Like the Metaverse, Play-to-Earn (P2E) has mostly retreated from the headlines but I’m sure it is one of those zombie ideas that won’t stay dead for long. The core promise of P2E was that players could - through gameplay and engagement - earn actual real world cash.

In broad sense, this isn’t exactly new: things like gold farming, account boosting, eSports tournaments, and user-generated content (UGC) revenue share have been things for quite some time already. Play-to-earn was a way to legitimize the former while dodging the regulatory and taxation problems of the latter. However, what enabled Play-to-earn to be a trend were the coinciding usual suspects: cryptocurrencies and NFTs.

Anyway, let’s rewind a bit and go back to what game economies and their intentional friction are all about.

Note: This was originally drafted back in 2022-2024, but I never got it out of the door. A little bit like my post on why the Metaverse can not happen which also spent a few years in my drafts folder.

Free-to-play and Virtual Currencies

In the Western game design, the prevailing free-to-play economy design is based on the trade-off between money and time. The “grind” is a prevailing element in many such games. Players can either spend time grinding or spend money to skip it. And this grind - like everything in the game - is entirely arbitrary invention of the game designers. It’s intentional friction to progressing - and it can be a good idea. Different people value things differently and some will be more willing to skip the grind to get to the “good” stuff earlier: they have the money but not the time. Nothing new here, time savers (double XP etc.) have long been accepted and working monetization features even in more traditional single player games or premium online games. Play-to-earn attempted to disrupt this by making it a feature that players can buy and sell that progress.

The trade-off between time and money can also be expressed in terms of meaningful play. Games can be designed in a way that players are limited to a certain amount of “meaningful” play before they are required to pay or their play risks becoming “meaningless”, i.e. grind. This approach has the benefit that non-monetizing players are free to engage with the game and are not hit with a strict paywall, but those players who are more engaged with the game are incentivized to spend money to continue their enjoyment and progression. However, for this to work and where a conflict of interest lays is that this necessitates that the game design includes “meaningless” play, or a bullshit job^[1].

Obviously, gold farming and so in a way “play-to-earn” happens in many games regardless of the intention of the game developer. Making it an explicit supported feature sounds like a way for the developer to take a cut of this previously very grey market. One of the supposed features of NFTs wass how the original creator can collect a transaction fee of any subsequent trade (a feature on Steam Community Market as well) and also by using cryptocurrencies removes the developer’s liability of taxes and other employment benefits when “creators” are paid by other players and with a currency that can be exchanged to real, taxable currency on a third-party exchange.

In normal games, the valuable - or hard - currency in in-game economies is traditionally limited to be one-way and it can not be earned through gameplay^[2], only through a real-world purchase. It cannot be redeemed back to the game for real money, because this opens a world of interesting problems, not least fraud and money laundering. The main reason why we bother with in-game “hard” currency in the first place is because of limitations and logistical difficulties with using real-world currencies directly to do microtransactions in games. Psychological, behavioral, and transaction cost barriers make them impractical for frequent small purchases. Ironically, cryptocurrencies like Bitcoin were originally designed for this microtransactions over the internet but ultimately have all but failed for this purpose - however, they are rife with fraud and money laundering.

So, Play-to-Earn implies ways to tokenize a player’s progress (be it wealth, items, XP or whatever) and sell that in some fashion to someone else^[3]. This sounds like a great use case for cryptocurrencies!

However, we have had player-to-player real-money trading in games even without cryptocurrencies, Steam’s Marketplace and Diablo III's Auction House are examples of this. Although, real-money trading is often still banned in MMOs, although you can trade a hard currency, like in World of Warcraft and EVE Online. What could go wrong?

Gold-farming and Bullshit Jobs

There’s one thing we know from experience: ultimately in games that make gold farming or play-to-earn possible, the labor of grinding is transferred to poorer players (those with time and no money). Play-to-earn has the potential to create a segment of players who “play” the game for work, and it is very likely a bullshit job^[4]. Gold farming does not in any meaningful way contribute to the society and it’s more of a symptom of the global economy imbalance than it’s a viable source of income. Play-to-earn can easily create a digital sweatshop, and it gets real dark real fast when loan sharks rent the tools for poor people to make a living in play to earn games. We have invented digital sharecropping, where wealthy “managers” rent out their NFTs to “scholars” in developing nations and take a huge cut of the earnings. Is this really what “play” is?

Again, the developer could just directly sell a time saver to wealthier players but for some reason in this model it is seen preferable to have other people perform grind to serve as human time-savers instead? The developer can always just create things out of thin air! Instead, the game developers act like Keynes’ treasure, burying bottles of bank notes in coal mines just to let people dig them up again^[5].

And we now know how it all ended. To function, most P2E games required a constant influx of new players buying the shovels from the existing players to start digging for gold (or build their own shovels to sell). However, as soon as the growth slows down (and it will^[6]), there’s no one to sell the shovels to and because these shovels are completely useless otherwise^[7], their price will go down to zero.

On some level, the pitch of NFTs and play-to-earn was that when you stop playing the game, you can sell your now useless gear to the next player coming in for real money. The last bit is important, because many games do have player-to-player trading but it is still fully within the game’s own economy. But even then the NFT part was very superfluous, we already had Steam Community Market and Diablo 3 real-money auction house. On some level, both of these were intended to root out the grey/black market^[8]. Especially the story of the Diablo 3's auction house is well told at this point and goes to show how its mere existence devalued the game experience.

