What Is The Play-To-Earn Business Model? The Play-To-Earn Business Model In A Nutshell

The play-to-earn model is a business model allowing gamers to farm or collect cryptocurrency and NFTs that can be sold on the market. This model has become a standard already in the “crypto gaming industry,” where the blockchain-based games enable token economics to kick in as an incentives mechanism at scale for users to play and be engaged.

Aspect	Explanation
Definition	The Play-To-Earn (P2E) business model is a gaming and blockchain-driven approach where players earn real-world value, such as cryptocurrency or digital assets, by participating in and progressing through video games. In P2E games, players invest time and effort to complete in-game tasks, achieve milestones, or acquire virtual items that hold intrinsic value outside the game environment. These digital assets can be traded, sold, or used in other games or applications within the blockchain ecosystem. P2E has gained popularity as it provides players with the opportunity to monetize their gaming skills and time, while developers benefit from player engagement and a thriving virtual economy. This model has been enabled by blockchain technology, which ensures transparency and security in asset ownership and transactions.
Key Concepts	– Blockchain Technology: The foundation of P2E, ensuring secure ownership and trade of digital assets. – Digital Assets: In-game items, characters, or currency with real-world value. – Decentralization: P2E operates on decentralized blockchain networks, reducing central authority control. – NFTs (Non-Fungible Tokens): Unique, indivisible tokens representing ownership of digital assets. – Economic Ecosystem: P2E games are part of a larger blockchain-based economic ecosystem, where digital assets can be used across multiple applications and games. – Player Engagement: The model thrives on player participation and engagement, driving in-game and external transactions.
Characteristics	– Ownership: Players have true ownership of in-game assets through blockchain-based NFTs. – Monetization: Players can earn real-world value from their in-game achievements. – Cross-Game Utility: Digital assets earned in one P2E game can often be used in others. – Player-Driven Economy: The virtual economy relies on player participation and transactions. – Decentralization: P2E operates on blockchain networks, reducing control by centralized authorities. – Player Skill: Earnings depend on player skills, achievements, and time invested in the game.
Implications	– Economic Empowerment: P2E can empower players to monetize their gaming skills and time. – Player Engagement: The model encourages longer and more active player engagement. – Blockchain Adoption: Promotes the adoption of blockchain technology in gaming and beyond. – Digital Asset Value: The value of digital assets can fluctuate based on supply and demand. – Regulatory Considerations: The model may face regulatory scrutiny, especially in terms of taxation and security.
Advantages	– Player Earnings: Allows players to earn real-world value from their gameplay. – Player Retention: Encourages players to stay engaged in games for longer periods. – Cross-Game Utility: Digital assets can have value and utility in multiple games. – Blockchain Security: Utilizes blockchain for secure ownership and transparent transactions. – Economic Inclusion: Provides opportunities for economic inclusion to players worldwide.
Drawbacks	– Market Volatility: The value of digital assets can be volatile and subject to market changes. – Complexity: Understanding blockchain technology and managing digital assets can be complex for some players. – Regulatory Challenges: The model may face regulatory challenges, which can vary by jurisdiction. – Scams and Fraud: Some P2E projects may be susceptible to scams or fraudulent schemes. – Inequality: Success in P2E can depend on initial investments and access to resources.
Applications	The Play-To-Earn business model is primarily applied in the gaming industry but is also expanding to other virtual environments and metaverse projects. It has seen significant growth in blockchain-based games, virtual worlds, and decentralized applications (DApps).
Use Cases	– Axie Infinity: A blockchain-based P2E game where players collect, breed, and battle fantasy creatures (Axies) to earn cryptocurrency. – Decentraland: A virtual world where users can buy, sell, and develop digital real estate, creating opportunities for P2E. – Myco: A farming and adventure game that allows players to earn cryptocurrency by completing in-game tasks. – CryptoKitties: An early NFT-based P2E game where players collect and trade unique digital cats. – Sorare: A fantasy soccer game where players collect, trade, and earn rewards with blockchain-based player cards. – The Sandbox: A user-generated virtual world that enables P2E through the creation and sale of assets and experiences. – Lost Relics: A blockchain-based action-adventure game where players can find valuable in-game items. – Blankos Block Party: A multiplayer party game where players can earn and trade unique in-game characters. – Alien Worlds: A decentralized metaverse where players mine for digital assets and NFTs. – Mirandus: An open-world fantasy RPG that incorporates blockchain and P2E mechanics.

Table of Contents

From paid games to the free-to play new standard

For decades, as gaming consoles took over, razor and blande model has been the standard from most gaming companies.

razor-blade-business-model — The razor blade business model, also known as the razor-razorblade model, involves selling a product at a lower price to then selling a related product later for a profit. The razor and blade business model has been popularized by King C. Gillette, founder of safety razor company Gillette, which sold a durable razor at cost while selling disposable blades at a premium.

In short, think of Microsoft’s Xbox, selling the console mostly at cost, while selling the games at wide premium. Yet, as new hardware platform came to the market, there has been a shift in the last decade. With the advent of mobile consoles, with iPad and iPhone leading the way, the gaming industry has transformed.

