How blockchain gaming can become sustainable
NFTs and blockchains are exciting technologies with huge potential in the gaming sector. Yet the scene has failed miserably at living up to the hype so far. A big reason for this is that no blockchain game has managed to create a sustainable in-game economy yet. However, that it hasn’t been done yet, doesn’t mean it’s impossible. I thoroughly believe that sustainable blockchain gaming economies can be created and here is how.
The major mistakes of current P2E economies
Before we can find ways to make play-to-earn sustainable, we have to understand why previous attempts failed. There are a couple areas where famous blockchain games like Axie Infinity, Splinterlands or DeFi Kingdoms have gotten it completely wrong.
- Play to earn games are not fun
One of the major problems I observe with blockchain games is that they simply aren’t fun to play. The ones I’ve tried have mostly been uncreative, cheaply produced and boring. I’m yet to find a blockchain game that gets me hooked the way Hearthstone, Fifa or StarCraft had in the past. I’m yet to find one that distracts me from working because it’s just so damn good that I keep wanting to play more. If sustainability is the goal, loyal fans are the basis. The only way to build such a community is by providing players a game that they love to play.
Developing a great game, especially without the financial backing of a big publisher, can be tough. But it has been done in the past. I’ve written an in-depth article about how we can develop exciting blockchain games here.
2. NFTs create entry barriers
Another hurdle developers have been tripping over has been the fact that NFTs create high entry barriers. Gamers are not NFT traders. If someone wanted to start playing Axie Infinity at its peak, an investment of many hundred dollars was necessary. In comparison, even the latest triple A games cost only up to 70 dollars. Gamers will not spend hundreds of dollars just to play a game. Period. If expensive NFTs are necessary to play a game, it will consequently only attract NFT traders that are involved purely for financial gains. As soon as the token price drops or other opportunities offer better rewards, these traders are gone faster than a toupee in a hurricane.
3. Ponzinomics
Ponzinomics is probably the most obvious problem we can observe in the blockchain gaming sector. In some cases ponzinomics are a feature consciously implemented by the developers, in other instances they’re the consequence of the previous two problems. In either case, they’re a huge issue that make sustainability impossible.
The currently widespread economic model in blockchain gaming revolves around making an initial investment by buying NFTs to then play the game and earn tokens. NFT investors — or scholars they hire — grind the game to extract as many tokens as quickly as possible and dump them on new investors. This is a “ponzi” because it requires new investors entering the game to serve as exit liquidity for the current investors. The cycle repeats itself until the breaking point is reached and no new investors enter the game. At this point, the token price crashes and never recovers as the NFT traders all leave.
Making play-to-earn games sustainable
To solve these problems and create a business model that includes sustainable economics within the game, developers need to follow a few crucial principles.
- Game design first, P2E second.
Successful games in the traditional gaming industry like Fortnite, Fifa or Grand Theft Auto generate billions of revenues for one simple reason: They’re beautifully designed and incredibly fun to play. People love to play these games and consequently are willing to spend money for additional content. Gamers expend fortunes to make their avatars look special, unlock better equipment or add famous players like Cristiano Ronaldo to their football teams. They do this not in the hopes of generating profits, but because they receive value within the game they love. Adopting these players will allow the developer to create a loyal player base as well as real revenues. In contrast to the mercenaries that only play a game for monetary rewards, these players won’t leave the game as soon as they find other opportunities to earn more money.
Further, these players won’t immediately dump the tokens earned within the game. Almost every traditional game has an in-game currency that players earn and use to obtain new in-game items. In FIFA for example, players earn coins for playing matches, which they save up to buy new and better players. A similar thing will happen in play-to-earn games. If the players’ primary reason for playing the game is leisure, they will use rewards to buy new skins, characters or equipment the same way they do in traditional gaming.
2. An economic model that attracts players
If the basis for a sustainable play-to-earn economy is adopting actual gamers, the economic model has to be designed in a way that attracts them. I would argue that free-to-play is the best model to achieve this. Games like Fortnite are proof that even if a game is available for free, it can create billions in revenues. Once players are excited by a game, they are willing to spend a vast amount of money on it. Monetizing a free-to-play game with microtransactions is an extremely successful business model. There is no reason to reinvent something that already works. All we have to do is adding NFTs and blockchains into the smoothly running system in a way that benefits both players and developers.
