Crypto and Gaming Converge in Risky Play-to-Earn Economies

April 8 (Reuters) – 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 send into battle to win cryptocurrencies.

The 28-year-old from Bangkok played Axie Infinity, one of a new breed of blockchain-based online games called “play-to-earn” that combines entertainment with financial speculation.

These games could generate lucrative businesses amid the hype surrounding NFTs and virtual worlds, attracting millions of players plus billions of dollars from investors who see the games as a way to introduce more people to cryptocurrency.

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In Axie Infinity, users buy virtual blob-like creatures with various attributes as NFTs, or non-replaceable tokens — digital assets whose owner is captured on the blockchain — for anything from tens of dollars to hundreds of thousands. read more

Players can then use the pets to earn money by winning battles and creating new pets, whose value depends on their rarity. The assets can be traded with other players on the platform, which it claims has about 1.5 million daily users.

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

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

Vietnam-based owner of Axie Infinity, Sky Mavis, said it would repay 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 firm a16z. read more

Sky Mavis co-founder Aleksander Larsen told Reuters that if he could have done things differently, he would have focused more on security when building out the game, which launched in 2018.

“We were basically running 100 miles per hour to even get to this point,” he said. “The trade-offs we made may not have been the ideal ones.”

The hack, one of the largest crypto heists ever, shed light on play-to-earn games, a fledgling world largely unknown outside of crypto and gaming circles that is becoming big business.

Players spent $4.9 billion on NFTs in games last year, according to market follower DappRadar, representing about 3% of the global gaming industry. While demand has cooled since last November’s peak, gaming NFTs have still raked in $484 million in sales so far in 2022. read more

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

“There are so many users who want to interact with the technology,” Larsen said, adding that Axie Infinity’s revenue was more than $1.3 billion last year. “It’s like finding a new continent… like finding America all over again.”

Monthly Sales of Gaming Related NFTs

HAVE AND HAVE NOTHING

Adding layers of complexity has also created unofficial financial networks around these games as some players use their coveted in-game assets for more profit.

Thitadilaka in Thailand decided last July that he wanted to make more money than he could by just playing alone, so he and his friends decided to form what is known in gaming parlance as a “guild”. They let their NFTs be used by people who wanted to play Axie Infinity for free, without investing in an asset, and in return receive a share of the winnings.

This model is common in games to earn. Thitadilaka said his guild, GuildFi, grew into a network of 3,000 Axie Infinity players who shared their earnings 50:50 with the owners. Thitadilaka now runs GuildFi as a full-time job, and the company has raised $146 million from investors.

Southeast Asian countries such as Thailand and the Philippines have become one of the most popular global gaming hubs.

Teriz Pia, who is 25 and lives in Manila, quit her job as a kindergarten teacher last June after her brother founded a game-to-be-earned gaming guild, Real Deal Guild.

Now she says she makes as much as $20,000 a month through her network of more than 300 players across multiple games, plus other crypto assets.

For Axie Infinity, Pia lets her players keep 70%, while getting a 30% discount. In another earning game, Pegaxy, where players buy and trade NFTs of virtual horses to compete in races to win crypto tokens, she shares it 60:40.

“I don’t call them workers. I just call them my friends or my scholars,” she said. “The salary in the Philippines if you’re a teacher…I graduated, I’m a teacher, but it’s not enough. I never thought I could earn this kind of money.”

But Pia warned that it was a dangerous undertaking.

“There is a lot of risk. When I invest in a new game… as 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 a risk anyway .”

One of the largest play-to-earn networks, Yield Guild Games, said it had 10,000 Axie Infinity players as of the fourth quarter of 2021 who kept 70% of their revenue and received a total of $11.7 million.

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

‘HOW PEOPLE ARE INJURED’

Legal experts warn that there is no safety net for players to invest effectively in risky assets, leaving them very vulnerable if a project fails or the market for the assets dries up.

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

“It is risky to store value in projects like this. Earning in-game to earn blockchain-based games is often paid through rewards in the project’s original token,” said David Lee, cryptocurrency associate at the London-based law firm Fladgate.

“There are no guaranteed values ​​of the token or in-game asset, as their value is often determined by supply and demand in the market. This means that there can be significant volatility in the price and, if the project becomes less popular or abandoned, there is a chance that the assets will become worthless.”

Still, proponents of these games say that success is based on a combination of factors such as skill, strategy and luck.

“There is certainly money to be made, but there is also money to be lost here,” added Pegaxy’s Wilton. “Play to earn should not be confused with charity, that’s how people get hurt.”

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Reporting by Elizabeth Howcroft in London; Editing by Pravin Char

Our Standards: The Thomson Reuters Trust Principles.

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