Understanding Play-to-Earn (P2E) Games

Diverging from traditional games, where in-game items are contained within closed data networks and owned by the game developers, Non-Fungible Tokens (NFTs) introduce a new dynamic, allowing players to possess the distinct assets they acquire.

Over the course of five decades, video games have primarily served as entertainment, offering an escape from the demands of daily life. However, a novel generation of video games now employs blockchain technology, particularly NFTs, to compensate players with cryptocurrency rewards.

In select regions, these "play-to-earn" games have already opened avenues for players to sustain themselves by engaging in gaming activities. Scholarship programs and educational institutions have emerged to assist players in navigating this unique and unfamiliar landscape.

While some individuals embrace the emergence of play-to-earn games, asserting that they provide compensation for an activity that was previously recreational, a significant number of gamers express concern about the intrusion of commercialism into the realm of escapism that gaming traditionally provided.

Exploring Play-to-Earn Games

In essence, play-to-earn games are video games where participants can gain rewards of tangible value.

Though people have been earning income through gaming for years, employing methods like "gold farming" and unofficial in-game item markets, the integration of blockchain technology and NFTs has fundamentally altered the landscape.

NFTs, known as non-fungible tokens, are cryptographically unique tokens that validate ownership of various digital assets, such as images or music. Within blockchain games, NFTs empower users to assert ownership over in-game items, ranging from virtual apparel to parcels of virtual land.

Diverging from conventional games, where in-game items are confined within isolated data networks and retained by the game developers, NFTs empower players to genuinely own the distinct assets they acquire. Furthermore, upon ownership of an NFT, players gain the liberty to sell it outside the platform of origin—an option not feasible within standard games.

Consequently, NFTs representing in-game items can be bartered and vended for standard currency on any NFT marketplace. The inherent scarcity of these NFTs attributes real-world value to them.

Contrasting regular games, where incentives for playing primarily revolve around enjoyment, the relationship shifts in blockchain gaming. While the former involves a one-sided transaction of purchasing the game, play-to-earn games offer the prospect of generating genuine income—except for professional esports competitors and prominent streamers, traditional players lack the means to monetize their gameplay. Blockchain gaming alters this dynamic by affording players the potential to earn real money.

Thanks to the ubiquity of blockchain technology, users can engage in transactions from any location, facilitating value transfer and remuneration for gameplay, irrespective of the player's identity or global location.

The Emergence of the Play-to-Earn Paradigm

One of the prominent embodiments of the play-to-earn concept is Axie Infinity, a game reminiscent of Pokémon-style monster battles, developed by the independent studio Sky Mavis in 2018. In this game, players amass cartoon creatures known as Axies, represented as NFTs (non-fungible tokens). Each Axie possesses distinct strengths and weaknesses, allowing players to engage in adventures, battles, and even breeding. As participants immerse themselves in the game, they are rewarded with crypto tokens such as Smooth Love Potion (SLP) for their battle achievements. Additionally, Axie Infinity Shard (AXS) tokens hold significance as they empower players to influence game-related decisions and its future evolution.

With a staggering user base of 2.8 million daily users and an impressive total trading volume of $3.8 billion, Axie Infinity has solidified its position as a dominant force in the play-to-earn gaming sphere. Interestingly, regions like the Philippines and Indonesia have witnessed players turning to Axie Infinity as a means to financially support their families. This phenomenon has given rise to "Axie scholarship" initiatives, like the one established by Yield Guild Games, enabling Axie owners to lend their NFTs to other players for mutual benefit.

Moreover, play-to-earn gaming is fostering broader adoption of cryptocurrencies. Surprisingly, around half of Axie Infinity's player base had no prior experience with any crypto applications, highlighting the game's role in introducing these concepts to a new audience. It's essential to note that participating in the game does entail costs, as players need to acquire three Axie NFTs before commencing. However, the acquisition of these NFTs can be a substantial investment, with each one often priced at hundreds of dollars. Aleksander Leonard Larsen, co-founder of Axie Infinity, acknowledges the challenge of introducing newcomers to the game, recognizing that the initial steps can be demanding. To tackle this concern, Axie Infinity intends to introduce free starter Axies with limited earning potential, allowing novices to get a taste of the gameplay.

Beyond Axie Infinity, there are play-to-earn endeavors that fuse NFT gaming with aspects of decentralized finance (DeFi). A notable example is Aavegotchi, an experimental startup funded by the DeFi money market Aave. This venture enables players to stake Aave's aTokens within cartoonish creatures represented as NFTs, resulting in each Aavegotchi generating yields through Aave.

The Influence on Established Gaming and the Backlash

The allure of NFTs and play-to-earn concepts has even captivated mainstream gaming entities. Notably, Ubisoft, a prominent French video game conglomerate, has unveiled plans for Ubisoft Quartz. This platform enables players to earn and purchase NFTs built on the Tezos blockchain, seamlessly integrating this new paradigm into games like Ghost Recon: Breakpoint. Nonetheless, some gaming publishers who have ventured into the realm of NFTs have encountered vehement opposition from players. An instance is GSC Game World, the developer of S.T.A.L.K.E.R. 2, which abandoned its intentions of integrating NFTs into the game following a strong social media campaign against the idea.

This movement toward play-to-earn has triggered mixed reactions among gamers. While some were already discontent with game monetization models involving "pay-to-win" dynamics and lootboxes, they find the incorporation of real-world economic models and incentives concerning. They argue that this shift could transform gaming from an escape into an overtly capitalist sector dubbed "investotainment."

Despite the pushback, the play-to-earn movement is far from slowing down. The involvement of influential investors such as FTX and Andreesen Horowitz underscores its continued growth and relevance in the gaming landscape.