Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

Table of contents

  • Introduction
  • Why talk about games
  • The history of game monetization
  • What blockchain brings to the game
  • Current Crypto Games
  • Using cryptocurrencies to monetize games
  • Epilogue

Introduction

For now, it’s no secret that most gamers hate the crypto industry. We’ve witnessed intense community pushback around announcements like Ubisoft’s Quartz, and even the most recent Dr DisRespect’s Midnight Society. Video game commentators like Asmongold, Josh Strife Hayes, and more continue to question the industry — and often with good reason. You might be surprised to hear a crypto-native company admit this, but we understand where this sentiment comes from and believe it has a reason. As a gaming team and some of the earliest proponents of blockchain gaming, we were caught off guard by being so opposed to an area we care so much about. At first, we thought it was people not understanding the benefits cryptocurrencies could bring to gaming. But over time, we heard more and debated.

After much discussion, we believe that many of the criticisms are justified. Not just for crypto gaming, but more broadly for the evolution of core monetization practices in the gaming industry over time. In this article, we will share our observations. We’ll provide historical context for our place in the gaming industry, share some reflections on the entry of cryptocurrencies into the space, and provide a framework for several models in which we believe cryptocurrencies belong in gaming. In particular, we’ll be exploring a new model called PlayFi, developed by the team at Brooks Brown and NOR. We highly recommend watching our first Disruptor show with him. Our paper builds on these principles with some modifications based on our experience.

Why talk about games

First, we need to build a high-level framework to understand why people are attracted to games in the first place. Let’s start by exploring the concept of the Magic Circle, first coined by Johan Huizinga in his 1938 book Homo Ludens and later by Katie Salen and Eric Zimmerman in their 2003 The game’s background is expanded in The Rules of the Game: Fundamentals of Game Design.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

The magic circle refers to the imaginary boundary between the real world and the game. Reality, often with misfortune and limitations, is something many seek to escape. The magic circle in the game can provide shelter. In magic circles, seemingly mundane actions take extraordinary forms due to the extraordinary nature of the human imagination. For example, the simple act of kicking a ball into the net can fully represent a winning goal in a World Cup final. So billions of people suddenly care about this moment of great, lasting significance. The difference here is that it takes place in a magical circle, a shared hallucination that is valued by society.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

We used the example of sports in an article about video games, which might surprise you, but they have far more in common than they differ. Early in human history, sports have been a dominant medium of entertainment. It is seen around the world as a great source of meaning, capable of evoking great passion and tribalism on a global scale. Sports are respected because people understand that really good skills require constant practice. Plus, they’ve evolved over thousands of years to optimize what people actually enjoy and love in games. The result is a very specific monetization model around games, which we’ll explore later.

Going back to the magic circle, it often helps induce a state of flow — a well-studied psychological phenomenon that extends far beyond gaming or sports. This is the state that emerges in situations of high challenge and high skill. If successful in creating a compelling magic circle, players should immerse themselves in the experience, ignoring all other needs. The outside world should fade out of the background. Dear reader, you’ve likely experienced that “immersive” feeling. This is why many people love video games, it’s what gaming is really about.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

In the current generation of video games, it’s at this last point that things start to break down. In many cases, games are not immune to outside interference. In fact, it has become entangled with what is arguably the biggest limitation that reality can impose on people: money. We believe this is a big reason why mainstream gamers are hostile to Crypto. Parts of the traditional gaming industry have leaned toward aggressive monetization practices that sometimes hurt the player experience. So when players see the need to buy NFTs to play early crypto games, or when big publishers announce plans to build in the space, they see it as another money grab and shy away.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

The above problems are most obvious in multiplayer competitive games. Some players can successfully defeat others by improving their attributes through krypton gold, which is a kind of corrosion to real competition. These games are often branded pay-to-play (P2W) and rightfully boycotted. With the advent of cryptocurrencies, and the ability to tokenize and trade in-game assets, many critics worry that blockchain gaming will continue to move in this direction. While this is a reasonable point, we think it’s one-dimensional and misses many great opportunities for cryptocurrencies to enhance gaming.

