I’ve spent the last year deep in the world of crypto gaming. It’s my strongest interest in the space, and the area I feel the most qualified to have opinions on.
I’m fortunate to have seen crypto gaming from more angles than most people. I was a heavy player of games like Runescape, World of Warcraft, Diablo 3, and DOTA 2, which all demonstrated early experiments at what we’d now call crypto gaming. These experiments ranged from gray markets for in-game currency in World of Warcraft, to “NFTs” of rare items in Runescape and DOTA 2, and the brief attempt at a real-money auction house in Diablo 3.
I’ve experimented with the past, current, and upcoming crypto games fairly extensively, having spent at least $100k on imaginary land, sneakers, characters, and tokens. I’ve started writing about those analyses more on this site in the last couple of months.
I’ve also helped build a crypto game economy. I’m an advisor for Crypto Raiders, where I assist on the game economy and tokenomics. Through hands-on building a crypto game economy and seeing it function in the wild, I’ve gotten to test a number of different theses. I’m also getting more exposure to these ideas in practice through additional games that I’ve started working with on their economies in the last few months.
Crypto gaming is brand new. Hardly anyone has more than a year or two of experience in it. So while I still feel very green at all of this, I also feel fairly qualified to lay out some of the issues I see in the space right now, and some ways we might improve on them moving forward.
I’m extremely bullish on crypto gaming. It’s something I’ve wanted for well over a decade, though I didn’t know the words for it until recently. I’m confident gaming will eventually grow to be a trillion-dollar industry within crypto. So while this article is very critical of the space currently, don’t assume that means I don’t believe in it. Quite the opposite. I believe in it deeply, and want to help make it the best it can be.
As such, this is also not an explicit prescription for all games. It’s rather a list of problems, and a list of possible solutions or experiments to run. I only have so much time and so many projects I can work with, so I’m sharing it in the hopes that many teams will run with these ideas, iterate on them, and hopefully make the space stronger together.
With that, let’s dive into the analysis. If you have any thoughts after reading this, I’d love to hear them on Twitter.
Current Problems in Crypto Gaming
There are a few common issues in crypto gaming currently, which I’ll go through in no particular order:
NFTs set a bad precedent for games
DeFi set a bad precedent for games
Most earnings are unsustainable
The costs are too high for game lifecycles
Much of the work is bullshit
Too much power for people with capital vs. time
“Play to Earn” sets the wrong expectations for players
NFTs Set a Bad Precedent for Games
The NFT wave kicked off at the beginning of 2021. It started with art, then moved into profile pictures, and started to creep into gaming along the way.
It’s important to highlight that NFT popularity started with art and collectibles with rarity and fixed supplies. The strategy for investing in these collectibles was to simply buy and hold them. If you picked right, the number went up, and you made money once you sold them to the next buyer.
This standard for NFT investing set a bad precedent for gaming. Making characters NFTs that people could speculate on opened up gaming to the same expectations for Number Go Up. But the idea that you could buy a basic account for a game, hold on to it, and expect it to get more valuable is absurd.
Nonetheless, there is a heavy focus in NFT games on the “floor price,” the cheapest price of entry for the NFTs. A game with a decreasing floor price is seen as dying even if it means the game is getting more accessible for new players.
It is extremely hard to build an economically sound game and a happy community when you start with 10,000 NFTs worth thousands of dollars. You’ll need to bring the price of NFTs down considerably to make the game attractive to the number of players you need to onboard. And by starting with high-value assets, you’ll attract more speculators than players, exactly the opposite of who you want to populate your early game community.
DeFi Set a Bad Precedent for Games
The first wave of crypto games are essentially a marriage of NFTs and DeFi. We took the ponzi loops that exist in DeFi (buy our token, stake it for more of the token, sell the tokens you earn, and hope you make an ROI before it all collapses!) and just added extra steps. The breeding loops that exist in many NFT games are the same as yield farming, there are just colorful characters attached to them.
Further, DeFi yield and staking set expectations for what a token should do. People expect that they can buy a game’s token and earn passive yield from it without playing the game. But introducing that passive yield ends up breaking the in-game economy.
