Crypto and gaming collide in high-risk, play-to-earn economies

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April 8 (Reuters) – Jarindr Thitadilaka says he made up to $2,000 a month last year from his collection of digital pets, which he would breed and send into battle to mine cryptocurrencies.

The 28-year-old from Bangkok played Axie Infinity, one of the new blockchain-based online games dubbed “Play-to-Earn,” which combines entertainment with financial speculation.

These games can create lucrative deals amid the hype surrounding NFTs and virtual worlds, attracting millions of players and billions of dollars from investors who see the games as a way to introduce more people to cryptocurrency.

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In Axie Infinity, users buy virtual blob-like creatures with different attributes as NFTs, or non-fungible tokens — digital assets whose owners are recorded on the blockchain — for anything from tens of thousands of dollars to hundreds of thousands. Continue reading

Undated handout picture shows blockchain-based game Axie Infinity, owned by Sky Mavis. Sky Mavis/Handout via REUTERS

Players can then use the 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 is said to have around 1.5 million daily users.

“It’s not just a game anymore. It’s more like an ecosystem,” said Thitadilaka. “You can even call it a country, right?”

The dangers of this speculative ecosystem and the largely unregulated crypto gaming industry were suddenly brought into focus last week when Axie Infinity was hit by a $615 million heist. Hackers targeted part of the system used to transfer cryptocurrency in and out of the game. Continue reading

Axie Infinity’s Vietnam-based owner Sky Mavis said he will repay the lost money through a combination of his own balance sheet funds and $150 million raised by investors including cryptocurrency exchange Binance and venture capital firm a16z. Continue reading

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

“We basically ran 100 miles an hour to even get to this point,” he said. “The compromises we made might not have been the ideal ones.”

One of the biggest crypto heists of all time, the hack shed a light on play-to-earn gaming, a fledgling world largely unknown outside of crypto and gaming circles that is growing into big business.

Gamers spent $4.9 billion on NFTs in games last year, according to market tracker DappRadar, which is about 3% of the global gaming industry. Though demand has cooled since a peak last November, gaming NFTs have still generated $484 million in revenue so far in 2022. Read more

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

“There are so many users who want to interact with the technology,” Larsen said, adding that Axie Infinity’s revenue surpassed $1.3 billion last year. “It’s like finding a new continent… like finding America all over again.”

Monthly sales of gaming-related NFTs

HAS AND HAS NOT

To add complexity to these games, unofficial financial networks have also sprung up around these games as some players use their coveted in-game possessions for further profits.

Thitadilaka in Thailand decided last July that he wanted to make more money than he could by just playing alone, so he and his friends decided to form what they call a “guild”. They allowed their NFTs to be used by people who wanted to play Axie Infinity for free without investing in any asset and took a cut in profits in return.

This model is common in play-to-earn games. Thitadilaka said his guild, GuildFi, has grown into a network of 3,000 Axie Infinity players who share their earnings 50/50 with wealth owners. Thitadilaka now runs GuildFi as a full-time job and the company has raised $146 million from investors.

Southeast Asian countries like Thailand and the Philippines have emerged as some of the hottest global gambling hubs.

Teriz Pia, who is 25 and lives in Manila, quit her job as a preschool teacher last June after her brother founded a gaming guild called the Real Deal Guild.

Teriz Pia, a 25-year-old from the Philippines, who says she makes $20,000 a month through play-to-earn gaming, is seen in this handout picture in Boracay, Philippines, April 5, 2022. The picture was taken on April 5, 2022 Teriz Pia/Handout via REUTERS

Now she says she makes up to $20,000 a month, plus other crypto assets, through her network of more than 300 players across multiple games.

For Axie Infinity, Pia lets her players keep 70% while taking a 30% stake. In another play-to-earn game, Pegaxy, where players buy and trade NFTs of virtual horses to enter races and win crypto tokens, she splits it 60:40.

“I don’t call them workers. I just call them my friends or my scholars,” she said. “The salary in the Philippines if you are a teacher… I am a college graduate, I am an educator but it is not enough. I never thought I could make so much money.”

But Pia warned it was a dangerous business.

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

One of the largest play-to-earn networks, Yield Guild Games, said it had 10,000 Axie Infinity players in Q4 2021, keeping 70% of their earnings and earning a total of $11.7 million.

Australian Corey Wilton, 25, founded Pegaxy, which he says has around 160,000 daily users. He estimates that 95% of play-to-earn game users participate as “renters” and generate revenue without owning the assets, while 5% own the assets.

A horse character named “Pega,” driven by players in the blockchain-based game “Pegaxy,” is seen in this Handout image, Philippines, March 2022. Angela Hoffman/Handout via REUTERS

“HOW PEOPLE GET HURT”

Legal experts warn that there is no safety net for players investing effectively in risky assets, making them highly vulnerable should a project fail or the market for the assets dry up.

As global regulators seek to grapple with cryptocurrencies themselves, there is little oversight over NFTs, or the relatively niche offshoot of play-to-earn games, which typically use in-game crypto tokens that can then be exchanged for traditional cash .

“Saving value in projects like this is risky. In-game profit to earn blockchain-based games is often through rewards paid in the project’s native token,” said David Lee, cryptocurrency partner at London-based law firm Fladgate.

“There are no guaranteed values ​​for either the token or the in-game asset, as their value is often determined by market supply and demand. This means the price can fluctuate significantly and if the project becomes less popular or is abandoned then there is a chance that the asset will become worthless.”

However, proponents of these games say that success relies on a combination of factors such as skill, strategy and luck.

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

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Reporting by Elizabeth Howcroft in London; Editing by Pravin Char

Our standards: The Thomson Reuters Trust Principles.

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