To summarize some of the points we covered:

  • People play games as a way of escaping reality; a state of flow and true immersion enhances that feeling.
  • Skill-based competition can be an important driver of making games meaningful
  • When money affects core gameplay, it can break the above

We believe that many of the criticisms against cryptocurrencies and traditional games in the gaming industry stem from the way games are monetized. In an ideal world, one might think that in order to create the most immersive gaming experience, the impact of money on the core game must be limited. This is not to say that all forms of monetization are bad, but that we should look for ways to monetize that don’t compromise the core game loop or true competitive gaming. Of course, this is not to say that there can be no money for games that touch the core gameplay, because such games must have an audience. In fact, many people on the Delphi team love games like this. Notably, these different patterns exist within a monetization lineage that can be handled in a variety of ways. As ever, there is no one-size-fits-all solution, and in the infinite space of game design, there are always nuances.

The history of game monetization

Before we dive into the current shadow of cryptocurrencies in gaming, it’s worth reflecting on the history of the industry in light of the context provided above. The video game industry as a mainstream phenomenon has been on a long evolutionary arc since the late 1970s, when arcade games led to the first golden age of gaming (1978-1982). These early games seep into the soul, as the public scene of the arcade unleashes deep competitive power for the first time. The quest for high scores and the accompanying glory of showing off to friends and foes is contagious. These games are skillful, fun, and follow the old adage that great games are easy to learn but hard to master. Given the nearly ubiquitous nature of modern video games, it seems counterintuitive that early gains could match recent gains. In 1981, the video game industry was $20 billion in revenue. Adjusted for inflation, it was $64 billion. For context, global gaming revenue in 2021 is $180 billion. Despite the constant friction associated with gaming at the time, the success of video games was impressive. Back then, gamers had to carry coins, wait in line in noisy environments, make sure the machines worked, the games worked, or the arcades were still open when someone wanted to play Space Invaders — for modern players, these are intolerable. So, novelty aside, what’s the magic behind these early games?

Brooks Brown emphasized the idea of ​​”fair play and the thrill of risk” in his talk about NOR . The core idea is that, early on, games provide real risk. When you get to the front of the line in the arcade, your 25 cents can buy you three lives at a time. But if you lose them all, you’re out. So, there is a real incentive to play early, because the value of the dollar is intertwined with your gaming skills. The better players, their money tends to be more valuable because they live longer. And the best players have the highest incentives, high scores, and their achievements can be immortalized — everyone understands how hard it is to get a spot on the scoreboard, so it earns respect. This incentive structure motivates players to want to get better grades with more practice, which can only be achieved by spending more. In addition, there is even a skill inflection point, after which it becomes easier to master the game. Importantly, the fairness of the game is also sacrosanct. There are no cheat codes, no bonuses to buy, and no other consumables to give players an advantage. These games are primitive forms of competition, with basically all variables under the player’s control, except for the environment. Users can be assured that they can win these games with technology alone, unlike a lot of what we see in modern times. This is fair play, and the thrill of taking risks.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

With the development of the industry and the emergence of home game consoles, players have stepped out of the arcade and returned to the comfort of their own homes. They can play whatever they want anytime, anywhere without any restrictions. In the years between the rise of consoles and the advent of the Internet, the public scene of arcades and the competitive spirit surrounding high scores has waned. These top “virtual athletes” used to attract huge audiences, but now that energy has dissipated. Losing all three lives and “death” don’t have the same meaning, as players can simply respawn for free without any real-world penalties. Because failure is not so important, and victory is not so important. The consequences of actions have changed. As Brooks puts it, “the devaluation of risk cuts the link between player skill and entertainment value”. Ultimately, game designers have become more reliant on technological advancements, like better graphics and sound, to distract users from this subtle but important change. Henceforth, the eternal cycle of infinite rebirth at home will be the norm. NOR’s previous name was actually “Eternal Return,” named after Nietzsche’s threat to be doomed to this repetitive existence.

