HomeCryptocurrency NewsCryptocurrencies, gaming on collusion course in high-risk 'play-to-earn' economies

Cryptocurrencies, gaming on collusion course in high-risk 'play-to-earn' economies

By Reuters April 9, 2022, 1:49:07 PM IST (Published)

Jarindr Thitadilaka says he made as much as $2,000 a month last year from his collection of digital pets, which he would breed and ship into battle to win cryptocurrencies.

The 28-year-old from Bangkok was playing Axie Infinity, one of a new kind of blockchain-based online games, dubbed "play-to-earn", which mix leisure with financial speculation.

These games can make for profitable businesses amid the hype round NFTs and digital worlds, attracting millions of players plus billions of dollars from investors who see the games as a way to introduce more people to cryptocurrency.

In Axie Infinity, users buy digital blob-like creatures with various attributes as NFTs, or non-fungible tokens – digital assets whose owner is recorded on the blockchain – for anything from tens of dollars to hundreds of thousands.  Players can then use the pets to earn money by winning battles, as well as creating new pets, whose value depends on their rarity.

The assets can be traded with different players on the platform, which says it has about 1.5 million daily users.

”It’s not just a game anymore. It’s more like an ecosystem,” said Thitadilaka. “You can even call it a country, right?”

The dangers of this speculative ecosystem, and the largely unregulated crypto gaming industry, were bought into sudden focus last week when Axie Infinity was hit by a $615 million heist. Hackers targeted a part of the system used to transfer cryptocurrency in and out of the game.

Axie Infinity’s Vietnam-based owner, Sky Mavis, said he would reimburse the lost money through a combination of its own balance sheet funds and $150 million raised by investors including cryptocurrency exchange Binance and venture capital agency a16z.

Co-founder of Sky Mavis, Alexander Larsen, told Reuters that if he could do things in a different way, he would have focused more on security when growing the game, which was launched in 2018.

“We were running 100 miles per hour, basically, to even get thus far,” he said. “The trade-offs we made possibly weren’t the best ones.”

The hack, one of the biggest crypto heists ever, shone a light on play-to-earn games, a young world largely unknown outside crypto and gaming circles, that’s becoming big enterprise.

The players spent $4.9 billion on NFTs in games last year, according to market tracker DappRadar, representing around 3% of the global gaming industry. Though, demand has cooled since a peak last November, gaming NFTs have still racked up $484 million in sales so far in 2022.

Investor interest in NFT-based games has also ballooned, with projects attracting $4 billion of venture capital funding last year, up from $80,000 in 2020, DappRadar said.

”There’s so many users who want to work together with the tech,” said Larsen, adding that Axie Infinity’s revenues exceeded $1.3 billion last year. “It’s like you found a new continent … like finding America over again.”

Haves and have nots

Including layers of complexity, unofficial monetary networks have additionally emerged round these video games, as some gamers leverage their coveted in-game possessions for additional achieve.

Thitadilaka in Thailand decided last July that he needed earn more money than he might by merely taking part in on his personal, so he and his buddies determined to kind what’s recognized in gaming lingo as a “guild”.

They allowed their NFTs for use by people who needed to play Axie Infinity for free, without investing in an asset, and took a cut of any winnings in return. This model is commonplace throughout play-to-earn video games.

Thitadilaka said his guild, GuildFi, grew right into a community with 3,000 Axie Infinity gamers who cut up their earnings with the asset-owners 50:50.

Thitadilaka now runs GuildFi as a full-time job and the corporate has raised $146 million from buyers. Southeast Asian international locations comparable to Thailand and the Philippines have emerged as a few of the hottest international gaming hubs.

Teriz Pia, who is 25 and lives in Manila, quit her job as a pre-school instructor in last June after her brother based a play-to-earn gaming guild, Actual Deal Guild. Now, she says she makes as much as $20,000 a month by means of her community of greater than 300 gamers throughout a number of video games, plus different crypto belongings.

For Axie Infinity Pia lets her players maintain 70%, whereas she takes a 30% cut. In one other play-to-earn  game Pegaxy, the place players purchase and commerce NFTs of digital horses to compete in races to win crypto tokens, she splits it 60:40.

“I don’t name them employees. I simply name them my buddies, or my students,” she said.

“The salary in the Philippines if you're a teacher ... I'm a college graduate,, but it’s not enough. I never imagined that I could earn this kind of money.”

However,  Pia cautioned that it was a harmful enterprise.

"There's a lot of risk. When I'm investing in a new game ... being a member of Real Deal Guild, we have a partnership team, we have researchers, but at the end of the day, it's still crypto, it's still a risk."

One of the biggest play-to-earn networks, Yield Guild Video games, said it had 10,000 Axie Infinity players as of the fourth quarter of 2021 who kept 70% of their earnings and got $11.7 million in total.

Australia-based Corey Wilton, 25, founded Pegaxy, which he says has about 160,000 daily users. He estimates that 95% of users of play-to-earn games participate as “renters”, generating revenue without owning the assets, while 5 percent are asset owners.

How people get hurt 

Legal experts warn there is no safety net for players who effectively invest in risky assets, leaving them highly vulnerable should a project fail or the market for the assets dry up.

As global regulators seek to get to grips with cryptocurrencies themselves, there is little oversight of NFTs or the relatively niche offshoot of play-to-earn games, which typically use in-game crypto tokens that can then be cashed out into traditional money.

"Storing any value in projects like this is risky. The earning in play to earn, blockchain-based games is often through rewards paid in the native token of the project," said David Lee, cryptocurrency associate at London-based law firm Fladgate.

There are no guaranteed values of either the token or the in-game asset as their value is often determined by supply and demand in the market. This means there can be significant volatility in the price and, if the project becomes less popular or is abandoned, then there is a potential for the assets to become worthless."

But advocates of these games say success is built upon a combination of factors like skill, strategy and luck “There is definitely money to be made, but there is also money to be lost here,” Pegaxy’s Wilton added.

“Play to earn shouldn’t be confused with charity, that’s how folks get hurt.”