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Let the crypto industry really help games, PlayFi's new narrative

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The future of crypto gaming

Original title: The Future of (Crypto) Gaming

原文作者： Piers Kicks等， Delphi Digital

This article is from wechat official account:Old yuppie

preface

It's no secret that most gamers hate cryptocurrencies. We've seen the community backlash against announcements like Ubisoft Quartz and even, most recently, Dr DisRespect's Midnight Society. Video game critics like Asmongold and Josh Strife Hayes have very good reasons for their interest in the industry. We understand where this sentiment comes from and believe it has a reason. Initially, we thought this was due to people not understanding what cryptocurrency could do for games. As time went on, we listened to more opinions.

After much discussion, we believe that many of the criticisms that have surfaced are valid. This is not just for crypto games, but more broadly, the evolution of core monetization practices in the gaming industry over time. In this post, we'll share our insights, provide historical context for where we are in the gaming industry, share some thoughts on the entry of cryptocurrencies into the space, and build several models for where we think cryptocurrencies should be in games. In particular, we will explore a new model called PlayFi developed by Brooks Brown and the NOR team.

Why games

First, we need to narrow down the scope and develop a high-level framework to understand why people are attracted to games. Let's explore the concept of the magic circle, first proposed by Johan Huizinga in his 1938 book Homo Ludens, This was later extended to the gaming context by Katie Salen and Eric Zimmerman in their 2003 book Rules of Play: Fundamentals of Game Design.

The magic circle is the imaginary boundary between the real world and the game. Reality often comes with unfortunate baggage and limitations that many people try to escape. The game's magic circle can provide them with this safe haven. Because of the extraordinary nature of the human imagination, seemingly mundane actions can take on extraordinary forms in the magic circle. For example, the simple act of kicking a ball into the net can be completely changed. Maybe that ball going into the net actually represented a winning goal in the World Cup final. Suddenly, billions of people cared about this moment, and it had great and lasting significance. The difference here is that it takes place within a magical circle, a shared illusion that society values it.

We used a sports example in an article about video games. Throughout human history, sports have been the dominant entertainment medium capable of evoking great passions and tribalism on a global scale. Sports are respected because people learn the skills involved in excelling by practicing the sport on their own. Plus, they've evolved over thousands of years to become something people really like. The result has been a unique monetization model built around matches.

Back in the magic circle, it often triggers a state of fluency -- a well-studied psychological phenomenon that extends far beyond games or sports. This is what happens in high combat and high skill situations. If a magic circle of engagement is successfully created, the player should focus on the experience to the exclusion of other needs. The outside world should fade into the background. This is why many people like video games.

This is where the current generation of video games starts to break down. In many cases, games are not immune to outside distractions. In fact, it has become entangled with arguably the biggest constraint that reality imposes on people: money. We believe this is a big source of hostility to cryptocurrencies among mainstream players. Parts of the traditional game industry are prone to aggressive monetization practices, sometimes to the detriment of the player experience. So when players see the need to buy NFTS to play early crypto games, or big publishers announce plans to build in this space, they see it as another attempt at a cash grab and steer clear.

The problems described above are most pronounced in competitive multiplayer games, where the ability of some players to beat others by paying for performance increases erodes true competition. These games are often labeled pay-to-win(P2W) and rightly rejected. With the advent of cryptocurrencies and the ability to tokenize and trade in-game assets, many critics fear that blockchain gaming will always move in this direction. While this is a reasonable point, we think it's also a one-dimensional one, missing out on many great opportunities for cryptocurrencies to elevate the game.

To summarize some of the ideas we've covered:

1. People play games to escape reality; A state of flow and a real sense of immersion will enhance this

2. Skill-based competition is an important driver of what makes games meaningful

3. When money affects the core gameplay, it undermines the above

We believe that much of the criticism of cryptocurrencies and traditional games in the gaming industry stems from the way games are monetized. In an ideal world, one might think that to create the most immersive gaming experience, one would have to limit the influence of money on the core gameplay. This is not to say that all monetization methods are bad, but we should look for ways to monetize that don't hurt the core game loop or truly competitive gameplay. That's not to say there can't be games where money touches the core gameplay, because there's definitely an audience for that. It is important to note that these different models exist in different ranges of monetization that can be achieved in various ways. As ever, there are no one-size-fits-all solutions in game design, and in the infinite space of game design, there are always nuances.