By the mid-1980s, video games had grown rapidly, and growing production budgets had created larger games with increasingly complex mechanics and longer narrative content. The industry no longer competes directly with sports, but tends to compete with film and television. Decades on, we’ve seen this trend of higher game production value in full swing, with Netflix’s investor letter in Q4 2019: “Our competition with ‘Fortnite’ (lost ) more than HBO”.

In the ’80s, ’90s, and ’00s, the industry was dominated by premium AAA games — for which you had to pay a hefty upfront fee, usually $60. These games are released on CD or cassette and need to be played on PC and/or consoles such as Sony Playstation or Nintendo GameBoy Advance. Their existence depends on developers willing to pay a “passion premium” and sleep under their desks after 100 hours of intense work a week in order to work on games.

The “premium gaming” business model means that only players who (1) have the necessary hardware (console or gaming computer) and (2) have $60 for a personal gaming experience can play these video games. While these experiences are cherished, on a global scale, video game accessibility is limited — in 2001, the best-selling video game Pokemon Gold/Silver/Crystal had only 3.1 million sales. In comparison, Garena: Free Fire has 100 times more users and now has 311,250,355 monthly active users.

Additionally, developers have limited value capture — there’s no way to effectively price discriminate, meaning players willing to pay thousands of dollars for a gaming experience have no reason to do so. This has changed significantly with the advent of free-to-play and mobile games.

Mobile games and free-to-play models have taken the gaming business to new heights. Today, mobile gaming revenue ($85 billion) is more than PC ($40 billion) and console gaming ($33 billion) combined. Due to the huge distribution advantages of digital-first games, the industry has begun to gravitate towards making free-to-play games. This provides games to more than 3 billion people worldwide, and the average player age today is 35. Although the game is free, the game still needs to be monetized in order to receive funds. There are two main strategies for monetization in the mobile age: advertising, and most notably microtransactions – which involve charging people perks, and advantages in these games: convenience, time…and power relative to other players .

While this was initially harmless as most monetization happens on trinkets and other purchases that don’t affect balance, in many cases it has deteriorated. Game design and development are based on behaviorism. This approach makes gaming an investable industry and means competition on the ground floor. By focusing on improving retention, prior to monetization, the free-to-play industry generated a set of behaviorist mechanisms that rely on the psychology of addiction to retain players and monetize them. This includes an appointment mechanism, as well as careful use of notifications and social features to keep players coming in.

On the darker side, developers will deliberately create obstacles for players and create uncomfortable situations to encourage them to spend to overcome those obstacles. For example, by allowing resources to be stolen, players are encouraged to purchase shields to protect their resources when they are offline. Furthermore, since many games rely on “catching” and monetizing big consumers (whales), the success of a game also depends on the depth of its economy, or how much whales can spend in those games. Diablo fans, for example, estimate that a person can spend $600,000 to fully level up a character. At present, some industries are more inclined to pay games, that is, deliberately making the game experience of non-paying players worse.

This is especially evident in multiplayer games, where big-money consumers (whales) gain the illusion of superiority through an unfair advantage. And the market has proven that this business model has clearly attracted many developers. Unfortunately, some studios are overly aggressive with this mode, creating a huge conflict with their player base, who see their actions as predatory. Again, developers adopt these practices to varying degrees, from acceptable to extreme. Not all implementations of this mode are overt, and games like Rainbow Six: Siege don’t ostensibly have any benefits that can be paid for. However, there are more subtle manifestations, such as the release of new operators, which deliberately shake metadata to encourage users to consume. At the very end of the spectrum, most of the trinkets prevalent in modern games don’t provide in-game utility, but some players still feel that they can prove beneficial in the competitive scene .

