Did you know that Ethereum, the second most popular cryptocurrency in the world, was inspired by a World of Warcraft nerf? Co-creator Vitalik Buterin had been playing the popular game for years, but one day its developer Blizzard removed a Siphon Life spell skill from one of his warlocks, weakening his character and undoing many hours of work.
“I cried myself to sleep, and on that day I realized what horrors centralized services can bring. I soon decided to quit,” Buterin wrote in an about.me bio. From there, he fell into Bitcoin and over the years developed an idea for a new cryptocurrency, one that would let developers build any kind of code on top of a blockchain ledger. Today, Ethereum powers a trillion-dollar economic ecosystem that rivals financial behemoths like Visa and Stripe, and is considered to be the bedrock of the emerging open-source, decentralized internet known as Web3.
It is also the backbone of GameFi, the latest craze in game development that gives players a chance to make money while having fun through blockchain-based games — like with play-to-earn games.
What Are Play-to-Earn Games?
Traditional vs. Play-to-Earn Games
Olga Vorobyeva, a longtime consultant for various blockchain-based companies, described traditional gaming as a “closed-end model.” Players have to pay to play the game, and then spend lots of time “grinding” and doing repetitive tasks within the game to advance or unlock prizes. But in the end, players aren’t allowed to transfer or sell these items, and they’re beholden to the gaming companies, who have the implicit power to shut off or make changes to the world whenever they feel like it, which was the case for Vitalik Buterin.
Play-to-earn games “bring value back to the players,” Vorobyeva told Built In. They can earn rewards by way of in-game assets like crypto tokens, virtual land, avatars, weapons and other non-fungible tokens, or NFTs, by completing tasks, battling other players or progressing through various game levels. And unlike traditional games, the decentralized nature of play-to-earn games lets players buy and transfer in-game assets to outside the game’s virtual world.
“Anything blockchain touches brings decentralization and autonomous governance [to] the industry,” Vorobyeva told Built In, adding that it has already revolutionized industries like music and art. “Now it’s time for gaming.”
Play-to-Earn Games You Should Know
- CryptoKitties: Developed by Canadian studio Dapper Labs, CryptoKitties is an Ethereum-based blockchain game that lets players purchase, collect, breed and sell virtual cats. It is considered one of the first attempts to gamify decentralized finance.
- Axie Infinity: One of the most well-known play-to-earn games on the scene right now, Axie Infinity lets players collect cute creatures known as “axies.” Axies can be bred with other axies, or battled against each other to earn crypto tokens called “smooth love potions,” or SLP for short.
- Decentraland: This is a 3D world in which players can buy up virtual land, build on it, and then rent or sell it to other players in exchange for MANA, a cryptocurrency that runs on the Ethereum blockchain. At peak popularity, parcels were selling for upwards of $100,000.
- DeFi Kingdoms: Set in Gaia, a fictional medieval world, DeFi Kingdoms requires players to farm NFTs and its cryptocurrency Jewel. It is essentially a game, a decentralized exchange and a liquidity pool all at the same time, and is often credited as a driving force behind GameFi’s meteoric rise.
- STEPN: Pitched as a “move-to-earn” app, STEPN essentially wants to pay people to be active. To participate, players must buy a virtual pair of sneakers in the form of a NFT. Then, every time they go on an actual run, jog or walk, the STEPN app tracks how far they’ve traveled and rewards them with tokens, which can be spent in-game on upgrades or cashed out for money.
While Vorobyeva is not a game designer by training, she is an avid gamer, and even managed a private World of Warcraft server for about 10 years, accumulating some 300,000 players. With a background in finance and economics, she began working in the crypto industry back in 2016, and was concerned she was “too late” arriving in space. Of course, she couldn’t have known then that the industry hadn’t even really begun yet.
Today, GameFi is one of the fastest growing segments in the video game industry, according to game designer Tracy Spaight. After spending more than 20 years in the business, Spaight now works as the head of gamification at Synesis One, one of the first decentralized autonomous organizations, or DAOs, for data yield farming. Although he said there is still quite a bit of “institutional conservatism” among game industry veterans, he is excited by the “new type of ownership” enabled by the play-to-earn gaming model.
Play-to-earn games are virtual economies in and of themselves. They have their own crypto tokens, which are built on a specific cryptocurrency’s blockchain (like Solana, Ethereum or its layer 2 chain Polygon, or Immutable X), and their tokenomics — the supply and demand of their currency — vary. The specifics of each game’s model and economy vary, but all of these in-game assets have the potential to provide some sort of monetary benefit to its players — whether that be because they won a fight and earned crypto, sold an in-game NFT on a marketplace or charged a fellow player rent to stay on their virtual land.
“It’s been kind of interesting to watch the evolution of it — these large-scale virtual spaces where you can have fairly complex economic systems emerge and interesting large-scale behaviors with people online,” Spaight told Built In. “It has a very long evolution.”