History of Game Monetization

Before we explore the current incarnation of cryptocurrency in games, it's worth reviewing how the industry has evolved in the context described above. The video game industry has been on a long evolutionary arc as a mainstream phenomenon since the late 1970s, when arcade games led to the first Golden Age of gaming (1978-1982). These early games exuded soul, and the communal look of the arcade unlocked deep competitive forces for the first time. The pursuit of high scores and the glory that comes with them is contagious. These games are skilful and follow the old adage that a good game should be easy to pick up and hard to master. Given the seemingly ubiquitous nature of modern video games, it may seem surprising that revenue in the early years has matched that of the recent past. In 1981, the video game industry had revenues of $20 billion. Adjusted for inflation, that's $64 billion. For context, global gaming revenue in 2021 was $180 billion. Despite the friction associated with games at the time, the success of video games was impressive. Having to carry coins, waiting in queues in chaos, making sure the machines are working and the game is running properly - these are all intolerable to modern gamers. So aside from novelty, what was the magic behind these early games?

Brooks Brown, speaking of NOR, stressed the idea of "fair play and risk stimulation". The core idea is that, early on, games offer real risk. After reaching the front of the line at the arcade, your coin buys you three lives. If you lose them, you're out. When dollar value is intertwined with skill, the "Git GUd" has real motivation. Better players get more value because they live longer. The greatest players are rewarded with the highest score and their achievements can be immortalised - everyone understands how difficult it is to get a place on the leaderboard, so it deserves respect. This incentive structure encourages players to want to get better with more practice, which can only be achieved by spending more money. There is even a skill inflection point beyond which it becomes more cost-effective to do well in the game. Importantly, fairness is also sacrosanct. There are no cheat codes, purchasable powerups, or other consumables to give the player an advantage. These games are primitive forms of competition, where all variables except the environment are within the player's control. Unlike many games we see in the modern era, these games are won by skill alone.

With the growth of the gaming industry, the advent of home consoles allowed gamers to leave the arcade and return to the comfort of their own homes. They can now play whatever they want, whenever they want, without any restrictions. In the years between the rise of home consoles and the advent of the Internet, the public perception of arcade games and the competitive spirit surrounding high scores waned. These "virtual players" once captured a large audience, but that energy has dissipated. Losing all three lives and "dying" have a different meaning because the player can regenerate for free without any real-world penalty. The consequences of action have changed. As Brooks puts it, "the devaluation of risk severs the link between player skill and entertainment value." Eventually, game designers became more reliant on technological advances like better graphics and sound to distract users from this subtle but important change. Henceforth, the eternal cycle of endless rebirth in the comfort of your own home will become the norm.

By the mid-1980s, video games were growing rapidly, and increasing production budgets were creating larger games with increasingly complex mechanics and longer narratives. Instead of competing directly with sports, the industry tends to compete with film and television. Decades on, we see this trend toward higher-value games, with Netflix's Q4 2019 investor letter stating that "we compete harder with Fortnite than HBO."

In the '80s,' 90s, and '00s, the industry was dominated by premium AAA games -- games for which you had to pay a lot of upfront costs, often $60. These games are released on CDS or cassettes and are required to be played on PCS and/or consoles like the SONY Playstation and Nintendo GameBoy Advance. Their existence depends on developers who are willing to pay a "passion premium" while sleeping under their desks after 100 hours of overtime to make a game.

The "advanced gaming" business model means that these video games can only be played by those who (1) have the necessary hardware (such as a console or gaming PC) and (2) have $60 to spend on a personal gaming experience. While these experiences are precious, the global popularity of video games is limited -- in 2001, the best-selling video game, Pokemon Gold/Silver/Crystal, sold just 3.1 million units. By comparison, Garena: Free Fire has more than 100 times as many users and currently has 311,250,355 monthly active users.

Furthermore, the value capture for developers is limited -- the inability to effectively differentiate between prices means that players willing to pay thousands of dollars for an experience don't have any meaningful way to do so. With the advent of free-to-play and mobile games, this has changed significantly.

Mobile games and freemium have taken the gaming business to dizzying new heights. Mobile games now generate more revenue ($85 billion) than PCS ($40 billion) and consoles ($33 billion) combined. Because of the advantages of digital-first game publishing, the industry is leaning toward free-to-play games. This has opened up gaming to more than 3 billion people around the world, and the average age of today's gamers is 35. While the game is free to participate in, it still needs to be monetized in order to get funding. The mobile age has led to two main strategies: advertising, and controversial microtransactions that involve charging people a fee to gain an edge.