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

In conclusion, in a typical S-curve style, aspects of the industry have shifted from user attraction to value extraction. Many monetization practices have become so ingrained that everyone is forced to play the same game. We’ve seen designs that have stagnated at the monetization level, and various appealing psychological tricks have become more formulaic over time. Microtransactions and paid instances can erode the notion of the magic circle, which blurs the axis of fluidity and ultimately disrupts the player’s experience. Cryptocurrencies propose the next step in the evolution of in-game monetization, and in an upcoming section, we’ll explore what these early implementations look like.

blockchain in games

Before we dive into the current generation of crypto gaming, it’s worth reviewing some features of blockchain technology that we think are interesting when applied to gaming. Below, we will analyze these advantages from the perspective of players and developers.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

For players, we see the following key benefits:

  • Digital property rights: In traditional games, players buy digital items (such as skins in Fortnite), which are actually just “rented” from the game company. When game assets become NFTs, players and their achievements have new guarantees. If the game ceased operations, other parties could theoretically step in to cash in on the utility of these assets, which might otherwise have lasting collectible value.
  • Secondary Market Liquidity: True digital ownership changes consumer psychology, creating residual value for digital purchases within a global, verifiable liquidity layer. If users wish to leave an ecosystem, they can retain the value of their investment.
  • Traceability: Virtual goods now have a rich, verifiable history. Imagine what it’s like to have the signature gun skin that your favorite esports player used to win a world championship.
  • Community governance: Gamers can now participate in discussions on the direction of their favorite games through the DAO and council (see: Illuvin’s Illuvinati Council ).
  • Value Accumulation: As more and more players spend time and money in these worlds, the value created by the entire game can be transparently accumulated into ecosystem tokens.
  • On-Chain Reputation: A new player-centric design space is unlocked as players can now build strong player profiles across ecosystems. We’ll explore some of its uses in the PlayFi section below.
  • Web3 Payments Infrastructure: By using cryptocurrency payment rails, seamless payments can be achieved in some use cases such as smart contract prize pools and tournament payments – which are particularly onerous in traditional esports.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

For creators and developers, the following improvements can be unlocked:

  • Increased monetization use case: Opportunity to monetize players more thoughtfully compared to free-to-play mode where, on average, less than 2% of players actually buy in-game items. The monetization ability of this “long tail” user comes from a deeper willingness to spend, driven by the interests of the players mentioned in the previous section (e.g., digital asset ownership, provenance, etc.). In addition, secondary market activity that would previously be lost to peripheral grey markets can also be captured. Importantly, this should be done carefully and in a non-destructive manner, as we will discuss in later chapters.
  • Enhanced Economic Alignment: Sharing a portion of your game economy with players and creators means lower customer acquisition costs and higher retention rates, which can help increase LTV more than traditional free-to-play games. Powerful evangelical power is unleashed as users have a stake in the gaming world they care deeply about.
  • Improve creator economics: In UGC games like Roblox, creators keep only 30% of their revenue. In blockchain games, creators typically retain more of the value they create and benefit from on-chain royalties.
  • Interoperability and composability: While this will take time, blockchain technology has the potential to enable interactions across ecosystems by leveraging existing building blocks and open source infrastructure. We recognize the difficulties of interoperability between games and see composability with the broader web3 technology stack as a more promising innovation.

In the end, it would be remiss not to highlight the very visible improvements that cryptocurrencies have brought to the gaming funding environment. As many may know, the Tencent-style monopoly of the entire industry has created an insurmountable moat. Most aspiring game developers are drawn to the raw passion of building games, but quickly learn of the two options presented by the stagnation of the dominant business model and the moats built by the large incumbents:

  1. Take advantage of predatory F2P mechanics for a few years of building and hopefully you can work out the formula for LTV > UA cost.
  2. Hand over creative agency and become a cog in the big corporate machine.

The AAA game industry is often criticized for its toxic work culture of devoting a lot of time to crazy work during brutally critical moments. What’s more, the entrenched F2P model that sometimes favors value extraction has taken away the soul of many games. In the process, many end up having their love for the game stolen. At the same time, the industry’s demand for talent greatly exceeds the supply. By building an ecosystem that allows developers to build and define common upside with their audiences from day one, the amount and variety of capital available to them increases.

