Generating income while playing a game sounds like a utopia for most of us. However, thanks to the play-to-earn movement, that scenario is not far from reality.
Since May 2021, blockchain-based games have enjoyed a significant amount of success. The number of accounts or wallets connected to blockchain games reached 754,000. When compared to Q2, the game-connected unique active wallets (UAW) increased in 25%, and an impressive 509% year-over-year. Even though the number of UAW is an on-chain metric that does not necessarily translate into users1, there is enough evidence that supports a growth in the demand.
It finally seems that people have started to realize the potential behind the combination of games with blockchain technologies. Especially with intriguing concepts like the metaverse gaining visibility across mainstream media. But what exactly is play-to-earn? What were the main drivers behind the surge of this latest trend in the game sector? And, where is the blockchain game industry heading?
Blockchain is one of the most disruptive technologies created in the last decades. It enables individuals to transact securely among peers without recurring to a third party, while also proving the ownership of the underlying asset. This technology has the potential to transform any industry if the use case is applied correctly. And it is no different with games.
Blockchain-based games are sowing the seeds of a new micro-economy. One where gamers around the world are able to generate monetary value doing what they love, playing games. Blockchain transforms games that follow a Web 2 approach, to a decentralized Web 3 type. Here, players go from consumers, to real owners, that not only decide the future of their game stories, but they can fully control their in-game items beyond a single game itself. Creating new micro economies in the process. How to achieve that?
Simply, by unleashing Non Fungible Tokens, NFTs. An NFT is the tokenized representation of a digital asset that inherently transfers its ownership to the wallet holding it. The ownership is recorded in an immutable, accessible, distributed and decentralized ledger called blockchain.
This constitutes the main distinction with traditional games. Blockchain game NFTs include virtual land within the games, in-game items, and collectibles associated with the game. For example, blockchain games like Decentraland or The Sandbox, have virtual lands to build on top of, NFTs that will be used for battles and other types of activities, and virtual pets or any other item that does not necessarily serve any purpose in the game mechanics.
Providing Real Ownership to Players
In-game items that are used to enhance the playing experience generated $40B, which accounts for 25% of the traditional game industry global revenue. Popular games, like Fortnite, DOTA, Call of Duty, and Roblox have found a real market for these cosmetic articles. For instance, 80% of Fortnite’s players have engaged with cosmetics to some extent, while the 42M daily active players of Roblox spend $5.6 on average per month.
To put into perspective, the NFT market cap2 at the end of September was estimated at $14.2B. With in-game items constituting around 20% of the record-breaking NFT trading volumes that occurred during Q3 2021.
Moreover, in traditional games, players purchase their items without really owning them. In reality, the gamers only own a license to the item’s digital copy that is regularly stored centrally on a server. If the server were to malfunction or disappear, the digital item would be lost forever, along with the proof of ownership. Contrary to this approach, in-game items represented by NFTs, will live on the blockchain as long as the network is up and running. In the same way, NFTs grant players full control over their purchased in-game articles. This is especially important at the moment of monetizing these assets.
Following the same line, another factor that should be considered is the transferability of assets. Not only can players resell their assets in a marketplace, but they can do it in secondary markets that are not necessarily linked to the native platform. This means a player that is willing to sell an in-game asset will have different options. If a game were to be running on Ethereum, this person could sell this item in OpenSea, Rarible, in addition to the game’s origin marketplace.
All in all, NFTs give digital assets an ownership element, and thus, a sense of transferability. Turning digital purchases into investments while taking down the legacy structures that traditional games still involve.
Complete Tokenomics Framework
Now that the boundaries between blockchain and traditional games have been drawn, it is time to focus on one of the most talked about aspects of blockchain games, play-to-earn. Blockchain-based games that comprise a complete tokenomics framework, that allow players to monetize their playing time, are deemed as play-to-earn (p2e).
