GameFi 1.0 Status and Game Guild Outlook

P2E games are the current status quo

Making money from P2E play means that every participating player earns some kind of token, thus making the player speculators and seriously interfering with the core gameplay. Game studios and developers maximize their short-term profits by selling NFT assets and item boxes during the pre-release period; promoting the scarcity of assets and goods to profit whales and guilds; publicly selling governance tokens or conducting IBCO, IDO, etc., rather than establishing sustainable methods for the in-game economy; games become mining tools, not entertainment, and thus cannot occupy the mass market and negatively affect the crypto circle.

From an economic point of view, the transfer of money value to existing or early players can only come from two aspects: game developers and capital inflows from new players. To maintain steady gains for existing players require increased capital inflows to new players, but this is often limited. Therefore, many people believe that this is a Ponzi scheme. In fact, most games failed to avoid a sharp decline in the price of their in-game rewards weeks after release. New players tend to be the replacement of existing or early player mobility.

As the industry improves and adapts, better in-game reward token use cases are being introduced to support the token price, but player gains still come from new players joining or capital inflows from existing players, which remains largely unchanged. Eventually, new players will be limited, so revenue can only be transferred between in-game players, meaning most people will lose money and only a few are profit.

Axie Infinity’s case study showed that studio revenue came mainly from market fees, while cultivation fees surged only within five months from July to late November, then plummeted with no more influx of new players; Axie NFT and in-game reward tokens SLP also fell sharply due to hyperinflation.

While some studios have begun to shift the game mode from P2E to P & E, and free-to-play elements have been gradually introduced, most games will still be classified as Pay to Earn and Pay to Play.

More fairly distributed to the community and to the customers

We often see the narrative that the new web3 game studio claims to distribute income more fairly to the community by using web3, which gamers or retail investors feel the right thing.

Game studio monetization is the main motivation for developing such entertainment games, and games like StarCraft, Age of Empire, DOTA, CS: GO or League of Legends are successfully developed under the help of capital. Assuming that web3 studios will allocate more content to the community through P2E, what is the motivation for developers to create better games? Is the remaining share of profits enough to retain the best talent? This is also a question worth thinking about.

In-game rewards and NFT price fluctuations

While unstable value rewards and pricing are the basis of free-market trade, this is also a major obstacle for mainstream web2 players to join the crypto space, especially for crypto games. People are used to anchor prices to a measurement system to make reasonable purchase decisions anytime and quickly. This is not the case for crypto games, creating additional uncertainty upon purchase or redemption. In fact, financial speculation is an important factor that seriously affects the core games. As seen in many recent P2E games, players opt out once the in-game rewards are greatly reduced.

Unsustainable centralization of power and conflicts of interest in the guild

Guild is a place for like-minded players to understand each other, socialize, become better players, and form teams to compete together. Early observations suggested that guilds created huge conflicts of interest and concentration of power in crypto gaming.

The reasons are as follows:

First, most guilds in the crypto game use their capital power to bulk buy NFT assets at a discount price, and then optimize their metadata to maximize efficiency and thus break-meet in the shortest possible time. In other words, the guild makes it its top priority to use the game mechanics to provide the best return on investment.

On the other hand, the guild mass purchase of NFT assets is an important source of early revenue for the game studios, which are strongly influenced by the guild, often adjusting the game mechanics to support the guilds while ignoring the rights of ordinary players. In other words, the game is often designed to benefit the whale players.

Finally, because the guild has a large number of professional players, the games that work with the guild will already have a large player base before their release, but the game will be strongly affected by maximizing the guild’s yield. This created a death spiral, and the game had to abandon the long-term sustainability of upfront revenue.

In addition, only need a lot of early investment mode game to attract the guild, because to a large extent this is the guild against ordinary players competitive advantage direct way, those who try to stay away from the route to attract more ordinary players game will not be able to get too much funding from the guild, so may need higher marketing cost investment to obtain the mainstream web3 gamers.

P2E 1.0 Game guild cash flow is not sustainable

According to the report, due to the appreciation of NFT asset prices in games in the fourth quarter of 2021, most well-known guilds attracting large amounts of money, such as YGG, Avocado, Gamefi, have achieved huge capital growth, most of which came from Axie NFTs price appreciation.

Most guilds stopped reporting the value of their Treasury assets in November 2021, while the price of Axie’s in-game reward tokens and Axie NFT, as well as its breeding and marketing activity, fell sharply. In other words, the guild vault seems to shrink sharply as Axie NFT prices fall.

In terms of revenue, since most P2E games on the market follow the Axie model, in-game rewards drop after the initial surge period when a large number of players join. As mentioned above in the guild model, the guild makes considerable money in the first few months after the game is launched, and the cash flow generated becomes very low due to the falling price of in-game tokens, and no professional player is willing to participate in such games.

In this sense, to maintain the benefits of guild and professional players, you requires constant participation in new games. While rewarding professional players with guild tokens or NFT can serve as a means of motivating and maintaining loyalty, the enthusiasm of professional players will not be maintained if the key gains of a particular game are not guaranteed.

In the above process, the web3 guilds began to act as promotion agents like game publishers, commercialized the game to certain regions and members of the guild. While traditional web2 publishers make money from gamers, Web3 gaming guilds essentially industrialize the process of extracting value from the gaming ecosystem.

In fact, guilds have begun to divide into complementary areas within the game industry, such as building esports teams, the NFT game market, and game studios or incubators.

Failure experiment by web2 studio on NFT

Ubisoft is one of the well-respected studios that has experimented with the NFT in its game, Tom Clancy’s Breakpoint, in which limited-edition cosmetics can be purchased as an NFT through Ubisoft’s own market. However, only 31 sales were made in the three months following the feature.

More worryingly, some items were traded several times and eventually listed at hundreds of times the original price, very similar to the price behavior of pre booking NFT assets in many recent P2E games: left hand for right hand trading and speculation. Finally, Ubisoft can only finish the NFT experiment after 3 months.

While there is insufficient data to draw any conclusions on this experiment, it can be attributed to two points: first, Tom Clancy’s Breakpoint is not designed to be an NFT or cryptocurrency support game, and distributing in-game cosmetics as NFT and trading through free trade markets is just a side experiment; second, its existing audience lacks the NFT or encryption knowledge of NFT to understand N F T gameplay.

Brief summary

While blockchain and web3 bring plenty of opportunities and models of doing old things in new ways, it is still in its early experimental stages, with its development mainly driven by the bull market in 2021. Before implementing all of these new approaches, certain core principles need to be clarified in an appropriate way. Games should first be entertaining, letting people escape from the real world before introducing other elements. The game must maximize respect for the core gameplay to achieve its basic goal of — — entertainment. While new business models have emerged, only time shows how they will evolve to remain sustainable.