Play to Earn Games
by Katherine Webb
What are play-to-earn games?
Play-to-earn (P2E) gaming is a rapidly growing sector of the crypto market, with a combined market cap accounting for over $40 billion and a 24-hour trading volume of over $10 billion.[i]
These games allow players to earn or collect crypto tokens or NFTs, which can be sold on a marketplace. The mechanics behind each game can vary greatly, and allow gamers to earn regular rewards just by playing the game.
There are 3 main ways for a player to earn rewards:
- Staking: Some games allow players to lock up their NFTs or tokens in smart contracts to generate rewards.
- NFTs: These can be earned or collected by playing the game, or acquired via trading with other players.
- Game Tokens: Tokens can be earned as a reward by completing in-game missions.
A user can sell their NFT or gaming tokens either on the marketplace of the gaming platforms or by using a number of other decentralized and centralized exchanges.
Benefits of Using Blockchains
Initially, blockchain-based play-to-earn games had their reward distribution method focused on using random distribution models. But the games have evolved and now focus on their own in-game economic business models, which reward players for interacting and playing the game. Blockchain technology allows for the NFT items to benefit from digital scarcity, as each item is uniquely identifiable and stored on the blockchain, meaning that items cannot be duplicated.
The ability to own a digital asset is a new and relatively unfamiliar notion within the gaming industry. Recent advances in gaming have enabled “micro-transactions”, which allow players to pay a fee to obtain in-game items and currencies. Blockchain revolutionizes the ownership and tradability of this content, by allowing gamers to cash out their gaming assets for cryptocurrencies.
Requirements for playing
The following are typical requirements for participating in play-to-earn gaming:
- Stable internet connection.
- Cryptocurrency wallet to connect to the blockchain.
- Prerequisite purchases, where some games require players to make purchases before playing, such as NFT characters or other in-game items. This is akin to buying a computer game before you start playing, and the in-game purchase upgrades.
- Gas fee token for interacting with the blockchain in order to transfer gaming tokens or NFTs.
Play-to-earn games can be split into 3 main categories[ii]:
This is where a player’s focus is on earning and completing missions to earn different NFTs as rewards. Different items within the game have different levels of scarcity unique to a particular item. When this concept is expanded to the Metaverse, these items may become transferable and usable across multiple games. By issuing these incentive rewards to players, there is a shift in power from the game issuer toward those players skilled within the game, although the developer retains ultimate control.
Token and Transaction-earned Games:
This is a form of NFT gaming that allows players to progress by collecting in-game assets, which can be traded via NFTs. This is different from the NFT-earned games as players can cash out these assets into other cryptocurrencies. Rules for each game can greatly vary, but players can normally earn tokens one of two ways; the first is by levelling up their NFTs until they generate crypto rewards themselves or secondarily via the sale of the NFT items.
Free-to-play NFT games:
This area is especially exciting as it engages players through educational content, via a game-like user interface. There is no upfront cost for playing these types of games, which is one of their key benefits. Some free-to-play NFT games depend on random number-generating machines to generate random events within the games themselves, such as whether a player receives a rare or normal in-game item. Other games feature a pay-to-win mechanism on top of the free-play mode, where the rarest in-game assets are only available to paying customers.
Examples of Blockchain Play-To-Earn Games
Axie Infinity is a play to earn game, which is monetised via NFTs, which represent uniquely identified characters within the game. The game was initially developed on top of the Ethereum blockchain, but the company recently implemented the Ronin blockchain protocol, a scalability solution, which uses its own sidechain to speed up transactions without gas fees.[iii] The characters are minted as NFTs to authenticate the uniqueness of the digital item, meant to represent an Axie’s genetic signature. Players can sell their NFT characters using an online Ethereum NFT marketplace. The number of daily active users in Axie Infinity has now grown to two million, the players and the company generating more than $2 billion in NFT in transactions.[iv] Axie Infinity recently raised $152 million, giving the company a $3 billion valuation.[v]
A user requires at least 3 Axie to start playing the game, which can cost around $300, based on the recent NFT prices.[vi] Rewards are in the form of “Smooth Love Potions” (or “SLP”) which are given for completing missions when playing in their adventure mode and player-Vs-player (PVP) competition. Both SLP and Axis Infinity Shard (AXS) are ERC-20 tokens. AXS serves as the governance token of the platform and users pay a given amount of AXS tokens to breed a new Axie. Axie inhabits an open-world which is owned and controlled by players. This week, a virtual plot of Genesis land, which is located in the center of the map and capped at only 220 plots, sold for a record breaking 550 ETH ($2.5 million, at that time).[vii]
Gods Unchained is a free-to-play NFT-based card trading game, using ERC-721 tokenized versions of their cards. The game is focused on tactics and skills, with players earning cards by winning PVP matches or purchasing cards from other players. The combination of the players’ ability and the quality of the card decides the winner of a battle. The platform has an on-line marketplace allowing players to exchange tokenized versions of their cards for payment in GODS, the game’s native token, as well as on other open marketplaces. In August of this year the 2nd most valuable card within the game sold for a record 146 ETH, which was worth over $60,000 at that time.[viii]The Sandbox 3D is a voxel (the 3D version of a pixel)[ix] based community-driven game which allows players to customize and monetize an open world physical sandbox. The Sandbox refers to their virtual world as a metaverse, and define it as “a collective and persistent virtual shared space where digital worlds and games will be created collaboratively without central authority.”[x]
The game is a blockchain game similar to the popular game Minecraft. Players can create custom 3D objects which can be sold on the platform’s on-line marketplace, and even create their own 3D games. The platform encourages users to create, publish and monetize their creations using cryptocurrencies. The Sandbox 3D, makes use of the token SAND, an ERC-20 token which is used to facilitate in-game purchases. Users can buy NFT LAND tokens, which represent ownership of virtual parcels of land within the game. These are some of the most valuable assets on the sandbox 3D and allow users to build on the plot of land specific to that token. Sandbox announced that they had received $93 million in investment, with SoftBank leading the funding round as recently as the beginning of September.[xi]
It’s seeming like the beginning of an entirely new gaming revolution with the ever-increasing headline grabbing news about record token sales and the increasing investment into the space and greater attention from players. One of the issues facing game developers is maintaining player interest and interaction with the game. The value associated with both game tokens and NFTs will always be correlated to the popularity and success of the game. However, the trend is clear within the space, and fads will come and go, but major AAA titles are coming to the space such as Illuvium and Star Atlas, this is the future direction of gaming, with many of the top gaming companies looking to start their own blockchain based games. The value of a gaming NFT is very much related to the sentiment attached to that item, so determining their real-world value is difficult. Even with these challenges, the future for this sector looks very bright and exciting, and one to be followed closely.
The opinions expressed in the CrossTower Classroom are those of the author(s) and not necessarily that of CrossTower. We appreciate diverse perspectives of our employees and we thank them for having a voice.
CrossTower Inc. provides this content for general information purposes, to better inform you on your digital asset investment journey. We do not provide investment recommendations or provide tax advice. Please consult your investment professional or tax advisor if you require assistance in these areas.
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