While this is harmless at first, since most of the realizations revolve around items and other purchases that don't affect the balance of the game, in many cases this changes. Games are designed and developed with behaviorism, not with an absurd perspective at the center. The methodology that makes games venture capital means a race to the bottom. By focusing on increasing user retention, the freemium game industry has developed a series of behaviorist mechanics that rely on addiction psychology in order to retain and monetize players before the monetization layer. These include reservations and careful use of notifications and social features to keep players checking in.

On the darker side, developers intentionally create obstacles for players in order to encourage them to spend money to overcome them. For example, by allowing resources to be stolen, players are encouraged to buy shields to protect their resources while offline. In addition, since many games rely on "capturing" and monetizing large audiences (whales), the success of a game also depends on its economic depth, or how much money whales are able to spend in those games. Fans of Diablo Immortal, for example, estimate that players can spend up to $600,000 to fully upgrade a character. Some parts of the industry currently prefer to allow pay-to-win, which makes the experience worse for non-paying players.

This is particularly corrosive in multiplayer games, where whales can feel superior because of unfair advantages. This business model is clearly attractive to many developers. Unfortunately, some studios have been too aggressive with this model, creating serious tensions with the player community. Again, developers use these practices to varying degrees, from acceptable to extreme. Not all implementations of this model are public; games like Rainbow Six: Siege ostensibly have no advantages that you can pay for. However, there are more subtle manifestations such as releasing new servers, intentionally altering metadata and encouraging users to spend. At its most extreme, skins popular in most modern games do not confer in-game utility, but some players still believe they have an advantage in competitive scenarios.

In short, in typical S-curve fashion, every aspect of the industry has shifted from user engagement to value mining. Many of these ways of making money have become so entrenched that everyone is forced to succumb to the same tricks. We've seen the monetization side of the design plateau, and over time, the mental techniques for engaging players have become more formulaic. Microtransactions and pay-to-win instances can erode the concept of a magic circle, ultimately ruining the player experience. Cryptocurrencies represent the next step in the evolution of gaming monetization, and in the following we'll explore what these early implementations looked like.

Blockchain in the game

Before we delve into the current generation of crypto games, it's worth reviewing some features of blockchain technology that we think would be interesting to apply to games. Below, we'll look at these benefits from the perspective of both players and developers.

For players, we see the following key benefits:

· Digital property: In traditional games, digital items purchased by players are actually "rented" from the game company. When game assets become NFTS, players and their achievements have a new safeguard. If the game stops running, other parties could theoretically step in to cash in the utility of these assets, which might otherwise still have lasting collectible value.

· Secondary market liquidity: True digital ownership changes consumer psychology, creating surplus value for digital purchases in a global, verifiable layer of liquidity. If users want to leave an ecosystem, they can retain the value of their investment.

· Source: Virtual goods now have a rich, verifiable history. Imagine being able to own the signature gun skin your favorite ESports player used to win the world championship.

· Community governance: Players can now participate in the direction of their favorite games through DAOs and committees.

· Value accumulation: As more and more players invest time and money in the game world, the value created by the game can be transparently accumulated into the ecosystem tokens.

· On-chain reputation: A new player-centric design space has been unlocked, as players can now build powerful player profiles across ecosystems. We'll explore some of its uses later in the PlayFi section.

·Web3 Payment infrastructure: By using an encrypted payment track, seamless payments can be made in many use cases such as smart contract prize pools and tournament payments -- a particularly onerous burden in traditional esports.

For creators and developers, the following improvements have been achieved:

· Increased monetization scope: More monetization opportunities are realized compared to the free-to-play model. On average, less than 2% of players in free-to-play games actually buy in-game items. This ability to monetize the "long tail" of users comes from a deeper willingness to spend, driven by the player benefits mentioned in the previous section (such as digital asset ownership, provenance, etc.). In addition, secondary market activity, which previously would have been lost to peripheral grey markets, can be reined in. It is important that this be done carefully and in a harmless way, as we will discuss in a later section.

· Increased economic alignment: Sharing part of the economy with players and creators in the game economy means lower user acquisition costs and higher retention rates than traditional free-to-play games, and helps increase LTV. There is also a powerful evangelical power that can be unleashed, as users can benefit from the world they care about.

· Improve creators' finances: In UGC games like Roblox, creators only keep 30% of the revenue. In blockchain games, creators typically keep more of the value they create and benefit from on-chain royalties.

