The Magnet of Play-to-Earn, And What Could Sink It
The Play-to-earn (P2E) gaming model is full of potential. It is likely to revolutionize the video gaming industry more than any other technology since the internet.
Reddit co-founder Alexis Ohanian has predicted that, in five years, 90% of gamers will be on play-to-earn platforms.
In a December 2021 interview on the Where It Happens podcast, Ohanian, who now runs the venture capital firm Seven Seven Six, says that this model allows gamers to value their time properly.
“Instead of being harvested for advertisements or being fleeced for dollars to buy stupid hammers you don’t actually own,” he states, “you will be playing some on-chain equivalent game that will be just as fun, but you’ll actually earn value, and you will be the harvester.”
However, it is important to point out that the path to the play-to-earn success story is not going to be all smooth. There are a few obstacles that could sink the ship. Indeed, most play-to-earn games will die not long after they are launched.
I will focus on the most serious of these obstacles in a moment.
First things first.
What is play to earn?
A play-to-earn game is a game that is designed to reward players with digital assets, in particular tokens. The players can convert these digital assets into a currency they can use in the real world.
This model has been made possible by blockchain technology. Besides digital currencies, the blockchain is proving efficient in hosting other digital assets, including game applications and in-game assets such as skins, real estate, animals, and weapons.
The assets on the blockchain exist as non-fungible tokens (NFT), which means that only the player has full control over them. No central authority can override their ownership, which is the case in the conventional gaming environment where a corporate entity can easily take an asset from a player.
More importantly, the blockchain facilitates the building of a more robust, inclusive, and fair economy around gaming.
Play-to-earn games on the blockchain are a critical component of the emerging metaverse virtual worlds.
How Play-to-Earn games work
To easily understand how play-to-earn games work, let’s look at the following three examples:
Axie Infinity
This game is inspired by the Pokémon series and is a product of the Vietnamese studio Sky Mavis. It exists on a sidechain on the Ethereum blockchain known as Ronin.
The Axie Infinity game environment is a virtual world where players own and breed small cartoonish monsters known as Axies.
The Axies, as well as the other assets in the game, exist as NFTs. The actual game is a player putting together a team of these cute monsters to fight with other players in highly competitive and strategic wars.
How do players earn from the game?
The winning axies teams are rewarded tokens known as Smooth Love Portion (SLP). These tokens can be exchanged for Axis Infinity Shard (AXS), the game’s governance token, which can also be exchanged for other cryptocurrencies.
The other way players earn is by breeding the axies and selling them to other players. Some Axies have been sold for as much as 300 ETH ( about $600,000). The players can also rent out their axies to other players and split the reward they win in the wars.
The Axis Infinity Shard (AXS) native coins can purchase more Axies or pay the fees needed whenever you breed the animals you already have.
DuoVerse
This is a relatively new play-to-earn game on the Ethereum blockchain. Nevertheless, it is highly detailed and has a unique environment and economic model, especially compared to others already on the market.
The DuoVerse game environment is a universe consisting of 300 planets. Players can own a planet or be a settler on it. The planets, the land on them, and other assets exist as NFTs on the Ethereum blockchain.
Each planet has a government managing its affairs, including building infrastructure, distributing the real estate, space exploration, and organizing settlers into a defensive and offensive army.
The Founder, the person who acquired the planet first, is often the head of the government. However, if the founder sells more than 50% of the real estate, the settlers can easily remove them from power using force or a democratic process.
So how does a player earn in Duoverse?
The players earn by mining an in-game currency known as VANA. To earn this coin, one needs to have a mining simulator known as VMining and ENRG, a consumable resource used to power the mining rigs.
The amount of ENRG available on a planet is determined by how far it is from the sun, and it is distributed by the government.
The VANA token allows players to discover planets and access other assets. Players can also sell it to others in the ecosystem. Users can begin mining VANA by creating an account on the DuoVerse website.
Besides mining, players can earn through wars. Whenever a planet wins war over an enemy planet, the settlers who participate can loot, share and sell its assets for profit.
The trade of VANA, ENRG, real estate, and other assets in the game is facilitated by $GEEK, an ERC-20 utility token. This token will be exchangeable for other coins on decentralized exchanges.
Pagaxy
This game is similar in many ways to the Axie infinity. In this game, one can buy, rent or breed horses on the Polygon blockchain known as Pegas. These horses are then used in PVP-style racing competitions.
In the Pagaxy play-to-earn game, randomized variables determine the competition. These include wind, fire, water, and speed. The players can use strategic upgrades through food and skill to give their horses an edge.
How do players earn?
Horses compete in groups of fourteen. The first three earn a reward in the form of the native VIS (Vigorus) tokens. The players can also breed, rent and sell Pega to earn VIS tokens.
The gaming platform has a liquidity pool on decentralized exchanges through which the coins can be exchanged with other coins.
The strength of the Play-to-earn
To understand how play-to-earn works, we need to figure out how value is created, owned, and shared.
How value is created.
In the conventional business model of gaming, the gaming companies create digital assets as well as the experience and sell them to players.
Blockchain creates a new peer-to-peer model where players create gaming digital assets and unique experiences and sell them to other players. In particular, the digital assets are minted on the blockchain as non-fungible tokens (NFTs).
