As interest in cartoon avatars cools, operators are looking at NFT-based games as their next big bet
- Unique buyers of NFTs in March dropped to 664,077 from a peak of 998,271 in January, according to industry data
- More blockchain companies are hoping to use video games to further drive up adoption of cryptocurrencies and NFTs
As global fervour for cartoon avatar non-fungible tokens (NFTs) cools, more companies are betting on video gaming as the NFT market’s next potential growth driver even though some analysts have questioned the sustainability of such a business model.
Magic Eden, a marketplace for NFTs based on the Solana blockchain, is hoping that US$27 million of fresh funding raised last month will help “supercharge” the company’s next phase of growth, and “a lot of that is through pushing into gaming,” co-founder and chief executive Jack Lu told the Post in late March.
The company, started in September last year, is now the second-biggest NFT marketplace in the world by trading volume over the past 30 days, ranking behind only OpenSea, according to market tracker DappRadar. Last month, it launched Eden Games, which hosts mini games made by third-party creators who want to sell their game assets as NFTs.
NFTs are data added to a blockchain that represent the uniqueness and ownership of a digital file. Their value has shot up over the past year as enthusiasts tout their ability to allow the trading of digital assets, with collections of cartoon avatars and digital artworks being sold for millions of dollars in some cases.
However, after a surge in interest earlier this year, there are some signs that the global NFT market is cooling, with unique buyers of NFTs in March dropping to 664,077 from a peak of 998,271 in January, and global sales also falling to US$2.4 billion from US$4.6 billion in January, according to data from market tracker CryptoSlam.
An NFT of Twitter founder Jack Dorsey’s first tweet, once sold for US$2.9 million, is currently subject to a top bid of roughly US$300,000.
But NFT-based games, often dubbed as play-to-earn games because they encourage players to earn money through trading game NFTs and game currencies, are still attracting huge player numbers.
While traditional video games hoping to incorporate NFTs have always met with pushback from gamers, who have argued that moneymaking mechanisms damage the gaming experience, proponents have argued that gamers would love to monetise their game assets. More blockchain companies are now hoping to use games to further drive up the adoption of cryptocurrencies and NFTs.
“We care about games because we see them as fantastic onboarding experiences into NFTs and Web3,” Magic Eden wrote in a blog post in March announcing the launch of Eden Games. Web3 is a popular concept that loosely refers to a new iteration of the internet that is based on blockchain technology, incorporating concepts such as decentralisation and token-based economics.
“The kind of behaviour of owning digital assets is already [present] in gaming without cryptocurrency, because gamers buy in-game items already,” Lu said. “We think that could be really big, to bring the gaming community into crypto.”
Some of the most popular play-to-earn NFT games include three-year-old Vietnamese game Axie Infinity, which lets players battle with colourful blob-like creatures and be rewarded with in-game tokens that can be exchanged for other cryptocurrencies or cash. In 2021, the game exploded in popularity in developing countries like the Philippines, where more than half of the game’s players are based, with many of them playing the game with the aim of making a living from it.
But critics have argued that such games are unsustainable because existing players are more motivated to cash out their winnings rather than spend money in-game, meaning that these games are always reliant on money being introduced by new players.
The price of Axie Inifinty’s token dropped towards the end of 2021, meaning that many who play the game as a job were earning below the country’s minimum wage, according to a research report published in November by game consulting firm Naavik.
Nevertheless, this has not deterred some operators from entering the pay-to-play game arena.
One of them is STEPN, a “move-to-earn” game that lets users earn and trade NFT trainers and in-game cryptocurrencies by walking or running. Co-founded by Australia-based Chinese entrepreneurs Jerry Huang and Yawn Rong, the game has been gaining traction in markets including Japan and the US. Launched in December, the game turned a US$20 million profit in the first quarter, largely through taking a cut from transactions, Rong told the Post last week.
Rong said he has successfully established restaurants, milk tea shops, construction materials businesses and a blockchain investment company in Australia over the years, and Huang was previously the co-founder of a mobile game company.
The team hopes that STEPN will prove sustainable as it charges a fee to other blockchain companies who want to market their products or tokens to STEPN’s users, who will be attracted by the idea of “move-to-earn”, according to Rong.
As third-party companies will need to pay users in STEPN’s native cryptocurrency, Rong said STEPN hopes that its token can eventually support various use cases similar to BNB, the cryptocurrency launched by Binance, the world’s largest cryptocurrency exchange by trading volume.
“Everything we do is aimed at empowering our cryptocurrency,” Rong said. “Move-to-earn is our way to acquire customers at a low cost.”
Analysts point out that with cryptocurrencies and NFT trading at the centre of things, most NFT gaming projects at the moment are more like decentralised finance (DeFi) than actual games. DeFi is an umbrella term for a variety of financial applications involving cryptocurrencies or blockchain.
“The current wave of NFT games are created by crypto bros, and most of the games right now are DeFi with a gaming skin on them,” said Owen Soh, founder of Shanghai-based game consultancy Eastlab.
“Once you have the earning component involved, it just skews the motivation and you attract a different sort of audience,” Soh added.
But some believe that economic incentives do not necessarily have to come first in NFT-based games.
“Play-to-earn implies that you’re playing the game primarily to earn, where we like to think about the idea of play-and-earn where most of the time you’re playing primarily for pleasure,” said Justin Hulog, chief studio officer at Immutable X, maker of trading cards NFT game Gods Unchained.
Hulog, who was previously the general manager of Southeast Asia and Taiwan at Riot Games, the maker of popular title League of Legends, said that Immutable X is planning to work with five to 10 gaming studio partners within the next two years, with the aim of producing “really great” and “meaningful” blockchain games.
“I’m cautiously optimistic about NFT games,” Soh added. “It just remains to be seen who’s going to solve the problems.”