Play and Earn leads crypto games astray

Author: Eva Wu

Compiled by: DeFi Path

Too many founders are in a trance, believing that:

"For years, gamers have poured their hard-earned money into games with nothing to show for it. Thanks to crypto, players can earn NFTs and tokens that have real value. Anyone can and will have the right to make money for having fun, as they are helping the game succeed!"

Unfortunately, crypto is not a magical solution that allows everyone to make money. It is time to reconsider the "making money" philosophy that underpins so many fleeting game economies. Previously, I categorized crypto games as earn-first and play-first, and in this article, I will revisit these terms, further discuss why Play and Earn leads us astray, and then talk about better business models for earn-first games and the future design of play-first games.

Play and Earn Leads Us Astray

Play and Earn is a narcotic label that describes games that first engage players and then allow them to earn rewards. In reality, like its predecessor (Play to Earn), these games still heavily emphasize "making money" and use short-term economic incentives to mask their lack of real players. The first issue starts with the name itself; using the "earn" label is poor branding, akin to calling poker a "Play-and-Earn card game" instead of letting the game shine. However, most games leave a first impression through an "X-and-Earn" slogan. Most importantly, the prevalence of the word "earn" has been encouraging games to build economies that are destined to fail, attracting those seeking profit rather than true gamers.

When gamers are told to "play" and then "earn," it sets unrealistic expectations, leading to constant sell-off pressure on the game's native tokens. Game economists would do well to reconsider whether "Play and Earn" makes sense, rather than spending most of their time thinking about how to increase taxes and cope with sell-off pressure. At the very least, games should consider removing "Play and Earn" from their vocabulary in favor of terms that truly explain the game content. Otherwise, they may find themselves constrained by players whose financial expectations are unrealistic, economies are unstable, and branding is poor.

Permanently Paying Players is Unsustainable

The idea that "most players should make money" is unhealthy, and we need to address this issue because permanently paying ordinary players is unsustainable.

No matter how many sinks are added or how much a token or NFT collection raises, if the embedded assumptions and selling points are to pay the majority of players, the economy will quickly lose balance. Whether in crypto games or traditional games, there needs to be a focus on economic flow. The unfortunate truth is that any game issuing trading tokens or NFTs is paying players with someone else's money. Game creators attracted by terms like "player-owned" have been paying early users high fees in hopes of building a loyal community. These early players are mostly speculators and airdrop hunters, and the cash inflow they provide represents the fleeting successes we see in different games. However, the capital spent on NFTs and tokens is quite profit-driven; if it does not net them more money, they will leave the ecosystem. Thus, games are not only overpaying mercenary players but also scaring away gaming enthusiasts (those who primarily play and consume for the inherent fun of the game). Moreover, if players expect to earn more than they invest, are they really assets or liabilities? The net losers will continue to be the late-game creators and token/NFT investors.

Should Games Be Play-First or Earn-First?

Founders must remain vigilant about the difference between the games they want to create and the games they actually make. Many game developers believe they will create a "play-first" game, but they possess all the outward marketing and strategies of an "earn-first" game. A good litmus test is the ratio of game-related tweets to crypto-related tweets released by the project. Game developers hoping to build in this space should be aware of a common pitfall: games can start with earn-first players and then somehow shift to play-first games. While being able to boost market cap metrics earlier is appealing, this idea is flawed because the momentum of monetary rewards will deter true gamers, while stopping or reducing rewards will also deter earn-first players. This is akin to building a new blockchain first and then trying to "decentralize," which often does not happen.

If a game wishes to achieve success in a shorter time frame, it makes sense to build an earn-first crypto game. However, if game developers want to create a "play-first" game, they can either try to change the gaming community's hatred for crypto games or prepare the game accordingly. In the long run, overemphasizing financial rewards to increase DAU numbers is more likely to harm play-first games.

The Future of Earn-First Games

For earn-first games to succeed, profitability must take center stage, and the pursuit of revenue must be entertainment. Throughout history, people have always derived enjoyment from the potential to make money. Direct income drives our dopamine systems crazy. Generally, these players can equate any small loss to a night of entertainment.

In the short term, we may see more X-to-Earn projects attempting to mimic StepN's short-term financial success. While these games are undoubtedly unsustainable, Ponzi games will always exist if there are willing participants. Why? Because these games can quickly turn around; they are not serious and are fun until you lose money. In other words, the pursuit of income is entertainment. Moreover, every game has a shelf life, and some games have a much shorter shelf life than others.