In a typical F2P world, it’s not uncommon for the marketing budget to equal the development budget, as cumbersome UA costs make it extremely difficult to get past the noise. In the cryptocurrency model, this marketing budget can be deployed in incentive design to steer the economy. Many of the world’s best games are born in organic grassroots communities, not in the R&D labs of multi-billion dollar gaming giants. Likewise, the creator economy opens up a world where people can pursue their interests, and so do game developers.

Current Crypto Games

Crypto gaming took the space by storm in 2021, but has since lost some of its allure as engagement has fallen. Before we outline why we think this is the case, we should first clarify what exactly got people so excited about it in the first place. Although imperfect, this mode has many benefits over traditional games. As mentioned, cryptocurrencies unlock digital property rights, verifiable secondary market liquidity, community governance, shared ownership structures, and greatly enhance financing options for developers. The downside is that as most or all in-game assets are tokenized, the economy becomes more difficult to manage. In fact, this is the hardest early on (which seems counter-intuitive) because the game is rolled out in stages, which means that a large portion of the game and economy may not be in play, often resulting in the supply side of the economy There is considerable growth, but there is no necessary offsetting demand to absorb this growth. In this case, the demand comes in the form of the utility of these resources. Game developers often create levers they can adjust to help maintain the balance of the economy, but without the full functionality of the game, their leverage is limited.

This combination of liquidity in various parts of the economy combined with a game loop that is not fully established tends to overheat the economy. In the beginning, the initial scarcity of all resources in the game combined with pure financial speculation by non-players helps keep demand in sync with supply. This dynamic creates attractive conditions for entry by purely speculative players. These players exacerbate the imbalance we discussed earlier, as they join early on, creating more demand for consumable assets and the consumer goods they produce. As the supply of the asset increases rapidly, it does not receive the appropriate level of demand that exists in a more mature economy. Extractive game players and purely speculative market players also leave when prices start to fall due to oversupply. This further exacerbates the mismatch between supply and demand, as demand destruction occurs as they exit, leaving the economy in a bind where it must gradually climb out.

A potential solution is to limit the transfer of consumables early in the game until more components of the game and economy are built up. They won’t be on-chain, they’re just tied to the account that generated those resources. This curbs the possibility of overheating the economy before it can handle that level of supply. It also moderated early asset prices from yield-generating open-ended assets whose prices were temporarily pushed up to astronomical amounts by speculative capitalists. The asset price spikes caused by these extractors can eventually become a barrier to adoption for those who are truly interested. Of course, this transferability restriction is only temporary, and at some point in the future, they can be claimed on-chain.

Another solution is to limit the economic relevance or longevity of these consumable game items or assets. By setting players early on with the expectation that these assets will not yield a permanent ROI, teams will be in a better position to manage and tune their economies. An example would be setting a seasonal reset for the economy (see: Diablo II’s ladder, Path of Exile’s seasons, or Escape from Tarkov’s clearing mechanic), having expired resources, or in Build life cycles (creation, decay, and potential destruction) into game assets.

Nonetheless, the monetary component introduced by the game itself has caused it to tend to be the dominant motive so far. As a result, the gameplay of these early games was affected in two ways: 1) the main motivation for most players was the expectation of financial rewards, not the game; 2) the core competitive circuit has always been constrained by the mechanism of payment, because whales can spend be successful.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

In 2019, Delphi helped design AXS, Axie Infinity’s in-game governance token. The idea was relatively simple, but novel at the time — rewarding gamers for actually playing the game. This way, the player who spends the most time playing in the world will finally gain the governance of the world that traditional gamers crave. At the time, Axie Infinity had very few players, but we saw the prospect of an ongoing project at Sky Mavis enough for us to buy 5 Mystic Axies for 473.5 ETH in 2020. It’s worth noting that no one in the community at the time really anticipated the virality and dominance of the money-making dimension. The name Play-2-Earn is retrospective. Perhaps, given the scale of the need to make money in video games, as evidenced by the grey market for real money transactions (RMT) around most major video games, this should be more apparent. The emergence of the scholarship model, in which investors breed assets in order to lend them to new entrants in exchange for a portion of their income, emerged by accident, not by design. Nonetheless, we eventually reached a situation where the majority of players were equity extractors, new user growth was stagnant, and the in-game economy was sluggish.

