When someone steps onto an exchange for the first time with their crypto card, the sheer variety of cryptocurrencies available can be bewildering and breathtaking at times.
The inherently decentralised nature of the blockchain means that it is possible for anyone to set up their own cryptocurrency with only a little bit of starting capital, which can be used for purposes beyond simply acting as money.
Whilst the biggest coins on the market today such as Bitcoin, Ethereum and XRP are primarily used as currency, with the latter being a bridge currency between tokens and fiat currencies that would be harder to match otherwise, not every token is intended to be used as money.
Some are governance tokens intended to represent voting rights in a decentralised autonomous organisation, whilst others have a wide variety of other utilities whilst also being openly traded on crypto exchanges, giving them real-world value.
This has led to an entire industry known as play-to-earn (P2E), where people can earn tokens for playing a game that can be traded for real money, something that had a boom period in 2020 and 2021.
However, for people investing in crypto tokens, are any of these blockchain game tokens worth it?
Gaming For Money
The concept of play-to-earn games is not entirely new, and predates the blockchain by more than a decade, depending on where one chooses to draw the line. Gold farming in massively multiplayer online role-playing games (MMORPGs), the economy of EVE Online and the Linden Dollars in Second Life are all early examples of play-to-earn mechanics.
However, the concept became closely associated with blockchain gaming after the success of CryptoKitties and especially the spike in popularity of Axie Infinity, the latter of which became an example of P2E tokenomics gone right and gone wrong.
The two main ways to make a P2E game are to have a currency that can be earned in the game itself exist on the publicly tradable blockchain, or to have game elements represented through non-fungible tokens, which are also stored on the blockchain.
Both can be exchanged on the open market as long as they follow the transaction rules in the smart contract.
Axie Infinity is a useful case study as it uses a wide variety of P2E models and has seen both successful periods and downturns in its internal economy, with consequent effects on the token’s value in the wider market and on the popularity of the game itself.
The game itself is a card-based role-playing game where a player uses three “Axie” NFTs and themed card decks to battle other teams, complete quests, defeat other monsters and fight bosses.
Alongside being paid to produce content or onboard new players, Axie players primarily make money through earning a currency known as “Smooth Love Potions” (SLP).
This currency can be traded like any other token on the blockchain or it can be used to breed Axies in order to create new ones with a range of characteristics and stats.
These new Axies are NFTs as well, so they can be bought and sold for Ethereum, and since at least three of the NFTs are needed to play, the idea was that the market would perpetuate with new players buying into the game and established players buying Axies with specific traits to power up their team.
At one point, the game was popular enough and the tokens were worth enough that people were making a living wage purely through playing the games, earning SLP and cashing out, and an entire cottage industry formed around this.
However, there were questions about this game, ones that every P2E game has had to answer since, about ways to avoid the game relying solely on an infinite number of new investors coming in and buying into the ecosystem.
Unlike MMORPG gold farming, where you could make money (against the terms of service of most games) by farming large amounts of currency and trading it to another player for real money, this was not the incentive for many, if not most, players.
The vast majority of people who play P2E games do so purely because of the potential for greater financial returns, which meant that when the Axie market became inflationary, it had a knock-on effect on the SLP market and people who had made it their primary source of income had to work harder to make the same amount.
This, alongside an exploit of the Ronin sidechain that Axie Infinity used to facilitate transactions, led to a 99 per cent decrease in the value of SLP, and Axies themselves went from a base price of nearly $1000 to field a team of three to less than $10.
Ultimately, P2E is an investment anyone looking for crypto tokens to buy into should be extremely cautious about, and it is essential to look at long-term viability before putting any serious money in.