In 2017, a niche market of games was built atop the Ethereum blockchain, a peer-to-peer network centered on the idea of decentralization. Of these games, the most notable one was CryptoKitties, which became so popular that it caused severe congestion of the Ethereum network and resulted in a poor user experience for all Ethereum users. However, this created the precedent for blockchain games, which then saw numerous other projects that aimed to leverage blockchain architecture to build games with tradeable assets.
Following CryptoKitties’ meteoric rise, Axie Infinity, the most popular blockchain game to date, was released, in March 2018. Back then, it was deployed on Ethereum and had a relatively simple economic model. Users could purchase Axies, a type of NFT, with Ether and use them to play the game. Users were allowed to trade these Axies freely, as the ownership of these Axies is determined by the wallets that hold the corresponding NFTs and not the gaming company.
This ushered in the age of blockchain gaming where users could freely trade their in-game assets. While analogous models have existed for many games in the past, the markets for that are mostly OTC trades, and asymmetry of information was common in such markets. Leveraging blockchain technology helped overcome these problems.
With a more efficient and accessible market, blockchain games then went on to experiment with novel game economics, incorporating fungible tokens to reward long-term players. These tokens were primarily meant to serve as governance tokens, allowing holders to influence the future development of the game. Additionally, the tokens were also meant to align the interests of all the stakeholders in the game’s ecosystem.
With the introduction of these tokens, Axie Infinity had conceptualized Play-to-Earn (P2E), where players were rewarded by the distribution of a fungible token known as Smooth Love Potion (SLP). This was the inception of a new concept: game players could make a reliable income by earning the emitted SLP from completing certain in-game tasks and then selling off the earned SLP for fiat money. With that, a slew of P2E games started launching on various blockchains.
The P2E model was introduced to incentivize players to join the game and rewarded active players. Prior to that, Axie Infinity players could only stand to make capital gains from reselling their purchased Axies. With the advent of P2E, there was now value accrual for the Axie NFTs holders.
The value accrual came in two forms: Axie Infinity Shard (AXS) and SLP tokens. The former is a governance token whereas the latter is a reward token issued to players. While both of them are fungible tokens on the Ethereum blockchain, they are used for different purposes within the Axie ecosystem. As a result of this difference, the price trajectories for both of them soon diverged after the initial hype.
While the tokens did not share a significant correlation initially, it is apparent that both of their prices trended downward towards the end of this chart as a result of the overall downtrend in the crypto markets. However, what stands out here is that both tokens accrue value very differently, and consequently, so were their price trajectories. This begs the question: what constitutes a good game token design?
To simplify what constitutes a good token design, we can break them down into two considerations:
Having a significant concentration of tokens within a few wallets would grant the said individuals a great deal of power to “dump” on the market or, if governance utility is present, significantly influence the outcome of governance proposals in their favor. A well-distributed token would be optimal in creating a more diverse community.
Typically when the dumping happens leading to a 90% drawdown, it can take years for price action to recover. This has a direct impact on user activity.
Tokens are meant to serve as a financial incentive for stakeholders in that corresponding ecosystem. As such, they are to be used to align the interests of the different stakeholders such that the majority of the community would work towards the overall interest of the project.
Axie Infinity took a novel approach by introducing two tokens. This was primarily meant to isolate the price actions for both tokens, such that the emission of SLP tokens to reward players would not directly impact the AXS holders who are more involved in the governance of the Axie Infinity instead.
The distributions of both tokens as of this writing can be found below:
The current distribution indicates that SLP is well-distributed across major exchanges whereas AXS seems to be held mostly by Ethereum smart contracts (dexes and bridges). Having a wide distribution of tokens while price remains relatively stable is ideal since that allows the token’s supply to be more widely distributed without significant price impacts.
Ultimately, the P2E model has brought much more scrutiny to the tokenomics of a game’s native currency. The experiment of Axie Infinity has shown that two unique tokens within the same ecosystem can diverge in terms of their price action and distribution, although they are both meant to align the interests of the overall Axie ecosystem. Would these trends continue? And how would these tokens be used in the future?
According to Axie Infinity’s roadmap, 2022 is when most of the AXS utility will become production-ready, from governance to in-game functionality. The sustainability of Axie’s growth is largely dependent on how much adoption the game receives and how well the interests of the different stakeholders can be aligned. As such, it is likely that the token dynamics of both AXS and SLP will still change significantly over the course of 2022.
Given the current state of blockchain games, it is apparent that not a significant majority of the stakeholders are aligned in terms of their long-term interests. For example, in the Axie Infinity ecosystem, the emission of SLP tokens and subsequent sale of those tokens is essentially extracting value from the ecosystem. If the rate of value emission outstrips value creation, the long-term trend of Axie Infinity’s growth as an ecosystem would be negative, making such ecosystems unsustainable.
Naturally, given the recency of such P2E models, it is expected that there are still significant improvements to be made and experimentation to be had. As such, the current unsustainability of the P2E models does not imply that future P2E models will be unsustainable as well. Only time will tell if these models can remain successful over the long run.
Aside from Axie Infinity, there are a few other notable blockchain games:
Sandbox was first founded in May 2012 but the game was only launched in November 2021. It has grown immensely popular since although the game is only in its alpha phase. Sandbox uses Ethereum for the trading of in-game assets mainly and the game client is hosted off-chain, which gives a better user experience for players. As of this writing, Sandbox has a TVL of $141 million.