To further accelerate the revenue-centrism of this batch of crypto games, we are seeing the emergence of guilds that are trying to professionalize and industrialize the scholarship model. Led by the Yield Guild, these organizations pair users with assets at scale, unlocking economic opportunities for large populations. It’s worth emphasizing that this has a real impact on thousands of people in countries like the Philippines, where P2E gaming has been literally life-changing for many during COVID. In 2021, we saw $512 million in public and private market funding for guilds. Most of this money is allocated to invest in in-game assets, as well as venture capital in the game itself. Because of this buying pressure, we’ve seen most fast-following games take part in this trend and want to accommodate similar mechanics. Arguably, the track may have started an incentive loop in the game and economy design without adequately considering whether this is the best path. We believe that guilds that exist primarily to coordinate resource extraction in the game have deviated somewhat from what they originally envisioned, and we’ll discuss what the way forward should look like in a later chapter. Unfortunately, as is often the case with cryptocurrencies, it appears that many of the “players” in the current crypto gaming space are mercenaries. Just like with mining, users are drawn to where the incentives are strongest, rather than being genuinely passionate about the games on offer. Not only does this cause developers to overpay for their early viewers, but it may also be detrimental to the real player experience. In these early games, the overemphasis on the money-making component eventually led to a blurring of the organic needs of players.

We still believe that there will still be a lot of demand for financialized games that choose to put most of their economy on-chain (pray for a World of Warcraft auction guild one day). These games bring new forms of play where meta-skills and advanced knowledge within the game can create alpha in the game economy environment and bring financial rewards to dedicated and savvy players. We’re proud to support many of these games, and we’re very encouraged to see the progress made with games like Crypto Unicorns. By combining economic monitoring, careful/diligent design, and ongoing real-time service development, these economies can be better calibrated and create rewarding experiences through player-driven economies.

It is crucial for these financialized games that the proportion of net value extractors is smaller than the players who are willing to pay for entertainment. Ideally, value miners offer paying players something useful or interesting. We think this first generation of crypto games is an extension of traditional games, although there are some new features that make it attractive.

It is important that developers of blockchain games have a clear understanding of who they are building for. We believe that many developers took the decision to open the economy too lightly and did not fully appreciate the complexities of effectively navigating this path. At Delphi, we continue to analyze how existing patterns should evolve, as well as research new patterns we will explore.

Using cryptocurrencies to monetize games

Another mode that the Delphi gaming team has been exploring in depth lately is called PlayFi, pioneered by NOR . We believe this model is particularly suitable for esports and competitive gaming, and Delphi will actively support projects working on these ideas moving forward. To explain it better, it is worth modifying the concept of the magic circle in the game. True player agency and a state of free flow, unbroken by surrounding forces vying for human attention, is what makes great games stand the test of time. There’s a reason the Delphi Summer Retreat’s gaming competition revolves around a 20-year-old game (Super Smash Bros.). Such games refuse to compromise on core principles. Furthermore, games that follow this model seem to have developed immunity to the ephemeral nature of our contemporary digital environment. Counter Strike, for example, remains strong as one of the greatest competitive shooters of all time, while many other games have risen and fallen around it. As we’ll see, much of this can be inspired by how traditional sports work — a model that has flourished for thousands of years.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

In professional sports mode, almost all of the core game mechanics are basic and very easy to understand. In football, for example, the goal is to kick the ball into the net. The game has certain fixed parameters; the beams have a certain height, the posts have a certain width between them, and the balls have a certain size and weight. As Brooks puts it: “The essence of any ideal game is that every throw, play, or choice is on something well-defined — a combination of them, if you do it right.”

