Play to Earn Crypto Games, Ponzi with Extra Steps

Play to Earn (P2E) Crypto Games require a constant influx of new players to keep the game running and reward the existing players.

 

Keys Takeaways

  • Play-to-earn games are online games that allow players to earn rewards by completing tasks, competing against other players, and progressing through various game levels.

  • Most P2E games require players to buy their NFTs as an upfront investment to start playing to earn.

  • When not enough new or existing players invest in the game, the outflow of money, in the form of reward, will exceed the inflow from new investments.

  • P2E games require a constant influx of new players to keep the game running and reward the existing players.

Introduction

The first-ever PlayToEarn (P2E) game, CryptoBots, was released in February 2017. It was not popular, and the genre saw little to no traction then. Even the chart-topping Axie Infinity had less than 10,000 players during its release in 2018.


In 2021, the crypto bull market sparked a sudden surge in popularity in the P2E industry. Games such as Crypto Kitties and Axie Infinity became the talk of the community overnight. These games have high earning potential, and with pieces of evidence backed by other successful players making thousands of dollars, it attracted more greed.


Axie Infinity generated $780 million in sales in a month, hitting a $30 billion market cap and 2.7 million users at its peak. Things took a turn when Axie developers realized how unsustainable their model was and lowered the rewards. This reduced the appeal to Axie Infinity. With the decline of new players, the governance and reward token prices, AXS and SLP started to dip, and this was when people began pointing out that their model looked similar to a Ponzi scheme.


Play to Earn Crypto Gaming, Ponzi with Extra Steps

What are PlayToEarn (P2E) Games

Play-to-earn games are online games that allow players to earn rewards by completing tasks, competing against other players, and progressing through various game levels. These rewards include in-game assets such as crypto tokens, virtual land, skins, weapons, and other NFTs. Players can then exchange their rewards for cash or other cryptocurrency tokens.


Popular examples of P2E crypto games such as:

  • Axie Infinity

  • Gods Unchained

  • Illuvium

  • Bomb Crypto Game

  • Crabada


How do P2E Games Work?

Some P2E games have their unique model, but generally, they all run similarly.


Most P2E games have their own native tokens that can be used for in-game purchases, player trading, and rewards. The token derives its value through the utility of its tokens which users and cryptocurrency traders deem valuable.


To start playing to earn, they require players to invest by swapping into their native token to buy their NFTs. By doing this, players create value for other players and the developers.


There are two main components of P2E games:

Native Token’s LP - This refers to the amount of liquidity the token has to facilitate trades on a decentralized exchange.

Reward Pool - This refers to the total value of a pool to be given as a reward for playing.


When you swap into their native token:

  • You drive the demand up, increasing the price of the native tokens.

  • The tokens you traded with will be moved to the native token’s LP.

  • The swapping fees will contribute to the game’s reward pool.

When you buy their NFT:

Minting - the native token will recirculate into the reward pool.

Marketplace - the native token is given to the seller, and the transaction fee is moved to the reward pool.


Ponzi with Extra Steps

Notice that much of the contribution comes from players buying the P2E token and the NFT. That is because it relies on new or existing players to invest or reinvest to keep the game and its reward pool healthy.


What happens when not enough new or existing players invest in the game? The outflow of money, in the form of reward, will exceed the inflow from new investments.


This problem would result in the price, and the liquidity of the native token dropping significantly as players selling their reward would exceed the demand. The reward pool will eventually dry up and will not be able to disburse any rewards to the remaining players.


"A typical Ponzi scheme involves taking money from investors, then paying them off with money taken from new investors, rather than paying them from actual earnings." - Amy Goodman

P2E is technically not a Ponzi, but it hits close to the definition as it requires a constant influx of new players to keep the game running and reward the existing players. Furthermore, it requires players to play the game to receive the reward, which is why people point out that it is a "Ponzi with Extra Steps."


Can You Still Make Money Through P2E Crypto Games?

Most P2E crypto game developers are aware of this issue and imposed several mechanisms to try and slow down the inevitable. It is possible to make money through P2E crypto games by being early to a project with a good sustainability model, attractive rewards, great marketing, and a responsive team. However, the odds are very low, and most investors tend to be the last few to join and end up being the exit for earlier investors.