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Source: Arthur0x
Original title: Play-to-Own: A Web3 Gaming Thesishml3
WEB3 Games COVID-19
Since the first batch of tags entered the open market in the 1970s, electronic games have undergone tremendous changes. From paid consoles and PC single-player games released over the past decade to free-to-value mobile games, gaming experience and business models have changed with advances in technology. Today, the gaming market is worth more than $300 billion (according to Accenture and BitKraft), and is expected to grow at an annual rate of 12% from 2022 to 2028.
Our argument is that integrating Web3 elements into the game may open up a new era of games called "From Play to Have". We believe that unlocking economic activity in games will greatly expand the potential market ("TAM") of the gaming industry and accelerate value creation.
2021, we saw the potential of Web3 games through the fame of Axie Infinity. By promoting the gaming revenue “Watch while playing” (P2E) model that most of us are familiar with, Axie has grown from 10kdau in early 2021 to a peak of 3 million, and has brought in $1.3 billion in revenue in 2021. Even more surprisingly, Axie is still in its infancy: this simple battle game is just a beta. The parabolic growth of
Axie marks the untapped potential of Web3 games in the gaming industry, and has inspired a large number of gaming talents to influx into the cryptocurrency sector. The stock price of the publicly listed game studio has even been re-rated due to the launch of Web3's core and tokens. Axie's parabolic growth to the gaming industry marks the unexplored potential of Web3 games, and has inspired a large number of gaming talent to pour into the cryptocurrency sector. Due to the release of Web3's fulcrum and tokens, the stock price of listed game studios has even risen again. Compared with Web2 games, the game that integrates NFT has achieved greater success in player retention, growth and revenue. We have begun to see countless projects embed innovative earning mechanisms in gameplay. In addition to game studios, the entire ecosystem has also quickly revolved around "game making money", such as game guilds, DAOs, tools of these guilds, game discovery platforms, hosting, trading infrastructure and analysis.
The current flaws of the P2E model have been recognized as the challenge of managing the inflation economy and attracting value extraction rather than real players. Most of the leading companies in the Web3 gaming space are moving beyond this model to make it more sustainable. We look forward to a quick experiment in the coming months. We firmly believe that the next generation of successful Web3 games will succeed without the P2E mode.
To predict the future of Web3 games, we can review the history of the game's business model and understand the cumulative changes that have brought us to this inflection point.
Changes in business model - Paid games, free games, money-making games, and own games
Looking back on the development of games over the past 50 years, we can see that business model innovation and technological progress have occurred simultaneously in multiple unique periods.
The first commercially successful electronic game business model is a paid game model promoted by arcade games Pong - gamers insert coins into arcades and play for a specified time, or until they fail in the game. Arcade games are often simple and interesting games with high scores of competitive elements that keep players coming back and playing.
Later, with the rise of personal home computers and console games, paid boxed retail games such as " Diablo" (Diablo) also began to rise, and players can play in the comfort of their homes. The downside of paid boxed retail games is that the revenue opportunities are one-off, and the only way game developers take advantage of this is usually to launch multiple series over a period of several years. Advances in
digital distribution technology allow live streaming to serve games, while game developers want to earn recurring revenue, which results in a paid game model based on subscriptions.In this mode, gamers pay a fixed monthly fee to get regular updates and enhanced game content. Many successful games have adopted this model, including the ancient World of Warcraft , which had more than 11.5 million monthly paid users at its peak.
is too fast to compete with other players with stronger levels.
With the rise of mobile apps and the increase in people's preference for casual games, the free game/free value added model has become popular. In this mode, the basic gameplay of the game is completely free, but game publishers can make money through micro-transactions. Examples of such microtransactions include Season passes and Loot boxes/Gacha, which enable players to gain jewelry or other benefits, allowing them to compete with other players through faster upgrades/more powerful weapons. The benefits of the
free mode are obvious because it allows users to easily start playing games and provides game developers with a recurring revenue stream. However, over time, developers are working harder on profitability, which disappoints players because they feel the developers’ increasingly strong “money grab” behavior and feel that the game cycle is increasingly affected by “paid” players who can get success in the game through paying. One common point in the evolution of these business models of
is that game developers are increasingly inclined to extract more lifetime value from players while investing minimal effort and costs.
goals have turned to profit at the expense of fairness: from products designed to provide fun experiences to super optimized businesses that allow players to spend as much money as possible. This has already learned about player behavior by improving data acquisition and how to make money from users through predatory programs.
