Blockchain and crypto in general bring about the possibility of financial inclusion and a new way of storing and transferring value at a scale unseen before. Nevertheless, blockchain technology and crypto concepts are generally difficult to understand, and inherently difficult to attract mass adoption.

In fact, the first reason that brought most people to crypto is the get-rich-fast scheme and more often than not, people are generally being let down once they failed to grab the profit, not to mention the huge amount of rug and pull GameFi projects that have recently ravaged the industry, significantly putting off new users.

Let’s have a look at the state of P2E.

Current Play-to-Earn games landscape

First and foremost, Play-to-Earn generally implied everyone who plays/participates will earn some sort of money/currency. Thereby, forcing players to become speculators/investors and subsequently, severely interfering with the core gameplay.

Game studios/dev that mostly focuses on maximizing short-term money-making through activities such as:

1. The selling of NFT assets, and loot boxes during pre-release; promoting the scarcity of the asset/item to create speculation/hyperinflation of after-sale price to the advantage of whale/guild only.
2. Public sale/IBCO/IDO of its governance token while not building a sustainable approach to the in-game economy.

The game becomes a yield farming tool, not entertainment, and therefore will not capture mass-market; negatively impact the general perception of crypto.

In its essence, when it to economics generally, monetary value transfer to existing/early players can only be generated from 1) developers and 2) the inflowing money from new players, therefore in order to keep a constant earning to existing players requires an increasing capital inflow from new players which is finite. Many have claimed this to be a Ponzi. In fact, most games failed to keep the price of their in-game reward from steep declining after weeks of launch. New players act like exit liquidity to existing/early players.

Although better use cases for in-game reward token to support the price will be introduced as the industry learn and adapt, it remains largely unchanged that the earnings to players must come from the inflow of capital from new players joining or up-spending of existing players. Eventually, new players will be capped so the earnings can only be transferred between players within the game meaning many will lose and only a little will earn.

A case study of Axie Infinity shows that the studio revenue largely comes from marketplace fees and breeding fee surges only for a period of 5 months from July to the end of November and then becomes almost zero as there is no more influx of new players; also the price of Axie NFT and the in-game reward token SLP fall dramatically due to the hyperinflation of emission.

Although some studios have started to change their approach from Play-to-Earn to Play-and-Earn, most games will still be classified as Pay to Earn and Pay to Play although Free to play elements have been gradually introduced.

Fairer distribution to community/customers narrative

You will often find this narrative whereby new web3 game studios claim that fairer revenue distribution to the community through the use of web3 and as a gamer/retail investor, one would feel this is the right thing.

While I agree that game studios make millions, if not billions, you must also account for the fact that rewards are the main incentive for developing such entertaining games. Without proper rewards, I doubt that we would have any titles like Starcraft, Age of Empires, DOTA, CS:GO or League of Legends. Capitalism is in the play whether you like it or not.

Suppose a web3 studio will distribute more back to the community through P2E, what would be the incentive for developers to create better games? Is the remaining share of profit enough to keep the best people around? I don’t have that answer.

The volatility of in-game reward and NFT price

Although this is a typical fundamental of free-market trade, I do think that a non-stable value reward and pricing is also a major hurdle for the mainstream web2 players to join the crypto space generally and crypto gaming specifically.

People are used to anchoring the price to some measurement system so that a rational purchase decision can be made quickly at any time. The same is not true anymore for crypto gaming and that creates extra uncertainty on both the positive and negative sides once the purchase/redemption is made.

In fact, financial speculation is a strong factor that severely impacts core gaming. It has been seen in many recent P2E games that players leave once the in-game reward goes down to almost zero.

Guild (earner pool)

Unsustainable centralization of power and conflict of interest

Guild was originally a place/forum for like-minded gamers to comprehend each other, socialize, become better players, and jointly form up teams for competitive ranking/battle. Early observation shows that guilds create a huge conflict of interest and centralization of power in the crypto gaming sector. Here are why:

