Metaverses, NTFs, and Play2LEarn. Play video games to earn money

The Proto-Metaverse Second Life

During October 2006 the automotive giant Nissan launched one of the most interesting online advertising campaigns of all time and probably the most audacious of the hitherto known Linden Lab metaverse called SecondLife (SL). This campaign belongs to Chris Pierantozzi’s portfolio [1], and at that time it did not go unnoticed neither by the media nor by those of us who populated SL.

Chris Pierantozzi’s creativity clearly denotes an ability to transfer concepts of monumentality from the analog world to the virtual world. In analog-atomic reality creating a kind of giant coke machine to sell cars would be impossible but, in SL, in digital reality, these proposals were extremely striking, especially if the vehicles could be purchased for free or at a good price in “lindens”, the official currency of this metaverse.

But what interests us in this article is what happened to SL, a multi-user virtual universe (now called metaverses) with video game aesthetics (but without being a video game in itself) where its users could meet to develop such a number of activities like going to concerts, talks, dancing together, getting married and, most importantly, buying and selling things. The economic and, above all, speculative fever in SL reached very high levels of paroxysm when free penis vending machines were used (remember that in SL penises were an extra that had to be paid) to annoy owners of digital land and that they sell their parcels of digital land at a below-market price. The struggle for land in SL was so fierce and its economy so seemingly emerging – or rather should we speak of an economic experiment – that it caught the attention of organizations like Danish investment bank Saxo [2][3], which established an office in SL to offer its residents the opportunity to manage their (analog) portfolios through this virtual world with future options to create a virtual market in linden backed by analog currency. Other experiments more focused on investment dollars-lindens were the World Stock Exchange [4], a stock exchange that allowed investment in digital assets in SL. Also Ginko Financial, an investment bank in SL that would base its profits on the profits from virtual casinos built by said fund in SL, unfortunately had to close due to changes in the Linden Labs regulations on virtual banks and converting the debts generated with his clients ($ 800,000) in bonds within the metaverse that had no value outside of the SL universe itself.

Many of the doubts about SL’s ability to generate an economic value in which to invest was precisely the potential volatility of the system, that is, the investments would make sense as long as SL existed but… who guaranteed that fact? Who would want to put money in a world that could disappear as quickly as the gesture of shutting down its servers? Who guaranteed that tomorrow Linden Lab would not change its internal legislation prohibiting innovative forms of business in this digital ecosystem? What is the value and for how long is an object or terrain that only makes sense within a virtual world? Too many questions to provoke an avalanche of investment entities putting their money in SL.

NFTs and investment in digital goods and video games

In November 2021 “HUMAN ONE” [5], a piece of digital art, was sold in NFT format for $ 28.9 million. This work belongs to the artist Mike Winkelmann (known digitally as Beeple), the same one who holds the record for the price of art in NFT, more than 60 million dollars.

The market for NFTs has been a shock to the world of Art, especially for the world of Digital Art since it makes what was once replicable with a single mouse click, a copy & paste of a lifetime, into something unique. It is not that now a digital image registered in an NFT chain cannot be replicated, the point is that the property registry of said work is what cannot be modified, it cannot be transferred to another person without the express will of the owner of that chain, of that NFT. This has marked a radical change in Digital Art and, especially, in Digital Art on the Internet, where anyone could copy or download a digital file and appropriate it, preventing the typical economic flow between author / artist and buyer. Why buy it if I can copy it? By granting a title (also digital and secure) of ownership over an intangible asset such as a digital work, things change and it is already possible to indicate that a digital art collector is the owner of said work regardless of how many times we see it reproduced in the net. This has spurred shopping and speculation, typical of the world of Art, accelerating it at the pace of digital financial operations.

These digital purchases of intangible goods, how could it be otherwise, had already made their first steps in the world of video games. Blizzard started in 2009 selling two pets (Monk Pandaren and Mini K.T.) within its hyper-famous and profitable World of Warcraft (WoW) for € 10 each [6]. If I remember correctly, there was a waiting list with the approximate queue time until the transaction could be made, which gives an approximate idea of the very high demand that these pets had. Blizzard also allows players to buy and sell items with each other, but using in-game gold (another thing is that outside the game they agree on a price in fiat money). The value of intangibles in WoW fostered an industry as precarious as it was creative: Gold Farming [7]. Hundreds of asian gamers evolved basic characters from scratch and then sold the accounts that owned those characters to Western players for hard cash. Of course, all this display of buying and selling items was copied by many other video game companies, however, the value of all these objects was limited to a very important concept in the economic world: outside of WoW (or any other game with systems of purchase and sale) these items are worth nothing or almost nothing because if tomorrow Blizzard (the final owner of this entire universe) went bankrupt or WoW stopped interesting to the players, all your investment also disappeared. * It must be said that WoW (WoW + WoW Classic) still adds up to 4.74 million users [8].

