Blockchain Play-To-Earn Games Like Axie Infinity Have Failed Investors. Now What?

Chalk it up as the latest blockchain failure. The roughly four-year-old GameFi market, a sector of the cryptocurrency economy, has been another dud for investors. Axie Infitity (AXS) has lost almost all of its value, down more than 92% year-to-date. By comparison, bitcoin is down around 55%. Cool graphics and buzz don’t last long if no one is going to plug themselves into the Axie game all day and trying to make some coin.

“It is clear that the original mass-market play-to-earn promise of Axie Infinity and StepN looks today to me like nothing but a Ponzi scheme. The whole sector needs a drastic rethink,” says Oleg Fomenko, co-founder of Sweat Economy, which is another token-backed endeavor that tries to get people paid for walking, hiking, jogging, and being physical in general. He is based in London. “There are still niches where a convergence of gaming and blockchain is beneficial — gambling and casino-style games, for example. I think it’s going to take a lot more time and money than most people anticipate to develop the next wave of breakthrough projects in this area. I’m bearish on play-to-earn. What value does playing a video game create?”

Investors here must remember that the entire blockchain world is high-risk and brand new. Most of these companies are less than five years old. It’s a lot easier to lose money than to make money, especially for those who get the timing wrong. Blockchain project failure is not an option. It’s going to happen. Jim Cramer can get choked up about the market cap destruction of Facebook due to the lackluster reception for its metaverse platform. But that doesn’t mean they’re miles of target. This is a new industry. It’s growing. Most projects are just going to fail. Axie Infinity might actually live to see another day, even as investors bail.

“With less of a focus now on purely earning rewards as the incentive to play, blockchain-based game studios are focusing more of their energy on building truly fun and engaging gameplay experiences,” says Matthew Howells-Barby, CMO at Decentral Games in London – where you can play poker in the metaverse. “A lot of the hype has settled down, but the games that still have active user bases have stayed alive for a reason. They are actually really fun to play.”

Moving On: A New Way to Play

If play-to-earn didn’t work, try plan-and-earn, instead. That seems to be the next leg in the growing pains of GameFi.

“Play-to-earn obviously failed, as earning was the main objective and the actual gameplay became secondary and in some cases almost nonexistent. But play-and-earn can work,” says Jack Griffin, vice president of studios at Smashverse, a blockchain fighting game full of body builder-looking dudes, and apes in boxing gloves. Griffin is based in London. Smashverse launches this month.

Play-and-earn is similar to the reward mechanisms from traditional internet gaming – players unlock rewards to help them progress in the game. The reward enhances the players experience within the game, makes them want to get to the next level, no different than an old-school action-adventure game on the X Box, Griffin describes. “This means giving the player small and well-balanced rewards, payable in crypto tokens issued by the game, that allow the player to invest into game items which in turn help the player progress within the game,” he says. Game developers can also reward players with rare NFT “skins” or cosmetic items that deepen the player connection to their in-game characters, ideally designed to increase the stickiness and retention of players.

“I can tell you that many, many of our web3 community–200,000 on Discord alone–are really excited about play-and-earn games,” says Timothy Biggar, head of marketing at UniX Gaming, a blockchain gaming guild offering Web3 gaming solutions in Dubai. Biggar said that Unix was working with the GameFi play-to-earn players; realized that wasn’t working according to plan, and has since switched gears with a focus on play-and-earn.

The problem is, most gamers don’t care about earning potential. They just want to play the game. “It’s our job to help developers build and market their games, so of course we’re paying attention to what’s working, for our partners and the industry, but we won’t know what works and what doesn’t until they’ve been on the market for some time. Ultimately, it needs to come down to your objectives as a blockchain developer,” Biggar says. “If you’re developing a game as a passion project, something for ‘the gamers’, then your game needs to be as affordable and accessible as possible. Selling a limited number of expensive items and building speculative trading into your game is exactly what you’re not supposed to do.”

