Gaming
Note: Data in this section last updated May 28th, 2022
What are Play-to-Earn Games?
Play-to-Earn (“P2E”) gaming is a business model that allows users to earn in-game goods and / or tokens by playing a game, and then sell those assets on the open market to earn real-world income.
This represents a disruptive evolution over legacy gaming business models such as pay-to-play and free-to-play:
Pay-to-Play Games: The earliest games, such as World of Warcraft and Grand Theft Auto, charged users an upfront fee for playing
Free-to-Play Games: Popularized in the 2010s, the “freemium” model used by games such as Fortnite and League of Legends allowed anyone to play for free, but generated revenue through in-game sales and upgrades
Play-to-Earn Gaming Represents a Significant Evolution in the Gaming Industry
The P2E business model is now only feasible at scale due to the unique properties of NFTs, which allow users to truly own their assets, transfer them freely and sell them anywhere they wish.
P2E models have blossomed over the last year and some games, such as Axie Infinity, were generating an average income of $400 per month for users in late 2021. As such, these games have been especially popular in countries with lower incomes, such as the Philippines, where grandmothers, taxi drivers, teachers, etc… are quitting their jobs because they can earn 2-3x the local minimum wage by playing the games.
Gaming is the third largest NFT category by market value (representing 8% of the market) and second largest by volume (representing 8% of all-time volume).
What are the Benefits of Play-to-Earn games?
Gaming is big business. According to NewZoo, there are currently over 3 billion gamers in the world representing nearly $200B in yearly revenue. This makes it the second largest category of entertainment behind TV (and some researchers, such as Bitkraft, believe that this estimate is conservative, and that the gaming industry may be worth nearly $350B). Gaming is also the fastest growing sector in the traditional entertainment market with a CAGR of over 10%.
The Gaming Industry is Expected to Earn Over $250B in Revenue by 2026
Some games, such as Fortnite, earn over $5B per year, easily dwarfing most entertainment assets.
Unfortunately, the industry is plagued by a significant issue – it’s dominated by a handful of developers such as Sony, Tencent, Nintendo, Microsoft, Activision, Electronic Arts and Epic Games that have full ownership of all in-game content. This creates several problems: i) they control the economics and can prevent users from selling goods, ii) they can revoke access to digital goods at any time and iii) in-game assets are rarely interoperable with other platforms.
NFTs represent a major transformation in gaming because they allow players to earn and retain full ownership over their digital assets. This creates several immediate advantages including:
Monetization: Players can choose to sell, rent or trade their in-game currency, account name, skins, in-game land or any other asset on the open market for real-world cash
Facilitation of virtual economies: Ownership of assets will likely lead to the development of intricate virtual economies, complete with entire financial systems that support asset trading, lending and borrowing, rental, insurance, etc…
Reduction in Censorship: Developers can no longer block or revoke access to a player’s assets (ironically, it’s been said that Ethereum was created because Vitalik Buterin was mad that World of Warcraft made his wizard less powerful)
Interoperability: Assets will become fully interoperable, meaning that users can freely move them between games. They will also become composable, meaning that they can users can combine assets from different games in unique and interesting ways
Programmability: Since NFTs are essentially software on blockchain networks, users can choose to modify them in any way they see fit. This will likely lead to new and exciting outcomes as players experiment with derivative work and user-generated functionality
As stated previously, these benefits represent a significant evolution over traditional industry models, and have the potential to drive massive growth in of Play-to-Earn games
How do Play-to-Earn Games Work?
To understand the mechanics of Play-to-Earn gaming, let’s look at the most popular blockchain game, Axie Infinity, which has generated over $4 bil in sales.
The company was founded in 2018 and it hosts a Pokemon-inspired game that allows players to collect, raise and battle creatures called “Axies”. Every Axie is different, has unique strengths and weaknesses and is represented by an NFT.
In order to play, users must purchase three Axies. Although prices have dropped significantly, at the peak of the game’s popularity, this could cost users hundreds to thousands of dollars.
A Triplet of Axies
Upon purchasing their Axies, players can use them to:
Adventure: Adventures are a single-player mode where users can battle against computer-controlled opponents to earn Smooth Love Potion (SLP) tokens
Battle: Battles are direct combat with other players. While victories offer more SLP rewards, they are often generally much harder to obtain.
Breed: Players can breed two Axies to create a baby Axie, which can be trained and eventually used to adventure, battle and breed
Like most games, Smooth Love Potion tokens can function as an in-game currency, and users can spend them to breed new Axies. Unlike traditional games, however, SLP can also be sold for real cash.
Similarly, while the newly bred baby Axie NFTs can be used to play the game, they also can also be sold on the open market.
These avenues for real-world monetization represent a paradigm shift in the gaming industry and form the core of P2E gaming. Indeed, users in the Phillipines – Axie’s most popular market – reported an average income of $400 per month in late 2021 (more than the average salary for a teacher, construction worker or security guard)
Who are the Key Players in the Play-to-Earn Gaming Industry?
In addition to Axie Infinity, other notable games include Loot, Sorare, Parallel Alpha, Crabada, Farmers World and Zed Run.
Play-to-Earn Gaming Infrastructure
Perhaps the biggest criticisms of play-to-earn games is that they often require a considerable upfront investment –users may have to purchase hundreds to thousands of dollars in NFTs just to play a game. The creates significant barriers to entry and may prevent wider adoption in some of the space’s most lucrative markets.
One company working to solve this problem is a project known as Yield Guild Games (YGG).
Founded in 2020 by Gabby Dizon, Yield Guild is a community-owned co-op that purchases and collects in-game assets, such as NFTs, digital assets, parcels of land, etc… The organization then rents or loans these assets out to gamers, who use them to play the game and earn rewards. As such, the platform earns revenue both on the appreciation of the NFTs as well as receiving a cut of its members earning.
Yield Guild Games Portfolio of NFTs
To maximize revenue, YGG is organized into several smaller groups (for each game or geographic region) that:
Provide training to new members
Serve as a forum to share tips, strategies and best practices
Allow players to work together in-game to collaborate on missions to maximize earnings
YGG is structured as a DAO and co-owned by members through the YGG token. This creates a powerful incentive for all stakeholders to work-together to maximize the value of the organization.
To date, the project currently supports multiple games including:
Axie Infinity
Ember Sword
Delta Time
Guild of Guardians
Illuvium
League of Kingdoms
The Sandbox
Star Atlas
The organization has over 27,000 members (called “scholars”) and is backed by A16Z, Jump Capital and Crypto.com Capital.
Yield Guild is one of the vanguards of an exciting new field known as GameFi – a concept that combines decentralized finance with play-to-earn gaming, making it easier for players to obtain funding, monetize assets and share earnings. Other notable players in this space include Merit Circle, GuildFi, AvocadoDAO and GameFi.
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