For games with longer shelf lives, they may follow tried-and-true business models like esports or casino games. Generally, if there is enough solvency to pay rewards, then money-making games can continue, which may come from:

• Players willing to invest for rewards;
• Sponsors wanting to host competitions;
• Spectators willing to tip or bet on the sidelines;
• Any other users who can be taxed to pay rewards;

Poker and sports are useful analogies for earn-first games: people can play games socially and competitively, companies will sponsor prize pools and host tournaments, players can make money by winning prize pools, coaches will be paid to teach, talent will be compensated to create equipment, and speculators will watch the games, tipping and betting. This economy is more effective because there is a direct, understandable value exchange among players, sponsors, and spectators. This model supports people making money and consuming there. In these games, making money is the goal, and they will leverage the stimulus of money as a core loop, building an independent economy around it.

What Will the Future of Play-First Games Look Like?

In the past year, we have tried to make "earn" the killer feature of play-first games, but this has proven futile. We have yet to demonstrate how crypto can improve traditional games; on the contrary, it has overly financialized them in every aspect. In this section, I will share some high-level frameworks that may help us design smarter game economies.

Games vs. Financial Games

First, introducing tokens at any time brings about inevitable financial games. Traditionally, games simulate our life games, but they are enclosed economies with guardrails. Introducing tokens or NFTs removes a major barrier and opens it up to inherit the full financial landscape of the real world.

In the past year, we have observed that tightly merging these two types of games has led to poor outcomes. For example, Axie appears to be a cute turn-based strategy game, but by incorporating NFTs and tokens into the game, players flocked to financial games. What they are really playing is a money-making game akin to a pyramid scheme. Each new player incurs the cost of NFTs, hoping to become a seller before everyone else and profit from it. When earning cash intertwines with the game, it becomes a natural scoreboard and incentive rather than the game itself.

With this in mind, perhaps the future will find a way to separate games from financial games. Regardless of the method, the next generation of game developers needs to find new ways to connect crypto and its embedded financial games without overwhelming the game itself.

A useful analogy is the Pokémon trading card game, which exists as both a collectible card game and a financialized collector's game. Similarly, in sports, money and economics flow during the game but do not affect the sport itself. If players choose where to move and how to hit based on how much they can earn each time, it would be off-putting for most sports. Players should focus on the game, not external forces like money. This is what distinguishes play-first games from earn-first games.

The Economy Supporting Games

Playing a game is different from participating in a game, and over time, it has become increasingly clear that innovation in crypto games may not reward players but rather those who bring value to the game and its players. In many ways, game creators play the role of central banks and treasuries, similar to how they formulate reward programs, collect taxes, and choose how to spend or allocate those taxes. This analogy conveniently describes how players become losers when games excessively inflate their native tokens. With this in mind, game developers should only consider rewarding actions that directly or indirectly generate greater financial returns and increase their ecosystem's GDP. Currently, most game economies allocate 30%-60% of the total token supply to reward every player in the ecosystem (see left image). However, a vibrant economy should enable people to exchange goods and services with one another (see right image).

Games should strive to create ecosystems that allow player communities to create and directly exchange value, rather than relying on treasury funds to drive the game economy. This will support tokens as true mediums of exchange. For example, if a game wants designers to create worlds, the system should reward creators' shared interests by giving them a cut of future profits. Similarly, games should support a model where successful KOLs have fans willing to pay for them, rather than a "influence-to-earn" business model where games pay KOLs.

In this way, people can earn multiple rewards by creating virtual goods and services, rather than farming for unsustainable rewards in advance. Furthermore, this direct exchange creates real earning opportunities for those willing to pay and fosters a more efficient economy. After all, game economies are complex economies. Like the real economy, they thrive when there is strong employment and growing GDP.

Final Thoughts

Last year, a multitude of retail investors scrambled for the next crypto game, and as the tide recedes, we must ensure we are not left exposed. We must confront the assumptions we made in a state of distress (where numbers only spiral upward). It is time to break the trance of "Play and Earn" and "permanently paying players," and we need to soberly recognize the inevitable financial games brought by crypto and design smarter game economies.

I hope this article helps game developers step back from the noise and reconsider how they build their crypto games. As I conclude my writing, I find myself critical yet optimistic about what may happen. If you are building something and find yourself in a similar state, I would be happy to talk with you and share some ideas.