Play to Earn or Play to Ponzi? Economic Analysis

2021-2022 marked a boom for Play to Earn (P2E) games. Starting with Axie, a variety of games sprang up like mushrooms after the rain, each displaying its own unique strengths in this great feast. Some projects, with compelling gameplay concepts, initially dominated the market. However, as the initial hype faded, they became a thing of the past. Others attempted to replicate the success of predecessors by rebranding Axie on different blockchains, hoping for a resurgence but overlooking the importance of early-mover advantage and market recognition, ultimately falling into obscurity. Some projects gathered resources, collaborating with capital firms, gaming guilds, developers, and continuously recycled concepts, all without releasing a product, thus managing to buy themselves time. A few, through innovative economic models and product design linked to the real world, launched the right product at the right time and captured attention in the short term.

The rise of GameFi hinges on the design of tokenomics, combining DeFi and entertainment, allowing players to earn income while gaming—a genius concept. Effective tokenomics can sustain a project’s growth while enriching NFT and token utility scenarios. Play to Earn is revolutionizing the way digital financial assets interact, turning players' spare time into revenue and potentially becoming an essential component of the metaverse.

This article will briefly introduce some basic economic concepts and share the author’s thoughts.

Firstly, let's examine the key participants in the P2E ecosystem and their roles. There are five main participants: players, project teams, developers, investors, and NFT holders. By considering each perspective, we can provide fresh insights for project teams and users, potentially uncovering the latent value of tokens.

Overall, the design of a project's token economy model is somewhat similar to a country's economic policy. Tokens can be compared to sovereign currencies, and labor output to NFTs in GameFi.

Generally, the market serves as the standard for evaluating game mechanics and tokenomics, guiding the entire game’s design and updates.

1. User-Generated Content (UGC): Whether a game involves UGC is crucial. Typically, developers use NFT mechanisms to limit their IP's distribution and sharing, as seen in games like LOKA, Gold Fever, and Thetan Arena. However, some projects open-source their NFT assets, allowing users to create personalized NFTs based on their skills and preferences, as in Sandbox and Decentraland. Open-source NFT minting can provide creators with a portion of economic returns, but it also has the downside of being hard to prevent imitation. Other creators can make minor changes to successful products and sell them at lower prices to attract buyers. A common solution now is to implement a gatekeeping algorithm that uses machine learning to detect NFT similarities.

2. Value Generation: In-game assets, including tokens, capture value similar to other blockchain products, mainly through consensus. Tokens must gain broad recognition and use within the economic model to function positively. Conversely, if value recognition collapses, the entire model will spiral downward—a recent example being LUNA.

Value generation includes meeting long-term productivity, asset minting, and onboarding new players.

Long-term Productivity: This includes stable product backing, investor backgrounds, and project team backgrounds. For instance, Animoca’s strong influence in GameFi often provides its invested projects with a player base. Additionally, the participation of gaming guilds can bring stable traffic to games, contributing to NFT sales and player growth. Other factors include communities or long-term virtual real estate, pets, and leveling services.

Asset Minting: Games generate value for asset minting through their mechanisms, including controlling overall token inflation. Project teams need to set appropriate token and NFT issuance limits. For instance, in Sandbox, the project team caps LAND tokens. Every time new land is introduced, it requires new LAND issuance, inevitably diluting existing land prices. This is comparable to real estate in the real world: if housing supply drastically increases without an increase in money supply, property prices will fall, affecting the interests of early buyers.

New Player Onboarding: Tokens are the carriers of value. Token issuance must balance the interests of newcomers and early adopters. In Axie, for instance, late-stage players faced high entry fees, making it difficult for them to join.

Moreover, the application scenarios for tokens are paramount. Effective mechanisms can attract more players and deter cheating and off-platform transactions.

6. Governance Functions: Decentralization is one of the major distinctions between blockchain and traditional models, and the same applies to GameFi. GameFi upholds decentralization, with governance voting being an essential aspect of some GameFi tokens. However, is it necessary to establish a decentralized autonomous organization (DAO) in a game’s early stages? Not necessarily. Many games do not implement DAOs in their early stages, as communities are often not ready to assume full control early on. Instead, developers should focus on game content development to build a sufficient community base and user volume, which forms the foundation for decentralized governance. Additionally, DAO governance may hinder future game updates and iterations. DAO governance becomes meaningful only when a game matures to its mid-to-late stage. Currently, most GameFi governance tokens have yet to play their intended roles, with project teams still holding centralized control, and community votes often leaning toward centralization. Thus, most of today’s GameFi is still a semi-decentralized model with a veneer of decentralization.

Earnings: Players can earn directly and indirectly through NFT or token ownership. Direct earnings stem from game growth, new player influx, and reasonable token-burning mechanisms, which increase token demand. For instance, token utility can be expanded through mechanisms such as upgrading, repairs, transfers, interactions, and burns, reducing supply while increasing demand, creating a positive purchase logic. Only with greater purchasing power can token value rise, thereby driving up token prices. Some projects use buybacks and burns of game-generated profits to support token prices. Indirect earnings include sharing profits from rented NFT characters, advertising revenue from metaverse projects, or land leases.

The tokenomics model in GameFi is highly complex and worthy of deeper study and exploration. There is no "best" economic model—only the model that suits a specific game or time best. GameFi project teams must select and develop their economic model based on their needs and the market.

来源：

https://econteric.com/wp-content/uploads/2022/01/Economics_of_Play_to_Earn_Gaming_Economy-1.pdf

https://thedailyape.notion.site/Gaming-2fb0c8cd5f2a497db3b118011c720052