3. Monetize what web2 can’t monetize
On the first sight, it might seem like NFTs are a net benefit for players to the detriment of developers. In web2, every item sold would lead to net revenues for the publisher only. Therefore each NFT bought on the secondary market in web3 is one sale less for the developer. If Riot Games was destined to sell 10M champions in League of Legends, in web3 there might still be 10M champions traded, but 40% are on the secondary market. Hence, only in the 60% of direct sales Riot would receive the full price as revenue. On the other 40%, they would only earn the royalty fees. As a result, their overall revenue would be lower. To counteract this problem, developers need to get more creative and capture values that couldn’t be monetized in web2.
Let’s assume that said champions start at level 1 when they’re bought. The player grinds the game and levels his champion all the way up to level 100 before selling it. At level 100, the champion obviously values more on the secondary market and can be sold at a premium. Riot’s royalty fees will now yield more dollars while the player earned money for the time he had spent grinding the game. Booom! NFTs just created a scenario in which everyone wins! The developer increased his earnings, the seller earned money for his efforts and the buyer can save himself the time of tediously grinding the game to receive a maxed out champion. Web2 can’t capture the value of the time spent to level-up characters because players can’t resell them. Creating such mechanisms to capture values that were mere database entries in web2 is where the strengths of NFTs and blockchains lie.
Other possibilities of such value creation could be in the form of special skins earned for winning a certain amount of games. In a card game for example, a card that has been involved in 200 wins could turn golden and after 400 wins it could turn into a diamond version. Even if the card isn’t stronger, its new skin will make it more valuable on the secondary market.
In traditional gaming you can often find season passes. None of these passes hold any value beyond the end of the specific season. A blockchain game developer could decide to hold special events or tournaments for holders of certain old season passes. This will keep them valuable and stimulate trading while offering value to the OGs that hold all the season passes since the inception of the game. As you can see, the possibilities to capture such values and use them in a way that benefits players and developers is limited only by the developer’s imagination.
Bringing it all together
Blockchain gaming and play-to earn in its current form is a deeply flawed and utopian concept. As much as we’d like them to, blockchain games can’t print money out of thin air. They can’t avoid the simple economic fact that every dollar earned by a player has to be spent by another. Therefore a game in which all players keep playing and earning tokens is an economic impossibility. However, that doesn’t mean NFTs and blockchains have no place in gaming. Quite the opposite is true. If used correctly, these technologies can severely improve players’ experiences, capture values web2 games couldn’t and offer players novel ways to earn.
Despite no real possibilities to earn money, players in the traditional gaming industry spend generously on their favorite games. Gaming has always been about diving into exoctic worlds, experiencing touching stories and breathtaking PvP battles. Even with blockchain gaming, for the majority of players, gaming will remain just that, an activity done for the joy of it rather than financial rewards. That’s why in a first step, we need to start creating exciting games and adopt players that are here purely for the joy of playing. In a second step, we can implement NFT and blockchain technology to improve their experience on the game.
Some players love playing a game competitively in the PvP mode whereas others might prefer the aspect of grinding and leveling-up characters in the very same game. NFTs allow the player that loves grinding, to monetize the time he spends while allowing the other player to skip all the grinding and focus straight on what he enjoys most — tearing up the PvP mode. In web2 this wasn’t possible. There are countless other ways to use NFT and blockchain technologies to capture such values and allow players and developers to benefit from them.
In gaming there has always been the choice between grinding for hours to unlock content or spending loads of money to directly buy the content from the publisher. The real power of blockchains and NFTs is that we can decentralize this process. Our job as blockchain gaming developers is to facilitate a system where these mechanisms can happen directly between the players. We need to create, facilitate and stimulate economies where players can capture values that were lost in web2 and trade them amongst each other. This way, we can create gaming experiences vastly superior to what traditional gaming currently offers, get gamers excited about our novel technologies and drive the mainstream adoption of the crypto industry forward.
Conclusion
NFTs and blockchains are very exciting pieces of technology with huge potential in the gaming sector. However, the current play-to-earn gaming experience is underwhelming and the underlying economic models don’t make sense. By changing our approach, creating exciting games and allowing players to capture and monetize values lost in traditional gaming, we can adopt the gaming community and build loyal player bases for our games. Correctly and thoughtfully implementing NFTs and blockchains in these games will open up possibilities to create systems that are beneficial to players and developers alike.
I’m so excited for all the possibilities web3 gaming offers because we can really improve the gaming industry. That’s why we founded Kelepar. We’re excited to be at the forefront of this revolution. If you want to learn more about how Kelepar is putting these theories into practice, stay tuned for further articles here on our medium page, follow us on Twitter and join our Discord to participate in the discussion.
Written by: Lukasinho