In addition, this type of game has very wide availability. Anyone who wants to be an athlete doesn’t need to go far to find the ball and the goal… More often than not, sports are easy to learn and hard to master. Player agency is important because difficulty is often self-directed. People can choose to practice penalty kicks, free kicks and corner kicks themselves. Introducing further challenges via satellites is equally straightforward – perhaps a 1v1 exercise, and then gradually introducing more rules of the game (fouls, attacking, blocking shots, etc.). This can be scaled to different team sizes and formats. At some point, players may want to call on management officials who enforce the rules in a more organized, competitive scenario. In football’s many derivative configurations, players may like to introduce gambling to raise the stakes and expand the competitive spirit.

Importantly, as these scenarios become more competitive, players become more skilled, making the overall difficulty higher. As the level increases, so does the possibility of monetization. These experiences are scarce. There are only so many players in the world that can compete at this level, so they make sense. As a result, we are seeing a dramatic expansion of opportunities for engagement outside of the core game, in the form of coaches, fans, commentators, analysts, scouts, prediction markets, merchandise, collectibles, and more. As Brooks puts it: “The strong connection between increasing the difficulty of a game and increasing economic opportunity/participation in the game is the root of the professional sports model, and the root of PlayFi.”

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

Essentially, we can think of the monetization model of sports as revolving entirely around the metagame. These metagames act like a spinoff of a purely skill-based game. Metadata can be thought of as data that describes other data. By extension, a metagame can be thought of as a derivative game that describes the core game, or is rooted in the core game. It is important to keep the market game separate from the core competitive circle.

Football, at its core, is not a market game — it’s a game of skill on the pitch. Its path to monetization starts with a focus on the sport itself, then takes metadata from the games that make the most sense and uses it to play metagames.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

When it comes to video games, while acknowledging that the core magic circle of games must remain the same, one might wonder how we can accommodate larger users who are not personally interested in getting to the top of a game. After all, there are countless user archetypes in modern games, there are whales eager to spend, there are speculators who want to bet on top players, and there are more casual enthusiasts who enjoy the game in other ways. As we explored at the end of the first section, if left untamed, money will always tend towards the dominant motive. Therefore, the first port is to separate the market game from the core game circle itself. This way, we can begin to define separate magic circles that coordinate with each other but do not interfere with each other. No one can be tricked into playing each other’s games.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

As with the professional sports model, the scarcity of experience matters. Both in terms of skill level and in terms of the rhythm of the game. In football, Ronaldo only steps on that pitch once a week. Limiting the frequency of these competitive situations further contributes to their meaning. In NOR, PlayFi’s pioneering implementation, the scarcity of experience and real risk are driven by permadeath tournaments. In these games, the players themselves are NFTs, and if they lose, they are permanently burned. They fully own their data and metadata and benefit directly from the use of the economy around the core game. The purpose of the PlayFi model is to encourage users other than core competitors to play metagames with metadata. In theory, the more people care about games, the more people will spend directly on metagames. By maximizing the meaning generation and competition of the core game, we are able to maximize revenue through peripheral monetization around it. Additionally, we retain the distribution advantages of the free-to-play model because players can play for free, and we can effectively price discriminate against those willing to spend more on the meta-game, thus avoiding the drawbacks of pay-to-play.

At the heart of this framework is skill-based competition, which requires a tournament system to function. NFTs are an underlying technology that allows us to tokenize any unique digital item — including tournament entries as tickets. For example, let’s take a look at the brackets below, which have 8 entries. Each starting point can be sold in the primary auction and then freely traded on the secondary market without affecting the core gameplay. A smart contract representing the prize pool may take 50% of all revenue generated (except for sponsors), further increasing the appeal of the competition.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

While some of these may sound similar to some modern esports, we can’t stress enough how much advancement the infusion of Web3 has brought. Ultimately, the cryptocurrency will primarily serve as a backend accounting engine, facilitating ticketing, payments, player NFT contracts (on-chain reputation), automated tournament bounty smart contracts, and more. Cryptocurrencies unlock new levels of transparency around player profiles, deep layers of liquidity that facilitate seamless payments, and new ways of betting without people having to navigate cumbersome infrastructure. Additionally, many properties of cryptography, such as digital provenance, unlock a new way of thinking about the digital realm. How much would you pay for Ali and Fraizer gloves? How much would you currently spend on a trinket for an esports tournament that you care a lot about?

