Explaining Play-to-Earn Crypto Games' Business Model in Simple Words

August 5, 2022

Gaming as a business has grown significantly over time, and, like any other industry, new business models are constantly being introduced in the gaming industry. Play-to-earn games are the most recent addition to the gaming industry's business models. Play-to-earn, or p2e, games essentially involve rewarding players for participating in a game.

It is worth noting that play-to-earn gaming isn't a concept that is exclusive to the web3 world, but it became popular because of crypto and blockchain technology. Blockchain technology, NFTs, and tokens have opened up a whole new frontier for game developers, players, and investors.

Play-to-earn crypto games are the fastest growing industry in the web3 space right now. According to DappRadar, even during the crypto winter, when the price of cryptocurrencies has plummeted and numerous significant crypto businesses have gone bankrupt, the dominance of play-to-earn gaming is rising.

Whether you are a gaming studio planning to launch your own p2e crypto game, a crypto investor looking to learn about the p2e gaming model and economics, or a hobbyist who likes to peek behind the curtain of new business models, this article is for you.

In this article, we're going to talk about:

- Different types of gaming business models

- Important metrics for a game

- How does the play-to-earn model work?

- The benefits of play-to-earn crypto games for studios and game developers

- The benefits of play-to-earn crypto games for players

- Types of play-to-earn games

- What does the future hold for the play-to-earn crypto gaming industry?

Different types of gaming business models

3 Types of gaming business models pay to play free to play play to earn

Source: Twitter

1. Pay-to-play

The pay-to-play business model requires gamers to buy the game before they can download and play it. Membership bundles, such as Xbox Game Pass, Apple Arcade, EA Origin Access, PS Now, UPlay+, and others that demand a fixed monthly subscription price to gain access to a list of games in their subscription bundle, are the most recent business model introduced in pay-to-play.

The game developers get paid a percentage of the total subscription fees based on how much engagement and attention their game attracts in comparison to others.

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2. Free-to-play

Free-to-play games, as the name implies, do not require users to pay before downloading or playing a game. The games are free to download and play, but players will have to pay if they want to access specific features or in-game products, and game producers can also earn money through in-game advertising.

This business model has become popular among gamers and about 80% of the revenue in the gaming industry is generated by free-to-play games.

Currently, nearly all mobile games use the free-to-play gaming model, and an increasing number of PC and console games do as well. Popular mobile and PC titles like Fortnite, Apex Legends, PubG, Valorant, and others are based on a free-to-play model.

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3. Play-to-earn

Play-to-earn games are the most recent business model introduced in the gaming industry, rewarding players for playing or participating in in-game activities with real-world money, such as fiat, tradeable tokens, or a cryptocurrency.

While there are several p2e games in the traditional gaming world, popular play-to-earn crypto games like Axie Infinity, Decentraland, Sandbox, Gods Unchained, Wolves of Rome, etc are blowing up in the web3 space.

4. Play-and-earn

Play-and-earn games, like play-to-earn games, is a new business model in which players' primary focus is on playing and enjoying the game, with earning as an outcome of putting in time and effort while grinding in-game. The primary purpose of play-and-earn games is for users to enjoy themselves while earning money through healthy in-game economics and blockchain technology.

Important metrics for a game

1. Retention. It is the measure of how long a gamer plays the game after downloading and signing up.

2. Engagement. It is the average number of sessions per day and how long a gamer devotes their attention to playing the game.

3. Conversion rate. Total percentage of players who purchased in-game assets.

4. Daily active users (DAU). The average number of gamers who play the game on a regular basis.

5. Average revenue per daily active users (ARPDU). The total revenue generated by a game from its players in a single day, divided by the total number of players in the game.

‍6. Lifetime player value (LTV). Average revenue generated by a single gamer during his lifetime through that game.

How does the play-to-earn crypto gaming model work?

The combination of blockchain technology and the play-to-earn business model has given rise to the play-to-earn crypto gaming industry, where crypto games build their own in-game economy, assets, governance tokens, and virtual worlds built on single or multiple blockchain networks such as Ethereum, WAX, Solana, etc.

The block research in its' Digital Assets 2022 Outlook Report' explains the general business model game developers can employ to build a blockchain-based game.

