Krypital Insight — Play to Earn
P2E is Exploding，Are We Ready to Welcome the Latest Crypto Industry Hysteria?
If the crypto economy in 2020 driven by “liquidity mining” belonged to DeFi, this year it belongs to “play to earn” (referred to as P2E). This new crypto economy business model is driving the arrival of GameFi autumn.
Take the leader Aixe as an example, according to Tokenterminal, Aixe’s revenue has reached $59.2M in the past 7 days, surpassing public chains such as Ethereum and BSC, and even crushing DeFi leader Uniswap.
Judging from last month’s data, its revenue also keeps growing steadily and is not a sudden burst.
The performance of its tokens is even more impressive. During the recent subpar performance of the broader market, AXS (Axie platform coin) rose more than 10 times in the last month, according to coingecko.
Axie’s fiery performance has also driven a series of GameFi tokens to “run wild”, and a large wave is on the way. It is estimated that soon we will see a large Game Token wave of birds, insects, and fish. Although the market is relatively deserted, the GameFi autumn may not be far away.
In our opinion, blockchain, NFT, and gaming have long been the consensus of the industry. However, they have started to lose touch. The reason is that in addition to the general gaming experience, low playability, and scarcity of high-quality games, the gaming industry is iterating quickly. In the gaming industry, there are not many games that can stay popular for a long time. Even gaming platforms have to rely on constantly launching new games to meet the needs of users. But aside from this train of thought, looking at this wave of gaming hysteria, is the April “Meme” reappearing with a short climax and then falling into silence? Or can it drive the development of every blockchain game like last year’s “liquid mining”?
- What is P2E？
As its name suggests, P2E means “making money while playing”, and there are many ways to play. In the popular game, Axie Infinity, Bankless figured out five ways to make money. Those who are interested can continue reading this article to find out more. (Leading the P2E Model: One Article to Understand the Five Correct Ways to Play the Popular Chain Game Axie Infinity)
(This cute pet battle game brings the characteristics of fish, cats, birds, and dragons together and has become a common means of making a living for players in the Philippines and in other places)
Although different games are played differently, they can generally be summarized into the four following modes:
1. Combines with DeFi’s liquidity mining to provide rewards for those who provide liquidity;
2. Provides a way to obtain NFT items through the game, and users can trade in the open tradable market (opensea, etc.);
3. Allows true investing in playing games, earning tokens in the game, and then trading on the secondary market;
4. Shares the income generated by the game platform in some way, such as holding platform currency, joining the in-game guild, leasing NFT, etc.
“Play to earn” has already invigorated the blockchain gaming industry. It not only allows old gamers to experience the fun of NFT and money making while enjoying the fun of the game, but also has great appeal for new gamers. After all, playing games is a much better way to make money than the traditional way of working.
P2E has also brought a new source of value to in-game guilds. Just the day before yesterday, YGG, the largest trade union on AXIE, also completed its financing by issuing governance tokens. Its 25 million tokens were all subscribed by 32 addresses in just 3 minutes and raised $12.5 million. This is a “spectacular event” that is hard to see in the bull market. According to the introduction, YYG’s organization is DAO. All investors and players are the owners. Investors are responsible for the initial investment, and the players are responsible for participating in the game. The guild surplus is reinvested to purchase virtual assets and land in the game.
So here comes the problem. There is no shortage of new stories in the capital market, but it is very difficult to continue. Will the attractive P2E model be a flash in the pan?
2. The Essence of P2E — The Extension and Evolution of Liquidity Mining
The core of the crypto economy are cryptocurrencies; the decentralization of the crypto economy is also the decentralization of cryptocurrencies, which depends on the distribution method of cryptocurrencies. In addition, this is also the biggest problem facing most cryptocurrency projects.
Last year’s “liquidity mining” opened up a new situation for solving this problem. Whether it’s the so-called Fair Launch or partial incentives, the distribution of cryptocurrency has evolved from being led by the project party to being led by users. Most users can also actively participate in the acquisition of project tokens, the governance of the project, or in the secondary market. This is also the reason why liquidity mining has changed the cryptocurrency industry and is sustainable.
If we look at P2E from the perspective of “liquidity mining”, we seem to be able to understand this model better. In essence, isn’t P2E a continuation of liquidity mining? Compared to DeFi, which has a limited audience and limited scenarios, P2E is more diverse and does not have any user threshold, which may partially explain why the P2E model has been widely known in a short period of time.
