The Value of Play-to-Earn

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An evolution of gaming, a pyramid scheme, or the missing link to mass blockchain adoption?

Play games, get paid.

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This is the underlying message of play-to-earn, the term given to the increasingly popular business model in the gaming ecosystem that provides players with a chance to earn any form of in-game asset that can later be transferred to the world as a valuable resource.

The most played such game is Splinterlands- think Pokémon cards meet World of Warcraft characters. Splinterlands gives its users the opportunity to earn cryptocurrency and NFTs while playing the game, which is the underlying principle of all current P2E games.

But could it be this simple? Is play-to-earn the future, as the hype surrounding it will have us believe? Or is it a fad that is just too good to be true?

Play-To-Earn, A Natural Evolution Of The Gaming Industry

On one hand, play-to-earn seems like the natural evolution of an already booming gaming industry, one that represents a whopping $336 billion industry.

Despite the elite handful of gamers who monetize their gaming, be it through live streams or lucrative sponsorship, the bulk of game-based economics have always been centralized, with the profits flowing into wallets of the gaming developers alone.

Play to earn goes and pops this bubble, incentivizing gamers with a piece of the financial pie for the very first time.

“We all love video gaming, but at the end of the day, it has always been a black hole for players financially. With the introduction of play to earn, games are no longer only valuable based solely on entertainment, add in cash flow and you have something truly revolutionary,” explains Jacob Steele, Software Developer at NFTyArcade.

The Multi-Layered Value To Investors

As these games experience rapid growth before our eyes, investors are getting on board and realizing the tremendous value potential that goes hand in hand with the convergence of entertainment and financial incentives.

“By monetizing the games, you are drastically increasing revenue. Now players are not only participating, but benefitting from the system, and they will keep coming back as they get hooked on the notion of investotainment,” explains Venture Partner Andrew Batey. Instead of making $1 to $2 per user in a free-to-play gaming model, there is potential to make between $20 to $70. “We are looking at absolute behemoth gaming companies that will come out in the next few years,” Batey concludes.

Yet investors are not only getting excited about P2E games themselves, but the possibilities surrounding play-to-earn. “Play-to-earn games will create whole ecosystems in their orbit,” observes Barak Rabinowitz, the Managing Partner at F2 Venture Capital. “Think marketplaces, game training platforms, gaming intelligence platforms, all taken to the next level of sophistication demanded by the opportunity to make money.”

Although play-to-earn is still a new sector with many uncertainties around their sustainability, top-tier VCs are already hedging their bets, including Andreesen Horowitz who have doled out millions to companies in the space, like leading a $152 million investment round in Sky Mavis this October and the recently announced $200 million investment program to incubate early cryptocurrency-focused gaming projects by Animoca Brands.

An Elaborate Pyramid Scheme?

Yet, harsh skeptics remain. Despite developers, gamers, and even mainstream investors seeing the value in play-to-earn games, there are also those who compare the current play-to-earn models to nothing more than that of a Pyramid scheme.

One such voice of caution is that of Ché Köhler, founder of South African business directory Niche Market who claims that “for now, this [model] works, because the number of new players joining each month is greater than the number of current players, meaning people can make their money back due to the number of greater fools to sell to thinking that are the early ones getting in cheap,”

Following this logic, as soon as new user growth slows in these games, you will see fewer players wanting to hold tokens, tokens quickly losing their value, demand dropping, and many, many losers who got in too late.

The Missing Link To Decentralized Finance

One can argue that the early versions of play-to-earn games currently available are only scratching the surface of its potential. When speaking to those who are making a living off these games one can see the scale that this ‘surface’ represents.

“D”, a Splinterlands whale who requested to remain anonymous, says he makes $10,000 a week playing the game through tournaments and renting out his cards to other players. “Owning your assets and competing for real prizes is here to stay, and will only grow over time. So find a game you enjoy playing and an ecosystem that you feel will treat you fairly, then get on it.”

Play-to-earn is somewhat of a proof-of-concept for decentralized financial systems and an open creator economy. The genius of these games may not lie in their entertainment value (which I can concur after trying just one game myself). Rather, the true innovation of P2E is the transcendence of traditional propriety, or any permissions from centralized authority.

A live demonstration of this is the Axie Infinity craze which became increasingly popular for players in the Philippine and Venezuela. So much so that their earnings proved far more significant than anything their local physical economy had to offer with stores in these areas accepting Axies tokens- smooth love potions (SLP)- as payment with no qualms.

Like Farmville was the gateway to Facebook’s domination as the top social network, play-to-earn games could be the gateway to redefining financial services.

“Play-to-earn is going to be the facilitator for wide-spread massive blockchain adoption across the world, it is a perfect solution specifically for crypto adoption in developing countries.” comments Steele.

The P2E space is still in its infancy (much like home video game consoles in the late 80s/early 90s,) yet the sums of money both being invested and earned act as a small preview of the new model’s potential.

If it does prove sustainable and delivers on the promise of paying gamers to do what they already enjoy doing, then not only will it serve as a massive bridge bringing millions of gamers into the world of decentralization, but it will turn the current $336B gaming entertainment market to a multi-trillion dollar investotainment industry.

About the Author

Yaffa is the Content Manager at F2 Venture Capital, responsible for creating multimedia content to engage and support their community of founders.

Prior to F2, Yaffa worked as a writer and researcher at a business intelligence agency where she published content in top-tier media outlets and executed strategies to support client objectives.

On the side, Yaffa is an active blogger for Hackernoon, The Times of Israel, and The Jerusalem Post.