YGGTV: Play-to-Earn Isn’t Dead, It’s Evolving

In this YGGTV special, Gabby joins Pixels founder Luke Barwikowski in conversation with Emfarsis Director Leah Callon-Butler to discuss what sustainable incentive models look like in web3.

Although web3’s play-to-earn movement was a relatively recent development, the concept has existed within the gaming industry for decades. Real Money Trading (RMT) has been present in MMORPGs like World of Warcraft and Runescape since the genre’s earliest days, with players exchanging in-game items, resources, and accounts for real money via third-party websites.

Unfortunately, RMT occupies a gray area in web2 gaming. Third-party marketplaces remain vulnerable to scams and bad actors, and the promise of earning real money from playing games has given rise to botting, cheating, and other game-ruining behavior. Although unfair play also exists in web3, YGG helps protect the integrity of web3 games by cultivating communities of high-value players with a good reputation recorded onchain through its questing initiatives like the Guild Advancement Program (GAP) and Superquests.

Recently, YGG co-founder Gabby Dizon joined Pixels founder Luke Barwikowski for a chat moderated by Emfarsis Director Leah Callon-Butler in Venice Beach, Los Angeles. During their conversation, Gabby and Luke weighed in on the future of play-to-earn and how its success will be contingent on web3 gaming’s ability to foster communities of highly-engaged players. Over the last few years, Pixels has demonstrated the impact that a population of even a few thousand committed players can have on a game. 

YGG’s reputation-based achievement system ensures that players within its ecosystem don’t just use brute force to collect rewards from web3 games. They earn them through in-game excellence and demonstrable contribution to their communities. This pattern of behavior is why Luke is such a strong advocate of using play-to-earn to foster retention, especially when in-game rewards are tied to tasks that are easier achieved with the help of others. This creates a natural incentive for players to collaborate instead of compete as they work toward common goals.

Shared below is an excerpt from their conversation, where Gabby points out how the mainstream gaming industry can stand to benefit from web3 infrastructures, while Luke explains why the models that work in web2 gaming will not always be relevant to web3 gaming.

You can listen to the full recording on YouTube.

YGGTV Special: Pixels x YGG

Gabby (28:07): I think putting earning or ownership elements actually increase the TAM (total addressable market) of the game industry. If you look at where the game industry is, USD$200 billion, most of that is games for entertainment.

As you grow up, for example, you play less games because life gets in the way. You want to do things that either let you spend more time with your family or make money. When I'm able to play a game and enjoy it with a bunch of people, and also have the economic element where I can own the assets there, I think more people are going to want to do that than just play games purely for entertainment.

Leah (28:49): I guess a different cohort would be VCs. You guys are constantly talking to investor networks, so what do you think has been the approach to play-to-earn there? You were just raising too. So I'd be interested to know how some of those conversations went when you were saying that you're actually a play-to-earn advocate. How'd that go down?

Luke (29:09): It's funny, because for the last two years, not many people actually believed in what we were doing at all. It was actually really hard to find people who truly believed in our team, what we were building, our thought process, and our thesis.

It's interesting, because I had this feeling for a long time. It's honestly not easy as a founder to just fight through that. These people were telling us that play-to-earn won't work, or they were looking for certain metrics that were just wrong.

Leah (29:38): What metrics were they interested in?

Luke (29:38): A lot of their thesis is you have to build the most amazing game ever, and you need to be best in class when it comes to retention, in line with Clash of Clans. When you're talking about the metrics that they line web2 games up against, it's before any kind of earning.

But I think if you're building with that model, you're really basing it off web2. You’ll need that day 28 retention without incentives in Clash of Clans because you have to put all this money into advertising to get money out of these users and build a business. But web3 doesn't work in the same way. You don't spend on the same user acquisition channels. You don't do any of this. So your incentive alignment and your incentive design can be totally different and you shouldn't even be thinking about those traditional web2 gaming metrics in the same way.

I think it's a good proxy for general value that you're creating inside of an ecosystem. I think about real value inside the ecosystem all the time. If somebody was going to pay for this game and these specific features, what are they paying for? What's the LTV (lifetime value) out of this user? But then web2 or web3 game monetization looks different.

We're doing some interesting stuff in web3 game monetization, where we're even focusing less on spend, and we're focusing on things like locking up tokens rather than spending them. We're focusing on getting users to soft stake inside of our game. For example, we're about to introduce this new feature where you can start to upgrade parts of your in-game assets, and you can technically get some of those upgrades back if you deconstruct them.

It effectively acts like soft staking, but you're not really spending it in the same way. It has the same net effect where we take tokens out of circulating supply. They're not spending the tokens, but it achieves the same thing. There's different web3 methodologies when it comes to modernization that don't really line up with the web2 side of things, so when you try to compare a game with the same exact web2 metrics that a lot of the space was looking for before, it doesn't really make sense in web3 necessarily.

Leah (31:19): A big challenge for developers is that the usual tools and techniques for launching a game in web2 don't apply in web3. Traditional web2 marketing revolves around centralized platforms like search engines and social media networks and content sharing websites. Web3 takes a decentralized, community-driven approach to reward the people that contribute to a platform’s success. Outsourcing user acquisition to your community? Sure, sounds great, but it does require a massive shift in mindset, and for many, old habits die hard.

Gabby (32:11): One of the biggest mistakes I see experienced founders in the game industry make is that, “Oh, we're making a web3 game, but it's so fun that we're going to acquire users from Facebook, and they're not even going to care about web3, so our token won't sink,” and it just doesn't work the same way. What I really like about Pixels is how you've really leaned into the web3 users as your citizens in your world. Let's grow this together. Let's get people into web3, rather than having a game that is trying to look like a web2 game but is really a web3 game.

You can listen to the full recording on YouTube.

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