That is, what happened in SL back in 2006-7 on investments in digital real estate was repeated in a certain way in WoW from 2009 and other persistent digital video game worlds such as Eve online, etc., until the day of today, that is, if these worlds disappear or their internal rules are modified, the value of digital goods is modified and even vanishes. However, there is a difference between SL and the virtual worlds of persistent videogames: the playful or gamified structure. In SL there is no playful structure, that is, people who enter SL do so for the pure pleasure of living in an environment other than their personal analogue reality and this happens by participating in the form of telepresence of certain activities and actions without an objective in terms of game mechanics, therefore, the goods acquired within SL are purely speculative goods: I buy a portion of the world of SL for 10,000 Lindens and tomorrow someone wants that land or part of it and I sell it more expensive. In WoW the purchases of digital goods apparently have a higher objective, since the whole game is wrapped in a general mechanics or play structure that gives meaning not only to the participation of its players but to the whole world itself and how these are related to players. In WoW, and any other massive multiplayer video game, there are specific missions, players must leveling up to acquire new skills that allow them to go higher and higher in the hierarchy of said world and enjoy going forward in that global and shared narrative and here the important fact is that some of these intangible digital assets (as weapons, tools, etc.) always have a growing value within the game, since once these assets become obsolete for a veteran player, they remain very valuable for less expert players and the former can sell them to the latter these goods, facilitating certain tasks in an exchange mechanism perfectly compatible with the main mechanics of the game and to a certain extent what we call Pay2Win [9]. In this sense, Blizzard sells other objects and pets in WoW not only useful to overcome the challenges of the game but also as pieces of prestige among players (as certain skins), an approach followed by other success brands such as Fortnite or Rocket League (both from Epic Games).

All these digital goods shared by the players have value almost exclusively within these games and as long as they exist but, thanks to the NFTs this situation changes completely. That is, if I buy a digital good within my favorite video game and, furthermore, said good is an NFT, not only I will have an object with meaning within the game and the playful structure of that game, but I also will have an object that it will remain as a digital piece of my property even if the video game disappears and, in the event that in the future these blocks were interchangeable between different game universes, I could even have an object with a transversal playful sense as well, that is, that I can use in that other video game. This makes it much more interesting that certain players would like to invest in a more serious way not only in NFTs objects within video games but to play these if their efforts and investment were reflected in the real world of finance and not only in that of the video game industry but in the global investment market, ergo, we have reached the Play2Earn.

Play2Earn. Jugar a invertir (casi) sin saberlo

The explosion of NFTs in the world of video games and games-like platforms has also begun to attract major brands such as NBA and Formula 1. In principle NBA Top Shot [10] with its marketplace of digital collectibles in NFT format, basically the stickers of a lifetime but for a lifetime (digital), NFT stickers that your parents won’t throw away when the album starts to take on that particular old yellow hue.

On the other hand, and in a much more interesting bet linked to the video game, we have F1 Delta Time [11], an official FIA product where you can manage your own Formula 1 team or even buy a circuit to obtain benefits from its exploitation. Tires, vehicles, drivers and circuits under the NFT format that, in cases such as the Monaco circuit, was acquired for a whopping 9 million dollars [12] in cryptocurrency (3 million when I started writing this article). Players / investors must improve their vehicles in all its facets of transmission, engine, tires, bodywork, etc. and also its pilots to do batches of times in the circuits that are opening as the competition day progresses. The interface is extremely simple in the handling of the vehicle (just three keys), the complication lies in the investment strategy and improvement of the equipment. Obviously, the winners revalue their teams as well as obtain rewards for their performance in the form of an internal currency of the game that can be exchangeable or redeemable for an official cryptocurrency.

https://www.youtube.com/watch?v=QMIkq6jTyXM

Although at the moment, and as far as I know, no majority commercial video game has yet incorporated NFTs to its mechanics, we have witnessed for just a few months, a whole explosion of creativity in the use of game techniques and gamification for the creation of NFT-based gaming platforms outside of the usual industry brands. Nobody is familiar with the video game studios Sky Mavis, Animoca Brands, Uplandme Inc. and Riveted Games LLC, but it does seem that some of their star products are beginning to accumulate, in some cases, several million players [13]. This is the case of: Alien Worlds, CryptoBlades Game, Upland, Axie Infinity, Galaxy Blocks, Splinterlands, My Defi Pet and Bunicorn. Axie Infinity alone has raised a total of $ 1.6 billion in revenue since its launch in 2018.

