NFTs Gaming Case Study

To understand the impact of NFTs on gaming, it’s important to have a little background information. Let’s start with the two distinct types of gaming models.

Pay-to-Play games

The first and more traditional model is the Pay-to-Play (PTP), in which gamers purchase premium games such as Pokémon, The Legend of Zelda or Mario Cart, usually for a fixed, upfront price. Building on this model, other games such as Call of Duty and Battlefield began to monetise their Online-Multiplayer feature through additional in-game expansion packs featuring items or assets such as map packs, skins or weapons.

This was the case in World of Warcraft. However, a key difference was that items could easily be traded with other players. Through this development, the first grey markets for in-game items began to surface in which players would coordinate with others on craigslist or online chat rooms to buy or sell in-game items for real money.

Free-to-Play games

The second game model is Free-to-Play (FTP). Popularised by Battle Royale’s games such as Fortnite, and PUBG, players could begin to play for free. They could then purchase in-game items or assets such as skins, weapons or upgrades. After the success of Fortnite, which became one of the highest grossing games of all time, the popularity of this model saw premium PTP games transition to this “freemium” business model.

In these games, there haven’t been formal avenues implemented in-game for players to be financially rewarded for participating. Generally, the gamers who earn revenue from playing are content creators and streamers who utilise platforms such as Twitch or YouTube.

GameFi, Play-to-Earn and Play-and-Earn games

Blockchain gaming has paved the way for new models of gaming where players can earn revenue from playing. This is known as the financialisation of gaming or “GameFi” and encompasses new gaming models such as Play-and-Earn (P&E) and Play-to-Earn (PTE). P&E is similar to the grey markets discussed above. Through this new technology, players can still earn in-game assets (such as a characters, land, swords, berries or pets), however, the key difference is that they are issued as NFTs. Through these non-fungible tokens, the game can offer a dedicated secondary market to facilitate the buying and selling of items.

The introduction of these in-game secondary markets creates a win-win situation for both gamers and developers. Players can sell items they have received in-game to others, and be rewarded for their efforts, while developers can capture a portion of this transaction through royalties.

PTE takes this a step further and rewards players in the game’s native cryptocurrency. Axie Infinity is the most popular example. It was actively used by gamers in the Philippines to earn an income during the pandemic. Other games such as DeFi Kingdoms have adapted this model and incorporated more overt decentralised finance (DeFi) mechanisms into the game environment. Rewards are generally issued when players verse others, complete in-game quests or supply liquidity to the protocol.

NFT use cases

NFTs within blockchain gaming can be used to represent in-game characters, incentivise participation, provide digital property ownership and act as rewards. In each of these areas, NFTs make possible a wider range of actions that hasn’t been possible in traditional game models.

• Characters – NFTs can be used to represent in-game characters or cards used to play the game. Additionally, these NFTs can be used to breed new characters, similar to Pokémon, and players can sell the new characters they create to other players. NFT character ‘studs’ can also be rented out for breeding to create another stream of revenue.
• Participation – Players will often be rewarded in NFTs for participating in the game, such as when players complete quests. These NFTs will often have in-game functionality and can be equipped to your character or sold to others.
• Property ownership – Players can purchase land in these online games, which will often come with different revenue streams. For example, you could have a shop that operates on your land and receive a portion of the fees from transactions that take place there.
• Rewards – NFTs will also be used to reward active players in the game. These rewards may take the form of limited edition NFTs that are only available for a specific time or to mark an event. These NFTs will inherently be worth more because of their exclusivity. They often also have special traits, such as a special sword with abilities, you can’t get anywhere else that make them even more valuable.

What is ground-breaking here is that NFTs can create secondary markets for these in-game assets that allows gamers to be rewarded for their time.