The Play-to-Earn Fad (Scam?) Is Dead

The crypto correction is not the main reason for the decline

by on 11 minute read updated on

Let's start with a bold proclamation that might not age well: Play to Earn games have no future.

Axie Infinity was the darling and biggest game of the Play-to-Earn trend that was booming less than a year ago.

AXS & SLP price charts

Today, the AXS governance token is down over 90% from its all time high and the secondary SLP token that players get from playing the game is down 98%.

SLP was also the token that players cashed out into real world money and put the earn in Play-to-Earn.

Some are hoping that this is just temporary and that the value of SLP will recover so that they can sell it at a better price. But therein lies the unfixable problem of play to earn.

What are games for?


This yellow circle with a slice missing is in the Video Game Hall of Fame and is the most recognizable video game character in the United States. Even more than everyone's favorite Italian plumber.

It all started with an arcade machine released on May 22nd, 1980 in Tokyo, Japan. And it wasn’t long before it took over the world. By 1982, it was estimated that Americans spent more than $6B feeding quarters to Pac-Man that year alone. This was more than what was spent in Las Vegas casinos and movies combined.

The industry has only gotten bigger since then with billions of players collectively spending hundreds of billions of dollars as a form of entertainment.

Playing games has been an activity of consumption for at least the last 40 years.

The opposite of consumption is production where you create a good or service that can be sold (or sometimes given away) to others for consumption.

Production is how money is earned. Consumption is how it is spent.

The utopian promise of Play-to-Earn is that consumption can be cleverly transformed into production through the magic of public, decentralized ledgers and cryptocurrencies.

Except that’s just a fantasy–even if it can appear to be working for a short time.

The Master of Distortion

When governments took an unprecedented response to the COVID-19 pandemic and shut down the world economy, many with lower skilled jobs–especially in developing countries–suddenly found themselves unemployed.

With few hiring for physical jobs, people searched high and low to find ways to make ends meet. One solution that millions flocked to were Play-to-Earn games. It came with the promise that you could earn real money by just playing a game. The game that became the face of this nascent market was Axie Infinity.

Sky Mavis, the company behind the game, rode this COVID-induced Play-to-Earn boom and raised over $300M in less than a year from names like Mark Cuban, Reddit co-founder Alexis Ohanian, and venture capital firm Andreessen Horowitz.

This suggested that some very smart people evaluated the team, the product, and the business model and then concluded that it was at least worth an investment; that there was something here with the potential to significantly disrupt the games industry.

Back before the COVID-19 pandemic, the odds of 1 million people paying tens or even hundreds of dollars to try a game that promised more money in return would have been extremely low.

Understandably, it sounded like a scam.

But the worldwide shut down left people with a lot of time to do things they otherwise wouldn’t have.

And for several months people were able to make real and significant amounts of money playing Axie Infinity. Especially if you lived in a developing country like the Philippines or Venezuela.

But for those of us living in the United States or similarly developed country, it was something else that promised us free money.

The unprecedented government-mandated shut downs of the US economy was followed by another unprecedented act of the US Treasury directly sending stimulus checks to every eligible adult in the country.

With nowhere to go and work days filled with Zoom meetings, white collar workers found themselves with a significant amount of extra money but little to do in the real world. So they spent it in the digital world instead.

Of the 3 rounds of stimulus money, the 3rd was perhaps the least necessary. A survey showed that 35-40% of respondents intended to use their 3rd stimulus check to invest in bitcoin or stocks. It is highly likely that this happened with the first 2 rounds as well.

The Mirage

And what we saw was an incredible rise in the valuations of stocks and cryptocurrencies with new all time highs being made while the world was still struggling to return to normal.

This included a more than 5x increase in the value of the SLP token earned by Axie Infinity players. And it was during this bubble that the Play-to-Earn boom took off.

Players could earn about 100 SLP per day and therefore make anywhere from $10 - $30 daily before breeding Axies and selling them as NFTs which went for a couple hundred dollars each. This was as much or more than what many–in a country like the Philippines–were making. Especially during COVID when employment was scarce.

Unfortunately, economics can only be cheated for so long.

Without outside or speculative forces, the true value of Axie NFTs and the SLP token would directly correlate to the value of the Axie Infinity game. A game that brought more fun to players would result in more people becoming players which would make the game more valuable and that would raise the value of in-game items.

This fundamental requirement of successful games has not changed since $6B worth of quarters was spent on Pac-Man.

But Axie Infinity wasn’t that interesting or fun. There are many better games that are paid or free to play.

A Replay of Free-to-Play?

It’s tempting to look at Play-to-Earn and compare it to the early years of Free-to-Play where members of the old guard and players accustomed to the traditional model viewed this new type of game with suspicion.

While some of the criticism may have had merit, most were reactions to a change that might negatively affect the old business model or bring in non-traditional players with different wants and needs.

The history of Free-to-Play can be traced back to the late 1990’s with games like Neopets and MapleStory which were mostly played by children and women. By the time Free-to-Play games grew bigger than the traditional paid games market in the 2010’s, it was clear that the model expanded the market to players whom were previously underserved by the old model.