· Interoperability and composability: While it will take time, blockchain technology has the potential to enable interactions across ecosystems by leveraging existing building blocks and open source infrastructure. We recognize that games & LT; > Game interoperability difficulties, and sees composability with the broader Web3 technology stack as a more promising innovation.

Finally, it's important to note that cryptocurrencies have brought significant improvements to the game financing space. As many may know, Tencent-style monopolies across the industry have created an unbreakable moat. Most aspiring game developers create games out of raw passion, but they quickly realize that the stagnation of the mainstream business model and the moat built by the big developers present two choices:

1. Built on predatory F2P mechanics for a few years in hopes of solving LTV> The question of UA cost.

2. Give up independent ideas and become a cog in the big corporate machine.

The AAA game industry is often criticized for its toxic work culture. More importantly, the entrenched F2P model is sometimes too biased towards value extraction, which has robbed many games of their soul. In the process, many people lost their love of games. At the same time, demand for talent in the industry far outstrips supply. By building an ecosystem that allows developers to build and define shared advantages with users from the outset, the amount and kind of funding available to them will increase.

In the typical F2P space, it's not uncommon for marketing budgets to match development budgets, as cumbersome UA costs make it hard to get rid of the noise. In the cryptocurrency model, this marketing budget can be deployed in incentive designs to steer the economy. Many of the best games in the world are born in organic, grassroots communities, not in the R&D LABS of multi-billion dollar game giants. In the same way that the creator economy opens up a world where people can pursue their interests, the same is true for game developers.

The Modern Crypto Game

Crypto gaming took the space by storm in 2021, but it has since lost some of its appeal as user engagement has declined. Before we outline why this is the case, we should clarify what exactly got people so excited about them in the first place. While this model isn't perfect, it has many advantages over traditional games. As mentioned earlier, cryptocurrencies can unlock digital property rights, verifiable secondary market liquidity, community governance, shared ownership structures, and significantly enhance financing options for developers. The downside is that with the tokenization of most in-game assets, the economy becomes more difficult to manage. As counterintuitive as it may seem, this is actually most difficult in the early days, as the staggered release of the game means that large parts of the game and its economy may not function properly. This tends to lead to a large increase in the supply side of the economy without the offset demand necessary to absorb it. In this case, requirements take the form of utilities for those resources. Game developers often create many levers that can be adjusted to help maintain the balance of the economy, but without full game features, their leverage is limited.

The fluidity of all parts of the in-game economy combined with an incompletely established game loop often leads to overheating. In the beginning, the initial scarcity of all resources in the game combined with pure financial speculation by non-players helps keep demand in sync with supply. This dynamic creates an inviting environment for purely extractive players. These players contribute to the imbalances we discussed earlier. As the supply of assets has increased rapidly, it has not been met by the appropriate level of demand that would exist in a more complete economy. When prices start to fall due to oversupply, extractive game players and purely speculative market players will also leave. This further exacerbates the mismatch between supply and demand because as they exit, demand is destroyed, leaving the economy in a hole from which it must gradually climb.

One potential solution is to limit the transferability of consumable items early in the game until more game components and economies are established. They are not linked, but simply associated with the account that generated them. This limits the potential for the economy to overheat before it is able to handle that level of supply. This also lowers the price of earlier assets. This non-transferability is only temporary and at some point in the future they can be claimed on the chain.

Another solution is to limit the economic relevance or longevity of these consumable game items or assets. By letting players anticipate early on that these assets will not yield permanent ROIs, teams will be able to better manage and tune their economies. Examples are periodic resets for the economy (like Diablo 2's Ladder), resource expiration, or establishing life cycles in game assets.

Nonetheless, the introduction of currency into the game has made it the main motivation so far. As a result, the gameplay of these early games was influenced in two ways :1) most players were primarily motivated by the expectation of monetary rewards, rather than the game; 2) The core competition is subject to pay-to-win because whales can buy their way to success.

In 2019, Delphi helped Axie Infinity design the in-game governance TokenAXS. The idea was relatively simple, but novel at the time -- reward people for actually playing the game. In this way, the player who spends the most time in the game world will eventually gain control over the world, something that traditional gamers openly crave. At the time, Axie Infinity had very few players, but we saw the promise of what Sky Mavis was working on. It's important to note that no one in the community really anticipated the virality and dominance of the moneymaking dimension at the time. The name "Play-2-Earn" is retroactive. Perhaps, given the scale of the need to make money in video games, as evidenced by the real money transactions (RMT) grey market that surrounds most major video games, this should be more obvious. The scholarship model emerged by accident rather than design. In this model, investors nurture assets to lend to new entrants in return for a share of their income. Still, we ended up in a situation where the majority of our players were net worth extractors, new user growth was stagnant, and the in-game economy was in the tank.

