Breaking the Trance: Crypto Gaming

Author: Eva Wu

June 7, 2022

Too many founders are in a trance and the broken premise goes something like this: “For years, gamers have been pouring hard-earned money into games with nothing in return. Thanks to crypto, players can earn NFTs and tokens that have real value. Anyone can and will be entitled to earn for having fun because they’re helping the game to succeed!”  

Unfortunately, crypto isn’t a magical solution that rains money on everyone.  It’s time we reconsider the “earn” philosophy that underpins so many short-lived game economies. Previously, I’ve categorized crypto games into earn-first and play-first and, as we conclude the first chapter of crypto gaming, I’ll be exploring those terms again with further the discussion on why Play and Earn is leading us astray, a better business model for earn-first games, and designing the future for play-first games.

Play and Earn is leading us astray

Play and Earn is the hopium label that describes games with players who grow fond of games first and then earn rewards. In reality, much like its predecessor — Play to Earn — these games weigh heavily on “earn” and use short-lasting financial incentives to mask their lack of genuine players.  The first problem starts with the name itself; using the “earn” label is poor branding and is akin to calling Poker “Play-and-Earn Card Game on a Table” instead of allowing the game to shine. Yet most games create their first impressions through an X-and-Earn tagline. Most importantly, the pervasiveness of the word “earn” has been encouraging games to build fated-to-fail economies and attract yield-seekers over true gamers.

When gamers are told to “play” and then “earn”, it sets an unrealistic expectation that results in constant sell pressure on a game’s native token. Games economists might be better off revisiting whether “Play and Earn” makes sense at all instead of spending most of their time thinking about how to add better sinks, more taxes, and counter the sell pressure. At the very least,  games should consider removing  “Play and Earn” from their vocabulary in favor of words that actually explain what they’re making.  Otherwise, they may find themselves at the mercy of players with unrealistic financial expectations, an unstable economy, and poor branding.

Paying players in perpetuity 

The philosophy that most players should be earning is an unhealthy obsession that we need to address because, alas, it is unsustainable to pay the average player in perpetuity. 

No matter how many sinks are added or how much money a token or NFT collection raises, if the embedded assumption and selling point is to pay most players, the economy will soon lose its balance.  Video games, crypto or traditional, need to take care of their economic flows. The difficult truth is that any game that gives out a traded token or NFT is paying players with money that comes from someone. Game creators, enticed by terms like “player-owned”, have been grossly overpaying early users with a negative customer lifetime value in hopes to build a loyal community. These early players are mostly speculators and farmers who provide the inflow of cash that represent the flash in the pan success we’ve seen for different games. However, the capital spent on NFTs and tokens have been rather mercenary; if it doesn’t net more money, it leaves the ecosystem. So, not only are games overpaying for mercenary players but they’re scaring away gaming hobbyists: those who play and spend primarily for the game and its inherent fun. Besides, if players expect more money than they put in, are they really an asset or a liability? The net losers will continue to be game creators and token/NFT investors who are late to the party. (I’ve included a more detailed breakdown on who ends up paying crypto game rewards in the Appendix)

Is the game play-first or earn-first?  

Founders must remain vigilant of the difference between the game they want to make and what they actually make. There are many games who have convinced themselves of creating a play-first game but have all the goal posts, outward marketing and strategies of an earn-first game. A good litmus test is the ratio between the number of game-related vs. crypto-related tweets. Game developers looking to build in the space should be aware of one of the most common traps: the idea that games can start by targeting earn-first players and somehow pivot into a  play-first game. While it’s attractive to be able to hit shallow metrics earlier, the idea is flawed because the momentum from monetary rewards turns off players who want less financialized games, meanwhile, halting or reducing rewards also turns off earn-first players. It’s analogous to new blockchains that try to build first and decentralize later; it usually doesn’t happen.