In many cases, what players work hard on is exaggerated or unfairly weakened to support new items sold through primary sales, with revenues owned by the developer. The concept of true ownership of assets in the game doesn’t exist because players find that once they decide to stop the game, their efforts are worthless.
At the same time, there is a fundamental problem of motivation imbalance. Decisions across the gaming ecosystem are made by developers who may not take into account the opinions of the community. There are few intentions or methods to compensate players and creators who contribute to the success of the game through their efforts.
Play-to-Earn - Incentive gameplay with financial value
uses blockchain technology to introduce active token incentives and real ownership of game assets into the game through NFT, forming a business model of Play-to-Earn's game profitability. P2E players are able to convert the time they spend in the game into tokens and NFTs, which can then be converted into cash for use in the real world. Usually in this type of game, the "reward" part of the game is highly emphasized to attract players to play as rewards, hoping that some of it can be converted into paid players.
In Axie Infinity, if the player is at the high level of MMR, he can earn more than $200 a day. In developing countries such as the Philippines, this amount may be much higher than the minimum daily wage of $10. However, relying on games as a job is unwise, as the token price experiences huge fluctuations and if the supply exceeds demand, the price cannot be maintained. An emerging game economy with limited content depth will not be able to support a player group that focuses on value extraction.
In the "play while earning" game, the health of the economy has become crucial. It is urgent to ensure the balance of tokens faucets and sinks to keep the value of core coins and projects stable. In emerging economies, limiting the number of speculation is also important to limiting the degradation of user experience caused by fluctuations.
follows Axie's footsteps and we've seen some P2E games try to imitate their success. Due to poor economic design and management, most games are struggling with excessive inflation of in-game coins – a high percentage of players cashing out has led to a death spiral, and as the token price drops, players' incomes are falling, they no longer play games because the main reason they play games is to get economic benefits.
Play-to-Own--The Future of WEB3 Games
From Axie Infinity, we learn that in the initial guidance stage of the game economy, early believers and participants were mainly driven by economic benefits, they took risks, acquired assets, worked hard to mine resources, and sold them to later participants.
However, since incentives cannot subsidize growth forever, game developers must find ways to convert earning seekers into consumers in a sustainable gaming economy.
Although this can be achieved in the short term by adjusting faucets and introducing new token sinks, organic consumption can only be maintained through a continuous stream of novel and interesting content and experiences, players will be willing to pay for these content and experiences without expecting any financial rewards. Building an immersive world and community-favorite characters is the most sustainable way to develop the game.
We believe that Play-to-Own will be the next evolution of the game business model. Games are not jobs, and the ability to make money through games should not be emphasized. This term reflects the need to unify the game’s players and owners, and also reflects an understanding of NFT technology, which is about improvements and improvements.
We define Play-to-Own as:
"a blockchain game developed based on the concept of Web3 - this is the consistency of incentives and real stakeholder ownership. Players are rewarded for games and contributions, and own the ownership of the game in the form of tokens or in-game assets."
Unlike pure P2E, Play-to-Own will focus on interesting gameplay, a sustainable economy, and promote a strong sense of ownership of in-game assets and IPs - rather than the gamers' short-term money-making mentality. We believe this model will allow games to gain the real benefits of blockchain, such as unlocking value from game assets, better price discovery and building a strong sense of community ownership. The term
means that people will actively work hard to experience the way they play games to gain ownership of valuable assets, rather than stubborn blind operations in badly designed profitable games.
In addition, we believe that the threshold for Play-to-Own game will be very low for new players to start the game and will issue sustainable rewards as a user acquisition strategy.
