Thoughts On Play-To-Earn Economies

Blockchain-based games are experiencing their first bear market. The excitement during the bull season is behind us, and prices have fallen dramatically. Play-to-earn coins are trading at %1-%5 of the peak they reached during the bull season. There is renewed excitement in the crypto market now. However, this wind is still blowing the sails of a small number of crypto ecosystems.

Play-to-earn economies have an inflationary structure. The amount of both NFTs and coins used in games is increasing. This situation creates a need for fund inflows to increase asset prices. On the other hand, thanks to the inflation created, resources are created for development costs and distributed rewards.

What distinguishes blockchain games from pyramid schemes? People only make money participating in Ponzi schemes. On the other hand, people have fun in games. Of course, if the game is fun. It is not easy to entertain a player base that is used to high standards. However, the money earned can partially cover the flaws of the games.

It's tempting to make money by playing games, but is a game that makes money for players sustainable? In order to give a positive answer to this question, some conditions must be met. The system should have regular money inflows, and fund outflows should not be excessive. How can regular money inflow occur? Through the sale of existing or newly produced NFTs. How can money flow out? Players can withdraw their rewards from the system. The game's creators can move the funds they obtain through NFT/coin sales out of the system.

If over-rewarding is avoided and development costs are kept at an optimum level, there will be a low outflow of funds from the system. When the crypto market is in good shape, asset prices can thus increase. During bear market periods, price decreases may be more limited.

The first generation of blockchain games was built on NFTs that earned reward tokens. Over time, tokens have diversified. For example, games started to have their own stablecoins. No matter how sophisticated the internal dynamics of game economies are, they need fresh resources from outside. For this, the game needs to develop and become a brand. The competition that exists in every field also shows itself in this field.

Play-to-earn games are generally operated on blockchains, which create low transaction costs. DPoS blockchains such as Hive and Wax can be given as examples. Over time, Layer 2 networks such as Polygon, ImmutableX, and Optimism also attracted the attention of game developers. Because being integrated into the Ethereum ecosystem provides advantages to developers.

So far, most of the focus has been on blockchains' capacities, transaction fees, and token economy. When the bear season dragged on, and the promised games could not be delivered, it became clear how costly and troublesome game development was. Moreover, the game needs to be adopted by a significant player base. Developers also faced this situation during the bear season, when financial incentives shrank.

Regardless of the challenges blockchain gaming poses, the field remains extremely promising. The bear market helped keep costs under control. Moreover, experience in the financial mechanisms to be used has increased. Investors are now more cautious and conscious.

Play-to-earn games are not on the agenda these days when we see the first signs of the 2024 bull market. For now, investors focus on coins such as Bitcoin and Ethereum, which they see as more robust. When blue chips reach a certain price saturation, the play-to-earn category may come to the fore again. This time, investors will be much more selective. After all, many games are now over three years old. The difference between developers' promises and what they realize will affect the level of investment they will receive in the new period.

Should we invest in game infrastructure coins or game coins/NFTs? Well, it depends. Games like Axie Infinity, Illuvium, and Splinterlands have already become recognized brands. Technical knowledge is needed to invest in infrastructure-oriented coins.

In any case, games are essential elements of the crypto ecosystem, and I am sure that some games will become a source of regular income.

Thank you for reading.

Image Source: Midjourney App