There are two main manners to earn by playing blockchain games. One is by earning the in-game currency. Like most of the decentralized applications, several blockchain games host a cryptocurrency native to the game. These game-based cryptocurrencies can play various roles, from granting governance rights, to purchasing and enhancing the in-game NFTs, or even acting as enablers of other blockchain features like staking. By spending time playing, gamers earn game-based cryptos which can then be exchanged through a centralized exchange for any fiat currency, thus taking the earnings to the real world.
Secondly, players can earn some profits from the NFTs itself by trading or flipping the NFTs in curated trading platforms called marketplaces. Players can acquire a certain item and enhance it and resell it in a marketplace for a higher price.
The impact of the p2e revolution has felt so hard, that the latest boost in the entire blockchain industry usage has been driven by games. According to DappRadar’s Q3 Industry Report, the number of UAW connected to game dapps constituted 49% of the industry’s total.
So, blockchain games began to be increasingly popular during the last months. But what exactly detonated the p2e revolution?
From a socioeconomic standpoint, play-to-earn games are creating a positive impact in our society. These types of games are essentially democratizing a revenue stream for individuals that dedicate time to play a blockchain-based game. There is no better exemplification of the p2e movement than Axie Infinity.
Axie Infinity is a game developed by Vietnamese studio Sky Mavis, which became the spearhead of the p2e revolution. Axie found itself in the midst of the perfect storm, a combination of factors that allowed the play-to-earn game to thrive in an emerging economy, the Philippines.
We all are aware of the economical and social impact that the COVID-19 pandemic brought to our lives, which was more acute in developing economies. The market opportunity, the first important factor, was in place.
But the Sky Mavis team made a move that helped Axie reach stratospheric levels — the creation of Ronin. Ronin is an Ethereum sidechain that addresses two main challenges presented by the Ethereum network: high transaction fees and low latency. After moving to Ronin in April 2021, Axie began its journey to the moon and beyond.
To put things in perspective, Axie Infinity became the most traded NFT collection ever. More than $2.7B of Axie NFTs have been traded in the Axie marketplace. The next NFT collection in line is CryptoPunks, an Ethereum collection that has generated $2B since its conception in 2017.
Furthermore, Axie is generating more revenue than entire blockchains. According to Token Terminal, the play-to-earn dapp generated more than $800M in revenues in Q3. That’s more than entire blockchains like Bitcoin and Solana, and even surpasses the popular Ethereum NFT marketplace OpenSea.
Axie allows players to earn up to 75 daily SLP tokens3 by completing daily tasks that include mini games and PvP battles. Considering a SLP average price of $0.1, a person solely dedicated to playing Axie Infinity as its main activity, would earn around $2,700 in one year. This amount would be in the range of the 2021 projected GDP per capita of the Philippines and other Southeast Asian countries like Vietnam and Indonesia.
While the current revenues offered by p2e games are far from the average salary of League of Legends pro players (around $300,000 per year), the social impacts generated by these games should not be overlooked. Especially in emerging economies, where the financial impact is magnified. Democratizing playing time and revenues without considering any demographic barrier is a very positive sign for the industry. Due to the lower acquisitive power that the currencies of this type of countries have, the inflation factor is stabilized by cryptos. But there are several other games that achieve this besides Axie.
New Games and Tokens
Start with Splinterlands, a p2e game hosted on the Hive blockchain. Splinterlands is a trading card game where players must strategize their NFT cards to defeat other players in PvP (player vs player) battles. By successfully completing the quests presented, players earn Dark Energy Crystals (DEC), the main in-game currency. Also, in August, the game launched SplinterShards (SPS), the in-game governance token, helping the game establish itself atop of the industry rankings.
In September, Splinterlands attracted over 245,000 daily unique active wallets, a colossal 3,267% increase when compared to the end of June. The spike in usage resulted in more than 58 million transactions. As per the project, the game’s market cap that includes all cards and collectibles has surpassed $200M. To learn more about the game, read this guide.
Alien Worlds in WAX and Upland in EOS have also increased in dramatic fashion their respective player bases during this year. Alien Worlds, a space mining and battle p2e game, attracts more than 500,000 monthly active wallets on average; whereas Upland, another p2e game, where players own virtual properties that copy real cities like San Francisco, Brooklyn and Manhattan, has been amongst the most played games for most of 2021.
