Once touted as a legitimate way to earn a living, the play-to-earn crypto industry has disintegrated. Total revenues from in-game purchases and market fees at the largest play-to-earn franchise, Axie Infinity (AXS), have collapsed 99% from its peak. AXS has shed billions in market capitalization.
The industry’s largest gaming guild, Yield Guild Games (YGG), has collapsed 85% from its peak market cap. Other yield guilds like Good Games Guild (GGG), GuildFi (GF), MetaGaming Guild (MGG), and Guild of Guardians (GOG) have lost over 80% of their market caps. Play-to-earn community and governance tokens like Chain Games (CHAIN), My DeFi Pet (DPET), Plant vs. Undead (PVU), and Alien Worlds (TLM) are down 95% or worse from their highs.
- Play-to-earn marketers promised empowerment and employment for developing economies.
- Low-wage workers, they said, could moonlight by playing games, grinding through gameplay for in-game gold and advances.
- “Scholarships” became commonplace whereby wealthy benefactors would loan in-game non-fungible tokens (NFTs) to poor laborers, allowing them to grind through play-to-earn activities and keep a percentage of their earnings.
Axie Infinity NFTs became the most popular scholarships in the world in February 2022, bizarrely employing some 20,000 Filipino workers who repeated meaningless tasks to level-up NFTs or farm in-game currency. That same month, GameStop partnered with Immutable to create a $100 million investment fund for gaming NFTs; TRON had already announced plans to invest as much as $300 million in GameFi and Framework Ventures created a $400 million fund for blockchain gaming.
All the while, a small group of insiders who created these NFTs and governance tokens were selling to everyday investors who believed their marketing promises of a future that, sadly, has not transpired.
Axie Infinity earned $364.4 million in market fees at its August 2021 peak. That revenue has collapsed 99% to $2.5 million as of April 2022.
Play-to-earn gaming revived in-game gold
After the 2004 launch of World of Warcraft, play-to-earn gaming became a global phenomenon. Its in-game currency, then known simply as “gold,” could be bought and sold between players. Second Life, launched a few months before World of Warcraft, also facilitated a secondary market for its in-game currency, the Linden Dollar.
None of these markets attracted more than a few thousand dollars worth of volume. Yet in 2021, crypto founders repurposed these play-to-earn mechanisms through a variety of crypto communities and governance tokens. They also added NFTs ⏤ first popularized on Bitcoin in 2014 ⏤ which has now become a mostly Ethereum, $18 billion industry.
Millions of dollars flowed into play-to-earn. Axie prices skyrocketed in the second half of 2021. Community and governance tokens rallied thousands of percentage points.
Unlike NFT art collections like the Bored Ape Yacht Club, NFTs representing in-game items have some form of utility within crypto games. In Axie Infinity, “Axies” are digital creature NFTs that can be bought, sold, battled, and bred.
Today, the bubble has mostly popped; Axie Infinity suffered a massive hack of its Ronin Network last month, with bad actors stealing $625 million — tarnishing what little confidence remained in the sector.
Sky Mavis, Axie Infinity’s owner, raised $150 million to partially compensate victims in a funding round led by the likes of Binance and Andreessen Horowitz (a16z). Its founder acknowledged that they have made mistakes due to pushing so quickly for adoption.
Nevertheless, Axie Infinity has not given up on new user growth. It launched a free version of the game called Axie Infinity: Origin last month, in the hopes of attracting gamers who want to play-to-earn for the first time.
Like every crypto trend that has collapsed throughout history, play-to-earn gaming replicates the familiar problem of misaligned incentives. Promoters and organizers earn their maximum profit by dumping their token holdings onto the market as quickly as possible. In contrast, players want the exact opposite: long-term stability and growth.
Play-to-earn tokens have declined deeply into negative territory ⏤ all lower than when exchanges first listed their tokens. As early insiders cashed out, scholars and retail investors suffered. Low-wage earners who fell for the promise that they could earn a living in play-to-earn watched their income streams dwindle. The real losers were common investors, left holding the proverbial bag.