NFT Roundup #15: How play to earn games work; Growth in the blockchain gaming market; Save the environment with blockchain games?; Polygon invests in Decentral Games; A new NFT-specific blockchain
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This is a curated newsletter, covering news stories about NFTs. The NFT market is moving rapidly, and this is an attempt to provide some means of keeping up with its developments. Your curator is Dave Friedman.
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Today’s newsletter explores pay-to-earn games, which are video games for which in-game assets are NFTs, and players compete to earn these NFTs and possibly sell them in exchange for cash.
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Play to earn games present intriguing opportunities for people in developing countries:
In recent times, those in the DeFi and metaverse space have encountered yet another way in which ordinary people can earn considerable amounts of money on the blockchain. Coming in the form of play-to-earn communities, platforms such as Yield Guild Games (YGG) and UniX are early adopters of ecosystems that provide gamers in developing countries with these financial opportunities. Such business models, in theory, could utilize leisure as a way to help reduce unemployment around the world.
Although the idea of the play-to-earn model is still in its infancy, it is an idea that is turning heads. “PLAY-TO-EARN | NFT Gaming In The Philippines” is the title of an 18-minute documentary funded by YGG and created by Emfarsis Consulting about a group of people in the Philippines, a country that suffered unemployment as high as 40% during the pandemic. People in the Philippines had been playing Axie Infinity (a blockchain-based game that rewards its players) during the pandemic, discovering that they could earn two or three times the minimum wage by playing.
The way this works is fairly straightforward:
Someone starts playing a video game.
That player acquires virtual assets over the course of playing the game.
Those virtual assets can be sold to others in exchange for cryptocurrency.
The player can use that cryptocurrency to buy other digital goods, transact in the real world with the cryptocurrency, or convert it to fiat.
In this way, play to earn games can provide income to people who may not have other job opportunities.
And this has led to the development of interesting financial models. Take the game Axie Infinity, for example. In order to play the game, a player has to own three NFTs. As the popularity of Axie Infinity has increased, demand for those NFTs, and so their price, has increased. These NFTs are currently too expensive for most players in developing countries to own outright.
So, people who own these NFTs have started to lend them out to players, in exchange for a cut of the earnings that the players generate from playing the game.
Coinbase explains this:
Given Axie’s base within the Philippines and other emerging markets, a $1,500 entry tag is a non-starter for most would-be players. To mitigate this barrier to entry, an informal market emerged in which NFT owners began lending players the NFTs needed to play the game in exchange for a cut of their winnings. This is done through QR codes that let players use Axie NFTs in game without the lender having to cede ownership on-chain.
Of course, one big risk here is that if the game goes away, its in-game virtual assets become worthless, and the player is left without income.
Here’s some data about the size of the blockchain gaming market and its growth:
Blockchain gaming is going through a massive growth phase, thus revolutionizing the gaming industry in general. An Investgame report revealed that the gaming industry is witnessing a massive rise of blockchain-powered cryptocurrency games. Within the first half of 2021 alone, crypto gaming companies closed a record 24 deals, more than they did in the whole of 2020.
According to the Mordor Intelligence game market report, the gaming market was worth $173.70 billion in 2020, and the value is expected to hit $314.40 billion by 2026. The industry is expected to register a compound annual growth rate (CAGR) of 9.64% within the forecasted period. Today, more blockchain-based projects are seeking to further transform the gaming industry as we know it.
There will always be people who see video games as trivial or not worth consideration. But you can say that of almost any industry: not everyone likes sports, or alcohol, or travel, or car collecting, or real estate, or whatever other thing attracts some portion of humanity. And for some segment of humanity, playing video games is attractive. And the market for blockchain-based gaming is growing, rapidly.
One of the main criticisms of blockchains is that they consume a lot of energy performing computationally intensive math calculations. And that energy has to come from somewhere, often in the form of carbon-based technologies. Environmentalists, of course, don’t like carbon energy.
It is strange, then, to read about a blockchain game which purports to protect the Earth:
Green Beli is a project aimed at protecting the earth and slowing down the effects of climate change on the environment. Since its inception in 2019, it has set its mission to reduce plastic waste, create awareness and promote a green lifestyle. With blockchain’s popularity peaking, it is the perfect opportunity to hitch a wagon to it, and Green Beli is doing just that. Apart from that, Green Beli also has a bigger vision to combine Green Map, the original project with the game, and integrate these green places on the metaverse.
To further advance their interests, the Green Beli play-to-earn nonfungible token (NFT) game is in the works, with a reward of either 30% of revenue from the sales of tree seeds, land and NFT items or 10% of the total Green Beli Ecosystem Fund to go to a chosen cause. Therefore, not only can you participate in a new game, but you can also contribute to saving the environment. To join, users will need to purchase the native token GRBE and NFT items.
Polygon has now invested in Decentral Games:
Decentral Games has created a gaming decentralized organization (DAO), which is a self-governing company run by its users. Polygon is investing an unspecified amount of money in Decentral Games and staking $DG tokens. Staking is the process of investing in tokens and locking them up for a specified period of time (also called a vesting period). In this case, Polygon is investing in ( purchasing) $DG and staking $DG, the native cryptocurrency of Decentral Games for a period of time. Today, staked $DG generates 19% of APY (Annual Percentage Yield) for the $DG holders.
Decentral Games develops 3D metaverse games on blockchain for both consumer and business markets. The games include NFTs, play-to-earn models, wager-based games, and 3D virtual events games revolving around music entertainment with immersive experience.
This is an interesting model: Polygon will acquire DG tokens and commit not to sell them, in the hopes that demand for the Decentral Game platform increases the value of the tokens over time.
Of particular note about this market is the 19% APY for DG tokens: these are illiquid and risky investments. And these very high yields seem to be typical for staked tokens. This is called yield farming, and I don’t think these high returns are sustainable:
In short, yield farming protocols incentivize liquidity providers (LP) to stake or lock up their crypto assets in a smart contract-based liquidity pool. These incentives can be a percentage of transaction fees, interest from lenders or a governance token (see liquidity mining below). These returns are expressed as an annual percentage yield (APY). As more investors add funds to the related liquidity pool, the value of the issued returns decrease accordingly.
TangoChain is a new blockchain which seems to have been created specifically for gaming and NFT creation.
Their web site is here.
As I’ve said multiple times before, I don’t think that blockchain gaming, or NFTs generally, can support dozens, or even several, competing markets/platforms/networks/blockchains. I expect the market to eventually settle on a few dominant blockchains and markets, and for the rest to either wither away or be acquired.