For example, the game can be free at the beginning, allowing players to earn small rewards that are then invested into the game to obtain valuable game assets. Additionally, users can easily rent NFT assets from the market through profit sharing agreements and participate in high-level competition without spending money.
Nansen has a good visual interpreter for stakeholder mapping in Web3 games:
Finally, we treat Play-to-Own as a positive-sum game, a simplified mental model:
We predict that players' consumption will be an order of magnitude higher than revenue in Web2 games, and Web3 games will transition to gross commodity value (GMV) as an indicator of all transactions in the virtual economy.
is crucial to create net worth by the ecosystem shared by developers and the community (in this case, from $10 to $20, an increase of $10). With sound economic management and in-depth game content, Play-to-Own will be more sustainable than Play-to-Earn, generating revenue for developers and communities over a longer period of time.
promoters accelerate the development of the Play-to-Own movement
From the first principle, we believe that the acceleration of the Play-to-Own movement is supported by the imbalance of incentive mechanisms in the current business model and the value proposition provided by Web3.
Web2The imbalance of incentive mechanisms in the game (drivers)
Power 1: Gamers will always seek the time spent on the game and the ability to present online as much as possible.
Based on experience, we know that gamers will naturally find ways to make money when spending time in the game and showcase the best game accessories. Trading companies in
games, such as Grand Exchange in Runescape, have already made a generation of players understand the economic aspects of the game. In popular MMO or MOBA games, gold breeding and account promotion operations are also common.Players have an inherent psychological model of what is valuable in the game (including rare loot, hidden content and the entire account), and when they exit the game, they always think of using these valuable items for money.
The restrictive economy of the current game will push more players who understand the value of virtual items into Web3 games, where the tokenization of in-game resources and assets reduces friction in value exchange, thus releasing more economic activity.
As time goes on online, these digital natives are increasingly favoring digital elasticity; however, the value stream of games is one-way, so it is difficult to justify investing a lot of money in games.
has NFTs that can be resold, and the flow of value can be two-way. The game player's mentality shifts from pure consumption to asset ownership should greatly increase the game's TAM, because when the asset value can grow and be sold to restore some surplus value, players can psychologically justify consumption. A huge obstacle to using decentralized applications has been the concerns when it comes to self-custody of funds and sending on-chain transactions through wallets like Metamask. However, we believe this is not a problem for those who are used to managing game accounts with high-value items and in-game currency.
promoter 2: Disappointed with game developers due to the dislocation of motivation between developers and players.
Now, most games are investment products driven by ROI instead of focusing on fun and playability. The goal of gaming companies is to spend the least resources on players while earning the largest amount of money. Investor pressure, expensive overhead and strict delivery time limits can also lead to unfinished products being sold to players.
In recent years, there have been many cases that the trust of players has been disappointed due to the failure to provide a satisfactory gaming experience after a large number of trailers that have been continuously hyped. There are countless examples like
: expensive paid content, unfair game patches, weakening new props carefully obtained by players, while choosing new drops, prohibitive microtransactions, interfering ads, low-quality combat passes, lack of support for cosmetics in the past season when they are damaged in the game...
lists like this include: expensive paid content, unfair game patches, weakening new props carefully obtained by players, prohibited microtransactions, invasive ads, low-quality combat passes, lack of support for last season's props in the game.
As the cash scramble becomes more blatant and promises are broken, the player community is increasingly feeling disrespectful and tired of the game studio.
Driver Three: Game developers and publishers can abuse UGC creators without consulting the community to seek their own bottom line.
Currently, creators of user-generated content (UGC) pay high for their work, and in some cases, may not be compensated at all. Game publishers can easily change rules and royalties payments, as seen in the case of Steam.
An interesting example is Defense of the Ancients (commonly known as DOTA), which is the UGC game mode of Blizzard Warcraft 3 (Warcraft 3), which has driven a large number of players to the game. It is unclear how much the creators of the model will be able to gain from this success. Eventually, the active developer of the MOD turned to Valve for DOTA2.
In the Web3 game, the royalties executed through smart contracts give professional UGC creators the confidence to build their own business based on the game. This leads to the delivery of higher quality works to the community and a high-quality UGC marketplace.