Where Play to Earn Falls in the Gaming Saga
At first blush, the play-to-earn model may seem very new and state of the art. But it is rooted in a long history of massively multiplayer online and role-playing games — otherwise known as MMOs and RPGs, respectively.
Classics like Island of Kesmai date back to the 1980s, and were considered to be the forerunners of the genre, setting the stage for the kind of immersive gameplay play-to-earn games are working to achieve. The 1990s brought graphical multi-user dungeons, or MUDs, like Meridian 59, EverQuest and World of Warcraft. These games were among the first to have their own player-run virtual economies, allowing players to trade items with each other, acquire wealth, cultivate specializations and sell their services.
It was all pretty complex. For instance, Ultima Online, one of the first popular MMORPGs, has a pretty convoluted economic system, as detailed in this 1999 paper. Virtual resources like raw materials, gold and goods could all be bartered, sold and even rented to both players and non-player characters alike to keep the economy going. It all ran on a set of rules, but as with any economy, the supply and demand of these resources fluctuated.
Players were even able to create counterfeit goods by cloning them — essentially printing their own money to the point that the economy was saturated with gold. The hyperinflation caused by this wound up temporarily destroyed the game’s gold economy, and players had to resort to bartering and even charity for a while.
These early virtual economies were so complex in fact, that Edward Castronova, a game design professor at Indiana University, has made a career in studying them, and co-authored a book on them. He’s been thinking about the play-to-earn model for the better part of 20 years and claims to have predicted its ascent back in 2016. But he doesn’t find it as groundbreaking as play-to-earn evangelists claim.
“I don’t see it as a shift in the game industry,” Castronova told Built In. “[Play-to-earn games aren’t] really advancing entertainment. It’s just coming up with new ways of financing and monetizing gameplay activity that isn’t all that great, but it’s good enough to get people involved and to open their wallets a little bit.”
The money-making potential of the play-to-earn model is the “first incentive” for a lot of people to come join these games, according to Vorobyeva. And it’s easy to understand why, especially when you consider all of the industry models that came before it.
“[CompuServe] used to charge by the hour to connect to the [its] network. It was six bucks an hour, and if you were playing 30 or 40 hours a week, it really added up,” Spaight said. Then came the box games sold at places like GameStop, which gave way to digital downloads, and those got cheaper and cheaper over the years as bandwidth improved.
Eventually, “it became cheap enough where, hell, they could just give it away and get people playing it,” he said. And if players liked the game they could pay microtransactions for add-ons or to progress further faster. These are known as free-to-play games, and it is one of the most popular revenue structures in the games industry today.
Will Play to Earn Find Its Place?
The people who pay lots of money in these sorts of games are commonly known as “whales,” according to Castronova, and they’re an essential part of a free-to-play game’s revenue model. Equally important are the “minnows” — the people who spend little to no money on the game — because they make the whales feel more important, offering a benchmark for whales to compare themselves to, thus prompting them to play more and spend more money.
This model is what’s keeping play-to-earn games afloat, too. Not everyone is going to spend lots of money on in-game NFTs or invest hours of time into these games, but some will. And those who do will keep the games’ economies going, all the while feeding the hype train that’s been steadily chugging along.
Castronova thinks of it as a sort of pyramid scheme. Early adopters buy up the NFTs or real estate, sell it off for a nice profit, then tell others about their success and convince them to participate. “It just kind of builds on itself. But nobody really stops to think, is there anything concretely valuable or entertaining about this thing you just bought? It’s kept up by speculative pressure,” he said.
Vorobyeva, however, is adamant that these are not pyramid schemes — at least not in the traditional sense. “When you think about a pyramid scheme, it usually means multi-layer engagements, whereas in any blockchain project it’s just peer-to-peer. There’s one layer only,” she said. “The main component of any project that is based on blockchain is the community, because only the community can generate the network-like effect and incentivize other people to join.”
No matter what label you put on it, among the billions of gamers in the world today, Spaight said, many people would like the opportunity to own and benefit from their virtual items. If they are a loyal fan and play the game for a long time, all the while creating value for that game, then it’s only fair that they get the chance to be compensated for that.
“[Play-to-earn] will find its space. It may not become the dominant model of how people enjoy online games, but it will be one of them. Just like free-to-play, just like subscription-based games, just like microtransactional-based games,” Spaight said. “This will be another model out there that people enjoy and profit from and participate in. I don’t think it’s a blip, I think it’s here to stay.”
Play to Earn’s Potential
Although it is still in its early stages, play-to-earn gaming has already gained quite a bit of traction. Perhaps the most notable example is Axie Infinity, a blockchain-based game founded in 2018 by Vietnamese game developer Sky Mavis that is now worth about $3 billion.