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

We now have a rich digital experience where fans can collect meaningful items in esports history. By building these items with cryptography, we are able to unlock an open source infrastructure that can be used for many applications across the industry. All esports-style games should be able to plug into the same set of standards, and we want to contribute to some of them. Once all the data, metadata and infrastructure is integrated, we will open up the ability for third parties to develop their own metagames around these games. It’s hard to imagine that this will lead to many more popular downstream applications, but we’d be happy to see any emerging behaviors and games unlocked. Once the technical foundation is laid, we believe that users will drive creativity in their respective ecosystems as always. The best metagames in professional sports take time to come together, and we expect the same from PlayFi.

Delphi Digital 4D article: The present and future of crypto games, starting with game monetization

In P2E games, tokenization of game assets both 1) increases startup costs (i.e. friction) because players need an NFT to play the game; 2) also allows pay-to-win mechanisms to creep in, because in-game assets are two NFTs with high market liquidity inhibit competitive gaming. In PlayFi mode, the first change is that users are not required to own NFTs to play games. Importantly, this does not mean that NFTs cannot or will not exist. As we mentioned earlier, scarce, unique digital assets still have their uses, but how those assets enter the game matters. For example, I might still be rewarded with a digital collectible, but it should be meaningful to me in the context of the game. Additionally, since all monetization can happen outside the game, we are able to alleviate many of the distribution frictions associated with crypto games in traditional app stores.

What’s interesting about these components is that they don’t necessarily conflict with current generation P2E games and guilds. In fact, these primitives can be used to reinforce them. For example, a game like Axie could have a free-to-play, purely skill-based mini-game mode, where NFTs are awarded to tournament champions as true badges of honor. This will also reduce friction for new player adoption.

Guilds like YGG can continue to grow their business by not only providing player liquidity to bootstrap new gaming ecosystems, but also leveraging players’ NFT profiles to attract talent into their guilds, just like traditional esports teams . The guild can then put these players in competitions and win prizes to earn money for their efforts.

While unproven, we believe PlayFi has what it takes to propel esports into its golden age and unlock its true potential as a global entertainment heavyweight. We will actively support projects such as NOR in their infrastructure work in this area.

Summarize

The past 1+ years have been milestones for crypto gaming, and despite all the growing pains, we look forward more than ever to playing a role in its development. It’s important to re-emphasize that it’s still early days for this industry, and it’s difficult to determine which models will win out over time. As proponents of this space, it’s important that we regularly challenge our assumptions and try to map out new ways these technologies can improve games for players and developers. We believe this is a good time for developers focusing on this space to reflect on the complexities involved in an open economy, and the susceptibility of these games to over-financialization. We hope that the road that PlayFi has paved will lead to some further ideas on how cryptocurrencies can improve gaming and its monetization. The only way we’re going to reverse the prevailing perception is by building experiences that show the power of this technology.

In addition, there are many other models that we think are particularly suitable for cryptocurrencies, but we did not touch in depth here. For example, platforms that focus on user-generated content are well suited to incorporate cryptocurrencies. The ability to royalty-free program derivative works from third-party developers is also very promising. In this world, this can become granular enough to allow designers who create a particular asset to participate in the economics it uses across multiple worlds. In this area, we are particularly inspired by projects such as Webaverse, which have built a fully browser-based open source game engine. Additionally, we remain excited about the prospect of on-chain gaming. While there is still a long way to go, we believe that over time one of the biggest drivers of innovation will be building this new medium native. We’re excited to see teams like Lattice, Topology, and the Matchbox DAO pioneering this space, although we think we’re many years away from the idea that these ideas have broad appeal. Many of the greatest gaming experiences come from the community, and on-chain gaming allows for true composability that cannot be achieved otherwise.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/delphi-digital-4d-article-the-present-and-future-of-crypto-games-starting-with-game-monetization/
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