play-to-earn

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.

From paid games to the free-toplay new standard

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

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.

gaming-industry
The gaming industry, part of the entertainment industry, is comprised of three main types of players. From game engines, which help developers build their games. To publishing gaming houses. And gaming consoles. While the prevailing business model for decades has been that of selling the console at cost, and make money on games. Digital games changed the way games are distributed and sold, and it opened up the way to free-to-play models.

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

free-to-play
A free-to-play is a model that became particularly popular in gaming. Free-to-play is also commonly referred to as free-to-start. For instance, companies like Epic Games have launched popular games like Fortnite’s Battle Royale, which had ingrained a free-to-play model. This is a model that become extremely popular in the digital age of gaming.

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.

epic-games-flywheel

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.

smart-contracts
Smart contracts are protocols designed to facilitate, verify, or enforce digital contracts without the need for a credible third party. These contracts work on an “if/when-then” principle and have some similarities to modern escrow services but without a third party involved in guaranteeing the transaction. Instead, it uses blockchain technology to verify the information and increase trust between the transaction participants.

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.

Connected Business Concepts

free-to-play
A free-to-play is a model that became particularly popular in gaming. Free-to-play is also commonly referred to as free-to-start. For instance, companies like Epic Games have launched popular games like Fortnite’s Battle Royale, which had ingrained a free-to-play model. This is a model that become extremely popular in the digital age of gaming.
blockchain-economics
According to Joel Monegro, a 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!
proof-of-stake
A Proof of Stake (PoS) is a form of consensus algorithm used to achieve agreement across a distributed network. As such it is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like the Ethereum’s Casper protocol). Proof of Stake has the advantage of security, reduced risk of centralization, and energy efficiency.
proof-of-work
A Proof of Work is a form of consensus algorithm used to achieve agreement across a distributed network. In a Proof of Work, miners compete to complete transactions on the network, by commuting hard mathematical problems (i.e. hashes functions) and as a result they get rewarded in coins.
vbde-framework
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
ethereum-blockchain
Ethereum was launched in 2015 with its cryptocurrency, Ether, as an open-source, blockchain-based, decentralized platform software. Smart contracts are enabled, and Distributed Applications (dApps) get built without downtime or third-party disturbance. It also helps developers build and publish applications as it is also a programming language running on a blockchain.
the-graph-token
The Graph is an ERC20 Utility Token (built on top of Ethereum) to enable consumers to freely query the blockchain through a fully decentralized database kept by indexers, incentivized by the payment of tokens (called GRT). The network is also ministered by curators and delegators that help maintain a high-quality index.
bat-token
BAT or Basic Attention Token is a utility token aiming to provide privacy-based web tools for advertisers and users to monetize attention on the web in a decentralized way via Blockchain-based technologies. Therefore, the BAT ecosystem moves around a browser (Brave), a privacy-based search engine (Brave Search), and a utility token (BAT). Users can opt-in to advertising, thus making money based on their attention to ads as they browse the web.
ripple-blockchain
In 2012, co-founders Christian Larsen and Jed McCaleb created Ripple, a technology acting as both a pre-mined cryptocurrency called XRP and a digital payment platform enabling monetary transactions. Where Ripple is the tech company, XRP is the decentralized ledger.
stellar-blockchain
In 2014, Jed McCaleb – which also played a key role in the development of Ripple – created a cryptocurrency to provide fast, reliable, and affordable money transactions. The same cryptocurrency has considerably grown seven years later. It is now one of the most stellar cryptocurrencies to provide a real-time platform that links banks, payment systems, and people. Meet, Stellar!
bittorrent-token
In early 2019, a joint project between TRON and BitTorrent Foundation called BitTorrent Token came to fruition. BitTorrent Token launched to tokenize in-demand file-sharing protocol and enhance content delivery and bandwidth accessibility with blockchain technology.
chainlink-token
Chainlink is considered the most established decentralized oracle network. As an ecosystem housing several decentralized oracle networks running simultaneously. As a decentralized oracle service built on Ethereum, Chainlink has the power to support the development of blockchain solutions for both traditional businesses and enterprises.
decentralized-exchange-platforms
Uniswap is a renowned decentralized crypto exchange created in 2018 and based on the Ethereum blockchain, to provide liquidity to the system. As a cryptocurrency exchange technology that operates on a decentralized basis. The Uniswap protocol inherited its namesake from the business that created it — Uniswap. Through smart contracts, the Uniswap protocol automates transactions between cryptocurrency tokens on the Ethereum blockchain.
polkadot-token
In essence, Polkadot is a cryptocurrency project created as an effort to transform and power a decentralized internet, Web 3.0, in the future. Polkadot is a decentralized platform, which makes it interoperable with other blockchains.
cardano-blockchain
Designed and created as an alternative to Ethereum, Cardano claims to be the first decentralized blockchain protocol to use a scientific approach and undergo a peer evaluation.
solana-blockchain
Solana is a blockchain network with a focus on high performance and rapid transactions. To boost speed, it employs a one-of-a-kind approach to transaction sequencing. Users can use SOL, the network’s native cryptocurrency, to cover transaction costs and engage with smart contracts.

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Read Also:  Gaming Industry, Epic Games Business Model, Free-To-Play, Proof-of-stakeProof-of-workBitcoinDogecoinEthereumSolanaBlockchainBATMoneroRippleLitecoinStellarDogecoinBitcoin CashFilecoin.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"