The once burgeoning NFT market has been at the receiving end of the severe crypto winter, especially in recent months. According to DappRadar, NFT sales and trading volume dropped by 25 percent and 30 percent, respectively, in October alone. Moreover, NFT sales failed to cross the $500 million mark for the first time in 15 months.
While the numbers indicate that the NFT bubble may have already burst, another closely related segment seems to be poised for a fall, i.e., the play-to-earn industry, or P2E, as it is more commonly known.
According to the 2022 Blockchain Gaming Report by CoinMarketCap and Naavik, P2E gaming has been brought to its knees, with prominent games such as Axie Infinity, Crabada, STEPN and Thetan Arena, losing over 90 percent of their market capitalisation in 2022 alone.
According to DappRadar, the number of unique active wallets on blockchain gaming platforms has been hovering below 1 million for five months. Even the dominance of games in the blockchain industry has dipped from 48 percent to 45 percent. The number of blockchain games on offer is another indicator of the segment losing steam — it has been stuck at 2,000 games for a while now. The absence of new releases in the blockchain gaming space added to the woes of an already stagnating market.
Even funding in the blockchain gaming space looks very lacklustre and dropped significantly on a quarter-on-quarter (QoQ) basis. For instance, more than $1 billion of funding flowed into the blockchain gaming industry in the third quarter of 2021. The same figure declined nearly 20 percent during the same period this year, totalling $875 million. This hints at the fact that investors are treading cautiously in this space.
According to blockchain solutions provider Chain, the primary reason behind the P2E downfall is the tokenomics of it all. Since players are incentivised to play games by offering tokens as rewards, the tokens themselves become inflationary assets. This means that as the game rises to fame, more and more players join the platform, thus causing more token distribution. As the token supply increases in the market, its demand falls, and it concomitantly loses its value.
Chain also stated that, while such games do attract players, the spotlight is on earning rather than the gaming experience itself. This repels experienced gamers who are looking for high-quality content.
The CoinMarketCap report has a similar observation. It states that the concept of ownership was reinvented with the arrival of NFTs on the Ethereum network, and was further amalgamated with gaming in 2017, when CryptoKitties entered the picture. However, the Ethereum network had no scalability at the time, and thus playability became a matter of concern.
The likes of Axie Infinity took this a step further and added scalability to make it more playable. But in the process, these second-generation games failed to engage their users, and the glamour of these blockchain games eventually faded out. The trend is exemplified by the plummeting prices of game-related NFTs across the board.
Blockchain gaming has yet to witness full-fledged mass adoption and is still its nascency. As it grows, solving one problem only seems to lead to another. We are now transitioning into the Play-to-Own (P2O) era, which focuses on the gaming experience and user retention. Naavik lists three unique projects that are set to disrupt the space: Splinterlands, Sorare and Dark Forest.
“The next era of crypto games, to (over)simplify, will build off of the previous two eras — using various scalability solutions and sidestepping the most significant economic flaws while prioritising fun,” reads the CoinMarketCap report.
