Getting to Play to Earn: is Blockchain the Answer?

In our last piece on FinTech and gaming we spoke about the emerging needs for the next generation of gamers. Full immersion into developing, playing, and creating value in-game is the future. Today, blockchain is one of the most exciting answers in the quest to bring play-to-earn gaming to life.

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The traditional massive multiplayer model spread like wildfire in the 2010s, christening gaming as a deeply social and interactive media. Yet, gamers aren’t satisfied with just interactivity and the ability to play with friends — they want to be financially rewarded for engaging in gaming.

But how is earning intertwined with gaming, and how does that differ from how things look today?

Intertwined gaming doesn’t just mean the ability to socialize. Livestream platforms like Facebook Gaming and Twitch have experienced 99% YOY growth in hours watched. At the same time, esports viewership has been consistently growing over the past 5 years and there are simply more gamers to interact with as mobile gaming democratizes access to play.

Beyond purely social interactions, modern gamers show a desire for a broader set of interactions including coaching relationships (Metafy’s game coaching service had $61K in bookings in April 2021 alone), safe transaction facilitation (Gamer Pay raises $2M to fight scamming for skin sales), and opportunities to earn with friends (Yield Guild Games, perhaps the most prominent crypto gaming guilds has a market cap of $420B).

In our first article we highlighted three components that will define the next generation of gaming. They are:

• Ownership: The possibility of a true stake in gaming opens up doors to think about loaning, owning, selling, and earning all as a result of gameplay. The more developers can intertwine ownership in the core structure of games the stickier games can be because consumers can derive real world value from increased commitment.
• Monetization: In the same way creators are moving past platforms like Instagram and Facebook, we anticipate gaming influencers will seek out new methods to overcome the extremely high take rates from existing platforms (notably Twitch’s 50% revenue share). Streamers are the pioneers in creating meaningful income from gameplay, however P2E could democratize that ability to all players.
• P2P: Spanning both in-game payments and marketplaces, the P2P component of gaming 3.0 is driven by gamers’ desire to securely interact and transact with their peers. With a safe and secure environment for purchases, gamers can partake in an independent secondary economy and there’s an opportunity for game developers to step into these spaces while leveraging their credibility.

Traditional games don’t have broad sweep capabilities to own, monetize, and transact between peers. In response to these play-to-earn (P2E) needs, many are exploring blockchain as an enabling capability to power next-gen gaming models.

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The promise of blockchain to gaming is clear: it enables gamers to organically create value within the game itself and also extract that value to other ecosystems that extend beyond the contours of that game.

In contrast to traditional games, where one-time purchases don’t create meaningful value outside of the game, blockchain enables users to tokenize their in-game assets to carry real economic value. The tokenization of in-game assets like skins, coins, and weapons enables gamers to securely own and sell on the blockchain as well.

This is the revolutionary part of blockchain, because it enables transferable, real-world value to be derived from gaming activities. Value is no longer isolated to being used in-game.

Blockchain gaming exemplifies the fundamental shift of gaming’s core focus from play-to-win into play-to-earn. With gamers now able to have true ownership of in-game assets, blockchain games incentivize an era of gaming that goes beyond recreational play.

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Yet, blockchain-based games still have obstacles to overcome before they go mainstream. Jackson Vaughan, General Partner at Konvoy Ventures, pointed out that when legacy gaming platforms have tried to keep up with the rapidly evolving technology, they’ve faced backlash from their user base of core gamers who are uninterested in blockchain gaming, notably when Ubisoft introduced NFTs to its latest “Tom Clancy” game or when Discord explored crypto integration.

“These platforms are facing backlash because blockchain isn’t well understood by mass demographics. However, you don’t need to fully understand the complexities of blockchain gaming in order to interact with it,” he said.

Jackson underscored the need for developers to master the balance between leveraging blockchain for new and interesting experiences while masking the user’s interaction with crypto complexities that might deter mass-market gamers.

But even for gamers who are educated about the blockchain, the onboarding process is still painful. To fully sign-on and engage with blockchain games they must create crypto wallets (e.g., Coinbase wallet, MetaMask) where to store their currencies and assets. While many games are still free to play (F2P), oftentimes they require, or strongly encourage, gamers to purchase basic starter packs, meaning that gamers must pre-fund their wallets outside of the game if they want to buy and play without interruption.

Blockchain games also require a higher personal financial threshold in order to start earning in-game. For example, to begin playing in Axie Infinity a user must own at least three Axies (the in-game NFT monsters the game is centered around) which on average cost $200 each. This barrier has spurred a new need for a lower threshold for gamers to join play-to-earn model games.

Mainstream push back, customer onboarding frictions, and expensive transactions all stand in the way of blockchain becoming the core infrastructure for the next generation of gaming — but are there many better competitors?

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The next generation of gaming depends on a highly democratized ownership economy, and whether or not that is contingent on blockchain is yet to be determined.

The discourse around blockchain has excited gamers, investors, and the internet with its sparkling newness. However we stress that the end-game (no pun intended) is arriving at mainstream access to P2E models, not just using blockchain to get there. Here’s what we’ll be looking for to indicate that P2E is growing to meaningful usage.

• Lowered price threshold: Whether this is the popularization of guilds or increased accessibility of blockchain games the mass market won’t be able to participate in P2E until initializing costs are relatively inexpensive. As high gas fees continue to dominate crypto transactions, there is a meaningful barrier to participation in blockchain games.
• Removed onboarding friction: In blockchain games particularly, there is a significant barrier that can prevent or slow user acquisition. Having to pre-load a wallet with native currency before activation and waiting for slow and often spotty confirmation emails will deter gamers from engaging in P2E games.
• Increasing ways to earn: The road to creating value via gaming has many paths. Creating and buying digital assets, seamless in-game betting, and accomplishing challenges are all examples of how earning can occur. An uptick of games and or models with many ways to earn indicates demand for this kind of gaming.

At Commerce Ventures, we’re excited for the future where players can monetize their passions.