Disclaimer: There are some strong statements within this article that are in reference to the issues experienced by NFT gaming projects. This is by no means an attempt to discredit and/or slander the projects themselves, it is simply my opinion. Please understand this article is not meant to be financial advice, always DYOR before making any investment decisions.
- Introducing Play 2 Earn (P2E)
- Axie Infinity - The First P2E Icon
- “Scholarships” A Spontaneous Miracle
- Hype Cycles & P2E Economies
- Thetan Arena Joins The Fray
- P2E Winter Has Come
- The Resurgence of Axie Infinity & P2E
- The Rise of Pegaxy?
- The End of P2E? The Start of Something New?
- Final Thoughts
- Author(s) & Contact Info
Introducing Play 2 Earn (P2E)
Guru here, founder of Method to the Mythos, this will be my first article on our new MTTM Hub. I’m just wanting to let you know ahead of time that it’s a long one! I’ve been asked countless times to dig into this topic, and I think you’ll enjoy my extensive breakdown.
Let’s get right into it, if you’re reading this, then you’re probably familiar with NFTs & Play 2 Earn games like Axie Infinity so just to summarize; P2E games are very similar to traditional games in the sense that they aim to create a unique and engaging digital experience for users to interact with. NFT/P2E games can be any genre but are usually quite simple by design (at least for now), and they differ from traditional games in that they are developed with on-chain elements such as; NFT game-passes or digital assets, and tokens that can be earned through playing or abiding by the game mechanics in some manner.
Axie Infinity - The First P2E Icon
Alright, now that we’re caught up on what NFT Games are, let’s start talking about the recent history of P2E. I’m going to be focusing mostly on Axie Infinity in this first section, a game MTTM is best known for, and an icon in the P2E ecosystem. I personally have only been involved with Axie since February of 2021, but seeing as more than 90% of its growth has been in the last year, I would claim to be an early adopter.
Initially, Axie was a niche little game built on the Ethereum main net that felt like a mixture between Magic the Gathering, Pokémon, and Slay the Spire. The user base when I started was around 15K and there were only about 100K Axies in circulation, compare that to the current 2M+ users and more than 10M Axies of today and you’ll understand why I claim to be an early adopter. Take a look at the chart below which shows the sheer volume of growth in the last year compared to the previous years.
This explosive growth is due to a few reasons, such as Sky Mavis releasing their layer-2 blockchain “Ronin” for gasless transactions, and the NFT market itself gaining a lot of popularity. However, one of the most notable reasons was that a much larger demographic became aware of the earning potential in Axie; where a player can use their team of 3 Axies (NFT game passes) to play a relatively simple card battler game to earn SLP (game tokens) which are then used to breed more Axies.
This system is quite simple, the reason you would buy an Axie is to earn SLP, which has value because you use it to breed Axies, but the reason Axies have value is primarily because SLP has value, these two assets rely on each other to maintain a “Play 2 Earn” dynamic. Now if you read that and thought to yourself, “this doesn’t sound very sustainable,” you’d be right, this model typically only works so long as new users continue to invest in the ecosystem, or you have a small enough market that is comfortable with recycling assets internally without extracting liquidity. Now talking about extracting liquidity, the problem of sustainability was made even more prevalent when what is known as the ”Scholarship” model became the primary reason to get involved in P2E games.
“Scholarships” A Spontaneous Miracle
Axie has a strict rule of “1 account per person” which is meant to avoid misuse of the earning system in a way that can negatively affect the economy. Axies are NFTs by design, and it was not uncommon for a collector to own many of them for various reasons, but Axies are expensive, so not just anyone can, or will purchase a team to start playing. The scholarship system allows for a Manager (someone who holds lots of Axies) to create multiple accounts under their control and distribute their assets to those accounts so they can lend or rent it to a Scholar (person given access to use the managers Axies.) The scholar would play the game regularly and earn SLP, then split the earnings with their manager. It seems like a pretty harmonious professional relationship, and most of the scholars happen to be from underprivileged regions of the world, so the extra income helped them a lot. Something to realize here, however, is that most scholars would take their cut of earnings and cash it out of the ecosystem, effectively lowering the total liquidity in the market.
