Balancing Play to Earn and Play for Fun in Crypto Games and Beyond
A bumper article with bonus feature on how to assess crypto games and what's coming after crypto games
Took a short hiatus for deeper research (playing games) and exploration (chatting with game developers), so this article is a bit late but takes a deeper look at crypto games. It includes a few updated ideas first presented in this article.
In the short three months since I first wrote about crypto games, the space has blown up, with new games launched and early movers becoming juggernauts. It feels like the early years of mobile gaming, ten years ago, when Free to Play (F2P) was a new idea and developers were still figuring out the mechanics and the model.
Just like then, when developers had to find their way to the right balance between bringing in new users by allowing them to play for free, and converting some of those free players to payers to generate revenue, the key new challenge developers face at this stage of crypto gaming is how to find the right balance between Play to Earn (P2E - earning by playing the game) and Play for Fun (P4F - fun/entertainment utility that users get from the game apart from earnings and token value appreciation).
In F2P, developers (as an industry) gradually learnt how to tune their game economies through sophisticated control over the supply and demand of in-game currencies and in-game items that could be bought with those currencies, with prices of currency bundles carefully controlled and in-game item releases (currency sinks) timed with regular releases of new content and live operations (in-game events, tournaments, sales, etc.).
In crypto games, aside from building a game that’s actually fun to play on its own without the draw of financial rewards, an additional component to balancing P2E with P4F is maintaining a sustainable game economy (which ensures that the game continues to be fun to play) in the face of an open economy and a secondary market for game tokens and assets (that have utility in the game) that the developer can’t control.
To think about how this can be done, let’s first look at the implications of ceding control over the game economy in a crypto game. In this situation, in-game currency (tokens) and in-game items (NFT assets) exist independently of the game in an open economy and are tradable outside of the game. As a result, prices (and the “real value”) of in-game currency and items are determined by the market, i.e. by players themselves and how much they’re willing to pay, removing control over premium currency pricing and bundling, item pricing, money inflow vs outflow and amount of currency circulating “in game” (which affects inflation/deflation of prices) as levers that the developer can use to balance and tune the game economy.1 A consequent risk to P4F balance is that starting prices of NFT assets may appreciate beyond the reach of new users, resulting in a collapse in new users joining the game.2 Another risk is that, where in-game items provide utility (benefits/advantages) in the game, this may cause the gameplay to evolve into “Pay to Win” (since users can pay more for more valuable items that increase their chances of winning).
In light of this, what would I look out for in an investible crypto game proposition? In addition to the more traditional criteria for assessing a non-crypto game, such as the game’s core gameplay loop and associated/extended game mechanics, the uniqueness and attractiveness of the game’s art and character designs, the game’s onboarding process, mechanisms for retention/engagement, plans for live game operations, etc., we’d need to assess the sustainability and success factors of the game economy slightly differently, looking at:
P2E mechanics: How does earning really happen in the game? The two general ways are utility token grinding (earning utility tokens by playing the game, completing quests, winning tournaments, etc.; these tokens can then be sold/traded, or used to buy in-game items/NFT assets) and asset (game currency token and NFT) appreciation. Players extract value out of the game world by selling their valuable in-game items and tokens in the open market, and in this sense earn something in return for their time invested playing (which also helps to make the game and game assets more valuable and attractive to other players). The questions to probe here include: Is the game economy over-reliant on (and risks overheating in terms of) asset appreciation as a P2E mechanic? Is there a path to “reasonable pricing” or “reasonable price appreciation?”3 Or a counter-balancing mechanic that helps ensure that prices are reasonable so that new users will still find the game fun and there’s a sustainable flow of users cycling in and out of the game?4 How rich are the P2E mechanics (ranging from repetitive tasks - not very fun - to taking on meaningful in-game roles like blacksmiths to create items/assets that players want to buy - where earning is built into the overall game design and narrative)?
P4F balance (maintaining a sustainable game economy): How do the game design fundamentals (elements that make game fun to play) work hand-in-hand with open market economics of tokens and NFTs to tune a sustainable crypto game economy? In many cases of overheated P2E, the biggest hurdle is high entry fees (due to speculative price appreciation of game assets needed to start playing). This tends to attract only speculators, as regular gamers may prefer to try a game for free or at low cost first to see if it’s fun, and soon you’ll have a community full of angry crypto bros5 holding expensive game assets but not playing the game.6 Look out for balancing mechanics that ensure accessibility for new players, such as free starter packs and other common F2P on-ramps, differentiated levels/tiers/leagues (to enable skill balancing and skill growth) where new/free players can still have fun, separately from higher leagues with more complex games/strategy and higher stakes for more experienced/financially committed players who want to spend more. At what point along the F2P on-ramp do some P4F players start buying tokens in order to participate at a higher level in the game (more fun, more challenge, or more earnings) and what are the mechanics of this conversion? Does the game have more sophisticated parameters of economy management, e.g. starter pack pricing (in addition to free starter packs), minting new items at mint price7. How might the game arrive at an equilibrium mix of P4F and P2E players, with P2E players earning from activities/roles undertaken in-game, and P4F players paying for their goods/services?8
Game developer pedigree/DNA: If nothing else, the above should tell us that crypto game economy management is hard and will require more sophistication than traditional F2P game economy management. So we need to look at the team and ask (a) do they have the game development expertise and experience to build a fun game, (b) do they understand how to manage the crypto game economy and balance P2E with P4F, and (c) can they translate their F2P game economy management expertise/experience to a crypto game?9
As a bonus, I’d also look out for a bridge to mobile - where the vast majority of gamers are today - what plans does the developer have for mobile, and how can they get there?