In the case of Axie Infinity we are witnessing the birth of a kind of para-national organization with its own citizens, economy, laws, etc., where an investor known as Flying Falcon, bought the farm called Genesis for 888 ETH, which in the moment of purchase at the exchange rate, that was $ 1.5 million. In Axie Infinity, not only the terrain plots have a cost, the main game mechanics are the interactions between the game’s pets, these Axies that, like Pokemons-NFTs, pose as collectible entities with unique characteristics for combat and evolution. To play Axie Infinity it is necessary to buy one of these Axies or rent them, the purchase price is approximately € 200, so many users rent Axies to other players until they have saved enough to buy their own. As you can imagine, this increases the value of the existing Axies. It is a model of exploitation similar to that of the taxi driver who rents his license to other drivers with the difference that the more the taxi (the Axie) is used, the more its qualities improve and the more profitability and value it acquires.

All these initiatives tell us about a very novel and peculiar phenomenon that we could call “gamification of the economy”, where an eminently gamer public is encouraged to deposit and invest their (micro) savings not in real estate or in stocks, or getting commissions for a deposit in the bank (🤣), but transforming said savings into cryptocurrency and giving them the form of an evolutionary digital creature with the ability to give you benefits in the short and medium term in a digital format with recognition of ownership, the NFTs, by “only” playing those video games.It is also very likely that the rapid economic growth of these platforms and the payment of inflated prices for creatures or digital lands responds to the need for certain fortunes to launder (macro) savings of doubtful origin in contexts that are very difficult to be tracked by administrations as well that it is very likely that many of these movements sooner or later end up passing through the magnifying glass of a treasury that has not yet had time to react.

Game Tokenomic. La gamificación de la economía.

Based on the Bunicorn Game Tokenomic article [14] I now intend to explain how an NFT economy should work in a balanced way in a video game context or, for short, a gamified economy platform.

It is obvious that one of the great fears of a player / investor in a Play2Earn game / economy is that his favorite platform is based on a pyramid scheme. In some way they all do it, that is, their capacity for economic growth depends almost proportionally on more and more players coming in and putting their money to get the gadgets, creatures or vehicles necessary to start playing. This obviously leads us to a basic problem: the more players enter the game, the more the original products are worth, so this inflation prevents new players from entering because the artifacts to start a game have already become too expensive. Sooner or later there is a stoppage in the entry of players to the game and this house of cards begins its plummet until it collapses. In the words of the Bunicorn team, literally: Growth, Overheating, Crisis and Collapse, as in any economic system but at a much faster rate.

To avoid overheating produced by the massive entry of players and that the reward is not greater than the entry of new players (especially those looking for a short profit), Bunicorn decides to include two types of tokens, one for the internal governance of the system and another as in-game currency. Thanks to this, the increasing price for the onboard of new players can be contained while stabilizing the reward rates set in dollars. On the one hand, if governance tokens are demanded, this increases their value and benefits their holders. On the other hand, a burning mechanism [15] of in-game currency tokens and NFTs is used to control the inflation rate.

With this model, the governance tokens have had a constant and regular demand in which at almost all times their value has been growing (ATH) on many occasions with specific moments of decrease in moments of unblocking of the pre-staking pool [16].

On the other hand, in the token that acts as in-game currency there are two things that make the currency continue to grow up in a balanced way: 1. The minting [17] of the NFTs through PvE combat (Player versus Environment) and 2. The burning of said currency that also occurs through in-game actions such as merging, upgrading, recruiting or hunting. In general, the burn is always above the minting actions which should be enough for the system to maintain the benefits for all parties, especially if the utility of the in-game currency token is extended, making players diversify more their investment within the system.

