Is Play-to-Earn Blockchain Gaming Dead?

If you look at what investors are putting their money into, blockchain games are the next big thing in the crypto world. In the second quarter of this year alone, venture capital funds have earmarked $3 billion for this segment of the crypto universe.

There’s just one problem: they’re bleeding players.

By far the largest blockchain game, Axie Infinity, saw player numbers drop below 1 million in May from a record 2.7 million in November — and it’s not alone.

Much of the problem, according to a report released on June 22 by the research division of major crypto exchange Huobi, is the play-to-earn (P2E) model being embraced by the blockchain gaming industry. It uses non-fungible token (NFT) sales to turn gaming into a potential source of profit, while giving players with deeper pockets an advantage. Gamers can “grind” – performing boring, repetitive tasks – to create in-game items that have gameplay value, such as a magic sword.

It worked for a while. However, Huobi said, “GameFi and the concept of playing to earn gained popularity last summer, but failed to maintain their rapid growth.”

After peaking at more than 1.4 million daily active players late last year, the number dropped to about 1 million until May, the report said. In June, that daily player count crashed by 30%.

“The main factors hindering the mass adoption of blockchain games were the flaws behind the highly speculative pay-to-play-to-earn gaming model and the technological risks surrounding blockchain,” Huobi said in his report. “As a result, gamers often associate blockchain games with Ponzi schemes and scams.”

There’s also a revolt against the pay-to-play mechanics in the wider gaming market — loot boxes being bought are the mechanism of choice — that has sparked a revolt among serious gamers who call it “pay-to-win.” That’s one of the reasons why only one of the top six game studios is actively pursuing NFT-based games.

Related: Mastercard Gamer Xchange converts points into currency

Of course there is another problem: the quality of the games themselves.

“Blockchain games are poorly made and many lack sustainable gameplay,” Huobi said. “Instead of focusing on gameplay and graphics, economic incentives have become the priority of both players and developers.”

In a sense, the solution is that “the GameFi space needs Triple-A games made by major game studios with rich storytelling, playability, and beautiful graphics to go mainstream,” it added.

A failing economy

Part of that major crash in user numbers in June was related to the broader crypto crash, which saw the market cap of the game tokens that players earn and spend fell by 50%. However, there is a bigger problem and Axie already had it.

To play Axie Infinity you need two things. First you need to buy three axes – these are small Pokemon-style monsters that can be collected, used for fighting and breeding – to start playing. According to recent reports, those NFTs had a buy-in of about $600 when the game’s user base peaked. Next you need to make or buy Smooth Love Potions (SLP) – also NFTs – which are necessary for breeding. That can make better and more valuable axles.

When Axie Infinity gained popularity, there was a whole business of grinding SLPs in developing countries, especially the Philippines, where gamers would grind all day, looking for the NFT ingredients needed to make SLPs.

The problem is that economy only works if the number of real player users continues to grow. If not, the P2E workers will see NFT prices crash. What they did.

It didn’t help that the main bridge platform used to buy Axie’s native AXS token with other cryptocurrencies, Ronin Network, was hacked in April at a cost of $625 million.

Read more: $625M Hack Shows Bigger Crypto Security Vulnerability

That said, there is still a lot of money in P2E, whose tokens are valued at around $7.2 billion. AXS alone has a market cap of $3.7 billion, making it the 42 . isnd largest crypto by market cap, and it is down about 90% as of November.

The developers of blockchain games and the investor markets are moving towards a new version they call free-to-play-to-earn (F2P2E), which lowers the cost of entry. Additionally, given the amount of money put into blockchain gaming – and it’s important to note that this includes metaverse games – the quality issue could disappear.

Huobi noted that a new blockchain-based F2P2E game called Grit is about to launch on the Epic Game Store, a major gaming portal. Pitched as an Old West style battle royale game with triple-A quality, Huobi said it could determine the fate of GameFi.

“As the first-ever blockchain game ever launched on a major gaming platform, Grit has the potential to kick-start the adoption of blockchain games on major gaming platforms,” it said.

However, that doesn’t solve the essential pay-to-play problem that discourages core gamers, or the questionable economy of the model.

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