Crypto gaming needs to break away from the expectations of NFTs, and the expectations of DeFi. Copying those paradigms helped get it started, but they’re now actively hurting it.
Most Earnings are Unsustainable
If all the sinks in a game increase the earnings of participants in the game, the economy has to collapse eventually. You cannot keep increasing everyone’s earning potential without having some massive inflation on the reward currency which will eventually cause its value to collapse.
A simple way to test this for a game is to ask what the primary token sinks are, and what they do to the economy when they’re utilized. If all of the main sinks increase people’s ability to earn, then the game is unsustainable. If the main sinks do not increase earnings, the game might have a sustainable economy. It is necessary but not sufficient.
This was my main criticism of STEPN. While the game is fun and has a better economic design than most games right now, most of the sinks increase earnings in the game right now, so it has to collapse in some way eventually unless they’re able to mitigate this.
The Costs are Way Too High for Game Lifecycles
How long does a good game last? Two years? Five? Very few games last 10+ years. So we have to consider the short lifespans of most games when assessing the values of game assets.
There are essentially three ways to value something:
Intrinsic non-monetary value (status, happiness, etc)
Cash flow (it makes you money)
Appreciation (speculation that you can sell it for more)
There are 100,000 pieces of land for Otherside, the Bored Ape Yacht Club metaverse. These pieces of land have a floor price right now of $6,000 and get more expensive from there.
Let’s say the price averages out to $10,000 per land across all 100,000 pieces of land. That’s about $1b of Otherside land. If we generously assume the BAYC metaverse will be popular for 10 years, you have to ask if you can at least break even on your land in that time period, assuming you aren’t happy to spend $10,000 just to play with no promise of return.
The only way you get a return is if you can sell your land to someone else for more, or if you can generate a good cash flow off of it. But selling it to someone else for more is the normal ponzinomics we’re used to and want to move away from.
But you can see the problem here pretty quickly. Assuming you want at least a 10% annual cashflow on your BAYC land, the whole ecosystem would need to pay out $100,000,000 a year to land owners. Say BAYC can match Fortnite’s popularity, which generates about $5b a year in revenue. Could BAYC give away 2% of its revenue to land owners?
That’s not too unreasonable, but we then have to weigh it against the odds that BAYC can build a game as popular as Fortnite and then sustain that popularity for a decade.
Possible? Yes, but it’s not a bet I’d be willing to take. I think we have to acknowledge that most of the value in these assets is speculation on the appreciation. People expect the number to go up and are going to be very sad when the music stops. And yes it does have to stop eventually. No game lasts forever.
Much of the “Play” to Earn is Bullshit Work
In an ideal version of Play and Earn, you would be able to cash out some of the value you accrue from playing a fun game. Or, you would get paid by making some meaningful economic contribution to the game, like designing a popular skin that other players buy.
That is not how most “Earning” works right now. Most of it comes from doing some form of bullshit work, usually slightly obfuscated button clicking. And to be fair that’s not an unusual thing, especially in MMOs: mining for copper in Runescape isn’t exactly thrilling. But if you’re earning from logging in every few hours to click a few buttons, to do something the game could just remove from the necessary activities to focus on more fun stuff, you’ve kinda just created a weird job.
Farming-style loops and land management games are a common example of this. And to be clear, I’m not saying this is necessarily bad, but if the bulk of the earnings comes from logging in every few hours and clicking something you haven’t really built a fun game that people make money from. Unless you can make the land management complex to the level of Sim City or competitive in some way. I do think it would be interesting to create a Web3 Sim City games where you create trade deals to share resources between different cities… but I digress.
People with Capital have Instant Power
Right now much of the power in P&E games is instantly accessible to those with large amounts of capital. They can buy tons of resources, run the economic loops faster, and quickly gain significant control of the market.
This is demotivating for the true players who likely have more time than capital. The highest earning potential should accrue to the people putting the most time and energy into the game, and there should be limits on how close to that you can get by deploying large amounts of capital.
Assume that people with lots of money to deploy into your game are there to milk it for yield, not to play it. Plan the game accordingly. If it can be farmed, it will be farmed, and the losers will be the people who are there for fun.