Market Economies in Games and the Cruelty of Random Wealth

Why we even have the need to create artificial scarcity in virtual worlds is a curious thing^[9]. Sometimes this scarcity is gated behind progression or achievements not unlike getting a gold medal at the Olympics but very often it is gated behind an algorithmic distribution of rewards via pseudo-random number generation, or the RNGesus. On first glance this sounds like a fair way to distribute items - assuming the RNG is fair - but really only in aggregate and only if you believe in all players being average and having exactly the average expected outcomes. Once you have millions and millions of players, you are bound to have insanely lucky people and insanely unlucky people – this is guaranteed by statistics and random distributions. With millions and millions of players, you will have players who will always roll 6 on a die and some who never get one - and this is “normal”. Yet, with a naïve approach to economics and randomness, game developers will create wildly uneven experiences and create wildly and arbitrarily unjust game economies^[10].

In a curious way, NFTs and play-to-earn in game worlds expose a cruel injustice: when worthy items and so wealth is almost entirely based on RNG, rarity and so wealth is only for the very few lucky ones. Or to people who have wealth from outside of the game. Why on Earth would game designers want to create these unequitable societies in fantasy worlds where everything should be possible? Even fantasy worlds cannot apparently escape laissez-faire capitalism.^[11]

By bringing real-world economies to games, not only do they cease to be escapist but the game developers also bring in the challenge of managing that economy. Granted, the game developers can let the economy run on its own, but it is practically impossible that they got everything right at the start and that the in-game economy balances will be what the game developers intended. There will be interventions. There will be side-effects. There will be unintended consequences. There will be externalities. And even then, at the end of the day, the balance the economy finds itself in might not be great for anyone.

A market economy is a tool, and game developers should be clear for what purpose they are using the tool for. It is not a force of nature, and even if it was, few games can or even want to simulate physics “realistically” - it’s not fun^[12]. Why do we want to simulate flawed market economics in games? Why do we want – through cryptocurrencies – to bring real-world flawed economics into games?

Fully player run economies - like in EVE Online - will be quite laissez-faire economies with all the problems that come with it. And EVE Online employed real economists to work on its in-game economy, and laissez-faire kind of fits that game’s fantasy!

Creators or Laborers?

What is that the game developers attempt to incentivize with play-to-earn? Many long-term games can be considered to be hobbies, and the motivation for play is not related to earning money, the exact opposite being true. Hobbies are by definition outside the realm of profit motive.

It is a common mistake to consider your audience as one monolithic mass, instead of different segments with different needs and wants. In general, the “play-to-earn” attempts to incentivize the (user-generated content) creators. Traditionally, the creators are often driven by an intrinsic motivation and they are often a small minority of the audience. Psychology shows that once you pay someone for a hobby they used to do for fun, their intrinsic motivation will die. Incentives or achievements for creating content will just flood the game with 0-value content designed solely to “game” the reward algorithm^[13].

And this is really the worst case, you will attract exactly the player segments like cheaters you’d rather not come to spoil the game for the community. The worst part is that in normal games, few would tolerate cheaters who do not play the game as intended and just ruin the experience for others. Play-to-earn has the potential to destroy the game experience, yet it is harder to define bad actors if they play according to the laissez-faire rules of the in-game economy. Just like in the real life, are they just “ensuring liquidity” and that bot is just a “high frequency trader”? When you financialize play, you lose the moral authority to protect the game experience.

If players in fact do create value in your game, why not compensate them in a real way? The traditional way to do this can be a bit cumbersome, the game developer needs to figure out international taxation and other not so fun things. So, games often pay back with exposure, be it in game or in social channels.

Of course, the question goes back to are you looking for creators or laborers? The first group enjoys a certain luxury of leisure, the second group has a price tag on their time. “Play-to-earn” was yet another “innovation” in the attempt to financialize everything. Even in a fantasy world you would still be on the clock.

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1. This is the analogous to the infamous loot box monetization design: to have rare, valuable items necessitates that loot boxes are - more often than not - filled to the brim with common, useless items. ↩︎

2. At least not in any meaningful amount. ↩︎

3. Notably, this someone else is almost never the developer, ie. you can’t cash out your tokens from the casino, only from secondary markets. ↩︎

4. See Graeber, 2013. On the Phenomenon of Bullshit Jobs.. However, is gold farming a bullshit job or simply a reproduction of colonial labor structures in a virtual space? Doesn’t it provide an actual utility to a high-net-worth player in the Global North? ↩︎

5. Keynes, 1936. The General Theory of Employment, Interest and Money ↩︎

6. As in any Ponzi scheme. ↩︎

7. This is largely because the “interoperability” promise of NFTs never solved the technical or balance hurdles of moving a “shovel” into a game like FIFA or even Deep Rock Galactic. ↩︎

8. And take a cut of the action for themselves. ↩︎

9. Markets are a fun system, that’s for sure. For a good primer in to virtual markets, see Lehdonvirta and Castronova, “Virtual Economies” (2014) ↩︎

10. Of course, this might not be a bug and is, in fact, a feature: you buy your way out of bad luck with real money. ↩︎

11. Or in some ways an even worse version, where pure luck creates the 1% not through merit but through statistical variance. ↩︎

12. Even in the games, where the “enemy” is the physics, like in the Trials games, it is far from what could be said to be realistic. Simulators are a completely different thing, and there the fidelity is the entire point. ↩︎

13. It can be even something as trivial as giving out a Stem achievement for sharing a user-created level in the game, leading to the level browser be full of empty “My Tracks”. Ask me how I know. ↩︎