You’ve probably already heard about NFTs in general and play-to-earn games in particular. So, in this article, we won’t go into detail about what they are. We’ll just say that these are blockchain games where players can earn real cryptocurrency while playing.
In this article, we will try to explain as clearly as possible how this gaming economy works: how financial flows work within the game, where the money that players earn comes from, and whether the gaming economy could collapse.
Often, the play-to-earn element is implemented using non-fungible tokens (NFTs) or a native game token (usually a cryptocurrency on the Ethereum or BNB Chain blockchain). As an example, we will take the game Cryptosnake, since both elements are fully implemented there.
Where does the money in the game come from?
Game tokens and game NFTs, like regular cryptocurrencies and regular NFTs, derive their value from demand. As long as there is demand, there is value. If suddenly no one needs the token, the price will collapse.
To set the starting price of the token at the start of the game, it is necessary to ensure demand in the form of players willing to buy the game token and liquidity in the form of popular cryptocurrencies added to the liquidity pool for easy and quick conversion between the game token and mainstream tokens (e.g., BTC, ETH, BNB, USDT, etc.). .
From the moment sales start, the token takes on a life of its own. Its rate is not regulated. This is a general rule for all self-respecting play-to-earn projects. The inability of game developers to influence the rate of the game token is an element of decentralization that is valued in any crypto project.
Even if the exchange rate falls, it makes no sense to artificially fuel it with injections from the team. In the long run, this will lead to even bigger problems. The exchange rate of a freely traded cryptocurrency always follows a sinusoidal curve, and you need to be prepared for this.
Like any cryptocurrency such as Bitcoin, a gaming token can rise during periods of high demand or fall when holders sell the token en masse. For example, SNK rose on the news of its listing on Coinmarketcap, but fell when early investors unlocked their assets.
When a player earns money in a play-to-earn game, they usually generate new tokens. This is a kind of mining, or more accurately, staking. An increase in the number of tokens in circulation leads to gradual inflation, but this can be offset by buying back and burning tokens, or by a steady influx of new players.
It is also important that previously generated tokens circulate in the game rather than constantly creating new ones. This curbs inflation. This is often implemented through a marketplace. Players buy new items not from a conditional blockchain, but directly from another owner. Cryptosnake also has such a marketplace.
Another way to keep the game currency circulating in the game is through pools. The pool can be replenished with tokens lost in the game and distributed among those who have earned them in the game. This way, the emission does not increase, and the balance is maintained.
Ways to earn money in play-to-earn games
Here, too, it is convenient to analyze the mechanics using Cryptosnake as an example, since the game has implemented five earning mechanisms at once:
- Staking. This is receiving passive income by accruing annual interest on staking (APR). In Cryptosnake, the staking yield ranges from 15% to 115% per annum.
- Earning tokens while playing. In the case of Cryptosnake, this is a classic snake game, where a 2D snake runs across the playing field chasing pixels, avoiding collisions with obstacles and its own body. In other games, it can be any other gameplay, because most games (even non-blockchain ones) have some form of game currency. The only difference is that in a play-to-earn game, it can be withdrawn.
- Participation in tournaments with prize pools. In top games, the prize pool can reach tens and hundreds of thousands of dollars. The Discord Cryptosnake community regularly holds competitions where anyone can participate and, if they win, earn SNK or BUSD prize tokens.
- NFT trading. This is the most common way to earn money in such games. There are examples of games where there is no staking or earning tokens directly in the game, but there is NFT monetization. Every game item in NFT games has value on the secondary market. Such items can be characters, equipment, skins, and so on. In the case of Cryptosnake, these are snakes with different characteristics and game artifacts.
- Earning on token price fluctuations. If you buy tokens at the bottom and sell them at the peak, in addition to the net earnings directly in the game, you can also receive a bonus in the form of the difference between the entry and exit prices.
Money circulation in the game economy
As you already understand, the game economy is based on supply and demand. So, is it just a pyramid scheme? After all, new players can’t keep coming in indefinitely; once the marketing resource is exhausted, what then?
If demand were the only factor, that would most likely be the case. Therefore, games aimed at the long term rather than the developers’ immediate profits build a system of checks and balances. Balance must be maintained in the universe: if someone has earned money, then someone else must have lost it. That’s pretty much how it works. In many blockchain games, players can lose cryptocurrency if they play poorly.
For example, in Cryptosnake, players lose 1%+ of their snake’s balance if they encounter an obstacle. Unlike the classic snake game on Nokia, you can finish the game without collisions, and then you’ll be in the black. This way, more skilled players earn more than others, and weak players lose tokens.
Are play-to-earn games pyramid schemes?
Whether a particular game is a pyramid scheme depends on its economic balance. If the earnings of old players are only secured by a continuous influx of new ones, then it is definitely a pyramid scheme. If the game has a well-established economic balance and cryptocurrency circulates within the ecosystem, then it is a perfectly healthy and viable economic model.
As long as new players keep coming in, the winners earn more and the losers lose less. If the flow of new players stops, it will not be the end of a viable game; it will simply become a little more risky for weaker players.
Of the characteristics of a financial pyramid scheme for play-to-earn games, the only relevant one is that early players earn more than others. This can be implemented, for example, through halving.
