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How to make Play-to-Earn (P2E) a viable business model? Exploring the top five reasons for failure and three key principles to follow

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How to make Play-to-Earn (P2E) a viable business model? Exploring the top five reasons for failure and three key principles to follow

The long-term sustainability of Play to Earn games has always been a topic of discussion in the blockchain gaming community. Twitter user azf.eth, after researching the differences between popular P2E games and traditional games, shared their views on the best business models for games.

This translation and summary of the article is based on the original post. If there are any doubts, please refer to the original content.

Current Issues with P2E Games

Although games are considered important use cases for blockchain technology, the current P2E model often cannot be sustained for a long time. azf.eth believes there are several main issues as follows:

1. P2E Equals Ponzi Economics

After investors purchase NFT assets, they hire a group of people to play the game for them, sell the in-game tokens on the market after obtaining them, and repeat this cycle. It is called Ponzi because it requires new investors to continuously join the game for the original investors to have liquidity exit. As long as new money flows in, the economic model can continue.

However, as the number of participants continues to grow, it will eventually reach a critical point where new entrants cannot support the increasingly large user base. Axie Infinity's SLP and STEPN's GST are facing the same situation.

2. P2E Games Are Not Fun

Why do people stop playing a game when they can't make money? Because the game itself is not well developed or interesting.

Additionally:

  • Building an excellent game requires a lot of time and resources
  • Solidity developers are not necessarily creative game developers

3. NFT Traders Are Not Game Players

Due to the high initial cost of purchasing necessary NFTs in the game:

  • Most game players cannot afford the entrance fee, even the top 3A games require only up to $70
  • Only traders or flippers can afford it
  • Employees playing the game are just playing to make money

This also leads to the most ironic phenomenon in P2E games: too expensive for ordinary players and too time-consuming for crypto whales.

When those who truly invest in NFTs do not play the game themselves, game companies do not receive enough feedback, and naturally, the game gradually dies out, and the prices of game tokens and NFTs continue to decline.

4. Token Economy Stimulates Selling

Special tokens in the game ecosystem, such as GST and SLP, usually have their uses within the game, and the team will extract a portion of each transaction and retain an initial portion.

The problem is that these tokens are only useful within the game. If one wants to use them outside the game, they must sell them to exchange for other currencies, naturally creating selling pressure.

This is the same for game teams. To cash out profits, they need to sell some of the tokens to convert them into US dollars.

5. NFT Hinders Long-Term Profit

For games that require the purchase of high-value NFTs to play, those who are unwilling to spend money have no chance to experience the game and are deprived of the opportunity to get to know the game. This damages long-term user growth and potential trading behavior.

For games that can be played without spending money, it is not easy to balance between paying OG players and non-paying players, and throughout the game lifecycle, these paying players must be taken into consideration.

Unlike traditional games, these players who are willing to spend money and are more loyal do not create continuous revenue for the game through subscriptions or purchasing cosmetics. NFT buyers hope to get more value and benefits than what they initially paid for.

How to Make P2E a Viable Business Model?

azf.eth believes that three main principles must be followed.

1. Game Design First, NFT Second

In the past, popular games like Fortnite, Elden Ring, and Minecraft all have one thing in common: beautiful design and fun gameplay.

Utility = Fun, that's the whole point.

Even though Fortnite is a free game and does not become stronger through transactions, it still generates billions of dollars in revenue for the game team. This is because the game is fun, and players want to dress up their characters with unique outfits and cool dances.

2. Monetize Things That Cannot Be Monetized in Web2

Web3 allows players to own their accumulated assets while enabling games to monetize through the trading of these assets.

However, companies must consider the content that becomes NFTs. For example:

If a game sells 1 million $10 outfits, in Web2, the game team's income is fixed, and they can earn $10 million.

However, if this outfit is an NFT, although it may still sell 1 million copies, a certain percentage may be resold in the secondary market. Since the game team can only take a portion of the royalties in the secondary market, the overall income may be less than the Web2 example.

However, in the long run, if a certain level of trading volume can be maintained in the secondary market, the total income obtained may be higher. This all requires a cost-benefit analysis, rather than viewing everything from the perspective of NFTs.

Here is a positive example:

If a game offers all initial players a level 0 NFT for free, and a player sells it after leveling it up to 100, three positive effects will occur:

  1. OG players are rewarded for their game time
  2. Buying players save leveling time
  3. The game earns a certain percentage of royalties

This approach allows the game to earn royalties through digital assets that cannot be monetized in Web2, and both buyers and sellers achieve their goals according to demand.

3. Utilize Collectibility and Reward Loyal Players

Battle passes are a popular way to profit from loyal players. By turning them into NFTs, once the season ends, they can be traded as collectibles.

However, once the season pass expires, it loses its utility. By adding value to it, it will increase the incentive to purchase.

For example, anyone holding a full year's battle pass will be invited to an annual party to meet other players. Alternatively, they can participate in tournaments with rich prizes.

Conclusion

From azf.eth's perspective, the main reason why P2E games fail is due to lack of gameplay and token utility. Perhaps not every game needs tokens. Using tokens such as ETH, SOL for in-game payments can also generate revenue for the team and reduce the chance of the game collapsing due to token economy failure.

Furthermore, he emphasizes the use of assets that could not be monetized in the past and utilizes people's collecting and participation psychology to create purchasing incentives, rather than making every in-game item in the form of NFTs.