Free-to-Play is now generally characterized by a player base where 98% of players never spend any money–but spend many hours playing–and a search for whales: players who spend hundreds or even thousands of dollars.

While the size of dollar amounts do have parallels with Play-to-Earn NFTs, the vast majority of whales feel they received value for their money. Which is to say: they paid money for entertainment and the game delivered.

Some who buy NFTs probably feel they received value for their money too but the vast majority are hoping to flip them at a higher price like a rare collectible. No gamers who pay for a microtransaction (regardless of the size) are expecting a return.

And that’s why the Play-to-Earn trend is different from Free-to-Play where the emphasis was on playing a game for fun that happened to be free versus Play-to-Earn games where the emphasis was on earning easy money by playing a game.

This inversion looks trivial but there’s more.

Pyramid-like Economics

The laws of economics says that money cannot be earned by consuming and playing a game is clearly consumption so what were Axie players doing that made them producers? What was being made to be sold?

The short answer is NFTs. Players could breed Axies for new players to buy when starting the game. Those with more money than time could pay to buy a more developed Axie with certain characteristics instead of spending the time to grind.

This is not a new concept and has been happening in World of Warcraft for more than a decade much to Blizzard’s dismay. The overarching concept of paying money to reduce the amount of time spent grinding is also the basis of Free-to-Play games.

This model is economically sound as long as the game is fun and there are more consumers than producers.

But in Axie Infinity’s case, there were more producers than consumers and the only way to start playing the game was to buy 3 Axie NFTs. This design ended up constructing something that looked eerily similar to a pyramid scheme.

Axie Pyramid

Sky Mavis sells you 3 Axies and makes money. Then you sell someone 3 Axies to make money–the developer takes a percentage of this transaction. Then everyone who bought 3 Axies from you have to get others to buy 3 Axies to make money.

Looks pretty triangular but it gets worse.

Non-fungible Bubble

In March 2021, Jack Dorsey, the co-founder of Twitter, sold an NFT of an image of his first tweet for $2.9M. This was at the beginning of the NFT craze that exploded in 2021 as clearly fungible items like digital images were selling for thousands or even millions of dollars.

Speculation in the crypto markets made worse by government policies in response to COVID-19 added fuel to the NFT craze and helped further push up the price of Axie NFTs. This created a significant barrier to entry for the vast majority of players who lived in developing nations. But it also meant that a potentially life-changing amount of money could be made by playing Axie Infinity and selling the ridiculously priced NFTs.

To solve this problem, veteran players who started before the game got big created a somewhat dystopian-named Scholarship program where they would lend you 3 Axies and then take a percentage of your earnings–anywhere from 30% to 50%–until you could afford to buy 3 Axies of your own.

The ethics of the system that developed around Axie Infinity is worthy of discussion but ultimately, none of it would matter.

A speculative pyramid scheme will only work as long as there are new players willing to pay the entry fee and that pool of people dried up for Axie Infinity as the NFT boom leveled off. Prices of an average Axie NFT have since fallen to $10 or less and the value of the SLP token has never been lower at less than half a cent.

The number of daily active users has taken a similar fall from a peak of over 2.5M in November 2021 to around 40k today. The game also suffered a North Korean state-sponsored hack which didn’t help but it was in decline before then.

The magnitude of these drops are devastating but Axie Infinity is not alone. The NFT of Jack Dorsey’s first tweet was put on sale again in early 2022 and bids only amounted to about $10,000.

End of the Trend

Play-to-Earn, as a business model for games, is almost certainly dead. Axie Infinity has even changed their messaging from Play-to-Earn to Play and Earn. Other games in the space have followed suit.

Unfortunately, the problem was always more about the premise than the messaging. Playing a game and then earning money–unless you are developing the game–is antithetical to why games exist. Games are a recreational activity and not a financial instrument.

Sky Mavis might be taking this to heart as they’ve recently hired a new head of product, Philip La, who was previously a product manager on Pokemon Go and told Bloomberg that, “Axie Infinity first and foremost needs to be a game”.

Behind the Curtain

I have not been a player of Play-to-Earn or crypto games generally so I concede that my bearishness on the majority of web3 games may just be because I'm not in the target demographic.

That said, I am a believer in crypto as a whole in terms of having decentralized money, transactions, and public proof of ownership. I don't believe that NFTs are a negative although I have not seen a compelling enough use-case for them, yet.

I think that NFTs will have a place in games but not quite how they are being used today. Although I can't articulate a specific or better use of NFTs in games so my long-term bullishness is based purely on faith.

The most recent Axie Infinity game–Origins–also allows you to play without connecting a wallet and buying 3 Axie NFTs. This is probably a step in the right direction for being a game although that does put it in a very red ocean of Free-to-Play games.

While Play-to-Earn does seem to have structural problems, it was also the main differentiating factor. I have a great dislike for the forced wallet connect so I'm not complaining but there were some benefits to it in terms of how it selected for more dedicated/interested players.

Ubisoft, SquareEnix, and Zynga have announced plans for Play-to-Earn games during the boom but I would not be surprised if we don't see those games for a long time given the macroeconomic environment in general and for tech and crypto specifically.

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