“Play to Earn” Sets the Wrong Expectations
For a game to be sustainable, players can’t be able to jump in and immediately start making a good ROI on their investment. And the easier it is to do the math on how you get to ROI positive, the more the game will be farmed by people with large amounts of capital.
This is where the Play and Earn terminology is quite a bit better. Most gameplay should not be disguised bullshit work, it should be actual gameplay. And the earnings should be difficult to calculate, especially for newer players.
Finally, earnings should be irregular, with large jackpots instead of steady income. The harder it is to predict a steady income from the game, the more you’ll be able to build it around actual gameplay instead of DeFi loops.
Okay, those are most of the high-level issues. Now let’s go through some of the ways I think we can combat them.
How Can We Fix It?
As I said in the intro, this is not a blanket prescription, but rather a list of ideas and things I think crypto games should try. The space is still very new, and we’re all experimenting and figuring things out.
Significantly reduce the cost to entry
Create limitations on the power of new capital
Prioritize rewarding play not clicking
Get rid of staking
Build a fun game first
Separate the external & internal economy as much as possible
Obscure the ROI
Reframe expectations around P&E
Not limiting play
Significantly Reduce the Cost to Entry
Having to spend $10,000 to play a game is stupid. You know it, I know it, everyone knows it. The only reason this feels somewhat normal right now is that we’re all high off NFT season and have copied those paradigms over.
But the idea that you have a $10,000 starter account for a game is absurd and turns off the very many players who would probably love to try your game but can’t afford to invest a decent used car into it.
It also adds significant stress to the economy because the gameplay earnings now have to justify this huge startup cost. If you want to try to get to ROI in 3 months, you need to be making $3,333 a month from your starter account. So either other people need to be putting in $3,333 per month into the ecosystem for you to earn, or you have to benefit from ponzinomics. It’s almost always the latter.
Joining a crypto game should be free, or comparable to the cost of a normal game (under $60). I’m partial to the Free-to-Play model, and some teams are doing interesting experiments in this direction (e.g. Genopets and Sunflower Land).
This will significantly reduce what people can earn from playing in the beginning but that’s good, there’s less pressure on you to try to keep the token prices high so people can earn a crazy amount from the game. And it means people’s expectations are much lower. They’re not sweating over the $10k investment. They can actually enjoy the game.
If you already launched a 10k collection with a high price though, what do you do? We tried to deliberately bring the price of characters down at Crypto Raiders but it didn’t get taken very well. The problem with the NFT biases is people are laser-focused on the floor price. So while we made progress on our goal to reduce the cost of entry for the game, many people were extremely upset that they couldn’t sit on their characters to flip them for more later.
But I stand by doing some kind of model like that. The way I was thinking about it, if you can over time turn your 1 $10,000 character into 10 $1,000 characters, or even 100 $100 characters, then you’ve significantly reduced the barrier to entry without destroying any value for the original buyers. That might be your best bet.
Some will say that renting and scholarships are a solution here, but I don’t love them. The point of crypto gaming is to get to own your gaming assets, it’s kinda lame to have to borrow them from someone else or apply for a scholarship.
The economies of Runescape and WoW worked fine with people creating new Level 1 accounts all the time. Access should be free or extremely cheap, and the earnings should come later through sufficient work.
Create Limitations on the Power of Capital
Someone with a bunch of money shouldn’t be able to swoop in and dominate the game or the game economy.
One way this happens right now is breeding. A person or guild with a ton of capital can buy up many of the assets, start running a breeding operation and have a huge influence on the market without really having to play the game.
Another area we will likely see this is with game item marketplaces. If someone can come in and buy the rarest items in the game, they can immediately start winning tournaments or farming the best rewards without having to put much effort in.
On the breeding and economic loops side, there should be some limits to how quickly someone can deploy capital. STEPN has an interesting barrier for this built into sneaker leveling. Since a sneaker has to be level 5 to mint with it, and since you can only level one sneaker at a time, and since breeding has a 48-hour cooldown, no matter how much money you have you can’t realistically mint more than once every 36 hours or so. It’s very different from breeding in other games where you could theoretically buy 100 characters and breed 100 more from them. There’s no way to have that kind of multiplicative growth in your sneaker collection.