Something similar occurs in Free to Play gaming too. Games are either built for microtransactions or built for fun; one comes first and the other is conditioned by the former. Fortnite, for example, was an entirely free game first. It was a mod of Fornite 1.0 and added as a joke to their launch and it took off. Monetization was added after the fact. Games like Farmville are created with the monetization loop first and the gameplay is then fit within it. However, it’s almost always the case that there is no game inside (h/t Brooks Brown). In other words, if the game is “earn, first”… it’ll be earn-first. 

If games want success within a shorter timeline, they’d probably have better luck building an earn-first crypto game, today. However, if games want to build a play-first game, they can either try to change the gaming community’s hatred for crypto games or have their game ready for when said community capitulates their opinions. Going too heavy on financial rewards to bootstrap a higher DAU count is more likely to hurt a  play-first game in the long run. 

A future for earn-first games  

In order for an earn-first game to succeed, earning must take center stage. The quest for earning is entertainment. Throughout history, people have always drawn entertainment from the potential of earning money; straight earning makes our dopamine system go crazy. In general, these sorts of players are fine with equating any small amounts lost to a night out’s entertainment. 

In the short term, we’ll likely see more X-to-Earn projects try to mimic StepN’s short financial success. While it’s undisputed that these games don’t have staying power, ponzi-like games will always exist fueled by willing attention. Why? Because they’re quick to spin up, not serious, and pretty fun until you lose money. Said differently, the quest for earning is entertainment. Besides, every game has a shelf life, some are just (much) shorter than others. 

For games with a longer shelf-life, they’ll likely follow tried and tested business models like those in eSports or casino games. Generally, earn-games can sustain if it’s solvent enough to pay out rewards. This could come from:

  • Players who are willing to pitch into a pot of rewards
  • Sponsors who want to host a game
  • Spectators who want to tip or bet from the sidelines 
  • Any other users that can be taxed to cover the reward payout

Poker and sports are helpful analogies for earn-first games: people will be able to play earn-first games both socially and competitively, companies will sponsor pots and host tournaments, players can make money as micro-celebrities or by winning pots, coaches will be paid to teach, talent will be paid to make the equipment and speculators will watch, tip and bet on games. This sort of economy holds better because there’s a direct and understood exchange of value be it between players, sponsors, or spectators. This model embraces that people are there to earn and spend. These are games where earning is the goal, not the afterthought; they will leverage the thrill of money as the core loop and build a separate economy around it. 

What about the future of play-first games? 

Over the past year, we’ve tried to make “earn” the killer attraction for play-first games to no avail. We’ve yet to prove how crypto makes a traditional game better and have, instead, overly financialized every aspect. In this section, I share some high-level frameworks that might help us design smarter game economies. 

The game vs. the financial game

Firstly, introducing a token at any point introduces an inescapable financial game. Traditionally, games simulate the same life games we play but with guardrails and within closed economies. Introducing a token or NFT removes a major guardrail and opens it up to inherit the full financial scape of the real world. Of course, there are players who love the financial metagame, however, gamers should be able to play whichever game without being tricked into playing someone else’s. 

Over the past year, we’ve observed poor outcomes from blending these two games so closely. For example, Axie was an adorable turn-based strategy game on the surface but by blending NFTs and tokens into their game, players flocked over for the financial game instead. What they were really playing was an earn-first game with pyramid-scheme-like mechanics; every player joining was fronting the NFT cost in hopes to be a seller before everyone else and to make money from the time put into playing, earning, and selling SLP and Axies. When earning cash is too intertwined within a game, it becomes the natural scoreboard and motivator rather than the game itself.

With that in mind, perhaps the future is finding a way to separate the game from the financial game. Either way, next generation game developers will need to find novel ways to connect crypto and its embedded financial game to complement their game without it overpowering the game. 