However, in a system with such a long growth cycle, it is impossible not to produce a bubble and, therefore, a crisis, even with in-game currency burning systems. The decline of this currency is generally caused by gas fee [18], many of the actions in the game must pay these fees and this causes a decline in the price of the internal currency. The delicate balances between the peak moments of the system (bull run) and the bearish cycles sooner or later occur, causing certain behaviors: In bullish moments, the mining of the in-game currency will be lower than the burning, when the players have already passed from “newbies” to “masters” (using gamification terms), the minting rises as a form of investment recovery while the rest of the burning actions have not yet taken place, this is when the bearish cycle begins. If the price of this currency linked to the dollar falls, the more must be minted to maintain the ROI of the users, the lower that token-dollar parity, the more the speed of the minting increases and this generates a snowball with the capacity to collapse the entire system completely.

How to solve this cyclical problem? In the first instance, adjusting the USD price of the in-game token. Second, the price of certain activities has to be also linked to the USD, if the price goes down, more token is burned, if it goes up, less it does. Finally, a payment formula is created so that the amount of minted token is less when the market falls and greater when it rises, since they are inversely proportional values, this would stabilize the ideal price. In this way, the higher the price of the USD, the less proportion of tokens would be obtained in each fight and vice versa.

With these types of changes there is an automatic regulation of the system based on the value of the in-game token and its relationship with the USD so that the rewards grow according to the level of the player, being especially profitable for those players or groups of players with high levels within the game but these measures inevitably make profit margins more conservative than in an unregulated game but, of course, this allows the system not to be compromised and to continue giving benefits to everyone.

Discussion

NFT technology has allowed purely digital elements to have an undefined economic value closer to the speculative values of works of art than to the price of certain products or currencies. This possibility of speculation has generated a market for digital pieces (art ones or not) sold at extremely high prices.

On the other hand, some initiatives for the commercialization of certain digital contexts that were already taking place, such as the case of skins, weapons, pets and even land sellings from the world of video games, face a new dimension of the concept of ownership of these goods digital, given that this property now completely transcends the boundaries of the game mechanics in terms of value. Regardless of whether a video game continues to exist in the future or not, its NFTs will remain the possession of the players who acquired them at the time. This new paradigm could make video game companies consider exchanges between some games and others based on this new standard but also provide additional value to digital creations both within and outside their video game borders.

It seems that we are witnessing a real revolution that combines digital technology, economic theory and game design / gamification. The digital technology of NFTs allows a user / player to be the owner of artifacts that can be created in real time literally from scratch. Players invest their capital as they would in a “standard” video game to start playing with said artifacts (objects or creatures) that have an economic value within the system, a value that can be redeemed in analog or crypto currency at any time of the game. In this sense and under the premise of playing a video game, users go to these portals to deposit their capital waiting to receive a return just for playing such video game, this is constituted as an almost perfect (and perhaps perverse) fusion between game and work that has been called Play2Earn. In general, these systems are under DeFi tokens (eg Tezos) [19] so their viability is guaranteed not only by the massive inflow of capital thanks to its ability to attract new users but also by the results obtained by the base token itself. *The capitalization of the major DeFi tokens as of this writing was $ 157.21 billion [20].

Finally, these experiments to attract liquidity in the form of cryptocurrency from these “investors / players” have become video games platforms with very complex economic systems behind them, these systems depend on many factors but mainly on the behavior of the players and the algorithms that control the price of the internal coins (tokens) that are used within the aforementioned games. In this sense, the use of gamification techniques to produce modifications in the behavior of users and prevent, for example, a generalized mining or a massive withdrawal of rewards could be of great benefit for the sustainability of the system and even its growth, for some of these platforms generate new functionalities available under payment in their own tokens at the same time that they use other actions and functionalities (game mechanics) to promote the burning of tokens and NFTs to prevent inflation.

In some way, massive multiplayer video games have served as the seed for the birth of these new ludo-investment platforms and therefore it is not surprising that most of their investors / players also come from the traditional gamer community, a community that does not understand too much about investments in traditional finance but you have understood and quickly become familiar with this gamified micro-investment system

Contrary to the majority of the opinions of the mainstream media, the value of future Metaverses is not in the mere “avatarization” of the representation of our SELF in a massively digital environment and where we can project ourselves to execute a series of interactions with our friends without leaving home. At all, the value of metaverses will be in their ability to generate digital economies of value parallel to traditional economies. The aesthetic appeal, the use of gamification and the absolute immediacy and lack of intermediaries and regulation of the crypto-economy will attract millions of investors-players in these metaverses in what could mean the birth of a new space of anarcho-crypto-work and perhaps also a detriment to investors in traditional parks.

References:

[20] https://coinmarketcap.com/view/defi/

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