Another way you can build in controls for this is through soulbound items. The best gear in a game should be Bind On Pickup so it cannot be sold. It can be used to win tournaments and farm lower-level, sellable gear, but it cannot be sold itself. This ensures the highest-earning and competitive potential is held by people actively playing the game, and can’t be bought by newcomers. Let people buy up to 80-90% of the best gear, but never the best.
Finally, you could make certain ROI-increasing activities non-transferrable, such as investments into land upgrades that have timers associated with them.
One small criticism I have of Crypto Unicorns is that land upgrades transfer on sale, and they take no time to purchase. So you could buy a piece of land on OpenSea, sink some money into it, and immediately be economically competitive with people who have been playing the game for a month. I don’t think that’s ideal. There should be some additional benefits from playing the game for a while.
Prioritize Rewarding Playing, Not Clicking
This is more of a spectrum than a fine line, but for games to be primarily fun with a side of earning, the earnings should come from activities closer to “play” than repetitive clicking.
That doesn’t mean farming games are bad, just that they should have a decent strategy and tactical layer attached to them. There should be tradeoffs. It should be hard to whip up a spreadsheet and calculate the optimal way to play. And buying resources to click “breed” and sell the new NFTs definitely shouldn’t be the primary earning mechanism.
If breeding is the primary earnings mechanism, that means people aren’t paying to play the game, they’re paying to play the breeding ponzi. A game has succeeded when people are paying for high-level gear, or additional dungeon runs, or cosmetics. Things that let them play the game more, or that let them flex in whatever the game’s social context is.
Limiting the best rewards to PvP, end-game content, challenges, leaderboards, and other more competitive activities helps ensure this is the case.
The analogy I often come back to is that someone signing up for a brand new Runescape account couldn’t expect to immediately make an impact on the Grand Exchange. Someone who buys a character NFT or signs up for your game shouldn’t be able to immediately reap the economic rewards either.
Get Rid of Staking
Staking tends to be implemented in one of two ways, neither of which makes sense.
Either, you stake the governance token to get more of the governance token. This is dumb since now you’re rewarding DeFi people with deep pockets instead of your actual players. And staking isn’t doing anything besides slowing them down from selling, which is nice, but it doesn’t improve the game.
Or, you stake the governance token to get a share of in-game revenue. This is kinda dumb too since now you have to make the in-game economy much lossier, preventing most players from actually earning anything while playing because you’re paying out rewards to stakers instead of actual players. You could just give a share of fees from something like the in-game marketplace, but then you’ve impacted your own ability to generate revenue.
I think it makes much more sense to treat the governance token as the most valuable finite resource in the game and use it for the most impactful upgrades to characters or accounts. This allows characters to accrue value over time since these upgrades will necessarily become finite, and gives the token a reason for existing and being held. Instead of locking up supply by having people put it in a staking contract, lock up supply by having people put it in the game.
Build a Fun Game First
This might seem like a revolutionary thought, but I think for a crypto game to work it needs to be an actually fun game first.
If no one wants to play your game when they aren’t making money from it, they’ll run for the exits and dump everything at the first sign of market trouble. And if the internal economy of the game doesn’t work without external token activity influencing it, then the game is starting off on an unstable footing that will be hard to build out of.
This seems so stupidly obvious, but it’s so rarely done. Probably because launching a token is such an incredible way to raise money, and games are very expensive to make. So you do have some challenges here. How do you wait to incorporate your token until you’ve built a fun game, and how do you build a fun game without a token as a fundraising mechanism?
Well, you can of course raise money the normal way. But I also think community members can be more patient than we assume. Illuvium is doing a good job of this right now. They have a token that’s been launched for a while, and they’re now introducing people into the beta of their game, but there’s no way to earn within the game yet. That’s coming later. They’re focused on building a really fun game first, then introducing the earning elements once it’s more established.
Separate the Internal and External Economies
It’s tempting to try to balance your in-game costs around the external value of the tokens, but this becomes a distraction and results in a frustrating in-game experience for your players.
