The rise of crypto games: What’s wrong with the ecosystem and why is it tough to be sustainable

Play-to-earn (P2E) games in the crypto space have been a sore topic for a while. Accusations of scam coins with ponzi-scheme structures are rampant, and many of such games fail to take off. Recently, a new P2E game has come into the spotlight- Crabada.

What is the meta for blockchain games?

Crabada follows a very standardised formula for P2E games in the crypto space. Build a team of unique NFT characters, breed, train, and trade them, and use them for in-game events.

These in game events include mining for currency, battling with other players, and breeding.

This was the formula used by Axie Infinity, the first commercially successful P2E game in the crypto space, and the vast majority of P2E games that have since been released follow the same model.

Yet, few have been successful, and none have succeeded in superseding it as the definitive game of the crypto space.

Granted there are games such as Crypto Kitties, which allow individuals to collect, breed, and trade NFTs to make a profit, but those are more akin to collectables. A trading card game is only a game if and only if you do something beyond collecting and trading for them.

In the same vein, crypto games such as Axie Infinity and Crabada are games if and only if there is more to be done beyond just minting and trading. So what makes games like Axie Infinity and Crabada draw in huge amounts of revenue and loyal followers? In a word, tokenomics.

Tokenomics refers to the economics that govern cryptocurrencies and NFTs. Tokenomics are the reason why people buy and sell cryptocurrencies, so design of these cryptocurrencies are important- both to draw investors in and to keep them invested in the cryptocurrency.

Games like Axie Infinity and Crabada are designed to allow players to earn from their initial investment into the game- these being the NFTs of Axies or crabs  that they can purchase from other players- and allow the player to capitalise on their initial investment by breeding, selling, mining, and battling with Axies or Crabs. So players are free to stay as long as they like, investing by buying more NFTs to turn greater profits. 

Tokenomics comprises two different components- demand and supply. Demand factors would refer to reasons for players to stay in the game, and supply would refer to the supply of tokens.

Axie Infinity is a game for whales. Crabada is not.

So why has Crabada been in the spotlight if so much of what they do is the same? The key difference is in their in game economy and the implications that the different designs have on the game.

As with all games, different mechanics incentivise different types of players. For this comparison, it is poignant to consider the differences between whales (players who frequently invest large amounts into the game) and casual players.

In general, a sustainable in game economy would have incentives for both- there should be sufficient rewards for whales without necessarily compromising the experience for casual players.

For starters, Axie seems to have a design problem in keeping demand up.

Axie Infinity has already begun running into problems with their player base, with players losing interest. Since the start of the year, Axie Infinity has been losing players. While it is still too soon to say if this trend is the beginning of a long slide to the bottom or a temporary slump, it certainly has the Sky Mavis, the developers of Axie Infinity, spooked.

They recently announced a transaction fee hike from 4.25 per cent to 5.25 per cent, and offered part of the fee hike revenue to content creators who successfully get people to use their code when signing up for Axie Infinity.

But at the same time, Sky Mavis also introduced measures to reduce the emission of their in-game currency SLP, which is used for breeding.

What could these two developments mean? It is possible that the incentives of first mover advantage were too strong in Axie, resulting in a few groups of players who are extremely well placed to succeed.

These players therefore find success and keep playing- while those who join later see fewer rewards and are slowly being turned away from the game as the element of fun wears off.

And here, Crabada seems to be doing something different. Crabada’s in game curency is TUS, and, like Axie’s SLP, TUS is also used for breeding.

While Axie Infinity relies on an exponential cost curve for their players to breed, breeding in Crabada has an inflectionary cost curve.

Costs begin to plateau from the first to third breed, and then linearly increases thereafter.

For players that are new, this means that they do not have to spend high amounts of money or time to play the game.

Costs that taper off mean that players who are not particularly invested in climbing leaderboards or earning huge amounts of money will still have something to enjoy, while those who are fully engaged and want to create guilds for the sake of battling and participating in events can still do so.

At the same time, Crabada’s lower costs for breeding can create a trickle down effect. Since new crabs are created through breeding and unwanted crabs can be sold, lower breeding costs translate into lower prices for crabs on the marketplace, which in turn means that newer players have a lower cost of entry, especially if they are not playing Crabada to climb to the top.

By decreasing the costs for casual players, Crabada could potentially see more new players, and players that stay for a longer period of time. So demand for Crabada could be seen to be better than for Axie in the long run. If all else is the same.

The difference is that Axie’s focus seems to be on incentivising whales rather than casual players, while Crabada chooses a more balanced approach.

But games that focus primarily on whales have a tendency to collapse in the long run. In a PvP setting, whales need casual players to provide content, whether its weaker players to help or someone to sell to. As casual players leave Axie, whales will begin to leave too due to lack of content, and the ecosystem collapses.

But demand is just half the picture. As we have seen, Crabada’s cost curves incentivese both whales and casual players to stay and provides lower costs of entry. But what about the supply of tokens? After all, if there are no rewards for playing, a significant portion of the playerbase will not be interested to stay either.

A fairer distribution of tokens means more for everyone.

On the surface, it may seem that there should be little difference between P2E games when it comes to supply. After all, with cryptocurrency, there is a limit as to how much cryptocurrency that can ever be mined. And increasing the amount of coins available only results in inflation.

But while changing the amount of cryptocurrency does not help, changing the distribution of cryptocurrencies can have an effect- offering more of the crypto rewards to be mined can result in the supply for different groups changing.

While Axie offers only 20 per cent of their AXS tokens as P2E rewards. Crabada offers 30 per cent. At the same time, Crabada is also releasing a lower proportion of their tokens as staking rewards (13 per cent compared to 29 per cent) and allowing more tokens to go into the ecosystem fund (20 per cent compared to 8 per cent). Crabada’s team and advisors will take a total of 20 per cent while Axie Infinity’s team and advisors will take 28 per cent.

The greater proportion of coins available to casual players also means that there are greater returns for them- on an already lower initial investment. What this means is that more money is up for grab in the economy, and more for regular players to cycle through the economy.

This, in turn, will keep players in the game, incentivising them to stay for a longer period. While there is still money to be made by staking, the primary focus of Crabada seems to be keeping casual players involved and providing them with more to play for.

In the long run, Axie’s focus on incentivising staking and whales has cost them the trust of their casual playerbase: and for good reason.

While it is commercially successful as a game, we should understand that they operated in what was effectively a new market of their own creation- they had first mover advantage. But first mover advantage is not a guarantee of success.

Now, Crabada has taken advantage of the lessons that Axie has provided, and come up with a revised model for P2E games. The structures may be the same, but the focus can make all the difference. Crabada, in short, seems more sustainable, because it makes a greater effort to distribute the tokens to a greater number of players and cater to the needs of all segments of their player base.

At the end of the day, all games rely on their players, and crypto games are no different

Feature Image Credit: Crabada

Also read: Cryptocurrencies and Gresham’s Law: What economics suggests about the future of crypto