Crypto and gaming clash in high-risk ‘play-to-earn’ economy

Jarindra Thetadilaka says he earned $ 2,000 per month from his digital pet collection last year, which he will reproduce and send to battle to win cryptocurrency.

Axie Infinity, a 28-year-old from Bangkok, is playing a new kind of blockchain-based online game called “Play-to-Earn”, which combines entertainment with financial speculation.

These games could create a lucrative business between non-fungible tokens (NFTs) and promotions around the virtual world, attracting billions of dollars from millions of players and investors who see the games as a way to introduce more people to cryptocurrencies.

At Axis Infinity, users buy virtual blob-like creatures with a variety of features, such as NFTs – digital assets whose owners are registered on the blockchain – for anything from ten dollars to a few thousand.

Players can then use pets to make money by winning battles, as well as create new pets, the value of which depends on their rarity. Assets can be traded with other players on the platform, which says it has about 1.5 million daily users.

“It’s not just a game anymore. It’s a lot like an ecosystem, “said Mr. Thetadilaka. “You can call it a country, can’t you?”

The dangers of this speculative ecosystem, and the largely unregulated crypto gaming industry, suddenly came to the fore last week when Axie Infinity was the victim of a 615 million theft. Hackers target a part of the system used to transfer cryptocurrencies inside and outside the game.

Sky Mavis, the Vietnam-based owner of Axis Infinity, says it will recoup lost money through a combination of its own balance sheet funds and $ 150 million raised by investors, including cryptocurrency exchange finance and venture capital firm a16z.

Alexander Larsen, co-founder of Sky Mavis, told Reuters that if he could have done something different, he would have focused more on safety when expanding the game, which launched in 2018.

“We were running 100 miles per hour, basically, even to get to this point,” he said. “The trade-offs we made may not have been ideal.”

Hack, one of the biggest crypto histories to date, focuses on play-to-earn games, a young world outside of crypto and gaming circles, which is becoming big business.

Players spent $ 4.9 billion on NFT games last year, according to market tracker Dapradar, which represents about 3% of the global gaming industry. Although demand has cooled since the peak of demand last November, gaming NFTs still sold $ 484 million in 2022.

Investors’ interest in NFT-based games has also grown, with projects attracting $ 4 billion in venture capital funding last year, up from $ 80,000 in 2020, Dapradar said.

“There are a lot of users who want to interact with the technology,” said Mr. Larsen, adding that Axis Infinity’s revenue exceeded $ 1.3 billion last year. “It’s as if you’ve found a new continent – like finding America again.”

There is and there is not

Adding levels of complexity, informal financial networks have also emerged around these games, as some players use their lucrative in-game resources to further their profits.

Mr Thetadilaka of Thailand decided last July that he wanted to make more money than just playing on his own, so he and his friends decided to create something known in the gaming lingo as the “Guild”. They allowed their NFTs to be used by people who wanted to play Axis Infinity for free, without investing in any assets and taking a cut of any win in return.

This model is common throughout play-to-earn games. Mr Thetidilaka said his guild, GuildFi, had become a network of 3,000 Axis Infinity players who shared their earnings 50:50 with the wealthy owners. Mr. Thitadilaka now runs Guildfly as a full-time job and the company has raised $ 146 million from investors.

Southeast Asian countries such as Thailand and the Philippines have emerged as the hottest global gaming hubs.

Theresa Pia, 25, who lives in Manila, quit her job as a pre-school teacher last June after her brother founded the Real Deal Guild, a play-to-earn gaming guild.

He now says he earns about মাসে 20,000 a month through his network of over 300 players across multiple games and other crypto resources.

For Axie Infinity, Mrs. Pia let her players keep 70%, while she took 30% cut. Another play-to-earn game, Pegaxy, where players buy and trade virtual horse NFTs to compete in a race to win crypto tokens, split it at 60:40.

“I do not call them workers. I just call them my friends or my scholars, ”he said. “Salary in the Philippines If you are a teacher… I’m a college graduate, I’m an educator, but that’s not enough. I never thought I could make that much money. ”

But Mrs. Pia warned that it was a dangerous business.

“There are many risks. When I’m investing in a new game হয়ে being a member of the Real Deal Guild, we have a partnership team, we have researchers, but at the end of the day, it’s still crypto, it’s still a risk. ”

Yield Guild Games, one of the largest play-to-earn networks, said it had 10,000 Axis Infinity players in the fourth quarter of 2021 who kept 70% of their earnings and received a total of .7 11.7 million.

Australian-based Corey Wilton, 25, founded Pegaxy, which has about 160,000 daily users. He estimates that 95% of users of play-to-earn games participate as “tenants”, generating revenue without owning assets, while 5% owning assets.

‘How people get hurt’

Legal experts warn that there is no safety net for players who effectively invest in risky assets, leaving them extremely risky if a project fails or the asset market dries up.

As global regulators try to seize cryptocurrencies on their own, there is relatively little oversight over the relatively specific branch of NFTs or play-to-earn games, typically using in-game crypto tokens that can later be cashed out in the traditional sense.

“It is risky to save any value on such projects. Making money in the game, blockchain-based games are often rewarded with the project’s native tokens, “said David Lee, a cryptocurrency associate at Fladgate, a London-based law firm.

“Tokens or in-game assets have no guaranteed value because their value is often determined by market supply and demand. This means there could be significant price volatility and, if the project becomes less popular or abandoned, the assets are likely to become worthless. ”

Yet proponents of these games say that success is built on a combination of factors such as skill, strategy and luck.

Mr. Wilton of Pegaxy added, “Of course you have to make money, but you have to lose money here.” “The game should not be confused with charity to make money, it hurts people.” – Elizabeth Howcroft / Reuters