This might have been what’s turned investors off to Axie Infinity, once the rockstar of the GameFi investor’s universe.

No one is saying that Axie developers built a scam coin project. The consensus seems to be that they worked hard to build what would become a beta test of metaverse gaming. But to make money off of Axie’s in-game token, players needed new gamers to join because new gamers had to buy Axie characters, a non-fungible token. When the gamer flow slowed, the token’s price collapsed, and so did a player’s earnings. It was like going from $15 an hour to $1.50. Axie’s stellar popularity also clogged its servers sometimes, leading to a poor gamer experience. People started to bail. Interest waned.

Theresia Le Battistini, CEO of the play-to-earn project Fashion League in Zurich, says she thinks play-and-earn is where many of these games will switch to next.

“It will be better, but always and only if the gameplay can live up to the expectations and standards of traditional Web2 gamers,” she says. “Web3 games should not be created differently than Web2 games. The earning part should be the cherry on top.”

It Only Looks Terrible

GameFi looks bad because crypto looks terrible overall. And the play-to-earn market has crashed both due to poor design by the startups that created them and too much traffic that clogged servers and turned people off to slow, stuttering games.

Other than Axie Infinity, Illivium is down 93%, Sandbox is down 85%, and Decentraland is down 80% year-to-date. It sounds terrible. But investors who have been buyers of these coins since 2020 are up thousands of percent. In early November 2020, AXS was trading at $0.18. It’s now around $9.

According to DappRadar, GameFi currently represents over 50% of all blockchain activity, measured by unique active wallets, which represent users who have recently performed transactions within the ecosystem. GameFi is also expected to grow to a $50 billion market by 2025, according to research from Crypto.com.

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Despite the GameFi token bloodbath, players’ user numbers and retention rates have swung up for many of the most prominent blockchain titles, according to industry research firm Footprint Analytics.

Existing GameFi revenue models include the developers earning a percentage of the revenue of transactions, the development team banking their hopes on the token in which they are vested, continuing to increase in price, or selling in-game digital assets (NFTs). Blockchain games must also have efficient tokenomics and security, and be fun to play.

“A lot of GameFi play-to-earn projects were simply not sustainable,” says James Seaman, a 35-year veteran of the gaming industry and CEO of Hit Box Games in California. Seaman has his own idea…not just play-and-earn, what about play-and-own?

“GameFi needs to move away from play-to-earn to a more play-to-own model that is long-term in structure and profitability. Games that have in app purchases as well the opportunity to own your own gear as NFTs and earn tokens during events and contests that raise income for the game,” he says. Hit Box’s new Swords of Blood game raised money from numerous investors. The game was developed by former team members of the following franchises: Sim City 2000, Enigmatis, Rainbow Six, Prince of Persia, Nightmares from the Deep and Blade Bound, Seaman says. Players earn in-game currency and items and can unlock special upgrades, craft weapons, and earn cryptocurrency.

“Once the bitcoin market starts taking a turn back to 30k you will see more investors return to GameFi,” Seaman says. “My advice for gamer developers is to build your projects thinking about the future, play-to-own and not play-to-earn, and take a hard look at how your game will stand the test of time whether in a bear or a bull market.”

Play-to-earn was GameFi 1.0.

“These were traditional decentralized finance mechanisms wrapped into a gaming skin,” says Yaroslav Shakula, CEO at YARD Hub in Barcelona, an investor in Web3.0 startups.

“No matter how disruptive it was for its time, the play-to-earn model was probably doomed to fail from the beginning. Play-and earn is closer to what we see as the possible future of blockchain gaming, as everyone on the market has already realized that the game should be engaging and interesting to players. It resembles traditional gaming models with its focus on gameplay combined with an opportunity to earn money for your skills and time. If the game is attractive only due to skyrocketing token prices, it has no future,” he says. “This approach is sustainable only within a Ponzi-like paradigm which will eventually cease to exist.

*The writer of this article is an investor in the Decentraland token.