Cryptography and gaming collide in high-risk ‘play for profit’ economies

April 8 (Reuters) – Garender Thetadelaka said he made up to $2,000 a month last year from his collection of digital pets, which he would produce and send into battle to win cryptocurrency.

The 28-year-old from Bangkok was playing Axie Infinity, one of a new breed of blockchain-based online games dubbed “play to win” that blends entertainment with financial speculation.

These games can create profitable businesses amid the hype around NFTs and virtual worlds, attracting millions of gamers as well as billions of dollars from investors who see games as a way to introduce more people to cryptocurrency.

At Axie Infinity, users buy blob-like virtual objects with various attributes such as NFTs, or non-fungible tokens – digital assets whose owner is registered on the blockchain – for anything from tens of dollars to hundreds of thousands. Read more

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

“It’s no longer just a game,” said Thetadelaka. “It’s more like an ecosystem.” “You could even call it a country, right?”

Surprisingly focused attention was paid to the dangers of this speculative ecosystem, and the largely unregulated crypto gaming industry, last week when Axie Infinity was hit with a $615 million heist. The hackers targeted a part of the system used to transfer cryptocurrency in and out of the game. Read more

Sky Mavis, owner of Vietnam-based Axie Infinity, said it will make up for lost money through a combination of its balance sheet funds and $150 million raised by investors including crypto exchange Binance and venture capital firm a16z. Read more

Alexander Larsen, co-founder of Sky Mavis, told Reuters that if he could have done things differently, he would have focused more on security when developing the game, which launched in 2018.

“We were running at 100mph, basically, to get to this point,” he said. “The tradeoffs we’ve made may not have been perfect.”

The hack, one of the biggest cryptocurrency heists ever, has put the play-for-profit in the spotlight, a young world largely unknown outside crypto and gaming circles, which has become big business.

Gamers spent $4.9 billion on NFT games last year, according to market tracker DappRadar, which represents about 3% of the global game industry. Despite declining demand since its peak last November, gaming NFTs are still generating $484 million in sales so far in 2022. Read more

Investor interest in NFT-based games has also inflated, DappRadar said, with projects attracting $4 billion in venture capital funding last year, up from $80,000 in 2020.

“There are a lot of users who want to interact with technology,” Larsen said, adding that Axie Infinity’s revenue exceeded $1.3 billion last year. “It’s like you’ve found a new continent… like you’ve found America all over again.”

He has and he does not have

Adding layers of complexity, informal financial networks have also sprung up around these games, with some players taking advantage of their coveted in-game possessions to make more gains.

Thitadilaka decided in Thailand last July that he wanted to make more money than he could by playing alone, so he and his friends decided to form what is known in gaming parlance as a “guild”. They allowed their NFTs to be used by people who wanted to play Axie Infinity for free, without investing in an asset, and took a portion of any winnings in return.

This model is popular across play-to-earn games. Thitadilaka said his guild, GuildFi, has grown into a network of 3,000 Axie Infinity players who split their profits with asset owners in a 50:50 ratio. Thitadilaka now runs GuildFi 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 one of the most important global gaming centers.

Therese Pia, 25, who lives in Manila, quit her job as a preschool teacher last June after her brother founded the play-to-earn game association, Real Deal Guild.

It now says it earns up to $20,000 per month with its network of more than 300 players across multiple games, as well as other crypto assets.

For Axie Infinity Pia, it allows players to keep 70%, while getting 30% off. In another game, Pegaxy, where players buy and exchange NFTs of virtual horses to compete in races to win crypto tokens, has split them in a 60:40 ratio.

“I don’t call them workers,” she said. “I just call them my friends or scholars.” “The salary in the Philippines if I’m a teacher… I’m a college graduate, I’m a teacher, but that’s not enough. I never imagined I could earn that kind of money.”

But Bea warned that it was a dangerous business.

“There is a lot of risk. When I invest in a new game… Being a member of the Real Deal Guild, we have a partnering team, we have researchers, but at the end of the day, it’s still a risk.”

Yield Guild Games, one of the largest for-profit gaming networks, said it had 10,000 Axie Infinity players as of the fourth quarter of 2021 who kept 70% of their earnings and received $11.7 million in total.

Corey Welton, 25, based in Australia, founded Pegaxy, which he says has about 160,000 daily users. It is estimated that 95% of play-to-earn game users participate as “tenants,” earning without owning assets, while 5% are asset owners.

How do people get hurt?

Legal experts warn that there is no safety net for players who actively invest in risky assets, leaving them extremely vulnerable in the event of project failure or the depletion of the asset market.

While global regulators seek to control cryptocurrencies themselves, there is little oversight of NFTs, or the relatively specialized branch of games played for profit, which typically use in-game crypto tokens that can then be converted into traditional money.

“Stocking any value into projects like this is very risky,” said David Lee, cryptocurrency assistant at London-based law firm Flagship. “Often playing to win blockchain-based games through rewards paid with the project’s native tokens.”

“There are no guaranteed values ​​for a token or an in-game asset as its value is often determined by supply and demand in the market. This means that there can be significant fluctuations in price, and if a project becomes less popular or deserted, there is a possibility that the asset will become worthless. “.

However, defenders of these games say that success is based on a combination of factors such as skill, strategy and luck.

“There is definitely money to be made, but there is also money to be lost here,” Pegaxy’s Welton added. “Playing for gain should not be confused with charity, that is how people get hurt.”

(Elizabeth Hawcroft reports from London). Edited by Praveen Shar

Our criteria: Thomson Reuters Trust Principles.