The Financialization of Fun: Crypto Gaming Thesis

Blockchain gaming is seeing a hurricane of action; while Steam bans crypto gaming, big game studios are exploring it and “Play to Earn (P2E)” is on every VC’s lips.
Author: Eva Wu

November 22, 2021

As the space becomes increasingly saturated, nuanced takes on the state of crypto gaming are few and far between ranging from “everything is a Ponzi scheme” to “Crypto gaming will fundamentally change every aspect of work, life, and play forever.” Conversations are becoming especially opinionated as people, from traditional gamers and developers to crypto investors, invest their personal and professional identities (and capital) into these concepts.

In this piece, I share a perspective on crypto gaming I’ve been developing to segment the action. I discuss:

  • Trends in the short vs. long term
  • The current truth: financial incentives are driving growth. 
  • The opportunities and execution risks for crypto games that aim to be fun.

Financialization of Fun

Financializing fun is a path that traditional gaming is already on; people can trade skins and make money as streamers and professional gamers. Crypto just takes this to the next level. Currently, I see two major categories emerging:

1) “Play-first” crypto games where the fun gameplay takes centre stage and crypto is used as a competitive edge to engage players further.

2) “Earn-first” crypto games where the main allure, gameplay and fun ultimately come from earning money by participating in crypto game economies.

Both types of games can hit at the core of why people play: games allow people to fulfill their basic desires in ways that bring them more gratification with lower hurdles than fulfilling them in real life (see: Maslow’s Hierarchy of Needs). Said another way, humans enjoy playing the same life games in parameterized and alternate realities. The most popular games capitalize on mimetic desire and simultaneously shape desires while creating the in-game loop to satisfy them. 


Maslow’s Hierarchy of Needs

Play to Earn. Earn. Earn.

The current leading game in crypto, Axie Infinity, achieved a $35B valuation ($AXS) despite many gaming experts criticizing the gameplay for not being fun. Yet, dedicated players can earn up to thousands of dollars per month and low-income players (especially in the Philippines who make up 40% of players) have flocked to the game in search of economic opportunity. 

Axie and its dozens of clones imply that perhaps fun isn’t what’s key for a crypto game to grow, but rather gameplay mechanics that reward players with real-world earnings. Illuvium, another game that won’t be launching for another 2 years, has found itself with an $11B valuation ($ILV) driven largely by introducing a pre-game token and staking mechanics. 

The early traction for current P2E games begs questions like: 

  • How much do people care about the core game itself? 
  • Does their potential to earn and the market value of their NFTs matter most? 
  • More fundamentally, if money is the end point, is it truly a game or just a gamified micro-economy where “farming crypto” is a core game mechanic? 

While this sounds like a gaming cardinal sin, in many ways, crypto investing and trading could be thought of as the internet’s largest Massively Multiplayer Online Role-Playing Game (MMORPG) and, for many, it’s deeply addictive and fun. 

Forecasted timing: earn-first games vs play-first games

Earn-first games: economy-centric through crypto

In the short term, this sector of crypto gaming will see the fastest growth and an influx of competitors due to shorter development timelines, a rush of investor capital into surrounding guilds and asymmetric returns that bring flocks of new players. 

Early traction for earn-first games

Crypto games that are centered around earning as opposed to gameplay are quicker to market since token incentives bootstrap and maintain the interest of players and speculators. “Successful” games will likely trade with high speculative premiums as investors and traders clamour to have a stake in the next big P2E winner. For crypto-natives, they’re particularly exciting to invest in (whether they’re fun or not) because these games experiment with crypto concepts like NFT flipping, airdrops, staking, farming and the ownership economy

Whilst these crypto-native games try to be first and foremost fun, one look at their users and it’s clear that it’s the earning opportunities that drive player growth. For players of these games, the game blends with work and investing; there’s a calculable opportunity cost to their time and strategy when they consider which NFTs they have to buy, to play which game, to farm which token. 

The proliferation of crypto guilds, communities and esports leagues around these earn-first games are evidence that earning opportunities are key to these games. Guilds like YGG and Merit Circle (which just raised $100m+) only exist and are trading at large premiums because of the earning opportunities that are offered within the earn-first games they’re centered around. If you’re bullish on the current gaming guilds, by extension, you’re also bullish on games where earning takes centre stage and the play to EARN component is most critical. 


Every game sets out to be genuinely fun. However, builders must remain pragmatic about who their current user base is, why they’re playing and who their primary target audience will be. At this stage, crypto games typically target two primary audiences with some overlap: traditional gamers and people who are there for crypto. If a game’s marketing and distribution strategy centres around crypto exchanges, token launch platforms and guilds, they are not targeting traditional gamers despite their spoken desire to. Most crypto games, at current, are targeting crypto enthusiasts and low-SES players incentivised by the earning opportunities (which is still a large and growing audience). 

Most games won’t cross the adoption chasm from the early market (crypto enthusiasts) to mainstream market (traditional gamers or low-SES players). Nonetheless, games like Axie are paving the way for others to cross over to a large population of people who want to earn by playing games. 