Therefore, the gaming industry moved from a premium model, where games would be sold at wide margin, to a free-to-play model.

Companies like Epic Games, with Fortnite, mastered this model. In fact, as most of the distribution for these games passed through mobile marketplaces, like the App store, a free-to-play logic helped those games to gain traction, and wide distribution very quickly. While the games got monetized through custom gaming experiences.

epic-games-business-model — Epic Games is a gaming company, that develops, publishes, and distributes games. It comprises the Unreal Engine, making money through licensing agreements with developers and creators. Its games (like Fortnite) mostly follow a free-to-play model on PC and an in-app purchase model on the digital marketplace. And its storefront Epic Games Store, taking a 12% cut on games’ sales.

This model has worked as an incredible flywheel for Epic Gamtes.

Yet, as new technologies, like blockchain, which enable incentive mechanism at scale, picked up, another shift is happening, that of the play-to-earn model.

Beyond free-to-play and into play-to-earn

Gaming has traditionally been a one-sided relationship, where game developers and owners reap the financial rewards while players simply have fun or are encouraged to keep spending.

However, a new paradigm is emerging in the gaming industry. The play-to-earn model allows gamers to earn in-game rewards simply by playing the game. Rewards take the form of digital assets, cryptocurrency, and in-game resources that are tokenized on the blockchain.

Giving gamers ownership of in-game assets and then allowing them to increase their value through gameplay are the key components of the play-to-earn model. Gamers who participate in this economy are rewarded for putting time and energy into the game, creating value for other gamers and the game developers in the process.

The gaming industry itself has experienced tremendous growth in recent years with the global games market become already a multi-billion dollar industry. To some extent, growth has been driven by the COVID-19 pandemic. But it has also been driven by the emergence of Web 3.0 and the Metaverse.

The play-to-earn model can be very powerful, as it adds up an incentive layer for users, which might work as further enhancement for network effects to pick up.

How does the play-to-earn model function?

Technically, games operating under the play-to-earn model with a mixture of gaming and finance fall in the GameFi category.

Each game provides financial incentives to play and progress, with the gamer usually required to repeat specific actions over time. Income is generated in three main ways:

Earning or trading in-game NFTs

non-fungible-tokens — Non-fungible tokens (NFTs) are cryptographic tokens that represent something unique. Non-fungible assets are those that are not mutually interchangeable. Non-fungible tokens contain identifying information that makes them unique. Unlike Bitcoin – which has a supply of 21 million identical coins – they cannot be exchanged like for like.

Each NFT may represent a character, item, or some other game collectible. They may be purely cosmetic in nature or fulfill a purpose.

Earning in-game cryptocurrency

In the online game Axie Infinity, users earn Smooth Love Potion (SLP) cryptocurrency when they complete daily quests or battle monsters and other players.

Staking

proof-of-activity — Proof-of-Activity (PoA) is a blockchain consensus algorithm that facilitates genuine transactions and consensus amongst miners. That is a consensus algorithm combining proof-of-work and proof-of-stake. This consensus algorithm is designed to prevent attacks on the underlying Blockchain.

Some play-to-earn games allow players to lock up NFTs or cryptocurrencies in smart contracts to earn rewards.

For instance, staking tokens on the MOBOX GameFi platform rewards users with a MOMO NFT Mystery Box. Each box contains a random NFT with variable scarcity that can then be sold on the secondary market.

Blockchain and the play-to-earn model

blockchain-economics — According to Joel Monegro, former analyst at USV (a venture capital firm) the blockchain implies value creation in its protocols. Where the web has allowed the value to be captured at the applications layer (take Facebook, Twitter, Google, and many others). In a Blockchain Economy, this value might be captured by the protocols at the base of the blockchain (for instance Bitcoin and Ethereum). However, according to blockchain investor Paivinen due to ease of forking, incentives to compete and improved interoperability and interchangeability also in a blockchain-based economy, protocols might get thinner. Although the marginal value of scale might be lower compared to a web-based economy, where massive scale created an economic advantage. The success of the Blockchain will depend on its commercial viability!

It’s important to note that the play-to-earn model is not a new concept. Various online role-playing games incorporate fiat currency-based auction houses or markets maintained by gold farmers.

However, cryptocurrency game assets exist on a blockchain. This means ownership and legitimacy are easy to prove. The security of a blockchain network also ensures assets are never duplicated, hacked, or exploited in ways commonly seen in traditional games.

Perhaps most importantly, blockchain games increase the value of in-game items through scarcity. When items are tied to the blockchain, they are unable to be duplicated to such an extent that the value of the item is reduced.

Key takeaways:

The play-to-earn model is a business model allowing gamers to farm or collect cryptocurrency and NFTs that can be sold on the market. The model represents a new paradigm in the gaming industry because users are financially compensated for playing games.
To make money under the play-to-earn model, gamers must earn or trade in-game NFTs, cryptocurrency, or lock up these assets in smart contracts in a process called staking.
The play-to-earn model is not a new concept in gaming, with online role-playing games utilizing the framework for years. However, blockchain-based games are immune to being hacked or exploited and in-game item scarcity is protected from duplication.