Exploring the Play-to-Earn Mechanism: Why Do Most "Play-to-Earn" Models Always Fail?

Chubbiverse co-founder Spacepixel explained on Twitter the common collapse scenario of the Play-to-Earn (P2E) model. When the market demand becomes saturated, the supply cannot match the influx of new players, leading to a drop in prices and a sudden decrease in demand. How can the P2E mechanism achieve balance?

Original link: https://twitter.com/spacepixel/status/1512383958327062529

Common P2E Model

Most Play-To-Earn P2E models:

1. Project tokens can mint new NFTs.
2. "Tokens" also serve as rewards for NFT holders in the game.
3. Players can hold, rent, or sell their NFTs.

To keep things simple, let's assume everyone mints NFTs by burning tokens.

Now, let's examine the connection between the supply, demand, and price of NFTs.

Phase One: Ponzi Scheme Climax

In the first phase, the supply is relatively low, so a 5% daily inflation rate isn't too bad, with a total of about 10,000 NFTs and only around 500 new NFTs entering the market daily.

Soon, the market faces a supply shortage, causing all NFT prices to soar. We reach a turning point where the total supply of NFTs reaches 300,000, with a 5% inflation rate, meaning we need 15,000 new buyers entering the market daily.

Phase Two: Turning Point

The P2E model begins to collapse as the supply far exceeds the number of new buyers, with 400,000 NFTs flooding the market but only 20,000 buyers.

The challenge for most P2E models lies in the "demand needing exponential growth" because supply also grows exponentially. Even if daily demand remains constant, prices will decrease due to the exponential growth in supply. Once prices start to plummet, demand will decrease, exacerbating the issue.

All P2E game markets will eventually saturate. Without changes to the currency policy, the system will collapse.

For P2E game founders and players, the most important question is: "What can you do to prevent this catastrophic failure?"

Solution

1. Implement an NFT burn mechanism promptly: Find ways to incentivize players to burn NFTs.

2. Reduce inflation: When demand growth becomes volatile, decisively lower the inflation rate as allowing inflation to grow will worsen the situation.

3. Actively adjust the currency policy.

How do you view the P2E model? Once the turning point arrives, is it too late for founders to save the game? What else can they do to address the death spiral problem?