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Play to Earn Games Gaming is the world’s most lucrative entertainment medium. Now blockchain technology, cryptocurrency and NFTs mean even more ways for game developers – and maybe even players – to earn money. Virtual currencies have been part of gaming since their inception, but there has been very little crossover into the real world. The spread of blockchain technology, cryptocurrencies and non-fungible tokens (NFTs), have opened a bridge which could allow players to earn money (or something of value) as they play. And it is this characteristic which may make them of interest to regulators. Play to Earn or P2E games come in different guises and the model works for both games of skill and games of chance. Whilst some games are initially free to play, some require players to buy in which makes a difference when it comes to establishing their legality. In the case of games of skill, it is unlikely that they will fall within the remit of gaming regulators, whether or not they require a buy in. However, when it comes to games of chance, a number of factors need to be considered. If there is no buy in, it will depends on the applicable law and the interpretation by regulators and courts. The dominant business model for P2E games sees players stake something of perceived real-world value in the hope of winning more. When it comes to legal definitions, this is the first challenge: which tokens have real-world value? Bitcoin is widely accepted as having financial value, whereas NFTs representing an object or reference to an object can be looked at differently. After that, definitions of what constitutes gambling also differ between jurisdictions. Generally, the laws of the country where the user accesses the game apply, but the game developer may have a local company and servers or have them abroad and these are also handled differently by each jurisdiction. P2E business models place cryptocurrency and NFTs as the stakes. Some games give away free NFTs (often in the form of avatars or other game peripherals) whereas users must buy the NFT in order to participate in others. These avatars gain experience and superior capabilities as users progress within the game or buy enhancements via a loot box. Whilst this approach shares some characteristics with the free-to-play (F2P) model, what sets play-to-earn apart is that assets can be traded and sold to other players. That means that, whilst in F2P money flows only one way – towards the developer – in P2E some value flows back to players. The rewards are usually in cryptocurrencies (sometimes created purely for that game) or NFTs. These unique crypto assets are particularly suited to the environment as they can be used to authenticate ownership. There have been
examples of users being required to lock up a certain amount of a particular cryptocurrency in a wallet to be allowed to participate in the game. This has the effect of reducing the availability of the cryptocurrency token which in turn raises its value. This is the fundamental of the P2E gaming economy: turning in-game items into assets that players can own, increase the value of and ultimately sell to earn real- world money. Axie Infinity is one of the longest running P2E games. It’s trajectory is both a reason as to why we should care about P2E and a salutary lesson on the risks involved. At its peak, the fully diluted market capitalization for Axie’s AXS token was about US$16.7 billion and its total revenue from in-game purchases and market fees paid was US$364.4 million in August 2021 The game accounted for US$3.5 billion in NFT sales last year too. It has retrenched from these heights, but the numbers show the potential scale of the industry. To put the value of some of those assets into perspective, an Axie Infinity avatar was sold recently for 300 ETH, or around US$120,000. The blockchain gaming industry is projected to be worth US$45 billion over the next few years and that growth may well come in markets not currently seen as the most important for gaming. During lockdown, cash strapped Fillipinos took to Axie Infinity in huge numbers. By 2021, local Axie players were, on average, earning five times the minimum wage in Manila. The popularity of in-game tokens like SLPs rose to such a level that it reportedly became the preferred medium of exchange over the official Philippine peso. In terms of potential, India shows a similar propensity to play video games. With its vast population it represent the biggest P2E prize in the future. Some have pointed out that the rewards for players of P2E tend to come from new entrants to the player base making the entire ecosystem reminiscent of a pyramid scheme. Play-to-earn may turn out to be an oxymoron, but for now, business is booming as people spend more in digital realities than ever before. Digital Gachapon Another area of gaming which is attracting lots of interest is digital gachapon or Compu Gacha. Originating from Japan, gacha games were slot machines that dispensed a small toy or piece of candy. Entertainment company Konami became the first to include gacha-style features into its mobile video games. What started as benign prizes for playing took on a more sinister tone with the launch of Dragon Collection in 2010. This digital card collecting game and another called Fate/Grand Order were essentially F2P games with a loot box attached. So strong was the desire to obtain the digital
22 • IMGL Magazine • July 2022
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