In addition, when token incentives are used to boost UGC work, there is a larger percentage of creators who can make a living and benefit from their creative talents. At the same time, this also enables the limit on the speed of content generation in the game. Any changes to royalty sharing can be decided by stakeholders’ votes, resulting in healthier voices.
Web3 Game Value Proposition (Pulse Factor)
Push Factor 1: The secondary market is more liquid, resulting in greater transaction volume and revenue
The open and trustless economy built on the blockchain makes the secondary market of game assets full of vitality. The price of the project is determined by market forces and natural demand and supply, and is not subject to the intervention of game developers.
game developers can have an alternative monetization strategy based on transaction fees and secondary market transaction usage fees facilitated by smart contracts. Assets are freely liquidated, and players can recover some economic value from the time, energy and money they invest in the game.
game developers can also have another profit strategy based on the secondary market transaction royalties supported by transaction fees and smart contracts. Assets are freely liquidated, and players can gain some financial value from the time, energy and money they invest in the game.
We believe that in the long run, this will lead to a significant increase in TAM in the gaming industry.
Pull Factor 2: Web3 games integrate incentive mechanisms between players, investors and developers. So, as everyone invests in the game’s success, players have strong player power and community management.
At present, the gaming community does not have a direct way to develop with the success of the game and share any form of financial gain.
players usually have no say in the direction of game development, because most games are tested behind closed doors. The game revenue has also never been shared with players and early believers, although they are a major reason for the game's success.
NFT and token-driven games provide a solution where players can invest financially in game tokens in early in the game launch and after the game launches.
In the early stages of development, game developers can identify and involve these enthusiastic holders in the game building process. These early believers who have enough reputation or skin in the game can also be investigated to understand their views on how the game should develop.
With the launch of the game, governance tokens allow the community to participate in the governance and management of the game. Open communication channels build trust and understanding, driving deeper engagement as players have ways to make developers hear them.
Pull Factor 3: New user acquisition form due to the interoperability of assets, game history and token use
The unlicensed and open environment allows game developers to integrate third-party NFT assets (even assets from other games) by creating special custom jewelry used in their own games. Developers can look for communities that look the most enthusiastic or best suited to their target characters to market their games.
As the tools to determine legitimate wallet activity mature, players' on-chain history or metaspace archives can be accessed and locked by other games to acquire users and airdrops. This creates a win-win situation, with game developers having new forms of user acquisition, while strengthening the IP, utility and network effects of integrated NFT assets.
As the tools to determine legal wallet activity mature, players' on-chain history or meta-universe archives can be accessed and locked by other games for users to acquire and airdrop. This creates a win-win situation where game developers acquire a new form of user acquisition while strengthening the intellectual property, utility and network effects of integrated NFT assets. Ownership of
tokens and NFTs helps with organic marketing as the community becomes an effective communicator of the game with very little marketing budget spending.
Pull Factor 4: Game Studio’s Fundraising Capabilities Improved the early liquidity provided by
through token investment rather than equity, helping blockchain gaming projects raise funds from institutional investors because people have lower exit risks. According to reports from Dappradar and BGA, a total of $4 billion was raised in the blockchain gaming space in 2021. By comparison, traditional gaming startups raised $4.7 billion in 2020.
sells future in-game assets as NFTs, which can help raise a lot of money and financially eliminate the risks of game projects so that development efforts are not restricted by tight budgets. The ability to freely resell in the secondary market makes it easier to buy.
In addition to pure asset speculation, we see players willing to invest and make their wishes a reality. As the market matures, participants will choose to fund projects that show a sense of responsibility in development progress and community building.
What should a successful Web3 game look like?
To fully enjoy the benefits of building in Web3, we believe developers should perform the following core elements:
1, complex world construction and growth of intellectual property (IP)
Simply put, when there are a lot of activities in the world to do, players will spend more time in it, which is directly related to the money spent on the game.
designs the game world to be composed of various ideas, allowing the community to participate in creating stories and characters, thus becoming a hotbed for UGC. When the community participates in the world construction, players will develop a strong emotional dependence on the game and IP. Having a cross-media content strategy that reaches audiences through various media is crucial to achieving this goal.
