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Play-to-earn is a new phrase that has a lot of people excited about a new opportunity in gaming. And in this case, the biggest party that could benefit is the players themselves.
We had a panel to discuss this phenomenon at our GamesBeat Summit Next event, moderated by Amy Wu, a partner at Lightspeed Venture Partners. Speaking on the session were Piers Kicks of Bitkraft and Delphi Digital; Miko Matsumura, general partner at Gumi Cryptos Capital; and Gabby Dizon, CEO of Yield Guild Games.
“It’s pretty hard to imagine that just four months ago, few people had heard of play-to-earn,” said Wu. “But today, pretty much the entire gaming industry is talking about it.”
Play-to-earn means that players of games can earn rewards and even money in games that they play. It has come exploded this year with the growth of Axie Infinity, a game by Vietnam’s Sky Mavis which uses nonfungible tokens (NFTs). Axie Infinity has been so successful that Sky Mavis recently raised $153 million at a $3 billion valuation.
“We definitely are excited about this space and working hard to make it real,” said Matsumura.
NFTs use the transparency and security of the digital ledger of blockchain to authenticate unique digital items. It enables game makers to create rare items that players can collect and resell. That’s what they do in Axie Infinity, where players create characters for a fee, level them up, and sell them.
The play-to-earn phenomenon took off with Axie Infinity in the Philippines, where players played it during the pandemic to make wages that paid three times better than minimum-wage jobs amid 40% unemployment.
Earlie this year, Dizon formed Yield Guild Games, a company that consists of a guild of players, many of whom are Axie players. The company provides “scholarships” for players, paying their startup fees so they can start earning money and sharing the proceeds. YGG also invests on behalf of players to ensure they can make more money.
Jeff Zirlin, cofounder of Sky Mavis, said hundreds of guilds are in places like the Philippines now, and he believes Axie Infinity provided hundreds of thousands of jobs to Filipinos — so much so that the Philippine government is proposing taxes for players.
“We invest in assets inside these games, typically NFTs that produce some kind of asset in the form of tokens similar to Axie Infinity,” Dizon said. “We lend these assets to our player community, who play the games and earn an income.”
Wu said that in the last six months, major game publishers have shifted from being “crypto skeptical” to “curious and now many are actually diving in headfirst.”
Matsumura said the users have arrived, thanks to the Axie phenomenon.
“And I think that with (two million daily active users), the growth rates are phenomenal,” he said. “The users are here. That’s inarguable.”
Kicks agreed that we’ve hit a breakout moment for this concept of play-to-own gaming. And it has succeeded in spite of the fact that the games themselves aren’t industry-leading in terms of things like graphics or gameplay. Rather, the business model is what has the players excited. Over time, the gameplay will catch up as more established developers get involved.
“Gamers get to participate in the economics of the games they love and share the value that they’re contributing to these ecosystems,” Kicks said.
Axie Infinity takes just a 4.25% marketplace fee when players sell their characters to other players. So most of the proceeds go to the players, and they repeat the cycle where they can level up characters and sell them again.
“Being able to lean into that concept of shared economics and building a community around that is key,” Kicks said.
Players also get to own characters outright and that unlocks new possibilities, he said.
Matsumura thinks it’s significant that players can convert their time — by grinding away to level up characters — into fungible assets (things like cash).
It’s also a new kind of Kickstarter, he said, where players can make seed stage or pre-seed investments in tokens for games, and this can provide possible investment rewards for players who support it — more so than is possible with Kickstarter campaigns.
“The fact that people can create things of value inside the game, and then sell them to other people, is creating the future of work, where people are willing to do more things inside these games and virtual worlds,” Dizon said. “It’ss leading to all sorts of creativity in the economy, from the players who are doing the actual work. People are, for example, becoming land brokers or doing esports and streaming.”
Dizon saw at the beginning that publishers were skeptical at first. Yet players are dealing with the obstacles, like the need to have multiple wallets or finding games even though they aren’t on the app stores, he said. But many players teach other players how to play in places like YGG’s Discord channel.
“It’s showing that this community-based onboarding and layer-based ownership in the economy is so powerful that it can go past all of these onboarding difficulties,” Dizon said. “And now you already have a way for games to gain users without any of the traditional gatekeeper. So without being on the iOS or Google Play stores, without being on Steam, it can still find distribution.”
He noted that a lot of talented game people are leaving traditional game companies to work at play-to-earn companies.
“I think the landscape is going to get a lot more competitive,” he said.
Dizon said that the player guilds fit right in with the decentralization of Web 3 and blockchain games. The guilds are player collectives that have their own treasury and bank account, and they lend the assets to players.
“It’s creating a new type of metaverse economy, where it’s not just people playing games,” he said. “We’re not starting to redefine the future of work where the build is representing the players or doing some form of labor in the metaverse and then getting paid for them.”
Dizon hopes we will see millions of such guilds over time. Each guild can set itself apart with the investments and community infrastructure that it makes, he said.
Wu said many of the early play-to-earn games are made by crypto-native teams, and now more gaming-native teams are still learning crypto.
“I suspect that it might be sort of better to lean more crypto native than game native just yet. I feel like we’re still in this major sort of discovery phase where lots of new mechanics and ways of thinking about things are still being discovered,” Kicks said. The market seems to reward novelty. Even if these projects are sort of like relatively low (in polygon counts, or primitive graphics), maybe you don’t need to have a world -class game design team yet. A lot of the crypto-native teams are driving the interesting things that I am seeing.”
Kicks believes that economists are particularly important to the play-to-earn companies.
Matsumura said the question to ask as a crypto investor is, “Where is the scarcity?” when it comes to where the talent comes from. Matsumura believes the teams that succeed are ones that survive harsh environments, whether it’s in gaming or crypto, and so mindset and conviction are very important.
“We look for high conviction, high mindset, high toughness,” not folks looking for a cash grab, Matsumura said.
Dizon believes that the crypto-native developers will win in the short term, but in the long term, the game developers will win.
“Over time, the game developers will find that they actually have the skill sets, the free-to-play virtual world designers that are among the best in the world,” Dizon said. “Those who know how to build gamer communities and learn new ones. So I think in the short term, crypto native teams win. But once the game developers come in, those who are best in the world in designing virtual economies and creating communities, and turn these into a player ownership model, I think they be a lot more powerful.”
Kicks said he believes that competition will be reset when more players arrive. With the level of players right now, he said, “It’s still a drop in the bucket in terms of monthly actors versus some of the larger games in the world. So I think it’s gonna be a completely different sort of ballgame once we start heading into that territory.”
Wu asked how the Axie Infinity economy has evolved, especially with such volatility in the prices that players can get paid for their characters that they sell.
With CryptoKitties, players could breed as many characters as they wanted, and that didn’t make for a good economy. But with Axie Infinity, players have to earn Smooth Love Potion, a virtual currency, through gameplay. Or they had to buy it. And so that meant some scarcity in the characters that were for sale. Dizon said it is a challenge that some players are getting whipsawed as the prices fluctuate in terms of what they can receive as payment for their characters.
“Ultimately, it’s a game design question in terms of playing with this token reward system,” Dizon said.
Matsumura said it is important to have deflationary mechanics that consume resources to offset those that get created.
Games arevcoming that combine both great gameplay and the new business models, and all of the panelists were excited about that. The titles that they liked were DeHorizon, Crypto Unicorns, Guild of Guardians, Thetan Arena, and Ember Sword.
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