P2E model has swept the crypto world by releasing ground-breaking games such as Axie Infinity, Splinterland, etc. Despite the hype surrounding these games, we should adopt a cautionary view about the P2E model’s long-term sustainability.
My view is straightforward. If people are playing the game just for profits, then startups built around a single P2E game will fade away in the long term.
Let’s take Axie Infinity as a case study.
By targeting users using the game as an alternate avenue to earn income, Axie Infinity has grown rapidly. For instance, 65% of the users are “scholars” — players who cannot afford to purchase three axies, a requirement to enter the game. These players borrow axies and share a percentage of their profits with lenders. Since these users are engaging in Axie Infinity as an alternate source of income, they exit the game once their profits decline. User retention drops from 50 to 40% after a week, and the trend continues downwards towards 30% after a month.
To make matters worse, SLP, Axie’s in-game token, is not generally used for in-game purchases but rather as an instrument for speculation. Consequently, the supply of SLP has been increasing as users are cashing out the token for real-world cash. The decreasing SLP price reinforces the declining profits from battling and trading axies on the platform.
However
I am more optimistic about P2E games around card collection, trading, and battling, such as Splinterland. Since card trading/collecting/trading is not as mainstream as collecting pokemon-like NFTs, users generally are more drawn towards the game than using the game as a profit-making machine. This is further reinforced by strong user-retention figures in this gaming niche. For instance, 50% of the user base participated in Splinterlands’s in-game upgrade as of September 2021 (3 years of launch), while Axie Infinity’s retention figures hover around 30% for a cohort of users after 30 days.
I believe that P2E gaming companies will function like video-game production houses in the long term. There will be an increasing focus on creating a better gaming experience, a key driver for user engagement and retention. Naturally, P2E companies would shift towards creating game franchises, which will help them better retain users. They may drive liquidity between games to make older games more relevant, amongst other potential benefits.
Nevertheless, I believe that existing gaming giants would capitalize on the P2E model. With their strong brand image and resources, they can easily attract and retain users. But to enter the P2E space, the existing game development process needs to be modified to include the blockchain component, and such a change would require time. Until then, P2E startups have an opportunity to establish themselves and defend their moat.