The online gaming industry is experiencing an influx of Web3 game models, which are getting a lot of attention from gamers and investors.

In Web 2.0 games, or freemium games, the value creation of all economic activity has been captured in a centralized model of ownership controlled by publishers and game developers, leaving not enough room for players to earn value from appreciation in demand for virtual digital assets (VDAs) in a secondary market.

There was a rigid control mechanism over a player’s downloaded content (DLC), authentication of ownership, and operation of the in-game digital asset.

Enter “Play and Earn” (P&E) games, based on blockchain technology, in which a player acquires ownership of the VDA, whether in the form of non-fungible tokens (NFTs) or game-based tokens. They work in-game to increase the value of their VDAs through merit-based advancements, after which they can be unlocked in a secondary market.

Some popular examples of such games are Decentraland, Axie Infinity and The Sandbox (SAND).

P&E was the natural progression of Play-2-Earn (P2E) games as earnings had less to do with the game and more with the player having to initially invest money in purchasing NFTs. They would only get returns when future players also invest money in the same way in the game.

Therefore, the common consensus within the industry was to go back to first principles and merge Fun-2-Play with P2E, and view GameFi as a P&E opportunity rather than a P2E opportunity. The player is not entering into an investment program and should not be subjected to a less than normal gaming experience.

Only if the game is fun will it essentially be a win-win situation where players enjoy their game time, gain ownership of assets; while developers and publishers also benefit as these games could attract many newbie players and expand the customer base significantly.

Emerging challenges

Challenges are inevitable with any nascent model. The P&E ecosystem also faces challenges such as digital token price volatility, high hurdles to player acquisition, sustained influx and initial capital investment.

Inflow is what players pay (in terms of currency or by buying virtual assets) for the experience and what covers the cost of developing the game. Output is what operators get out of the game as profit. In traditional games, the exit to the players is somehow forbidden.

P&E, however, relies heavily on exits to actors as a core element, thus creating potential disruptions, and ends up attracting mostly exit-type actors that will pose a challenge to its long-term sustainability. Mass adoption strategies for P&E games can run into hurdles due to the initial capital investment that some of these games currently require. Players not only have to buy NFTs in advance, but also pay gas fees which are paid to offset the computational energy needed to process any transaction on the Ethereum blockchain.

Gaming Guilds to the Rescue

Many concerns about sustainable inflows and initial capital investments can be addressed by in-game guilds, made up of investors, players, and managers who purchase in-game items like land and in-game assets under the form of NFT, then lend them. to new players who may want to try out the new format, earning returns by using these game assets in the respective virtual worlds. The guilds then take advantage of the player by sharing a portion of their earnings, as well as the rent paid to the guild. The goal is to make it easier for individuals and communities to participate in P&E games without upfront capital.

The P&E ecosystem should be developed with player-centric design principles in mind, which have a low cost of entry and where play can be decoupled from up-front expense or investment as a prerequisite for winning . P&E has the potential to transform from games with financial incentives into virtual ecosystems where people socialize, entertain and enable permissionless creation to drive commerce at its base, protected by immutable digital rights.

Manish Agarwal is Managing Director of Nazara Technologies, Chairman of Games of the Internet and Mobile Association of India and Convenor of the Games Committee of the Federation of Indian Chambers of Commerce and Industry (FICCI).

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