How can P2E gaming become a sustainable business?? I analyzed popular P2E games (Axie, STEPN) and traditional games (Fortnite, Minecraft) to figure out the best business model for the future of gaming. ??

1/26 Gaming is seen as the next frontier for crypto/web3 adoption but the current P2E model is unsustainable. Several issues: 1. P2E == ponzinomics 2. P2E games are not fun 3. NFT traders are not gamers 4. Tokenomics incentivize selling 5. NFTs cut into long term profits

2/26 1. P2E == PONZINOMICS P2E gaming is plagued by "ponzinomics". Investors buy NFT assets. Investors hire scholars to play the game using said NFTs. Scholars make $ in the form of a native crypto token. Investors and scholars dump the token on new investors. Cycle Repeats.

3/26 This is a "ponzi" because it requires more new investors to join the game to provide exit liquidity for current investors. Everyone is happy as long as new money flows in. However, there is always a breaking point. SLP (Axie) and GST (STEPN) both hit the breaking point.

4/26 2. P2E GAMES ARE NOT FUN Why do people stop playing the game when they stop making money? The games themselves are not developed enough to be fun. There are two reasons: 1. building a good game takes a lot of time and resources 2. solidity devs != creative game devs

5/26 3. NFT TRADERS ARE NOT GAMERS Because of the large upfront costs to buy the requisite NFT: 1. Most gamers cannot afford the entry fee. Even AAA games cost max $70. 2. Only traders/flippers can afford to buy NFTs. 3. Scholars hired by Investors only play for money.

6/26 This leads to the #1 irony of P2E gaming: Too much $$ for regular gamers. Too much time for crypto whales to play. When the investors holding NFTs don't actually play the game, the developers get no feedback and the game slowly dies —> crypto token + NFT floor price?.

7/26 4. TOKENOMICS INCENTIVIZE SELLING Ecosystem-specific tokens typically enable token only utility (merch, NFTs, etc) + the team takes a % on any trades + hold a % of total token supply. The problem: For anyone to make "usable" money, they must sell. What do I mean? ?

8/26 The native gaming token can only be used in the game. That means the amount of utility outside of the token greatly outweighs the game token. Ex. I can only buy NFTs with $SOL and $ETH. I can only pay rent, buy food and go on vacation with USD.

9/26 As a part of the dev team, the only way I can pay taxes on my fees or merch profit is to convert token to $ETH and then USD. Also if the only way the dev team gets paid is via the appreciation of the token price, they would need to sell into USD to use in the real world.

10/26 5. NFTS CUT INTO LONG TERM PROFIT P2E models either: 1. create a high barrier of entry with expensive NFTs 2. walk a fine balance managing utility between free NFTs and paid NFTs

11/26 1. For games that only allow participation with expensive NFTs, they prevent the ordinary "free to play" user from experiencing the game and falling in love with it. This hurts long term user growth and potential microtransactions.

12/26 2. For games that allow free and paid NFTs to participate, they will struggle with continually rewarding OG paid NFTs while still making the game balanced for free NFT holders. Also for the lifetime of the game, the OGs must be considered in every situation.

13/26 Instead of potential ongoing revenue from your most loyal users through subscriptions or skins, OGs get them for free, cutting into potential profits had you gone a non-web3 route instead. Buyers of NFTs expect that they get more value and utility than what they paid.

14/26 OK... so how can P2E become a viable business model? They must follow 3 main principles: 1. Game design first. NFTs second. 2. Monetize what can't be monetized in web2. 3. Leverage collectibility and reward loyalty.

15/26 1. GAME DESIGN FIRST. NFTS SECOND. The most popular games from Fortnite and Minecraft to Elden Ring and Breath of the Wild all share a common characteristic: They are beautifully designed and fun to play. Utility = fun. That's it.

16/26 The reason Fortnite brings in billions of dollars as a free to play game with no pay-to-win mechanisms is because people love the game so much they want their avatar to stand out with unique clothes and cool dances. AKA Fortnite is monetizing the incredible game design.

17/26 2. MONETIZE WHAT CAN'T BE MONETIZED IN WEB2 Web3 allows players to own the assets they accumulate while enabling games to monetize the trading of those assets. However, companies must be thoughtful for what they turn into an NFT. What does that mean? ?

18/26 Ex. Imagine a game releases an open edition NFT skin. Before web3, they were destined to sell 1M copies at $10. If the skin was an NFT, there may still be 1M copies traded, but 30% is on secondary. Now they've made less money because X% royalties < 100% primary sales.

19/26 Here's the quick math: S = Avg secondary price R = Royalty % S < $10 because it's open edition and players could buy directly for $10 R < 100% Web2: 1M * $10 = $10M Web3: 700K * $10 + (300K * $S)*R% < $10M Web2 > Web3 ?

20/26 Because game devs no longer control the market, X% secondary royalties is not better than selling through primary market. Maybe over the long term, secondary sales + smaller primary > total primary. We need cost benefit analysis and not just blindly "NFT everything".

21/26 Here's a counterexample. Imagine everyone who plays your game gets a free NFT at level 0. A player grinds to level 100 and decides to sell it. The game makes royalties on a digital asset they couldn't monetize in web2. The player makes some money from their grinding.

22/26 This is a better example of leveraging web3 because most level 100s just become a database entry. Now, you've enabled a few net positive behaviors: - OG player is rewarded for their play time - New player saves time from grinding - Game makes X% royalties

23/26 3. LEVERAGE COLLECTIBILITY AND REWARD LOYALTY. Battle passes are a popular option to monetize your loyal players. As NFTs, they become tradable as collectibles once the season is over. Again you've tapped into a new market and created value out of thin air.

24/26 And why would someone want to collect multiple expired battle passes? Add real utility. Ex. Anyone who holds a full year's worth of battle passes is invited to an annual party to meet other players or they can participate in a tournament with cool prizes.

25/26 SUMMARY NFTs are a very exciting piece of technology when used correctly and thoughtfully in P2E gaming. However the current game experience is ? and incentive structures don't make sense. Also tokens don't fit every P2E game. "Earn" can be selling a leveled up NFT!

26/26 You have to think about how to provide value to various personas participating in your game — investors, gamers, and hard core gamers. How would you leverage NFTs in games? Is there a P2E game today that is sustainable + well designed? Lmk, I love engaging with y'all ?