In addition, developers should socially coordinate around common technical standards and actively advocate the adoption of these standards to improve the portability of assets in various virtual gaming worlds. As more third-party game and content creators integrate original NFT assets, the value of IP increases with increased attention and awareness.
2, immersive social and MMO experience
should emphasize high customization, identity construction and social interaction. As people pay more attention to avatars and property in games, the motivation for consumption and display is becoming stronger and stronger. This encourages consumption in the virtual economy.
In PvE and PvP, the rewarded multiplayer experience increases the interactiveness and social elements of the game. The climbing rankings and the war between guilds also cater to the players' competitive nature, encouraging consumption to stay at the top.
meets the psychological needs of players and brings them into the "magic circle" is where the game succeeds, and it can make players forget the open economy where assets are financialized.
3, Deep Economic Meta Game
Note: Meta Game refers to a higher level strategy above the main gameplay. Since it plays a fundamental dominant role in the main gameplay (even can even destroy the rules of the game), it is called a meta game.
skills and efforts should be rewarded more than passive games or pure consumption, as these players are likely to be more valuable customers who will reinvest in the economy. A stable content patch and practical activity is needed to encourage a secondary trading market for vibrant materials and valuable items, thereby increasing the royalty revenue of the game.
token inflation is a tool to acquire and retain users during the start-up phase of the economy. Developers will need to monitor key economic indicators to adjust sinks and faucets and actively manage the health of the economy over time. The goal is to strive to achieve stability of the base token by keeping inflation consistent with the growth of the player population. In-game business and operations can only be established if you have confidence in the long-term stability of the economy.
If speculation is not restricted in the early stages, opening up the economy can be a double-edged sword. Economic designers should design ways to protect nascent economies from extreme volatility and asset abuse. This can be achieved through the form of direct and indirect taxation of trade and asset possession.
Overall, the game and player goals need to be consistent. The success and benefits of the game should be based on the value players gain from entertainment and economic returns.
4. Gradually democratized the game
In order to extend the life cycle of the game, the decision should be made collectively by developers and provided by investing and reputable stakeholders in the community. A well-governed community owns games that should increase engagement and retention based on the community’s perspective.
is also important to plan ahead for the economic scale of the game to the extent that nation-state actors may participate in the review. A decentralized technology stack is crucial to ensure the lifespan of a game while maintaining its uncensored nature. This may apply to more mature games.
If the developer is considered a bad manager of the game, open source game code can also ensure that the community has the ability to participate in the game, thus maintaining the continuity of the virtual economy. We envision that there might be different teams of developers to create content for the game and maintain real-time operations, and players can vote at the end of each season to determine whether they have the ability to grow the game and retain players.
Our evaluation framework
A game's success stems from the functionality, distribution and economic balance of the product, driven by a competent team. Our evaluation process:
1, team lineage. We love seeing a good combination of game development and crypto talent with a strong vision for games.
Successfully released a game requires the ability to attract and retain talents, effectively allocate resources, and coordinate the work of various functional teams such as art, music, and technology (usually more than 100 people). In such a complex situation, it is no surprise to see the game being delayed for a long time and failing to release.
In addition, understanding the distribution channels (distributors and marketing partners) and the way to build hype is the key to successful releases. Even after release, it is crucial to maintain the pace of live service – generating new content, game patches for players to extend the life of the game.
For Web3 games, encrypted native experience begins to play a role as the business model is different. Teams should have in-depth knowledge of how to initiate and drive value accumulation of tokens and NFTs; manage financial and incentive plans; mechanisms provided by smart contracts (such as bets), which Web3 games can use to start flywheels and accelerate growth. Community building should be second nature – maintain clear communication and accountability to build trust and a passionate community of players, contributors and game owners.
In essence, the team created the foundational layer for the prosperity of the ecosystem and became the manager of a grand vision. Having those experienced people who have actually released games, while having a true passion for Web3, will be the key to success.