- Now a quick disclaimer, while I mention scholars above as the main focus of regular extraction, they are far from being the issue. The investors creating these programs often do so in order to make as much profit as they can, meaning they contribute to the liquidity extraction as much, if not more than scholars.*
Most people didn’t pay this extraction issue much mind in the beginning because we hadn’t experienced this exact scenario before, and I’m sure you could imagine that this mutually beneficial relationship garnered a lot of attention from both sides. The demand for scholarships from both investors wanting to make ROI on their assets, and scholars wanting to earn, exploded in July of 2021, which led to the famous Axie Infinity bull run.
Hype Cycles & P2E Economies
During the bull run of Summer 2021; the production of Axies was not even close to meeting the demand caused by exponentially growing hype. The prices for Axies and the tokens needed to breed them such as SLP and AXS soared to crazy heights. Social media and YouTube clickbait was at an all-time high, and people were paying thousands of dollars for Axies so they could get in on this never before seen opportunity. Sky Mavis servers were literally on fire from the growth, and the Play 2 Earn model seemed to be unstoppable, but all of this was being balanced by that single-use case I mentioned above, and as the hype cycle began to cool down, the number of people playing and extracting liquidity did not. The world became painfully aware of the first, and biggest problem of P2E games, the lack of sustainability when your economic model is solely based on such a simple and linear process of breeding NFTs.
Just like our cute fluffy friend above, this problem brought tears to the eyes of both managers and scholars who were expecting P2E to continue at the pace it was. There was a mix of responses coming from the community, some were recommending ways to expand the use case of SLP, which would effectively increase the burn rate of tokens, and others were simply wanting to bring more users in so the demand would increase again and prices would rise. It was clear that we were dealing with a pretty complex issue, and people wanted a solution, so they looked to the Axie Infinity team to provide those solutions, but the team did not seem to share the same sentiment at the time.
In Q3 of 2021, Axie assets had seen a dramatic drop in price from the summer hype, the Axie discord was a battleground, and Twitter was full of WAGMI dances, as well as near Instagram levels of party videos from well-known names in the space. Needless to say, this was not received well by the community, and rather than staying committed to the economy in its time of need, people began scrounging around the NFT space looking for the next “Axie Infinity” so they can become early adopters in a new project and enjoy the benefits of seeing 10-100x gains.
Thetan Arena Joins The Fray
A well-known game of late 2021 was Thetan Arena, which tried to introduce a “free-to-play (F2P for short)” model to their game as a means to improve but did not address the Tokenomics issues that would soon bring devastation to the game. Now to Thetan Arenas’ advantage, they did identify one of the biggest onboarding issues for NFT games that have such a high barrier to entry by implementing a F2P system for players to be introduced to the game without financial commitment. I personally think having some sort of F2P model will become necessary for most games in this space. My reasoning for this is based on precedence from the traditional gaming market: pre-sale numbers for new games have dramatically decreased in recent years because users are not comfortable paying a premium for a product they haven’t had a chance to play yet. This will be even more relevant for games that introduce financial structures like tokens and NFTs to their ecosystem.
P2E Winter Has Come
Needless to say, almost all P2E games (so far) have experienced the same results as Axie, but more quickly and violently because fewer people would jump on board with each failed attempt. Liquidity was being siphoned out of markets and gambled into new projects at an alarming rate, influencers began riding hype cycles for clout and profits, and the YouTubers? Let’s just say it wasn’t pretty (And this is coming from a well-known YouTuber myself 😅), jokes aside, it was not looking good for P2E. Many people began painting all NFT Games as Ponzi schemes with no future and the ones supporting them became targets of hatred, abuse, and harassment. To the public eye, it may have seemed like NFT Games were dead in the water, but the level of conviction that those who truly believed in the inevitable future of blockchain gaming was not something to be underestimated, and many of them were still in support of Axie Infinity.
The Resurgence of Axie Infinity & P2E
As the new year came around, Axie Infinity began responding to the community voice; taking accountability for the mistakes that were made, and communicating with their user base to identify problems and enact solutions. It was still very rough, many people were upset, and the harassment and abuse from those who felt wronged didn’t lighten up, but those committed believers I mentioned? They were still around and slowly but surely things started to improve. The decentralized aspect of NFT Gaming was starting to loosely form around this niche community engagement, but that too came with its own problems that I’ll touch on in another article.
Getting back on track publicly was a huge improvement, but the fundamental issues of P2E were still raging, and there were still many people who supported the previous model despite the fact. This is where a new project comes in to try and shake up the P2E model with another approach to both the “playing” and “earning” aspects.
The Rise of Pegaxy?