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Most p2e crypto games offer native tokens or cryptocurrencies for in-game purchases in the form of NFTs. These tokens and NFTs can be traded between players inside the game's own marketplace or on external NFT marketplaces and exchanges.

Axie Infinity, for example, is a popular play-to-earn game in which players collect creatures known as "Axies." These axies can be bred with other axies or battled with the axies of other players. Smooth love potion (SLP), the native token of the p2e crypto game, allows players to feed their NFTs, develop their powers, and trade them on exchanges.

The benefits of play-to-earn crypto games for studios and game developers

NFTs and tokens can help game developers create an entirely unique gaming experience. The gaming studios can launch a project and release their NFTs and tokens through which they can generate initial investments from players interested in playing their games instead of equity investors and VC firms, and then build a gaming ecosystem and a virtual economy around it. The players will believe more in these blockchain-based assets because they actually own them.

Moreover, being able to create open world economies also enables developers to collaborate and create unique experiences for the players, which can lead to increased retention and engagement for the game. Developers will also have the option to earn a commission on secondary sales of their in-game assets for life, thereby creating a whole new revenue stream for them.

The benefits of play-to-earn crypto games for players

While pay-to-play and free-to-play business models were a lot more popular and generated a good amount of revenue for the gaming studios and developers, they didn't provide many opportunities for gamers to make money while playing the games.

The traditional gaming ecosystems followed a closed-end model where players had to pay for the game or in-game assets, then dedicate a lot of time to grinding and unlocking advanced levels and earning in-game assets. But once they are done playing the game, or the game shuts down for some reason, players can't transfer, access, or sell these assets, and all of their hard work and grinding goes in vain.

Play-to-earn games, specifically crypto games, share value with users and game developers. When a user plays a p2e crypto game and unlocks in-game assets such as avatars, weapons, tokens, virtual land, and other NFTs, they can either use these assets or earn money by trading them on marketplaces and exchanges.

Moreover, unlike traditional games, players have full ownership of in-game assets and can transfer these assets within a game's virtual world and into another world or sell these assets for real money.

Types of play-to-earn crypto games

1. Metaverse games

A metaverse is a virtual world where users can interact with other players, play, build, own, and monetize their virtual experiences. Popular metaverse p2e gaming titles include Decentraland, Alien Worlds, Sandbox, etc.

2. Trading Cards

NFT trading cards are digital collectibles that are in limited supply and work just like physical trading cards. They are valued depending on their rarity, utility, and ownership. Because NFTs are tradeable assets that can be in limited supply, trading card-based games are an ideal fit. Popular metaverse p2e games include Gods Unchained, Sorare, Splinterlands, etc.

3. Role-Playing Games (RPG)

Role-playing games give gamers control over in-game characters with unique features, weapons, and skills. The players have to complete tasks and earn experience to advance in the game and earn more power and better weapons. Unlike traditional games, blockchain-based RPG games use non-fungible tokens to create in-game assets.

RPG games also have subgenres such as action-based RPGs, Massive Multiplayer Online Role-Playing Games (MMORPGs), etc. Popular play-to-earn RPG titles include Axie Infinity, Blankos Block Party,

What does the future hold for the play-to-earn crypto gaming industry?

The opportunity to earn by playing games is already opening up new and innovative ways of playing and earning together, and gaming guilds are one of them.

Since some popular blockchain gaming titles require some amount of investment, crypto game developers or the gaming community are creating gaming guilds that are structured as DAOs to support new gamers from onboarding to lending the required in-game assets for a new player to enjoy and earn from the game.

Many gaming studios and developers are still reluctant to incorporate a play-to-earn business model due to concerns such as blockchain being a slow backend for storing assets, sharing their game's economy and assets with other games. It is hard to incorporate blockchain technology into existing games.

Several gaming studios like Ubisoft, have already started integrating blockchain-based assets into their games. The future looks bright for play-to-earn games, but in order to become a sustainable business model for the long term, they must surpass the entertainment and engagement threshold offered by existing gaming models.

Just like free-to-play games and subscription-based games, play-to-earn games will also find their place in the gaming ecosystem and will become a dominant model in the future.