2, products and distribution. An interesting game that can reach a wide range of viewers willing to consume.
One question we like to ask ourselves is, if there is no potential reward, can we imagine ourselves spending time and money on this concept? Before
is officially released, the game should be tested and iterated until you have enough confidence in the game loop. In this regard, an open iterative approach to working with the community helps game building. Different game loops should be designed to suit different stakeholder groups, each optimizing according to their own winning definition.
●Free gamers who spend time and energy casually for enjoyment
●Attack the most difficult dungeons and compete for the core players to players and guilds to guild rankings player
●Aid to design and build the creators of game areas and experiences
●Hype economic resources and metagame merchants and traders
Full understanding of the target players and how to get them through the most effective distribution channels is necessary. Marketing partners, release events and community building work need to be planned in advance to ensure successful releases.
To improve the on-boarding process and retention rate of gaming or mobile applications to achieve higher conversion rates. Developers also need to abstract the blockchain experience if necessary. Players need to easily obtain tokens and game assets on the game client.
3. Economic sustainability: managing inflation and curbing economic volatility
We believe that the health of the economy is crucial to the lifespan of the game. With blockchain unlocking the virtual gaming economy, it is imperative to model faucets and sinks in the game and build adjustable macro leverage to balance token inflation and player growth.
controls and converts economic speculators and value extractors into consumers, which will be an important effort. In the long run, having good content, intrinsically motivate people to consume, establish effective sinks, and reduce the impact of inflation rewards.
game cycle and major changes in the economy should be made with the investment of community stakeholders, and a delicate balance and communication should be carried out. Developers should strive to achieve reasonable token design, ensuring that all replaceable and irreplaceable tokens within the ecosystem have clear utility and value accumulation.
Topic: The best games will form the metaverse
We believe that the underlying technology of blockchain is technically ready to meet the requirements of games for mainstream audiences. Now, what needs innovation is user experience issues (asset custody, GAS payment, bridging requirements, etc.). Developers should try to educate the difference between onchain and offchain assets, abstracting complex things, and slowly introducing onchain elements for more advanced users.
We believe that the underlying blockchain technology is technically possible to target the needs of mainstream users. What needs innovation now is user experience issues (asset custody, gas payment, bridging demand, etc.). Developers should try to educate the difference between on-chain assets and off-chain assets, abstracting their complexity, while slowly introducing on-chain elements for more advanced users. The most obvious type that
is best suited to leverage Web3 elements is MMORPG (massive multiplayer online role-playing game), such as World of Warcraft and 4X (exploration, expansion, development, and elimination); and strategic games such as Clash of Clans, because it has a deep economic and social gaming cycle. The use of blockchain technology will also lead to innovations from 0 to 1 in game design due to the possibility of asset storage and the on-chain of game logic.
When studying the current game design space, we were excited about the “top-down” and “bottom-up” approaches to building Web3 games—recognizing the different challenges each game faces. Here is a typical overview of both methods:
According to our paper, we invest in gaming and auxiliary infrastructure such as guilds and game discovery platforms. We avoid teams building casual games and "GameFi" with a short life cycle, which we define as zero-sum games, with the only goal of getting the biggest financial returns – they are essentially gamified front-ends on the same Ponzi income farming mechanism.
Our approach is to actively support long-term oriented projects that provide interesting content and experiences, focusing on a sustainable gaming economy – executing all value propositions as Web3 gaming. The most successful games ultimately form the core of the metaverse, where the games have a huge impact on the digital reality of the vast player population.
The Bull Case
From the level of talent we've seen entering the field, we have reason to believe that the next generation of definition franchise will be built on Web3- which will reverse the general negative sentiment towards Play-to-Own games that leverage NFT.
We believe that games built on open peer-to-peer networks will unleash greater economic value and significantly expand the overall target market ("TAM") of the gaming industry - a trillion-dollar economic output is expected to occur over the next 10 years.
We are eager to invest in creating such a future where real value flows from the virtual world, where experiences are as real as the physical world, and DeFi emerges as a financial tool to serve these on-chain economies.
Editor in charge: Felix