In the last week, Alien Worlds and Splinterlands combined to attract more than 1M unique active wallets. But it doesn’t stop there either. CryptoBlades, Mobox and a myriad of blockchain games have turned the Binance Smart Chain (BSC), from a network that was truly dependent on DeFi, to a blockchain rich in game dapps.
While the p2e movement is shifting completely the gaming paradigm, it feels like it is just the beginning of something bigger. Something that aims to blur the boundaries between the real world and a new virtual reality, the metaverse.
The metaverse is a truly fascinating concept. Originally conceived by Neal Stephenson in the sci-fi novel “Snow Crash” and popularized by Ernest Cline’s “Ready Player One”, the metaverse is a virtual space where individuals can create, trade, play, and socialize. To be fair, it has the potential to shift the way in which we form communities.
The metaverse has grown relevant enough that Facebook has rebranded itself Meta, in order to make room for a centralized virtual space as part of their offering. But the concept is nothing new to mainstream media, let alone game platforms. In 2019, DJ and producer Marshmello, hosted a live concert inside the Fortnite metaverse, gathering more than 10.7M people live and even creating a positive domino effect on his album, increasing its sales by 300%.
What is enticing for decentralized virtual worlds, is that these types of events are already taking place. Decentraland, an important virtual world running on Ethereum, hosted a four-day music festival in which Deadmau5, was the main headline.
Massive sandbox types of games like Minecraft where the community can build on top of an endless digital space have been among us since the last decade. World of Warcraft has generated over $10B in revenue during the last 10 years. And blockchain-based virtual worlds are not left behind.
During Q3, blockchain virtual worlds amassed over $56M in trade volumes, with The Sandbox leading the way. The Sandbox has become one of the referent metaverse games. Similar to Minecraft, players can build experiences for the community that can be monetized using SAND, The Sandbox native currency. As of now, this popular game has achieved important partnerships that include recognized brands like Atari, The Walking Dead, Smurfs, and most recently, Snoop Dogg, which contributed with $17M thanks to his latest land sale.
Other popular blockchain-based digital world games include Ember Sword, with its 12,000 sold parcels that have generated over $400M, Treeverse, with a $71.8M market cap, Blankos Block Party, Somnium Space, CryptoVoxels, My Neighbour Alice, among many others. The decentralized metaverse is becoming a collection of virtual reality ecosystems based on p2e games.
Furthermore, big fashion brands like Burberry, Gucci, and Dolce & Gabbana, have already turned their attention into the metaverse. The convergence between important brands, recognized celebrities, and the decentralized metaverse will potentially become an important monetization funnel for both ends.
All in all, decentralized virtual worlds will become the place where people use apes and cats as their avatars, don clothes more expensive than the ones they’re wearing while hanging out with friends that haven’t met in real life. While these games are mostly still in development, they have already lured the attention of big corporations, including several VCs.
VCs Pile In
Free to play games is one of the biggest industries on the planet. According to Statista, the video game industry generated almost $159B in revenues during 2020, number that is expected to surpass $200B by 2023. Putting in perspective the traditional industry impressive numbers, along with the rapid adoption and the socioeconomic impact of p2e games, important investors have already begun their respective moves.
During the last months, news around recognized Venture Capitals investing in blockchain-based games have been all around us. In September, Sorare, a startup based on a p2e fantasy football (soccer) game, secured a $680M Series B round from SoftBank’s Vision Fund 2.
A few days after, Dapper Labs, the startup behind the popular NFT collectible platform NBA Top Shot, and breeding game CryptoKitties, has received over $600M in investment rounds from Andreessen Horowitz (a16z), GV, Version One Ventures, and more recently, from Coatue.
Along with the huge market opportunity, the latest strides made by the p2e movement have not gone unnoticed. Three weeks ago, a16z invested $150M in Sky Mavis, the team behind Axie Infinity.