The Chasm in the Technology Adoption Lifecycle 

Meanwhile, some developers will spend years trying to rival a AAA game to target the mass gaming community, but it’s possible that crypto games that see early success simply embrace crypto-native principles where people can have fun by earning. A huge potential pitfall is sinking months to years developing a game with both mid-tier gameplay and uncompetitive earning opportunities. It’s possible that instead of trying to mimic the fun in traditional games, builders in this space could just focus on creating a minimum viable game with a focus on nailing fun P2E mechanics.  

Does the music ever stop?

Games where earning is at the core are also inheriting a difficult sustainability problem. It’s impossible to create an economy that constantly grows. Axie earnings have already started to decline, which will soon make the game undesirable for their current player base who are primarily playing to earn. If new entrants cannot win and turn a profit, Axie will experience a recession since their growth will no longer outpace inflation. The hundreds of guilds that are built around Axie action will also suffer. It’s unlikely that pivoting to try to make the gameplay “more fun” is going to solve this incoming problem since the majority of their user base plays for financial incentives. 

The daily earnings of a typical player have fallen below the Philippines’ minimum wage line for all except high ranking players, and even they have seen earnings decline since August. – Lars & Naavik Research

That being said, these sorts of economies with embedded inflationary ponzinomics can actually be sustained for longer than people think, especially when there’s an influx of venture capital vying to invest in the next big P2E hit. In a similar vein, online casino games like poker and slot machines are still games that focus on earning and they make up a multi billion dollar industry that has sustained for decades. While not exactly identical to gambling, the earn-first crypto games we are seeing blend the desire to earn with finance and game-like mechanics.  And, whilst these earn-first games might not linearly evolve and displace traditional gaming, they could innovate and forge their own path and business model that makes it possible to sustainably have fun from earning. 

To wrap up this section, I don’t think the current iteration of crypto games are going to simply unlock the “next step in gaming” or a paradigm shift within the industry. In the near term, the emergence of crypto within gaming will look less like an evolution of traditional gaming but a completely different path. While financial incentives are currently bootstrapping player interest, games that use crypto to unlock gameplay mechanics that are fundamentally new will be better positioned in the long term. 

Much like how DeFi protocols can’t just rely on inflationary tokenomics and yield to sustain their product, games that are first and foremost fun to play without being crypto-first are strong contenders in this space because they can stand alone as a product.  But these games will have some lag time before we see more of them come to market because they take longer to develop and come with a host of execution risks. More below. 

Play-first games: fun gameplay with crypto 

In the medium term, we’re going to see more gameplay-first games launch with crypto concepts and innovations. These innovations will happen along a spectrum from cosmetic skins becoming NFTs to token models where gamers can play for ownership in a game. 

The first few iterations will see developers try to force P2E concepts, tokens and NFTs into very traditional-looking games. I predict P2E as a concept will be experimented heavily with over a 2-5 year horizon. However, I believe longer term, we’re going to see developers use crypto to unlock entirely new gameplay mechanics. For example, games could introduce creative concepts like a dynamic NFT that mimics wear and tear or build a game from bottom-up using user generated content (see: Loot). At the end of the day, crypto is a huge sandbox for games to experiment with.

This is what will unlock a new golden age for gaming. With great graphics, interesting stories and lure that incites emotions, these games can leverage crypto in new and exciting ways that enhance feelings of achievement and keep players more engaged. 


Crypto also creates new forces within the gaming landscape. Within traditional gaming right now, there are key stages of the game creation value chain where most of the industry’s profits are generated. Crypto flips the incumbent business model, free-to-play, on its head by allowing companies to monetize in almost any stage of game creation. Most notably, games can monetize and bootstrap community funds before the game is even created. In fact, traditional games are designed first with capitalization in mind with a couple main models: buy-to-play, free-to-play, and subscription. Changing the revenue model for games is what will be most exciting and new. Without free-to-play games, we wouldn’t even have esports as we know it. 

At the same time, crypto also enables another type of participant alternative to the conventional gamer: the gaming enthusiasts, collectors and money-makers. These people are not necessarily playing the games but can be supporting the space by taking other sides of trades, betting, attending events, watching streams, speculating and collecting gaming memorabilia. Crypto can enable these new types of actors that have emerged on the periphery of gaming to actually contribute to the future of the game in novel ways.

Similarly, there’s the opportunity (and double edged sword) to empower gamers to own their in-game achievements, items and, essentially, financialize their fun. Whilst ownership is not a strong desire that the majority of gamers have woken up to, it just takes one successful crypto game to make gamers question why they weren’t always owning their in-game assets. However, there are also risks.


While crypto and gaming sounds like a promising match, crypto-enabled games aren’t going to go mainstream simply because experienced game developers are working on them. In fact, introducing crypto for many of these games, is going to be a self-defeating endeavour and an extremely difficult design problem due to the limited understanding (and experimentation) around how crypto interfaces with gameplay. 

