Words: 2099 Approximate Reading Time: 15-20 minutes
I’ve spent multiple essays talking about ways in which game design can manipulate people to invest money. And part of that manipulation was the inclusion of Non-Fungible Tokens (NFTs) and cryptocurrency. These things have genuinely been a blight on the industry since they were first conceptualized, and there is a degree of schadenfreude (satisfaction derived from the pain of others) when those projects go belly up.
Mostly in talking about NFTs and cryptocurrency within the game space, I’ve focused on them as an addition to an already existing product. The idea was that in constructing a cohesive game experience and then throwing in NFTs later, a developer or publisher was merely attempting to cash in on hype and drum up discussion about the game in question.
But I haven’t spent as much effort dedicated to the specific topic of “play-to-earn.” This is the idea that the purpose of playing a given game is to generate revenue. Often this comes with the implication that you can make playing the game your job, and not have to engage in “normal” occupations. Sometimes it comes with the implication that you can become rich if you play the game right. Whatever the case may be, the concept of play-to-earn is another example of manipulation within the marketplace.
So with the complete and utter demise of the game Axie Infinity, it feels like a good time to talk about the fundamental logic of the play-to-earn economy and break apart the foundational narrative that “anyone can make money and a living off of the game.”
What is Axie Infinity?
It might be useful to begin with a brief overview: what is this game?
Axie Infinity is at its core like Pokémon battling. A player constructs a team of creatures called “Axies.” The Axies have different traits and looks which are randomly generated when they are “born,” with some having more desirable traits than others. Players then uses their team against other teams (either controlled by AI or by another player) in a battle, and Axies then take turns casting spells until one team loses.
The winner of the match then gets rewarded for their success. Specifically, the winner gets paid in a currency called “Smooth Love Potions” (SLP), and can also earn additional tokens (AXS) by winning during special tournaments.
That’s about all that you need to know about the game side of it. So how does the economy work?
Basically everything within the game can be traded or sold, and also serves a function in the game. The Axies themselves operate as NFTs, and thus can be bought and sold. And of course, the better traits that an Axie has, the more one can demand in asking price. SLP and AXS are used to breed more Axies, which are of course a way to generate income if you manage to get lucky and breed a rare one. And since SLP and AXS are needed for this function, they are something that players will want to purchase and thus will also have a monetary value.
So players are continually playing, generating SLP and AXS, and then either selling off those tokens or spending them to breed more Axies.
Of course, it’s not really possible to talk about this whole process without mentioning the concept of “scholars” and “scholarships.” Particularly when the cost of getting into the game was fairly high – since you needed to construct a team, which meant buying at least three Axies – new players might not be able to afford the game itself. So wealthier players or investors would buy up a bunch of Axies, construct teams, and then “loan” those teams out to new players, a process referred to as a “scholarship.” The “scholars” would then play the game and earn SLP, and then would split that SLP with the actual owner. By offloading the actual effort of playing onto other people, wealthy investors could basically make money by just sitting around doing nothing.
Is the game actually fun? This is where things get unclear. Certainly you’ll find plenty of people say that they find the game fun. But it’s also hard to disentangle that feeling from the “sunk cost fallacy”: that people are effectively tricking themselves into believing they are having fun because not having fun would make them seem foolish. There are plenty of accounts you can find of players saying the game isn’t fun, but it’s hard to know what to make of all these things. There’s certainly no reason to believe that the game is inherently unfun, but that is itself damning with faint praise.
The Play-to-Earn Fallacy
Okay, so are people actually making money off of Axie Infinity? Well, technically, yes. There might still be a few people, but primarily those would be the people offering scholarships – the people who don’t have to actually put any time and effort into the game. Otherwise, everyone still playing is likely barely getting by. They might be making a few dollars per day.
Were people making money, before the market hit its current low point? Yes. The game was pretty widely popular in the Philippines in particular, and successful players (note, of course, that not every player was going to be “successful,” since you would need to win some number of matches against other players) could make just above the minimum daily wage. So technically, yeah, you could scrape by as a player.
Of course, in saying that, what it carries is the implication that anyone could get by without needing a proper job. You can earn money by playing a video game. That is the inherent promise of “play-to-earn.”
But there’s a fundamental flaw in the logic of how play-to-earn games work. Technically, there are two fundamental flaws.
Let’s start with the foundational broken nature of the game’s economy. So I’ve mentioned these three different game assets: Axies, SLP, and AXS. All of them have basic uses, but also they all exist to be sold.