It also means a digital asset can be extremely rare based on who created it, the unique circumstances around its creation, and its provable history on the blockchain.
For example, a planet or real estate on DuoVerse metaverse can, in the long term, develop into a unique asset based on the unique activities of the settlers.
Indeed, players in play-to-earn games can build the NFTs into artistic items through which they express themselves, giving them a lot of sentimental value.
How value is owned
In play-to-earn games, value is mostly held as NFT assets and utility tokens.
In the Axie infinity, it is in the Axie monsters, real estate, Smooth Love Portion (SLP), and Axis Infinity Shards. In the DuoVerse metaverse, the value is in the planets, real estate, weapons, infrastructure, ENRG, VANA, and the GEEK token. In Pagaxy, it is in the Pega horses, real estate, and VIS tokens.
These digital assets are either non-fungible tokens (NFTs) or utility tokens on the blockchain. That means their ownership is completely in the hands of the players. Once a player acquires the asset, they are the only ones with the private key that can authorize its movement on the blockchain.
In the conventional gaming architecture, a corporate entity always maintains the power to override the ownership of an asset. That could happen through the suspension of an account, for example.
How value is shared
This is where play-to-earn games differentiate themselves the most from the others.
In the conventional gaming model, value generally flows into the gaming environment from the players who spend money to acquire the digital assets they require to enjoy the game.
In general terms also, value leaves the gaming environment through the corporate entity that runs it. Indeed, most centralized gaming platforms restrict trading between players.
In the play-to-earn, value flows in and out of the ecosystem through the players.
Dedicated players invest time, effort, personal creativity, and even energy in creating assets through mining, breeding, building, racing, and fighting in strategic wars. They earn by selling or renting these assets to those who want to have a high-level experience in the game that the digital assets offer, but they don’t have the time to accumulate them.
Those earning through gaming are technically providing a service that improves the experience of other players, who often are willing to pay for it. The value leaves the gaming environment through the players and not a corporate entity.
What could sink the Play-to-earn games
What could easily sink the play-to-earn gaming ship is unsustainable economic models.
A critical component of the game experience in the play-to-earn is managing how value flows in and out of the ecosystem. If it is not well managed through the core protocol, the entire system could easily collapse.
The inflation challenge
All play-to-earn games have utility tokens, often more than one. They serve as the medium of exchange in the metaverse or gaming platforms. It is also through the tokens that players cash out from the metaverse.
Some games have a staking component, which means players participating in the running the platform’s governance need to hold the tokens. It gives them voting rights.
How these tokens are generated, particularly how their supply is controlled, is critical. If players keep earning new coins without limit, eventually, the value is diluted. Hyperinflationary economies anywhere eventually fail.
The secret is to make the release of coins a rewarding part of elaborate and sustainable tokenomics. In particular, the reward can serve as a way to release new coins into circulation but with a capping mechanism.
This is like what happens on the Bitcoin network. Miners get rewarded for providing hardware and energy to the network. At the same time, this is the only way new coins are introduced into circulation. However, the protocol limits the number of bitcoins to ever be released at 21 million.
Play-to-earn games like Axie Infinity, DuoVerse, and Pagaxy have mechanisms for keeping the coins in minimum circulation. All of them have a burning mechanism to maintain the supply of the coin. Part of the coins gamers pay as fees to breed or transfer asset ownership is sent to a wallet from which they cannot be recovered.
Duoverse has an additional mechanism to check inflation. Besides 1.5% of transaction fees being burned, the number of coins to ever be created is capped at 2 billion. This guarantees holders of the coin that, in the long term.
In particular, burning mechanisms work better in play-to-earn games when tokens are used to mint NFTs. However, for the model to work, the minted NFTs need to have a market, mostly driven by their utility in the game.
If there is no demand for the minted NFTs, players will hold on to the coin, which might turn it into more of a speculative asset than a utility token. The resulting inflation can easily make earning from a game unattractive, and therefore the players lose interest.
Pagaxy and Axie Infinity have faced the inflation problem. This can be seen through the dropping of the value of their utility tokens on the exchanges.
Too much focus on the utility tokens
A currency is just a value carrier in any economy and not the value. Indeed, currencies are described as a medium of exchange. They don’t have intrinsic value.
However, the currency is often viewed as having intrinsic value, and people trade in the open market with little regard to where its value lies.
The risk, especially in play-to-earn gaming, is that the utility coins become the center of focus instead of the actual value, which is the game itself. This is often driven by day traders whose only goal is to gain from the daily price movements.
The more recent play-to-earn gaming environments such as DuoVerse seem to be driving the focus more into the actual gaming while at the same time making it profitable to those who participate.
What to do as a player
The following are some of the things you can do as a player as you get involved with play-to-earn metaverses:
- Study the actual games. There should be more value and interest in the game itself, and the token should facilitate how that value is shared and distributed.
- The games should have a clear deflationary mechanism, which safeguards the value of the utility coin.
- Look at whether the token has meaningful utility in the ecosystem.
- Find out if the coin has a liquidity pool in place, which means you can easily cash out if you want to.