So what is the long game? If we get this right, I believe P2E will overtake F2P as the dominant game format and business model, and crypto games will precipitate the next stage of growth and evolution of the gaming industry, just as the first mobile games did 10 years ago. I’m quite sure this isn’t lost on the big guns who are coming to the space, with Sony’s The Six Dragons (an Ethereum-based game) coming to PS5, Taito Puzzle Bobble bringing blockchain e-sports to a casual audience, Atari setting up a blockchain division and Animoca Brands’ various bold moves in crypto gaming. In addition to catalysing mainstream adoption of crypto starting with gamers setting up their first crypto wallets, P2E games could also become a key driver in the growth and evolution of the metaverse, with games being the on-ramp for a critical mass of early-adopters undertaking both recreational and productive10 activities across interconnected, interoperable virtual worlds.
But I think there’s another long game to play - the extension of P2E beyond games, to a broader idea of Engage to Earn, or E2E - allowing users/community members to earn rewards through engagement (all activities that contribute to the value of the platform e.g. bringing in new users, retaining users, increasing user engagement, increasing transactions) and to share in the success of the platform - applicable to Play to Earn, Learn to Earn, Watch/Listen to Earn, etc.11
In addition to the key principles of asset ownership, vested communities and sharing of rewards (with value extraction coming from utility, revenue share and token appreciation), when you start thinking about E2E platforms as economies (like game economies), then it becomes clear that the above points about P2E mechanics and P4F balance to maintain a sustainable economy are just as relevant, translated into E2E mechanics and balancing E2E with Engaging for Utility (or E4U, whether that utility is fun, learning or entertainment) to create a sustainable crypto-based E2E economy.12
The general framework could look like this:
Align incentives of vested community and platform.
Deliver utility beyond token value appreciation (so that engagement delivers immediate non-financial utility to user), e.g fun, learning, entertainment.
Enable users/community members to earn token rewards via engagement (activities that increase the value of the platform).
Give the token utility within the platform so that it’s valuable/desirable not just from a financial perspective, e.g. users can earn tokens for free, but with more tokens (obtained through grinding or purchasing), one can do more/unlock more features.
Carefully balance E2E mechanics with E4U to maintain a sustainable platform economy.
Value of platform grows as a result of community’s actions (more desirable, more users, more engagement, more transactions).
Share financial success (growth in value) of platform across community in the form of tokenised revenue share and token/asset value appreciation.
We’re already starting to see early movements in this direction such as Audius (the crypto Spotify), which rewards artists for posting music tracks and users for creating playlists and driving listening activity, with $AUDIO appreciating as the platform becomes more popular, and Rabbithole, a learn-and-earn platform where users earn rewards for learning about the crypto/DeFi ecosystem, providing educational experiences that help onboard people into Web3. With more developments in this direction, it’s not hard to see the possibility of crypto expanding beyond DeFi and crypto games.
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Some may recognise this as a loss of control over monetary policy and money supply, which is one of the reasons why governments view crypto with concern.
Which, in Axie Infinity’s case, has led to the emergence of “Scholarships” and a new business model of renting NFT assets to new users.
Does this mean that P2E based on massive price appreciation of game assets is a dead end (or more appropriately, a hazardous cliff)? What does this mean for unfettered price appreciation? I don’t know, but looking at the floor and max prices of Axies vs Magic The Gathering (physical) cards might give us a clue.
Also useful to understand how money goes into the game (the currency sinks). Do players pay for cosmetic/vanity items? Or do they need to buy into the game by buying tokens to participate at some level of the game, motivated by entertainment utility and/or the possibility of earning?
In the words of a game developer I know.
When a basic card in a crypto trading card game costs $40 and you need a deck of 10 to start playing, it’s no longer fun for most players.
Bearing in mind that this will take a deft hand and more than a calculator as it can also affect rarity and price of existing items in circulation.
For inspiration for a fun game that can still work in an open economy (and the game mechanics that support that), one can look at real world trading card games like Magic The Gathering, where there are starter packs, valuable cards, different types of games with different levels of players/cards and different rewards at stake; new players can still buy a cheap pack and get started, while players who want to invest more aren’t going to have fun playing with newbies, and will be motivated to advance in level and play for higher stakes with more powerful cards.
Someone asked me the opposite question - Would a F2P game developer understand how to manage a crypto game economy better than a crypto developer with no game dev experience? I think so. Crypto game economy management requires an even more sophisticated hand than F2P game economy management. I think F2P game devs have more experience tuning economies and can more easily apply this to crypto than crypto innovators who may be more motivated to drive massive token appreciation. The best approach is to bring together a team that combines both types of expertise.
P2E as a profession, gamers undertaking in-game roles and offering services in game worlds through which they earn tokens (e.g avatar creator, voxel character/object builder, blacksmith, land lord, etc.)
Seeing how emerging markets such as the Philippines, where earnings can be a strong incentive, were the first markets to drive momentum for P2E before developed markets started to pick up on it, will we see a similar geographical evolution for broader E2E propositions?
In this case, we ask analogous questions like - What are the mechanics to earning besides token appreciation that bring benefits to the whole platform? What are the currency sinks that motivate injection of funds into the economy and how do we sustain inflow at a reasonable price?
One of the most successful game platforms of recent times, Axie has taken serious steps to revive the game economy. Then, Star Atlas, one of the most successful examples of the metaverse understanding, is getting ready to take over the flag. After these two successful examples, I think that for the project you designed to be successful, you need to get out of the "win or fun" equation and motivate the players in this context. Of course, due to my profession, I interpreted it in terms of player psychology.