Is Play-to-Earn Killing Blockchain Gaming?

If you look at where investors put 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 cryptocurrency universe.

There is only one problem: They are bleeding players.

By far the biggest blockchain game, Axie Infinity, saw the number of players fall below 1 million in May, down from the highest of 2.7 million in November – and it is not 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 make gaming a potential source of profit, while giving players with deeper pockets an advantage. Players can “grind” – do tedious, repetitive tasks – to create objects in the game that have game value, like a magic sword.

For a while it worked. However, Huobi said, “GameFi and the play-to-earn concept became popular last summer, but failed to sustain its rapid growth.”

After reaching the peak of over 1.4 million daily active players at the end of last year, the number fell to around 1 million through May, the report states. In June, the daily number of players crashed by 30%.

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

There is also a revolt against pay-to-play mechanics in the broader gaming market – buyable loot boxes are the preferred mechanism – which has caused a revolt among serious players who call it “pay-to-win”. There is a reason why only one of the six largest game studios is actively engaged in NFT-based games.

Related: Mastercard Gamer Xchange converts points into currency

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

“Blockchain games are poorly made, and many lack sustainable games,” Huobi said. “Instead of focusing on gaming and graphics, financial incentives have become a priority for both gamers and developers.”

In a way, the solution is that “The GameFi site needs Triple-A games made by large game studios with rich stories, gameplay and great graphics to become mainstream,” it added.

A failing economy

Part of the large number of user crashes in June was related to the broader cryptocurrency crash, which led to the market value of the game tokens players earn and use falling by 50%. However, it is a bigger problem, and Axie already experienced it.

To play Axie Infinity you need two things. First you need to buy three axes – which are small Pokémon monsters that can be collected, used to fight and breed – to start playing. These NFTs had a purchase cost of around $ 600 when the game’s user numbers were at their peak, according to recent reports. Then you need to make or buy Smooth Love Potions (SLPs) – also NFTs – that are required for breeding. It can make better and more valuable axes.

As Axie Infinity became popular, a whole business of sharpening SLPs emerged in developing countries, especially in the Philippines, where players painted all day, searching for and collecting the NFT ingredients needed to make SLPs.

The problem is that the economy only works if the number of real players continues to grow. If it does not, P2E workers will see NFT prices crash. Which they did.

It did not help that the main bridge platform used to buy Axie’s original AXS token with other cryptocurrencies, the Ronin Network, was hacked in April to the value of 625 million dollars.

Read more: The $ 625 million hack shows a major crypto security problem

That said, there is still a lot of money in P2E, whose tokens are valued at around $ 7.2 billion. AXS alone has a market value of $ 3.7 billion, making it 42^nd largest crypto by market value, and it is 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 entry costs. In addition, given the amount of money that is poured into blockchain games – and it is important to note that it also includes metaverse games – the quality problem can disappear.

Huobi noted that a new blockchain-based F2P2E game called Grit is about to be launched on the Epic Game Store, a major gaming portal. Huobi was presented as a royal fighting game in old-western style with triple-A quality, and said that it could determine the fate of GameFi.

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

However, it will not deal with the essential pay-to-play problem that discourages core players, or the questionable economy of the model.

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