The Next Evolution of Blockchain Games — Play-and-Own
In our previous article, we outlined how play-to-earn (P2E) games must evolve that would bring fun and a sustainable game economy, not simply a financial scheme. There’s already an effort in shifting the narrative toward play-and-earn (P&E) that deemphasizes the earning as the primary purpose of games while still maintaining the earning potential of playing games. We believe the shift will continue as more traditional games adopt blockchain and NFTs. In this article, we explore in more depth on how earnings or rewards can (and should) be the part of games in a sustainable and thriving business model while still delivering entertainment to all players. The key idea of this model is ownership — the play-and-own (P&O) model.
Why the current P2E games must evolve
The current P2E model isn’t sustainable as it heavily reliant on the high priced NFTs and ever rising valuation of the cryptocurrency. Players, motivated only by earnings, pay the upfront investment and stays with the game as long as the payout exceeds their opportunity cost or the initial NFT investments. At the same time, the game developer must perform the balancing act of game content development, marketing to bring in new players, and retain the existing players. When the cryptocurrency drastically drops in value, the problem is more severe. As an example, the price of Axie’s in-game currency Smooth Love Potion (SLP) went from the peak of $0.31 to $0.005 (98% loss of value), the incentive for playing Axie simply evaporates without a significant adjustment. Those who unfortunately bought their NFTs at a high price, they may lose out their entire investment unless the game SLP payout is significantly inflated to compensate such a large drop in value. However, significant inflation — adding more SLP to the supply — would further drive down its price.
One of the complex tasks for the game developer is managing the game economy, which essentially managing inflation and deflation (or controlling sources and sinks) of in-game currencies (cryptocurrency) and in-game items (NFTs) and resources. This is a necessary task, especially in a more complex game. When the value of the cryptocurrency is beyond their control, balancing the game economy becomes even more challenging because controlling the demand and supply changes the secondary trading values and vice versa. The challenge of balancing the game economy is even more difficult when the game contains bugs or exploits as what had happened with DeFi Kingdoms. Game exploits are not uncommon, but when tying to cryptocurrency value, the impact is immediate and much more damaging to both the game and the players.
When in-game currency is also a cryptocurrency, balancing the game economy becomes an impossible task.
The economic value of P2E games has been measured by the volume of trades for the game cryptocurrency or NFTs, but the bulk of this volume is in the secondary market, whether in the exchanges or marketplaces. Not all game developers, especially the more established ones, can mint new cryptocurrencies for their games as the source of revenue, largely due to legal restrictions. Thus, established game developers must continue relying on the traditional methods of acquiring revenue — from the paying players. Thus, allowing player earnings from the game is more challenging. Consequently, it’s one of the reasons few traditional mainstream game developers want to adopt the P2E model.
So far, the success of the current P2E games are fueled by a relatively small set of player base, compared to the mainstream games. Given significant investments into blockchain games to date, better games are expected to compete and challenge the existing P2E leaders. Combined with the more challenging cryptocurrency valuation environment, it’s reasonable to expect P2E games to evolve into a more sustainable model, one that is far less dependent on its cryptocurrency and valuation. What it means is that the P2E or blockchain based games will need to increase its player base and revenue from them. They will need to compete not only for existing crypto-friendly players but also for mainstream players who may not be familiar with blockchain. In essence, we should expect the blockchain natives to merge with the game natives. With this trend, we can expect the newer blockchain games to be more fun while also bringing some monetary rewards for playing.
Can existing free-to-play (F2P) games adopt P2E?
Given that P2E games have earned such a huge valuation (e.g. Axie), far exceeding some proven and well known F2P (a.k.a. freemium) games, it’s natural to think why F2P games don’t adopt the P2E mechanics quickly. As outlined above, F2P developers face more hurdles modifying their games for the P2E model. At the same time, many large game developers and publishers have also been slow or even resisting such transformation for other reasons:
- Resistance to NFTs — Some have stated that they are hesitant to adopt NFTs on the grounds of the environmental concerns and scams associated with blockchain and cryptocurrency. This opposition is generally misplaced because there are blockchains other than Ethereum that do not incur high environmental impact, and utilizing blockchain technology does not equate to adopting and using cryptocurrencies.
- Opposition to grinding gameplay — While it’s true that existing P2E games have too much of a grind and lack of fun in their gameplay, they are quickly evolve with more content, more modes, and better PvE and PvP. Good game design doesn’t require grinding for earning rewards.
- Opposition to ownership — The incentives for game developers and publishers to recognize ownership are low. After all, the movement from physical games to digital games had liberated the game publishers by cutting out retail distributors and pre-owned game resellers like Game Stop. They view that digital ownership as a liability and not as a revenue generator. They can quickly point out the Ubisoft’s NFT experiment failure as a reason to reject the player’s desire for ownership.
- Lack of legal clarity — Some may point out that paying out rewards from games may inadvertently cross the line as gambling under some jurisdictions. While this is a legitimate concern, earning rewards don’t necessarily involve cryptocurrencies. After all, there is a large and legal skill gaming industry, and unless the gameplay is deliberately predatory, earnings derived from ownership of digital items are generally not considered gambling.
