Unravelling the potential of the Play-and-Earn ecosystem

The online gaming industry is seeing an influx of Web3 gaming models which are garnering a lot of attention from both gamers and investors alike. In the Web 2.0 games or freemium games, value-generation of all economic activity was captured in a centralized model of ownership controlled by game publishers and developers, not leaving a lot of room for players to earn value from the appreciation in demand of the virtual digital asset(VDA) in a secondary market. There was a rigid mechanism of control over the player’s downloaded content (DLC), authentication of ownership, and how the digital asset would function in the game.

Enter ‘Play and Earn’ (P&E) games, built on blockchain technology, in which a gamer gains ownership of the virtual digital asset (VDA), whether in form of Non fungible tokens (NFT(s)) or game-based tokens. They grind in the game to augment value of their VDAs through merit-based advancements, post which they can be unlocked in a secondary market. Some popular examples of such games – Decentraland, Axie Infinity, The Sandbox(SAND).

Play-and-Earn (P&E) has been the natural progression from Play-2-Earn(P2E) games as in them earning had less to do with playing and more with the player having to initially invest money in purchasing the NFTs. They would only get returns when future players also invest money similarly into the game. Hence, the common consensus within the industry was to go back to first principles and merge Fun-2-Play with Play-2-Earn and think of GameFi as a ‘Play-and-Earn’ opportunity rather than a P2E opportunity. The player is not coming into an investment scheme and should not be subjected to a sub-par gaming experience. Only if the game is fun in itself, will it essentially be a win-win situation where gamers enjoy their time playing, get ownership of assets; while developers and publishers also reap benefits since these games could attract many first-time players thus expanding the customer-base significantly.

Emerging Challenges

Challenges are inevitable with any nascent model. The P&E ecosystem is also facing issues such as price volatility of digital tokens, high barriers to acquire players, sustainable inflow, upfront capital investment etc.

Inflow is what gamers pay (in terms of currency or by purchasing virtual assets) for the experience and what meets the cost of game development. The outflow is what operators take as profit from the game. In traditional games, outflow to players is kind of forbidden. P&E, however, relies heavily on outflow to players being a pivotal component, hence creating potential disruptions. It ends up attracting mainly outflow type of players that will pose a challenge to its long-term sustainability.

Mass adoption strategies of P&E games may face obstacles due to the upfront capital investment that some of these games require right now. Players not only have to buy NFTs upfront but also pay the gas fee which is a fee paid to offset the computing energy which is required to process any transaction on the Ethereum blockchain.

Gaming Guilds to the Rescue

A lot of the concerns around sustainable inflow and upfront capital investment can be solved by Gaming Guilds. These are composed of investors, gamers, and managers who purchase in-game items like land and in-game assets in the form of NFTs, and then lend them to new players who may want to try out the new format, earning yields by using those gaming assets in the respective virtual worlds. The guilds will then take profit from the player by sharing a portion of their earnings, as well as the rent paid to the guild. The aim is to facilitate participation of individuals and communities in P&E games without upfront capital.

The P&E ecosystem must be developed keeping in mind player-first design principles which have a low entry cost and where playing can be decoupled from spending or investing upfront as a precondition to earning. P&E has the potential to transform from being games with financial incentives to virtual ecosystems where people socialize, entertain and which allows for permission-less creation to drive commerce at its core, protected by immutable digital rights.

Manish Agarwal

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Manish Agarwal is CEO of Nazara Technologies, gaming chair of the Internet & Mobile Association of India, and convener of the Federation of Indian Chambers of Commerce and Industry (FICCI) Gaming Committee.