Play-To-Earn Games

Axie-Infinity And More

This came out first on WSJ 2 days ago. Axie Infinity is one of the biggest play-to-earn (P2E) games with approximately $3 billion market cap.

As a non-gamer, this is my attempt at trying to understand P2E economy and its structure.

P2E by definition offers earnings to players. In Axie Infinity, a player can earn SLP by doing one of the following: 1)playing in various modes, 2) breeding & selling Axies (NFT’s), 3) “scholarships” — essentially lending Axies to newer (or poorer) players.

Axie Infinity, the game/company itself, generates revenue mainly via in-game purchases, new NFT sales, and exchange transaction fees.

After understanding the basics of how the game worked, I looked into the economics of P2E, using Axie Infinity as a base/example. When playing as an investor, there are few things in P2E that need to be closely monitored:

  1. Inflation- If there were too many currencies circulating, then the prices of the in-game assets increase. At the beginning of a project launch, more currencies means more spending and equates more aggregated demand. However, when inflation gets out of control, assets get too expensive & negatively impacts the overall gaming environment. For example, Axie Infinity’s little animals (Axies) are too expensive for new players entering the game. This will prohibit the game’s growth after the NFTs reach a certain price point.
  2. Deflation- fees earned by the governance body are used to reduce the circulating asset via buybacks. This combats hyperinflation and helps with longevity of value creation for existing players. This is related to token distribution — the more % allocated to the foundation, the more it is able to control inflation of the in-game assets. In Axie Infinity’s case, The Ecosystem Fund will receive 21.6 million AXS, 8% of the total supply — some of it will be unlocked and the rest locked. The governance body for the game has too little allocation to control the inflation of its in-game assets.
  3. Players- this is essentially the “target audience” of the gaming company. In the WSJ video, Axie Infinity’s founder complained that people are withdrawing their assets and taking more value out of the game, negatively impacting the gaming environment. Unfortunately, players with a lot of time looking to make a quick buck is the main users of P2E games. A game that is designed & marketed to focus on earnings rather than quality of game and storyline will draw “investor” players. An investor is “a person… with the expectation of achieving a profit;” the objective of an investor is not to create better games or teach new players.

There are plenty of P2E games pitching in Southeast Asia. Everyone is looking to make a cash grab without understanding the basic structure of P2E games. Many P2E founders allocate 10–20% to the foundation without understanding the reason behind it, nor do they know how to balance between amount in the foundation, circulating supply, total supply, and max supply to protect asset/price stability. Do your own research, people!

Disclaimer: Everything in this post represents my personal opinion only. No investment advice is offered in this post; I do not offer any investment advise.

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