Over the past few years, we have seen play-to-earn create a new category within crypto – described as P2E 2.0 in a previous article.
The most complex P2E economies like Axie Infinity and Zed Run have already started to give rise to new roles. At least the five following roles have started to differentiate themselves. We describe each of these new players and how their role fits into the overall P2E 2.0 ecosystem.
Roles in an emerging P2E ecosystem
Over the past few years, we have seen play-to-earn create a new category within crypto – described as P2E 2.0 in a previous article. The category leader, Axie Infinity, is generating the highest fees of any crypto application, surpassed only by Ethereum itself and has 1M+ daily active users. Find a deep dive into Axie here.
Past quarter’s protocol revenues via token terminal
P2E 2.0 pays people for playing. Typically, gamers are paid in the native currency of the game, which powers an entire in-game economic system. As a result, P2E 2.0 has made playing online games a viable source of income. But not only that, it has significantly increased financial literacy: Players have to get familiar with Ethereum and a layer 2 solution to be able to cash out into their local national currency. We expect this development to only intensify over the coming years, as gaming gets financialised and finance gamified.
As P2E 2.0 keeps drawing in more users, the in-game and meta-game economies start to complexify. This article outlines some of the new roles that have already emerged in this ecosystem. We draw examples from Axie Infinity and Zed Run to illustrate how digital economies have started to complexify, creating new roles and business models.
Axie Infinity’s gameplay draws heavily from Pokémon: Teams of creatures battle NPCs or other players. Crucially, the creatures can also procreate via breeding. Zed Run is a digital horse racing game with complex breeding dynamics and regular races where prizes can be won.
New games, new players
- P2E gamers
- NFT investors
- P2E gaming guilds
In the following, we describe each of these new players above and how their role fits into the overall P2E 2.0 ecosystem.
The most important new role in this ecosystem is the P2E gamer. They play P2E games and earn tokens for winning. The fundamental difference between P2E 2.0 is that it actually offers players a way to earn a livable wage in a digital-native way. We can distinguish between three types of P2E gamers, depending on the intensity and consistency of their engagement.
- First, there are casual gamers. Although they may like to get paid, casual gamers don’t rely on it as an income. As a result, they engage with the game in a much more irregular manner and primarily for fun, rather than for the financial compensation. Casual gamers usually own the NFTs they use to play, and tend to fit into other role descriptions as well.
- P2E gamers who play as their main source of income are a completely novel yet rapidly growing category: Metaverse workers. They tend to engage with their game of choice on a daily basis and know the ins and outs of it intimately.
- The most skilled and successful players often get to engage differently than “normal” Metaverse workers. P2E games tend to have tournaments, where players compete directly with each other for prizes. We can call the players who compete in tournaments at the highest levels e-sport professionals. Tournament prizes are generally much higher than the “wages” earned by Metaverse workers engaging in the non-competitive modes of P2E games.
During the pandemic, Axie Infinity has provided a lifeline for low-income countries with high smartphone penetration. In the Philippines, where the game is especially popular, players earned 3x the minimum income over the past months. Most P2E games require an initial investment to get started. Especially in countries where there would be demand for engaging professionally with the games, the initial investment is not affordable for most people. The “scholarship” model described below is a solution to this problem, effectively allowing NFT investors to sponsor a Metaverse worker for a share of their earnings.
Axie “Scholarships” – empowering Metaverse workers and unlocking yields
Pioneered by Axie Infinity, the “Scholarship Model” is an agreement between NFT investors and Metaverse workers. Without having to invest in Axies first, players can start earning while investors get a yield on their assets by getting a share of the tokens earned by gamers. The scholarship model is especially relevant for time-intensive P2E games like Axie Infinity.
It seems like scholarships was the missing piece that unlocked Axie’s growth as a digital economy, since it provides a key improvement for the most important stakeholders:
- “Scholars” could not afford the initial investment (ca. $1000 USD) to play, but do want to play and earn by using somebody else’s Axies.
- “Managers” are NFT investors who don’t have the time/skill to unlock the yield-generating capacity of their assets.
- Scholarships have rapidly become an accepted agreement, supported by socially established norms around the roles of “scholar” and “manager”, the application process, how proceeds are split, etc.
The scholarships model is primarily community-driven, and emerged as a bottom-up solution.
- The model is enabled by the game architecture: Access to play with a given team of Axies can be shared via QR code, without transferring ownership of NFTs or exposing private keys.