Pegaxy is another P2E project that had been around for a while but never gained much traction until Axie fell to its bearish state near the end of 2021. This project didn’t have much of a game to play, more of a browser app that simulated horse racing which did not require skill to earn, something that many scholars found appealing because the competitive earnings of Axie were hard to achieve, and lower performing users did not earn much at all. They also provided a nice interface for managers to run their scholarship program, which was very beneficial for managers who did not have access to ERP tools like some bigger guilds did, (Ex: Cerebro, Maxbrands Scripts.) This made for quite an appealing product for entry-level users; no skill required for earning, organized scholarship interface, and even some big influencers started promoting it, things were good! But Pegaxy once again based most of its economic stability on the breeding and selling of more Pegas, another system heavily reliant on new users coming in to keep it afloat.
There was one key difference in the Pegaxy earning system though, and that was the market standard for paying scholars was significantly less than Axie due to the game not requiring performance to earn. Scholars were only being paid around 5-30% of total earnings compared to Axie where it was 40-70% and most saw this as a way to stop scholars from extracting, but unfortunately, it didn’t fix the overall problem, it simply put the financial leverage into the hands of the investors/managers. As guilds and managers reached the point where they no longer wanted to scale and began extracting, it triggered one of the most violent market crashes seen to date in P2E.
The End of P2E? The Start of Something New?
Needless to say, people were getting fed up with P2E, and many started speaking out, myself included. To my surprise, the community seemed to echo the sentiment of learning from these mistakes, and some of the biggest P2E influencers even began voicing their thoughts on the issues. This was a huge step in the right direction! You know what they say, “the first step to solving any problem is admitting there is a problem.”
We saw a push to change the term “Play 2 Earn” to “Play & Earn” because the focus of playing to earn leads to people only playing so they can earn and extract from the ecosystem, rather than users playing to actually enjoy the game and earning as a result of playing. Yeah I know, the term P&E doesn’t roll off the tongue as nicely, but the essence of why we need to change that term is vital to realizing a healthy future of NFT Games, and one of the fundamental points of this article.
The most important point of moving to a P&E state is developing games that can compete in the traditional market; they have to be worth playing even without earnings. This is only 1 half of the equation, however, even a fun game can lose its light if the tokenomics are not well suited to long-term sustainability. What else is needed is a dynamic cycle of use for tokens that go beyond simply breeding and selling game pass NFTs. What I mean by “dynamic” is to have multiple ways for tokens to be used to generate valuable experiences that don’t always lead to predictable ROI, but provide value in other ways. Some examples are: having an abundance of cosmetic options for personalization, unique access to different parts of the ecosystem through token use or acquisition, and one of my personal favorites, performance-altering customization for competitive players.
There are also ways to manage the token yield itself, which would adjust to hype cycles and market saturation, or one could fully avoid having a tokenized economy and simply provide NFT assets as an added spice to the game. I don’t want to divulge too deeply into possible solutions here, but if you’d like me to expand on this topic let me know and I’ll consider doing so in the future.
Are you still with me here? I told you this was going to be a long one! But we’ve covered quite a lot, and I believe it’s necessary to understand the difficult history of Play to Earn so we can learn from these mistakes and refine the future of Blockchain Gaming as a whole. Here are my final thoughts on The Problem With Play 2 Earn & Why We Need Change.
The current Play to Earn & Scholarship systems have developed like a spontaneous miracle; it introduced millions to the world of NFT Gaming, provided income for those in need, and became the start of a revolution in the gaming industry, but the lack of long-term sustainability by simply “playing to earn” needs to change for us to move forward. The best way to create that change is by delivering a quality product that doesn’t “require” earning and having either a simple no token economy, or a deep, dynamic economy ready to go from day 1 so we can proactively avoid many of the issues that come from token oversaturation and market spikes. Launching on a test net and running an extensive data acquisition phase before going live may also help avoid future issues. Axie Infinity is planning to do exactly this with the upcoming Origin release; more details here.
Let’s be honest though, tokenomics and advancements in technology alone will not be enough, the NFT Gaming community needs to take responsibility for the future and do our part to make it a reality. Rather than chasing hype and clout through the next hot project of the month, we need to double down on supporting teams that are actively building in, and improving the space. If we can shift the major community focus in this direction by having leaders do their part to educate and be in support of this change, I believe we will come even closer to realizing a sustainable future for blockchain games.