Given the internal resistances above, large and incumbent game publishers will be slow to adopt blockchain and earnings from digital ownership, especially for the Western market. They are taking a wait-and-see approach until threatened with more serious competitions. A decade ago, the F2P model also faced similar resistance and was dubbed as pay-to-win at one point for its aggressive monetization methods. It took a few years for F2P games, which already dominated in Asia at the time, to evolve and gain wide acceptance in the West. Now, the F2P model is the dominant incumbent, and we are on the cusp of a similar trend with the P2E model. While most are cautious, there are a few large game developers such as Square Enix who are taking bold actions to embrace blockchain technology and games. But in the short term, it is the newer startups such as Sky Mavis (developer of Axie) that will be quicker to adapt and innovate as they recognize the need to evolve P2E into a more sustainable model.
Why Play-and-Own?
In the play-and-own (P&O) model, the game mechanics do not rely on any cryptocurrency (if there is one), allowing the game developer to balance the game economy with well tested methods and game mechanics. Instead, the game adopts digital ownership for players. Rewards from playing are rare in-game items or assets completely owned by players. This ownership model allows players to obtain and sell for profit their in-game items, whether a leveled up character or rare cosmetic skins. When designed well, outside creators can contribute new cosmetic items to the game and earn from their creation and even royalties from resale. Blockchain technology can track and power these features, enabling secure commerce outside the game ecosystem and region where cross-border payment is difficult or even not possible.
Unlike existing P2E games that require purchases of NFTs to start, P&O games are like F2P that allow players to play for free. Similar to F2P model, the game developers obtain revenue from:
- Selling premium items, some are assets (NFTs) and some are consumables (e.g. time saving)
- Selling game season passes
- Royalty or commission from reselling
Except for royalty and commission, the revenue sources of these P&O games remain exactly the same as that of F2P games. The difference is that some in-game assets can be owned. With ownership, game developers can unlock value both for players and additional revenue source for themselves through royalty and commission fees.
An argument against this model is that the revenue source from commission and royalty is too small and can cannibalize sales from selling premium items. However, if the trading volume from various NFT marketplaces is any indication, revenue from marketplace commission and royalty can be substantial for games with ownership. As for the fear of cannibalization of the sale from premium items, it seems largely theoretical for a the following reasons:
- Publisher can decide when and what types of in-game assets can be owned (minted as NFTs). Publishers can continue selling consumable items (e.g. time saving, resources for upgrades) directly, and since these items are produced and consumed often, they need not be minted as NFTs.
- Publisher can create exclusive selling period for new in-game assets before allowing NFTs to be minted for those assets. This approach is similar to a new movie release, where theater distribution has an exclusive showing period before the title is released for purchase, rental or streaming. Through this approach, publishers can retain control of the primary market and capture most of the potential revenue upfront and enjoy the long tail revenue stream through commission and royalty from the secondary market.
With ownership, publishers have more tools for testing engagement such as NFT rewards through contests, events, and tournaments. With rewards given out in events or tournaments, more players would be engaged, more playtime sessions, and more would be willing to buy consumable items from the game. In effect, the publisher would be increasing player activities and transactions through engaging events and playing activities that payout NFTs rewards which players can profit from.
This P&O model is a more natural extension of F2P with ownership that enables more economic activities and is a proven business model but without the unsustainable game economy that P2E games are experiencing. Ownership, if designed as additive to the game, will bring benefits to both players and game developers. It cannot be used, or perceived as such, as another monetization method. Some may argue that player’s earnings would be less compared to the current P2E games. However, as pointed out earlier, the earnings from the current P2E games heavily depend on the inflationary token valuations that is simply not sustainable in the long term. With P&O model, earnings can be substantially more over time, particularly for games with a decade old shelf life.
We will see higher quality games adopting digital ownership and earnings using blockchain technology. These games will come from more nimble F2P game developers who are willing to experiment and take risks.
Gameflip will enable game developers to adopt NFTs
NFT makes digital ownership possible by recording ownership deeds for digital assets in a transparent and secure blockchain. However, there is still a big gap for both game developers and mainstream users to adopt because of the complexity in integrating and using blockchain wallets, including the basic user protection such as two-factor authentication or account recovery.
At Gameflip, we’ve created a robust platform that allows users to purchase NFTs with credit cards (or crypto wallets) across Polygon, Ethereum, and BNB Smart Chain (formerly Binance Smart Chain). The Gameflip platform provides users a “frictionless” experience for transacting NFTs and digital assets while preventing common scams and frauds. As a proof point, the Gameflip platform has processed over $140M to date through our Gameflip Marketplace.
With the proven platform and expertise in digital transactions for the mainstream users, we are opening the Gameflip platform for game developers to integrate within their games so they can provide an Amazon-like NFT commerce experience without the blockchain complexity. Game developers will also have access to the Gameflip community of 7M mainstream gaming enthusiasts. By using the Gameflip platform API, game developers can accommodate both crypto native and non-native gamers by offering NFT transactions in either fiat or cryptocurrencies. For crypto native users, they can choose to keep their non-custodial wallets or utilize the Gameflip wallets for the ease of use and 2FA protections.
Are you developing a blockchain game and interested in working with Gameflip? For inquiry, contact us at bizdev@gameflip.com!