- The QR code mechanism enables “renting” Axies without exposing them to being stolen. This makes renting teams of Axies for a percentage of the earned proceeds possible.
Returns generated by playing are correlated with the value of the specific Axies played with (whose value, in turn, tends to be proportional to their earning potential).
- Total returns per Scholar tend to range between 50-200 SLP per day, which is $5 – $20 (at a SLP price of $0.1).
- Proceeds from playing are typically split between 50/50 and 70/30 (70 for Scholars).
NFT investors play a crucial part in the overall ecosystem by providing the capital necessary to innovate, as well as driving excitement around digital assets. NFT investors buy and strategically hold NFTs. Different types of NFT investors can primarily be distinguished according to their time horizon for investments:
- NFT collectors are interested in the rarity of NFTs for their own sake. They don’t plan to ever sell their cherished NFTs, but rather hold them pretty much for life. So they could be said to have an infinite time horizon.
- Strategic NFT investors are what we might typically associate with the NFT investor category: They strategically buy NFTs, often in collections, in order to later resell them at a higher price. In this role, they effectively try to find “undervalued” projects, which they project will gain more significance and value in the future. Their time horizon is from several months to several years.
- NFT speculators buy NFTs with the intention of selling them soon after for a higher price (so-called “flipping”). They tend to move quickly between lots of projects, always searching for what is currently hot. As opposed to the other two types of investors, speculators generally don’t want to own the NFTs for any meaningful amount of time. For those reasons, they often even prefer to sell at a loss and move and then to hold. Their time horizon ranges from a few hours to around a week.
In practice, most NFT investors don’t fit neatly into a single type, but rather exhibit behaviour of all of them at different times and with regards to different NFTs. NFT investors tend to have some NFTs with emotional value that they will never sell, a portfolio of strategically chosen investments they would sell at the right price, and they may also occasionally speculate on the latest hype project.
What is especially interesting for investors about NFTs used in a P2E 2.0 context is that the assets are yield generating when being used to play. This makes NFTs such as Axies much more investable, since they can be valued based on cash flows, similar to rental property. Delphi Digital might have been the first to not only realise this, but act on it, snatching up some of the rarest Axies last year. However, since most NFT investors don’t have the time or interest in actually playing the associated P2E games, they had to forego the actual yield on their NFTs until recently. The scholarship model is how these yields are unlocked for NFT investors. Likely, most investors will not choose to run a scholarship program themselves, but rather join a leading guild such as YGG (Yield Guild Games).
Genetic NFT Breeders
Many of the current P2E 2.0 games are based on genetic algorithms, and so are Axie Infinity and Zed Run. Genetic algorithms enable the breeding of digital creatures by simulating genetic reproduction. The newly created NFTs probabilistically inherit traits from their parents according to the genetic algorithm, whereas traits can be either dominant or recessive and there are even occasional random mutations. Depending on the traits of a given NFTs, it will be more or less useful for playing in a P2E context or for breeding. As a result, there is a difference in the market price of a genetic NFT given its specific traits.
This is where the role of the Breeder comes into play: It takes time to breed genetic NFTs, and the complexity of finding the best possible matches requires considerable skill. Breeding requires knowledge of the game dynamics: One needs to understand the genetic algorithm, the different levels of rarity and earning potentials, and then synthesise this knowledge into a viable strategy.
Breeding is also relatively capital intensive: It requires $1000-$5000 to get started, depending on the game and the specific strategy. The cost basis for breeding is a function of in-game variables such as breeding limits and progressively higher cost per breed, as well as external variables such as the prices of the genetic NFTs being bred. Depending on these conditions, breeding is more or less profitable at different times.
The breeding mechanism within Axie Infinity has become quite transparent, especially due to the emergence of secondary tools like Axie Zone. A complete view into the genetic code of Axies, including dominant and recessive genes for traits, makes breeding Axies relatively predictable (but still time-consuming).
Zed Run Stables: An excursion into the fine art of digital breeding
As opposed to breeding Axies, Zed Run breeding is much more challenging since the genetic algorithm for Zed Run is more complex.
First of all, there are three different bloodlines: Nakamotos, Szabos, Finneys, and Buterins. Each bloodline has different performance traits in races, population size, and breeding requirements, resulting in a different overall rarity and value. Check out this guide for more information. The following particularities of Zed Run’s genetic algorithm have fostered an engaged breeding community.