The game is pretty simple: Players collect cute creatures known as axies and battle them Pokémon-style. To join the game, players must buy or rent three NFTs linked to axies, which have their own associated stats and battle cards. When a player wins a battle, they earn crypto tokens called “smooth love potion,” or SLP for short. Axies can also be bred using SLP and another governance token called AXS to produce new NFTs, which can then be traded, sold or used. Players can earn SLP passively, too, by participating in a scholarship program in which they lend their axies to other players and receive a percentage of the winnings.
At one point, playing Axie Infinity provided full-time job prospects to people living in developing nations like the Philippines and Venezuela, with some earning hundreds or even thousands of dollars a month. Although the game has since fallen victim to some controversy, including a pretty substantial hack and Ponzi scheme speculations, Vorobyeva is confident that the economic potential of play-to-earn games in general is strong. “The more money you put in, the more money you can make,” she said.
“Just like the gig economy changed the way everything works — freelancers, bloggers, YouTubers — the same will happen with gamers,” she said. “It’s really hard to say what’s going to happen in the next 10 years, but the money incentive is there.”
But it’s important to remember that playing a play-to-earn game is an investment of both time and money. “When you start playing, you’re investing in the game’s universe, you’re investing in their ecosystem, so you need to understand what you’re doing,” she added. “With all investment comes risk.”
“When you start playing, you’re investing in the game’s universe, you’re investing in their ecosystem, so you need to understand what you’re doing.”
The possibility of play-to-earn games becoming a real money-making opportunity for people outside of the Global South isn’t that far-fetched, especially when you consider that professional eSports players and Twitch or YouTube streamers make tens or even hundreds of thousands of dollars a year. And MMORPG players regularly stock up on virtual wealth in games and then sell it for real money on sites like eBay or PayPal in a process known as “gold farming.”
At one point, Spaight even hired a virtual architectural firm to build him a virtual art gallery to put on his own virtual private island in Second Life, an online game that was popular in the early aughts.
“People have been making a living from video games for a while now, it’s just more possible for a wider group of people to do it now,” he said. “We did see this before, but maybe they’ll do it better this time after the hype dies down.”
This may be happening right now. As recession fears loom large over the entire economy, the once white-hot NFT market seems to finally be cooling off, with GameFi and metaverse tokens reportedly being hit the hardest by the downturn.
Axie Infinity, the former darling of the play-to-earn space, registered double-digit losses just months after the hack earlier this year. And DeFi Kingdoms, once credited as a driving force behind GameFi’s meteoric rise, saw its token price plummet 90 percent last month — joining many other play-to-earn games experiencing significant losses.
But Vorobyeva is not worried about GameFi’s downturn. In fact, she said it is “actually better” for its long-term success. Like anything else, this will have a bull market and a bear market. We just came off a bull market, when the space was seeing lots of money and activity. Now that we are in a bear market, she said it is “time to build.”
“With this money that was raised, developers can just hire staff and not care about raising additional financing in the next year or two. They will just take time to develop quality projects,” Vorobyeva said.
What’s Next for Play-to-Earn Games?
Eventually, the vision for GameFi is that, through virtual avatars, gamers will be able to traverse the vast, infinite world of the metaverse, seamlessly moving through various virtual worlds. One moment they can be in a medieval pub, the next a rocketship in deep space. And all the while they can socialize, earn crypto and buy and sell NFTs in the form of costumes, weapons and other items.
The space hasn’t reached this scale yet, but Vorobyeva doesn’t think this reality is that far off. “When someone figures it out, that effectively will bring us straight to the metaverse,” she said. “Not only alternative reality, but basically interconnectivity between all virtual ecosystems.”
Castronova has a decidedly less sunny outlook. “When you’re doing blockchain, that means you’re getting involved in multiplayer financial communities. It’s hard to make fun out of that,” he said. “Real-world governments have all kinds of difficulty managing that in a way that satisfies everyone. There’s too much possibility of fraud, there’s too much anxiety about losing money. So, making that fun? That’s a heavy lift.”
Admittedly, many of the play-to-earn games that exist right now are “god-awful,” as Spaight put it. The battles are repetitive, and there’s very little creativity involved. This is largely due to the fact that, until recently, the space hasn’t gotten a lot of attention or support from traditional game designers — “the people who know how to make things fun,” he said.
That’s beginning to change, though. Leading game studios like Take-Two Interactive and Square Enix have begun dabbling in the GameFi space, and Ubisoft became the first big publisher to put NFTs in a game last year. Just last month Richard Garriott, the creator of Ultima Online, announced he is making a new play-to-earn-style MMO.
“We’re going to end up with more fun titles. I think there’ll be more financing that enables the quality level to rise. And I think it’ll happen fairly quickly,” Spaight said. “It’s going to be a bit of a gold rush.”