And even then, these crypto-games can’t just have AAA graphics, they need to beat incumbents at their own game. Even if a game nails the crypto-economics, if it’s mediocre it will at best poach users from other crypto-first games without making a dent on the 200B online gaming industry. I believe that the games that end up succeeding over the next decade are the ones that use crypto to unlock fresh gameplay mechanics instead of simply forcing P2E mechanics into the same traditional games we see today. 

Currently, the best games simulate and parameterize the same life games we play but with guardrails or in closed economies. Financializing parts of the games through tokens or NFTs removes a major guardrail that fundamentally changes the gameplay and opens games to inherit the full financial landscape of the “real” world. Very few traditional game developers have experience designing and controlling gameplay/gamer psychology when the game becomes exposed to the forces of speculators, investors and arbitrageurs who have their own out-of-game incentives that move around the game’s token and NFT prices. The first step is acknowledging this reality and purposefully designing the game with these different forces in mind.

While many will try to supplement knowledge gaps with crypto-native VCs/advisors who tout they can handle the tokenomics, in reality, the one-in-a-million game is going to be a result of crypto-natives working hand-in-hand with experienced game developers/economists to take a “player first” approach to solve difficult design problems. Builders should look for partners who help flag the many opportunities and externalities that crypto brings to their game.

Introducing ownership and monetary value affects gamer psychology

“Ownership” (especially through NFTs) has become a buzzword and it’s easy to forget that the main reason games tokenize assets is because it introduces monetary value or makes the asset more composable. If you ask traditional gamers, they still believe they “own” their assets even if they’re not NFTs. While most crypto games currently use NFTs as a store of value, NFTs can also be designed for other creative purposes like building identities across different games or sharing them with your friends. 

Tokenizing in-game assets introduces a difficult design problem because adding monetary value to game assets risks negatively affecting gameplay. For example, when Diablo 3 added real-money auction houses (to trade game assets for money), some players loved it but the game ultimately saw a hemorrhaging of players. The auction house is a case study on how financializing game assets can short circuit the natural pace of item drops, making the game feel less rewarding for some players. It’s a design problem that has yet to find a repeatable solution. For Diablo 3 players, introducing monetary value changed how and why people played. Players who used to play for fun found themselves starting to play for rent. The underlying psychological shift caused players to stop enjoying the playing itself, and to quit to play other games that didn’t invoke the real world so heavily. 

The Diablo III real-money auction house

Game psychologists note that a lot of the joy and addiction comes from unexpected and randomized rewards. The ability to easily acquire a known reward with money might actually rob the games of what makes them fun. The direction of NFTs and many P2E games are fast racing towards pure financialization which could ultimately kill core gameplay. Especially for avid gamers, this quickly becomes a cardinal sin when people have the opportunity to pay-to-win by bankrolling to acquire material advantage in a competitive game. 

Traditional gamers are fixated on the meritocracy of gameplay skill which makes the addition of tokens/NFTs (and the real world complexities they bring) extremely difficult to nail. If not done “right” the traditional gaming community will always be quick to disparage anything that doesn’t fit their sense of what a game is and who should be playing it. These sorts of games should err on the side of tokenizing cosmetic skins (not ones that affect gameplay to avoid pay-to-win dynamics) and consider using non-transferable tokens so that only gamers can “mine” by playing the game.

The takeaway: new developers hoping to build mega games with P2E mechanics need to be very careful to weave in cryptoeconomic incentives and NFTs in a way that maintains the quality of gameplay or they risk both botching the gameplay AND the incentives for P2E players. Moreover, crypto-native game developers have a blue ocean opportunity to create a new generation of games that leverage crypto in ways that go beyond just adding a token or tokenizing in-game assets. These types of games take longer to develop, but once a couple get the recipe right, there’s a real chance that they onboard billions of traditional gamers into crypto. 

Concluding thoughts

In the end, I believe that crypto will unlock a paradigm shift in gaming. Though it’s still unclear what exactly that shift will look like, I believe that, in the short term, we’ll see earn-first crypto games like Axie and Zed Run create a black hole by onboarding players using financial incentives. Supplementing this growth will be guilds and DAOs on the periphery. In the medium term, we’ll see traditional-looking play-first games experiment with new monetization models using tokens and NFTs while attempting to onboard both traditional gamers and earn-first gamers. And, in the long-term, we’ll see a new generation of gaming that uses crypto that goes beyond just adding P2E mechanics. 

For game developers looking for creative risk, this is a prime blue ocean with attention and capital on the sidelines ready to be deployed. Crypto opens a world of innovation beyond adding tokens or simple NFTs; it allows game developers to create a new class of games built around the design freedoms that crypto affords and a new cast of game players where professionalization, earning and ownership is directly embedded into the gaming experience. 

Regardless of your opinion on these different segments, they will all have an interrelated future in gaming; these games will crossover, learn from each other and work together too. If you’re building towards this future, we want to hear about it. 

Big thank you to the Mechanism team for reviewing and refining (Marc, Brian, Ben, Andrew) as well as Brooks, Zaheer Ebtikar, Ben Rameau and Kenny for their comments.

Nothing above constitutes investment advice.