Of course, the basic rule of economics is supply and demand: when people want something and there’s plenty to go around, the item will be cheap; when that something is rare, the price will be expensive.
So if you have a bunch of players continually playing and generating SLP, and then selling off that SLP, what is going to happen? Well, the market for SLP is going to become oversaturated – there’s a much greater supply than there is demand for it. When players are mostly seeing SLP as a token to be sold off for real money, then you have a recipe for inflation: each SLP becomes worth less and less over time.
The solution to this was to try and encourage players to burn SLP in various ways. You tweak the formula so that breeding Axies requires more SLP, for example. The idea is that when you take SLP out of the system, it decreases the supply and thus keeps the price stable. The problem is that these solutions only work if players actually take advantage of them…and there’s not really much indication that they were. Because, again, the game is play-to-earn. SLP is just a token used to generate real money. Why would you burn off your real money?
The same problem existed with Axies. If a good way to generate income – especially a big payday – was by breeding a rare Axie, then you get a bunch of people continually making new Axies and trying to put them on the market. Which means that the supply of Axies eventually skyrockets and the value for each one tanks
Now a video game economy being busted in various ways isn’t really a problem. But it becomes one when real money starts to get involved. And for Axie Infinity, which revolves entirely around real money, you had tons of people who lost massive amounts of money on this venture, believing naively that they could make a living or get rich.
So the inherent problem of play-to-earn is that the game’s economy is going to inevitably be busted in some way. There is going to be too much uncertainty and fluctuation in the markets to successfully predict behavior. This is why fiat currency – the everyday dollars you use to buy stuff issued by the government of whatever country you live in – tends to just work. Because the central authority issuing those dollars can not only just manipulate things here and there to get you to spend your money in different ways (akin to a game developer trying to encourage you to burn a token rather than selling it), but they can also pull various levers to help control the value of the currency itself. But cryptocurrencies specifically try to get rid of that second part. Which means they are entirely beholden to the psychology and behavior of players. And that makes for unpredictability.
Who Really Wins?
So note that in order to develop a game, update it, monitor users for bad behavior, and all of that stuff, you need to be generating at least a bit of revenue. Enough to pay people and to keep the lights on.
I bring this up because an important part of the narrative about play-to-earn is that players are the ultimate winners.
But it raises a fundamental question: if you play Axie Infinity and make a single US dollar, where did that dollar come from?
The answer is “someone else.” Either your dollar came from someone else who had bought into the game in some other way, or your dollar came from an investor in the game, or your dollar game from the game’s developer.
But note that none of these options really have good outcomes for you as the player. If you’re getting your money effectively from other players also hoping to make money, then the narrative collapses. Not everyone can make money: there have to be losers. If you manage to make money, it is only on the back of some other player who had the same dream you did. And if you say “well, they should have played better, or shouldn’t have gotten involved at all,” then you’re discouraging people from giving you money.
If the money is coming from wealthy investors, then those investors are only putting in money with the belief that they will be getting a significant return. Which means if the game is losing money, investors are going to pull out of the project, and there won’t be any more money to hand out. The game collapses.
Similarly, if the money is coming from the developer, then the developer has to be making more money than it’s paying out. Otherwise, the developer goes broke, there’s no more money, and the game collapses.
So in order for a play-to-earn game to be “successful,” it needs to generate money, and to generate money the players need to lose. Play-to-earn games are functionally like a casino: yes, some players can make money, and even a lot of money, but overall the house wins.
And that’s the foundational manipulation of the scheme. Because in saying that you can earn money by playing, a developer or investor or player is trying to get you to spend money so that it can go to them. No one pushing play-to-earn as a game model is doing it because they want to enrich players. They are doing it to enrich themselves.
Because the model fundamentally cannot enrich players. Someone has to be losing on this proposition, and no developer in their right mind is going to create a game where they are the one losing.
In talking about play-to-earn, I don’t want to make the blanket statement that every single player loses money. There are absolutely some people who can make money, and even a lot of money, by playing these games. But the problem in talking about those players is that they are often held up – or hold themselves up – as an example of the basic narrative that play-to-earn is a sustainable model for players. Other players are making money, so you can too.
My argument here is to help lay out how that premise falls apart. Play-to-earn is a manipulation, pure and simple. When it works, it’s usually because of players getting in early, or finding a way to game the system – think to the team owners loaning teams of Axies to “scholars” and then just taking part of that player’s profit. And when it works, it works to the advantage of those in charge – those who are wealthy or who are operating the game.