And the list can go on. Animoca Brands, a venture capital type of organization that focuses on digital entertainment, blockchain, and gamification, invested an undisclosed amount on Star Atlas, an upcoming p2e game that will run on Solana. Besides the hyped Star Atlas, Animoca Brands’ portfolio includes the likes of The Sandbox, Revv Racing, and Arc8, along several other traditional game platforms.
Recognized Venture Capitals are noticeably getting involved within the blockchain game industry. This will certainly lead to enhancements on current dapps like Axie or Sorare, but also paving the way for the next generation of p2e games.
AAA4 Games in the Horizon
It is undeniable that p2e games are under the spotlight. As previously mentioned, it has been the main driver behind the usage across the whole blockchain industry. As the player base is rapidly growing, new projects are looking to expand the existing offer to new levels.
As previously mentioned, Animoca Brands announced an investment in Star Atlas. Currently under development, Star Atlas will be a AAA p2e open world space exploration strategy MMORPG that relies on the Unreal Engine 5 developed by Epic Games. Thanks to its tokenomics, and a wide variety of game NFTs, Star Atlas aims to build a true galactic economy that includes battles, politics and mining territories.
Albeit lacking AAA status, other Solana upcoming games that are worth knowing include Aurory, another play-to-earn RPG that has the potential to become one of Solana blue-chip games, Project Seed, Cryowar, and Ninja Game.
Another p2e game that is widely expected by the community is Illuvium. Illuvium is an open-world RPG that will run on the Immutable X blockchain. Illuvium will allow players to capture and breed creatures called Illuvials. Similar to Pokemon in that sense, the game then follows battle mechanics that might resemble League of Legends. Illuvium’s graphics, soundtrack, and tokenomics have created lots of hype around the industry, drawing the label of a AAA game.
It should be noted that Immutable X is an Ethereum layer-2 solution that relies on Zero-Knowledge (ZK) Rollups as a consensus mechanism. This blockchain architecture allows players to enjoy a gas-free and a faster playing experience. Other relevant games that will be hosted in Immutable X include Guild of Guardians, a blockchain mobile RPG with more than 150,000 followers, My Crypto Heroes, and of course, Gods Unchained, the trading card game that put Immutable X’s name on the radar.
Finally, it is worth mentioning Gala Games, the startup led by Zynga’s co-founder Eric Schiermeyer. Gala Games is aiming to build a decentralized ecosystem based on p2e games. Gala’s objective is to enable players to own the network nodes, which will ultimately run the whole blockchain. So far, the startup has only launched Town Star, a p2e farming game that rewards players with GALA, the network’s native utility token, and TOWN, the game’s own token.
In addition, Gala will launch Mirandus, a fantasy RPG that will take place in a massive digital world, the battle arena game Spider Tanks, the space epic Echoes of Empire, and the tower defense game Fortified. All of these games are in the development phase.
Play-to-earn games empower people by democratizing the ownership and monetization of the time and capital that players invest in games. Shifting the socioeconomics of entire regions is something that is not seen everyday. And the impact goes deeper when understanding the role blockchain games are playing.
Firstly, these decentralized game platforms gain relevance with concepts like the metaverse. Virtual worlds that will change the way we socialize, and even alter the current monetization paradigm. Making no distinction between individuals and big brands, altogether in a single space. Platforms like Decentraland, The Sandbox, and Somnium Space, will also become the place where users build NFTs to show NFTs to their peers. Creating a Nolan-esque Inception-type of paradigm.
Also, games are known to gather masses. In 2016, the Pokemon Go mania gathered thousands of people in one place, at the same time, because of the urgency to catch their coveted monsters. Esports tournaments are already attracting massive viewership levels. In 2019, the League of Legend tournament was watched by 100M people worldwide, and was broadcasted in 19 different languages through 30 platforms including ESPN. To put into perspective, Super Bowl LV was watched by 130M people around the globe. With a planet of 2.4B gamers and an innovative and disruptive technology, p2e games will become a key ingredient in blockchain’s mass adoption and generate a positive impact in our society.