Decentraland was first founded in 2015 and launched its testnet in 2019 before going public in 2020. In 2021, Decentraland announced a partnership with Polygon to provide users an alternative to Ethereum, as a result of high transactions costs on Ethereum.
Crabada went live on Avalanche in November 2021 and has become relatively popular since then. More recently, they have announced the deployment of their own Avalanche subnet, which would allow the game to scale without slowing down the main Avalanche network. As of this writing, Crabada has a TVL of $53 million.
DeFi Kingdoms launched on Harmony One in August 2021 and has also grown extremely popular. They have recently announced that they would be expanding to the Avalanche blockchain with a subnet of their own as well, where their native token, JEWEL, will be used to pay for gas. As of this writing, DeFi Kingdoms has a TVL of $425 million.
Sorare is a soccer-based team-assembling game on StarkEx, a proprietary zk-rollup with off-chain data availability, where users trade soccer players to create their ideal teams. As of this writing, Sorare has a TVL of $34.6 million.
Gods Unchained is a trading card game on ImmutableX with their own native token, GODS, which are used to reward players. Gods Unchained had partnered exclusively with ImmutableX to serve as their marketplace for users to trade their cards at low costs. On the ImmutableX marketplace, users can use GODS, IMX, ETH or USDC to trade.
One of the games with more hype, Illuvium is slated to launch in the first quarter of 2022. They have already launched their native token, ILV, which is currently trading on multiple major exchanges. Even though the full release of Illuvium is not ready yet, there is a staking function that allows users to earn a yield on their ILV tokens. As of this writing, there is $819 million worth of ILV staked on Illuvium.
Currently, Realms only has NFTs on the Ethereum mainnet, but it is slated to launch on StarkNet in the second quarter of 2022. They have also launched their native token, LORDS, though there is significantly less hype around Realms as compared to Illuvium. There is no staking functionality for LORDS, but one can stake the Realm NFTs to earn LORDS as a yield. As of this writing, there are 7149 Realm NFTs staked (at a floor price of 1.2 Ether), meaning that approximately 8,579 Ether is staked (~$23.1 million).
Star Atlas is slated for launch in Q1 2022 on Solana. It has over $56 million worth of AURY tokens staked as of this writing, even though it has missed it initial launch deadline.
Ember Sword is slated for launch in 2022 on ImmutableX. Currently, only the land and emblem NFTs have been sold and the game alpha version is scheduled for Q2 of 2022.
Moxy, a P2E game aggregator, is designing a new model of P2E that aligns the interests of multiple game communities to a single one. This is done by focusing on the gaming experience of the players. Traditionally, game players would be willing to pay for a high-quality gaming experience but in the case of P2E games, Moxy has pointed out that the majority of the players are only playing to earn rewards. This creates long-term selling pressure on the game’s native token, a consequent downtrend in token price, and eventually, a decline in user adoption.
Moxy introduces Play-and-Earn (P&E) which essentially enforces a tiered reward structure that rewards players more depending on how much they are willing to pay. For instance, a player could simply be grinding the game without paying, and the rewards for that would be a tier lower than players who are playing the game more competitively (i.e. players would have invested money in the game at a shot for greater rewards).
This is analogous to the traditional gaming industry, where players at the highest competition level are expected to pay to compete and are rewarded depending on their performance. Some examples include League of Legends, Dota 2, and Overwatch. These models have known to be sustainable and will most likely be so in the context of blockchain gaming as well.
Moxy.io’s middleware layer is positioned to incorporate the P&E approach to today’s favorite video game titles spanning PC, console, and mobile platforms. Through Moxy Forge, an industry-standard SDK/API stack, they offer the functionality of blockchain as well as P&E mechanisms to any video game. With the support of Moxy.io’s infrastructure, staff, and knowledge, publishers can quickly deploy their own regulatory-compliant Play & Earn models to new or current products.
Moxy is also building its infrastructure on the Flow blockchain. This allows Moxy to leverage the modularity and scalability that Flow enables for applications. This is possible because Flow utilizes a multi-role architecture that modularizes the different aspects of a blockchain, from consensus to execution. The technical details of how Flow accomplishes this are beyond the scope of this article.
Currently, Moxy has integrated their novel Proof of Play algorithm with 2 games as part of their testing. They have indicated that they will be working on their P&E API stack, which is slated for April 2022. More importantly, Moxy has also attained preliminary approval on their legal Opinion Letter for token utility in the USA. According to Moxy, this gives them the ability to operate freely in Canadian and American markets.
The advent of blockchain games and P2E has been revolutionary, to say the least. In certain countries such as the Philippines, it had even affected the employment dynamics, because tech-savvy users could earn more via such P2E games instead of working a minimum wage job. That said, such impacts are currently edge cases at best.
There is a common equation in process engineering:
Accumulation = Input – Output + Generation
If we consider this mathematical model for the value retention (accumulation) of any blockchain game, a constant stream of output for all players is only sustainable if there is sufficient input (Pay to Play) or generation of value (Ad revenue etc.). As of today, it would appear that most blockchain games are not designed to accumulate value sustainably. While there are efforts to innovate beyond that, only time will tell if the P2E concept will eventually evolve to something that is truly rewarding and long-lasting.