There are different properties for mares and stallions (female and male horses):
- Different performance in races
- Different “recovery cycles”, “breeding periods”
- Different influence on traits, beyond dominant/recessive genes
Performance is based on complex traits and not linearly dependent on a single gene:
In addition, the rate of mutation changes over time, according to the population size of bloodlines, adding additional complexity.
When it comes to earning power of the digital horse NFTs, they are power-law distributed: There are races with different entry fees & prizes, whereas the most competitive races yield much higher prizes. The top 5% horses win the most and compete for the highest payouts. As a result, breeding is optimised for performance, which varies widely.
Perhaps the major difference and a catalyst for an engaged breeding community is that genotypes leading to traits are not openly revealed. This fundamentally changes the dynamic into a Search Game: The community has to figure out how the game works, as opposed to being able to just look it up and even simulate breeding results upfront.
The role of coordinator emerged to support the primary roles of P2E players, investors, and breeders. As opposed to a sharp category, it’s a collection of processes that could each either be a role in themselves, or one aspect of someone’s work as a coordinator. In the current ecosystem, we identified the following types of coordinators:
- NFT brokers
- Breeding matchmakers
- Scholarship managers
NFT brokers are especially needed for placing high-value investments such as mythic Axies or genesis Nakamoto stallions. Many of those high-value assets are not listed for sale on the marketplace. Especially if an investor is looking for very specific assets, a broker is needed to “headhunt” for an owner of the asset in question, contact them, and facilitate negotiations. Marketplaces like OpenSea have the option for “private listings” to enable trust-less transfer after the negotiations have concluded.
A similar type of brokerage work can be required for breeding, especially at the start of a new operation with a specific strategy. Additionally, as the breeding operation grows, more and more work is required to find the optimal combinations within a collection of hundreds of NFTs. At this point, breeding matchmakers can come in and facilitate matching for optimal results on an ongoing basis
At last, the scholarship model requires frequent communication with scholars, who may encounter a range of issues they need help with. Additionally, the money they are earning needs to be claimed and transferred manually. Instead of the NFT investor having to manage these processes, a scholar manager can take them on, usually also for a share of the proceeds.
P2E gaming guilds
Finally, all of the roles described above can be organised within larger structures, too. So-called “guilds” are organised collectives of any combination of the roles above, usually a combination thereof. Note that this is a continuation of the historic megatrend within gaming towards cooperative and social gaming, as outlined in this piece.
Guilds can be formal DAOs or just informal online communities (usually managed via Discord), and have become increasingly popular over the past year. Yield Guild Games (YGG) has had a considerable impact on the space, for instance. Guilds can be focused on a specific game or operate across multiple platforms.
Outlook: Roles in the Metaverse are fluid
Each role can be engaged in either casually (occasional gamers, “side-hustle” work) or full-time. We called the category of people relying on play-to-earn as a main source of income “Metaverse workers”. Even though this distinction applies to each role described above, current Metaverse workers are mostly engaged as P2E gamers. This probably has to do with barriers to entry: P2E gaming uses familiar interfaces, and is more labour and less capital/knowledge intensive, and therefore more accessible.
In current models, the required capital to earn from playing is still not affordable, especially in the geographies that could benefit the most from P2E 2.0. Even though the scholarship model described here is one working solution, we believe even more accessible and inclusive models are possible.
P2E gaming also acts as a developmental pipeline in relevant ways: People start playing a game that lets them earn (instead of paying for it), and in the process increase their financial literacy and independence. While P2E gaming is the starting point, Metaverse workers often grow into other roles over time, such as moving from only playing to also owning/breeding.
Especially the roles described above as “Coordinators” are accessible for people who are deeply familiar with specific ecosystems from their background as P2E gamers.
In the future, we expect to see more structured learning facilities emerge: Programs and even schools for P2E gamers, breeders, etc. At the same time, we expect the roles described here to differentiate further, and new ones to emerge. For instance, we expect the financial side of P2E to pick up in the future:
- Brokerage of high-value NFTs or entire NFT collections
- Use of NFTs as collateral for loans
- Loans based on scholar performance
- Fractionalisation of the rarest assets
- M&A for scholarship programs
An additional new role that could emerge soon is P2E protocol politician, lobbying governance token holders for the interest of P2E gamers etc. We also expect development studios to jump in and create new ways of earning with existing NFTs, e.g. by developing side quest games or entirely new but interoperable experiences. We believe that we are witnessing the beginning of an entire industry and could not be more excited about what is next in this space.
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