• Most guilds in crypto gaming utilize their strength in capital to buy NFT assets in bulk to enjoy discounts and then optimize their meta to maximize efficiency to get break-even in the shortest amount of time. In other words, guilds will try to exploit the game mechanics to deliver the best return on investment as their first priority.
• The bulk purchase from guilds, on the other hand, acts as an essential source of early revenue/investment for game studios, therefore studios are inherently under strong influence from guilds to adjust the game mechanics in favor of guilds and their scholars, not the normal players. In other words, the game will generally be designed to favor the whales.
• On top of that, thanks to guilds’ large pool of scholars, games that cooperate with guilds will secure a large player base even before the release, however, the game will be strongly influenced by the guild’s ROI maximization. This creates a death spiral in which games have to forfeit the long-term sustainability for the upfront cash.
• In addition, only games that follow the model of requiring intensive upfront investment will be able to attract guild since it is largely the way for a guild to gain a competitive advantage over normal players, games that try to stay away from that route to appeal to the mass players will not be able to get much financial support from the guild and therefore will likely need much higher investment in marketing expense to approach mainstream web3 gamers which are already very small in comparison to traditional web2 gamers by multifold.

The 1st version of P2E Gaming Guild is not cashflow sustainable

• Most prominent guilds that attract big money such as YGG, Avocado, Gamefi, etc, according to their own report have made most of their treasury growth thanks to the appreciation in the price of in-game NFT assets in Q4 of 2021. Most of which come from Axie NFTs price appreciation, the largest and most played P2E games
• Most guilds stopped reporting their treasury asset value in November 2021, the same period that Axie’s in-game reward token and Axie NFT fell dramatically in price as well as its breeding and market activities. A quick look at Axie’s price on the marketplace, it looks like the guild’s treasury has fallen dramatically in value, in line with the drop in price of Axie NFTs.
• On the earning side, given that most P2E games in the market are following Axie’s model as explained before, my assumption is that the in-game reward will decline after the initial surge period when a lot of players join in. Therefore, as explained in the Guild’s model section above, the guild will only make considerable money in the first few months after the launch of the game and the cash flow generated afterward will become very insignificant due to the price depreciation of the in-game token, to an extreme that no scholar would want to take part in such games anymore.
• In this sense, to sustain the earnings for guilds and scholars, new games are required to be injected continuously. Although incentive and loyalty schemes such as rewarding scholars with guild’s token and NFT can be seen as an alignment of incentives and loyalty schemes, they will not be able to sustain scholars if the key earnings from a particular game are not secured.
• In the above flow, web3 guilds are starting to act like game publishers who act as promotion agents to commercialize games to certain areas and territories, in this case, its guild’s members. However, traditional web2 publishers earn money from gamers. Web3 gaming guild is essentially industrializing the process of value extraction from a game ecosystem.
• In fact, guilds have started to diverge into a few complementary areas within the gaming industry such as building e-sport teams, NFT gaming marketplace, and gaming studios/incubation.

The failed experiments of web2 studios on NFT/Crypto

Ubisoft, one of the respected studios have experimented with NFT in their famous game Tom Clancy’s Breakpoint in which limited-edition cosmetics items can be bought as an NFT via Ubisoft’s own marketplace. Overall, there were only 31 sales over the course of 3 months.

More worryingly, some items are bought and then traded a few times before finally being listed for a few hundred times the original price which is very similar to the price behavior of pre-sale NFT assets across many recent P2E games: wash trading and speculation. Ubisoft closed its NFT experiment after 3 months.

Although there is not enough data to draw any conclusions on this experiment some reasonable causes can be attributed to:

• Tom Clancy’s was not designed from the ground up to be an NFT/crypto-enabled game. It was a side experiment in which cosmetics items are distributed in the form of NFT and tradable via a free-trade marketplace.
• There was not enough existing audience of Tom Clancy that is equipped with NFT/crypto knowledge to apprehend it and hence led to the insignificant number of activities.

Closing thoughts

While blockchain and web3 bring in a wealth of opportunities and new ways of doing old things, it is still in its fancy, mainly driven by the bull run in 2021. There are certain core principles that need to get right before implementing all these new changes in proper ways. Gaming should firstly be entertaining, allowing people an escape from the real world before introducing other elements. Core gameplay must be respected to the utmost for a game to function its basic objectives: entertainment.

Although new kinds of business models will be arriving, only time will tell how they will evolve to stay meaningful and relevant.

Having said that, I am pretty sure that many people are working days and nights, including our team at T-REX Global and UGEsports to bring in meaningful innovations and challenge the status quo. The best is yet to come!