Is Play-to-Earn Killing Blockchain Gaming?

If you look at where investors are putting their money, blockchain games are the Next Big Thing in the crypto world. In the second quarter of this year alone, venture capital funds have earmarked $3 billion for this segment of the crypto universe.

There’s just one problem: They are bleeding players.

By far the largest blockchain game, Axie Infinity, saw its player count drop below 1 million in May, down from a high of 2.7 million in November — and it isn’t alone.

A big part of the problem, according to a report released on June 22 by the major crypto exchange Huobi’s research arm, is the play-to-earn (P2E) model embraced by the blockchain gaming industry. It uses non-fungible token (NFT) sales to turn gaming into a potential source of profit, while giving deeper-pocketed players an advantage. Gamers can “grind” — do boring, repetitive tasks — to create in-game items that have gameplay value, like a magic sword.

For a while, it was working. However, Huobi said, “GameFi and the concept of play-to-earn gained popularity last summer but failed to maintain their rapid growth.”

After peaking above 1.4 million daily active players at the end of last year, the number dropped to about 1 million through May, the report said. In June, that daily player number crashed 30%.

“The main factors preventing mass adoption of blockchain games were the flaws behind the highly speculative pay-to-play-to-earn game model and the technology risks surrounding blockchain,” Huobi said in its report. “As a result, gamers often associate blockchain games with Ponzi schemes and scams.”

There’s also an uprising against pay-to-play mechanics in the broader gaming market — purchasable loot boxes being the mechanism of choice — that has caused an uprising among serious gamers who call it “pay-to-win.” That is one reason why only one of the six largest game studios is actively pursuing NFT-based games.

Related: Mastercard Gamer Xchange Turns Points into Currency

Of course, there’s another problem: the quality of the games themselves.

“Blockchain games are poorly made, and many lack sustainable gameplay,” Huobi said. “Instead of focusing on gameplay and graphics, economic incentives have become the priority of both players and developers.”

In one sense, the solution is that “the GameFi space needs Triple-A games made by major game studios with rich narratives, playability, and good-looking graphics to become mainstream,” it added.

A Failing Economy

Part of that big user number crash in June was related to the broader crypto crash, which saw the market capitalization of the game tokens players earn and spend drop 50%. However, there’s a bigger problem, and Axie was already experiencing it.

To play Axie Infinity, you need two things. First, you have to buy three axies — which are little Pokemon-style monsters that can be collected, used to fight and bred — to start playing. Those NFTs had a buy-in cost of about $600 when the game’s user numbers were peaking, according to recent reports. Then, you need to make or buy Smooth Love Potions (SLP) — also NFTs — which are required for breeding. That can make better, and more valuable, axies.

As Axie Infinity gained popularity, a whole business of grinding SLPs sprung up in developing nations, notably the Philippines, where gamers would grind all day, searching out and gathering the NFT ingredients needed to make SLPs.

The problem is, that economy only works if the number of real player users keeps growing. If it doesn’t, the P2E workers see NFT prices crash. Which they did.

It didn’t help that the main bridge platform used to buy Axie’s native AXS token with other cryptocurrencies, Ronin Network, was hacked in April to the tune of $625 million.

Read more: In $625M Hack, a Bigger Crypto Security Problem Is on Display

That said, there’s still a lot of money in P2E, whose tokens are valued at about $7.2 billion. AXS alone has a market cap of $3.7 billion, making it the 42nd largest crypto by market cap, and it’s down about 90% from November.

The blockchain game developer and investor markets are moving towards a new version they call free-to-play-to-earn (F2P2E) , which lowers the cost of entry. Additionally, given the amount of money being poured into blockchain gaming — and it’s important to note that also includes metaverse games — the quality problem could be going away.

Huobi noted that a new blockchain-based, F2P2E game called Grit is about to launch on the Epic Game Store, a major gaming portal. Pitched as an Old- West-style battle royal game that’s triple-A quality, Huobi said it could determine the fate of GameFi.

“As the first-ever blockchain game launched on a major game platform, Grit has the potential to kickstart the adoption of blockchain games on major gaming platforms,” it said.

However, that won’t deal with the essential pay-to-play problem discouraging core gamers, or the questionable economics of the model.

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