On the other hand, P2E solves another problem that liquidity mining cannot solve: the flow of value and redistribution of projects. Of course, for most DeFi projects, this can be achieved by itself, such as DEX or lending platforms distributing fees to liquidity providers. However, for the gaming industry, there has long been a contradiction between the traffic and revenue contributed by users to the game and the mismatch in terms of the experience the game provides to users. The P2E model, on the other hand, is an improvement to this contradiction.
So the essence of P2E can be summarized as, on the one hand, changing the way blockchain game tokens are distributed and governed, making it more decentralized; on the other hand, improving the flow of value and redistribution of wealth in the game itself, making it possible for players, ordinary users (non-players, participating in other ways), game platforms (project parties), and even coin speculators to play together in a relatively fair manner.
So how long can this model last?
3. Looking at P2E’s Sustainability from the Perspective of Liquidity Mining
If P2E is an extension and expansion of liquidity mining, we might as well look at the sustainability of the P2E model in terms of liquidity mining.
On June 16, 2020, the lending protocol Compound was the first to open liquidity mining. In just 20 days, the lock-up increased from approximately $180 million to $650 million and the number of users increased to approximately 6,000. Since then, Synthetix, Balancer, Curve, and a host of other DeFi projects have opened liquidity mining plans. In addition, the total DeFi lockup has surged, from about $1 billion on June 16 to about $15.1 billion on Sept. 27, a 14-fold increase in less than four months.
Sushiswap, forked from Uniswap, nearly emptied the liquidity of top-ranked DEX Uniswap in a short period of time through a “vampire attack” and liquidity mining. The liquidity and users flowed back only after Uniswap was “forced” to issue coins and start liquidity mining as well.
Since then, more and more projects have been launched, more and more miners have entered the game, and DeFi users have also ushered in explosive growth. Miners who are the first to enter the game can not only enjoy a large number of tokens that are almost free, but also get a huge benefit due to the influx of users and the increase in usage, which leads to the continuous increase in currency prices.
However, in the market there’s no such thing as a free lunch. Under the tremendous selling pressure from the players who entered the game first, the token prices of many projects began to plummet, and the miners left the market. TVL plummeted and the currency price plummeted again.
Nevertheless, the story does not end there. According to DeFi Llama,
the total TVL of DeFi protocols has been growing steadily (with a recent pullback under the influence of the broader market). Moreover, the entire DeFi industry is “blossoming”, with the veteran DeFi growing steadily, along with the emergence of various new innovative DeFi protocols. The value of DeFi tokens has also been recognized by the market, with Uniswap’s market cap once being in the top 10 of all cryptocurrencies.
Although the success of this wave of DeFi has contributed to liquid mining, the success of DeFi does not rely on liquid mining. DeFi’s success is more about the innovation brought about by technological progress, and it is an essential requirement of the encryption economy. For the head DeFi protocol, even if it leaves liquidity mining, it is still under continuous development. Furthermore, liquidity mining has not disappeared. It has become the most suitable way to distribute tokens in the crypto economy.
DeFi’s development may be able to bring some inspiration for P2E’s sustainability. In P2E, we have seen a huge wealth effect and user participation in the encryption economy. Compared to liquid mining, its gameplay can be closely integrated with NFT, DeFi, etc. It can be predicted that, in the future, maybe we will witness a new wealth feast brought by a new encrypted economy business model.
But there is no such thing as a free lunch in this world. The amplification of the wealth effect is bound to be accompanied by risks. Some foreseeable risks include the risk of impermanent loss caused by participation in liquidity mining; the increase in token prices leading to higher costs for new players; as the number of game participants increases, the wealth effect could be diluted, and some people will inevitably leave the market; the coming currency price drop will further accelerate this process, and the game enters a cycle of death; the unreasonable gaming mechanism makes P2E unsustainable.
Therefore, in terms of the sustainability of its wealth effect, it may not be as good as liquidity mining. But as a new crypto economy business model, it brings a large number of users and participation to the crypto economy gaming industry. This undoubtedly has an enormous role in promoting the development of the crypto economy gaming industry. For a long period of time, it has been widely adopted by games and even other crypto-economy industries.
About Krypital Group
Founded in 2017, Krypital Group is a leading global venture capital firm and blockchain incubator with active arms in North America, Asia and Latin America. Vested in a complete blockchain ecosystem, the company has specific investment funds for both primary and secondary markets, as well as providing end to end services such as project incubation, brand management and technical advisory. To date, Krypital Group’s investmentsand incubated projects are valued at over $1 billion.
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