The two economies should operate independently. The game should function the same whether 1 gold in the game is worth $0.001, or $1. There will be periods of surging interest in the game where people will flock to it and push up the price of the tokens, and there will be lulls where the token prices drop. Throughout those times, the experience of playing the game should stay consistent. Otherwise, you’re constantly going to be changing the economy of the game to chase the token price, and it’s going to make the whole thing rather confusing for everyone.
One example of not doing this well, in my opinion at least, is STEPN’s recent decision to base minting costs on the relative prices of their tokens.
This makes one of the game's core loops extremely hard to predict on a day-to-day basis, and makes minting annoying to try to do the math on. Maybe that’s the point, but it makes minting less fun and more transactional of an experience. And the main benefit is that it helps pump up their governance token price, while maybe making the game more affordable in the short term by pulling down the price of GST.
Either way, people shouldn’t have to check Coingecko to decide or know what to do in your game.
Obscure the ROI
Assuming again that any easily mapped economic cycle will get taken advantage of, we should make it very hard to calculate the ROI from playing a game.
Measuring ROI is important for many games right now because they have such high startup costs. You don’t want to spend $10,000 on a character or piece of land if you’re not sure how you’re going to earn that back. But if games are inexpensive to start, as I think they should be, then this becomes much less of a concern.
It’s still worth thinking about how you can obscure the cost-benefit analysis of in-game activities though. One way is through having rewards that have a high variance.
Perhaps running a dungeon in a game has an expected value of $0.20. But 90% of the time, you’re only earning $0.10 and 10% of the time you’re earning $1.10. That’s a very simplified version but you get the idea. You can know that a player should have some rough ROI over a few months or years of playing, without them being able to easily calculate it in the game due to the variance of outcomes.
This is already a common design standard in games with loot boxes, rare drops, and other mechanics, but we oddly haven’t seen as much of it yet with Play & Earn, probably because so much of the earning is based on “work” rather than “play.”
Reframe Expectations Around P&E
This will be the hardest, but the most important. As an industry, we need to shift the expectations away from P&E games being something you can quickly mine for a profit, to games that are actually fun to play where you happen to be able to cash out some of your work.
A good model for this being done currently might be DOTA 2. You wouldn’t think of it as a P&E game, since there’s no crypto involved and there are no “work” like activities for you to earn anything of value. But the assets in the game do have value on their in-game marketplace, so if you get something you didn’t want from a loot box, you can sell it to someone else.
The vast majority of players end up spending more than they earn. I’m actually not sure anyone is net positive in this marketplace unless you have some of the very early very rare items. But it’s a good example of how a game can have a marketplace without having the fun destroyed by it.
If a game requires a decent amount of playtime before earning becomes possible, and if once that earning is possible it’s hard to calculate the ROI on it and it’s secondary to the actual gameplay, you’ll likely have a much more sustainable game economy on your hands.
Not Limiting Play
The last change I hope we move toward is to create P&E games that don’t need to limit the ability for players to enjoy the game.
Energy, recharging, and other time-based limitations are a good way to limit the inflation in the game. But they do limit how much someone can enjoy your game, and if you’ve built a good game, you’ll end up disappointing people who want to play it.
Instead we should aim to have a lot of the game be freely playable an unlimited amount, and only have the capital-generating activities have limitations. Other games with robust economies in the past had very minor limitations on the economic activity in the game. You could essentially mine all the copper you wanted in Runescape or WoW, and they turned out fine. But we could still limit the extremely valuable activities, like end-game dungeons or harvesting the rarest resources.
This may also tie into the concept of building a fun game first. If the game is broadly fun and has earning added in later, there will be plenty of things to do that aren’t tied to earning. And that might end up solving some of this problem on its own.
This was a bit of a brain dump, but I hope it’s useful to any team trying to build a Play and Earn game.
We all have an incredible opportunity to be among the first to figure this out. To build this generation’s World of Warcraft or Runescape scale game, but with a real-world economy attached to it.
I’m extremely bullish on this space. It’s the sector of crypto I’m most excited about. So if you ever want to share what you’re working on or other thoughts on topics like this, definitely reach out to me on Twitter.
Love this one of yours, oh my gosh I love it. It feels like I've just figured out my game's economic model then I see you had wrote it out and show it to me in front of my eyes.