishers / studios in the world. The answer is a simple metric: player retention.

The economics of gaming

The Startreck mobile game makes roughly €30M/month which an incredibly stable retention rate. Some users have spent the whooping number of $1.5M in it, and they see it as an investment, not spending or a loss.

Yahtzze, a casual game developed with Hasbro’s IP, makes €17M/month and most players started playing years ago and continue to play without any further acquisition cost.

In free-to-play games, the monthly income is grows very stably, because the player base has high retention. People come to have fun and find entertainment, not to earn. All of Sky Mavis’ spikes in sales came from breeding (high take-rate, high growth) revenue, which players did in order to earn more out of the game. The collapse of $SPA when users stoped using it for breading confirms this.

Does this invalidate Sky Mavis and Axie Infinity all together? Of course not! The best proof of Axie’s success is that in Q3-Q4 we will see even more large game publishers introduce web3 tech into some of their games, and acquire more web3 game candidates (see Benji Bananas acquisition by Amonica Brands)

Building a fun game for mobile which delivers that kind of revenue can take 3 to 5 years to evaluate if it’s good enough. €20M-€50M investment in development teams of 110–150 people without accounting for player acquisition. The goal of this kind of investment is an income of €10M/month. Of course indie game studios play another league, but most hope to self sustain or get acquired by large game publishers for €10M-€15M. And what games publishers want are fun to play games with highly engaged players, a strong community, and teams who can execute on that. The failure index in video games is so high that consolidation of game studios into a few huge game developers has traditionally been the only way forward.

And of course, a great way to take a game mainstream is by using the IP of massive brands. From Star Wars, to Hashbro’s board games, to the Looney Toons, once a game is fun and engaging IPs are a great way to onboard fans into gaming and grow the pie. And this relationship is tremendously complex to manage and only accessible to huge games. IP managers are super conservative. No IP partner wants any news out there of people suspecting they are trying to money grab players, similar to what happened to Liverpool FC and its fans.

Marvel and Epic Games, as an example in the case of skins, doe revenue share on the secondary sale of skins. Marvel, as and most IP partners, asks for Epic Games to allow them to pull off any time, so skins don’t truly belong to Epic Games players or Epic Games.

That is possibly why Yuga Labs and its approach to decentralizing IP can make sense. Build new, crypto native IP, make it famous, and then build fun games, films and t-shirts. They can now, more easily, partner with game studios to develop fun and engaging games with web3 technology for IP management.

So what is next?

Gaming is a highly entrepreneurial and competitive industry. Large game studios are chipping in and launching their own internal web3 initiatives. Smaller game studios now have more and more tools to get into web3 and experiment. And of course, Sky Mavis has a massive war chest and plenty of valuable assets to continue to make Axie Infinity, or any other new game, a success.

But of course crypto has its own champions in search of a new narrative that builds on top of the ashes of play-to-earn. Where some players can earn, but the reason to come is to enjoy and have fun.

If we put free games on one spectrum and work on the other spectrum, and compare them in terms of having fun and potential monetary games, you’ll easily spot gambling and speculating in between. Games like poker are a great analogy of fun, skill and luck.

A play-&-earn is emerging as the narrative that makes web3 gaming work. It maintains strong incentives for game asset holders, it’s based on the concept of fun and playable games to maximize retention, and it leaves room for payouts to the best players.

Our course, this concept still has the condition that the game economy must stay deflationary. There’s three main things a game can do to have net inflows of money into its economy so that play-&-earn works.

  1. Player fees: Some kind of pay-in by players in order to play, speed the game process or access locked parts of the game.
  2. Advertising: the kind we are use to in free mobile gaming, or maybe more sophisticated versions of this such as sponsored levels, skins or game maps. Payouts in the native currency of another web3 game can be interesting ways of cross game collaboration, but it comes with attrition risk.
  3. Out of game utility: utility of the native game currency elsewhere which generates token demand and price inflation. A great example of this is side-games. Suppose all players get to bet for the best weekly player using the game currency.

Given the speed of development that the crypto industry has us use to, we’ll very likely see play-&-earn picked up by many projects very soon.


There’s plenty of web3 games building up this new narrative. One great example is GLMR Apes DAO and the DAO’s game: The Great EscAPE.

GLMR Apes is the first and biggest moonbeam DAO who’s core team has been working on a native web3 game with the vision of being the first play-&-earn game that conquers web3 gaming.

A sophisticated relationship among their 4 collections as described in their wiki, a governance model based on GLMA holders, a native currency, and sophisticated tokenomics managed by the jungle bank (its treasury), are just some of the characteristic that give it an edge to be the first to make it.

Version 1.0 is out by the end of August, a well executed and fun to play 2D game, sort of like the old GameBoy Super Mario Bros. I’m excited to see how this game can grow by including sidegames, in-game currency grants to new players to get them involved, collaborations with other web3 metaverses, learn-to-earn programs like Revolut’s most recent program and plenty of more concepts the DAO will include. Most importantly, I’m very excited to see others inspired by them to further develop the play-&-earn concept.



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Albert Malagarriga

Albert Malagarriga

3x entrepreneur, product guy, drummer, swimmer.