A useful analogy is the Pokemon card game; it exists separately as a trading card game and as a financialized collector’s game. Similarly, in sports, money and an economy flows around the game but it does not affect the sport itself. It would be off-putting for most sports if players chose where to move and how to hit a ball based on how much money each move could earn. A player’s mind should be on the game, on playing, and not on outside forces like money. This is what makes play-first games distinct from their earn-first counterparts. 

An economy that props up play  

Playing is not the same as being involved in a game and, as time passes, it’s becoming more apparent that the innovation within crypto gaming might be less about rewarding players and more about rewarding those who drive value to the game and its players. In many ways, game creators play the role of a central bank and treasury; setting reward schedules is strikingly similar to taking tax dollars and choosing how to spend or distribute them. The analogy also conveniently describes how players are the losers when a game over-inflates its native token. With this in mind, game developers should consider only rewarding actions that directly or indirectly generate a greater financial return and increase the GDP of their ecosystem. Currently, most game economies have 30-60% of the total token supply set aside to reward every sort of player in the ecosystem (see left). However, a vibrant economy should instead empower people to exchange goods and services with each other (see right). 

Instead of using treasury funds to force a game economy, games should aim to create ecosystems where there’s a creation and direct exchange of value between its gamer base. This would support the token towards becoming a real medium of exchange. For example, if games want designers to create worlds, the system should reward shared interest for creators to get a direct cut of future profits.  Similarly, instead of “influence-to-earn” business models where games pay influencers, games should favor a model where successful influencers have willing fans who tip and pay them. 

In this way, people can get rewarded multiple times over for the creation of virtual goods and services instead of farming for upfront and unsustainable rewards. Moreover, this direct exchange creates real earning opportunities for people who are willing to pay and fosters a more efficient economy. After all, a game economy is a complex, real economy. And like real economies, they’re prosperous when there’s strong employment and a growing GDP.

Final thoughts

Last year, there was an enormous tide of retail and investor money vying for the next crypto game. As the tide rolls out, we want to make sure we’re not left naked; we have to confront the assumptions we made during a distracted state where numbers only spiraled up and to the right. It’s time to break the trance around “Play and Earn” and paying players in perpetuity; we need to sober up about the inescapable financial game crypto brings and design smarter game economies. 

I hope this piece helps game developers to take a step back from the noise and reconsider how they’re building their crypto games. As I wrap up my writing, I find myself being critical yet optimistic about what could unfold.  If you’re building something and also find yourself in such a state, I’d love to talk and bounce ideas.

Thank you to Zaheer, Nicholas, Shual and Nix for their comments and suggestions and to Brooks who has helped shape and battle test my thinking.

Appendix I: Breakdown of potential sponsors for mega game rewards

Cohort Who Are TheyAre they paying?
Game PlayersThose who play and spend without expectation of return. No, we have yet to reach game-market-fit with this audience. 
Earners/ Game ExtractorsPlayers who want to earn over play.No, most players have been trying to extract financial value from the game and leave when the opportunity isn’t there. As a cohort, they have been one of the biggest beneficiaries of these game rewards. 
Game CreatorsThe team behind the development of the gameYes, game creators have both created monetary value for their token and also given it out for free. In hopes to create a “player-owned” economy, they have been paying out and sponsoring the rewards.  
Liquidity ProvidersThose who provide the market for people to buy in and out of the token. Yes, often game creators themselves, this cohort has been the exit liquidity for those who want to cash out. They lose economic value when people sell and do not make money when the price goes up. 
Investors People who buy the token in private or public marketsYes, earlier investors might help games to get started but later investors who buy the token with the expectation of price going up often buy out earlier gamers or investors.
Token Holders Anyone who holds the token (team, investors, prospective gamers and traders) Yes, holders of an inflationary reward token are being taxed every day as the team issues more shares at the same market cap. Unless players are pocketing that inflation and there is constant demand at the current market cap, they are losing value.
Similarly, holders of a fixed supply token are also at the mercy of low float (high fully diluted valuation) token and increasing sell pressure as more gamers/extractors get rewarded tokens they can sell.