To further advance the revenue centrality of these crypto games, we have seen the emergence of guilds that seek to specialize and industrialize. Led by Yield Guild, these organizations pair users with a large number of assets, unlocking economic opportunities for large numbers of people. It's worth emphasizing that this has had a real impact on thousands of people in countries like the Philippines, where Play-to-earn has transformed many lives during the pandemic. In 2021, we saw guilds receive $512 million in public and private market funding. Most of that money was used to invest in in-game assets, as well as venture capital in the game itself. Because of this buying pressure, we've seen most of the fast-tracking games follow this trend and try to adapt similar mechanics. Arguably, the field may have started a cycle of incentives in the design of games and economies without sufficiently considering whether this is the best path. We believe that the guilds that exist to coordinate resource extraction in games have deviated somewhat from their original vision, and we'll discuss what the path forward looks like in a later chapter. Unfortunately, as is often the case with cryptocurrencies, many of the current "players" in the crypto game space are mercenary in nature. Users seem to gravitate toward the most powerful incentives, rather than being truly passionate about the game. This not only causes developers to overpay for early adopters, but also damages the experience of real players. In these early games, an overemphasis on the monetization component eventually led to a blurring of the player's organic needs.

Still, we believe that financialized games that choose to put most of the economy on the chain will be in great demand. These games bring a new form of play, where knowledge of game skills and advanced knowledge can create alpha in the context of the game's economy and bring financial rewards to dedicated and savvy players. We're proud to support many of these games, and it's great to see how far games like Crypto Unicorns have come. By combining economic monitoring, careful/diligent design, and continuous real-time service development, these economies can be better calibrated and create beneficial experiences through player-driven economies.

The most important thing about these financialized games is that the percentage of net value extractors is smaller than the percentage of players who are willing to pay for entertainment. Ideally, the value extractor will provide the paying player with something useful or interesting. We see the first generation of crypto games as an extension of traditional games, although there are some new features that make them attractive.

It's important for developers of blockchain games to have a clear understanding of what they're creating and who they're targeting. We believe that many developers take the decision to open up the economy too lightly and do not fully appreciate the complexity of navigating this path effectively. Delphi will also continue to spend time analyzing how existing models should evolve and investigating new models as we explore.

Monetize your game with cryptocurrency

Another model that the Delphi game team has been exploring in depth recently is PlayFi, pioneered by NOR. We believe this model is a great fit for esports and competitive games, and Delphi will actively support this concept going forward. To better explain this, we need to revise the concept of magic circles in games. True player control and free flow are not disrupted by the surrounding forces competing for human attention, which is why great games stand the test of time. There's a reason the Delphi Summer Retreat gaming tournament revolves around a 20-year-old game (Super Smash Bros). A game that refuses to compromise on these core principles is characterized by elegance and purity. Furthermore, games that follow this model seem to be insulated from the ephemeral effects of the contemporary digital environment. Counter-strike, for example, still holds a strong position as one of the greatest competitive shooters of all time, while many others rise and fall around it. As we shall see, much of this can be taken from the way traditional sports work -- a model that has prevailed for thousands of years.

Almost without exception in professional sports, the core game mechanics are very basic and easy to learn. In soccer, for example, the goal is to put the ball in the net. Games have fixed metrics; The crossbar has to be a certain height, there has to be a certain width between the goalposts, and the ball has to be a certain size and weight. As Brooks says, "The essence of any ideal game is that every throw, play, or choice is made on top of something clearly defined."

In addition, this is often very widely accessible. Anyone who wants to be a player doesn't have to look too hard to find the ball and the goal... In general, sports are easy to learn but difficult to master. Player control is important because difficulty is often self-directed. You can choose to practice penalties, free kicks and corners yourself.

Importantly, as these scenes become more competitive, players will become more skilled and the overall difficulty will rise accordingly. As the level increases, so does the profit margin. These experiences are scarce. There are only so many players in the world who can compete at this level and they are at the top of a huge talent pool, so they mean a lot. As a result, we've seen a dramatic expansion of participation opportunities in the form of coaches, fans, commentators, analysts, scouts, prediction markets, merchandise, collectibles, and more outside the core game. As Brooks puts it: "The strong link between increased difficulty and increased economic opportunity/participation is at the root of the professional sports model, and at the root of PlayFi."

In essence, we can think of the sports monetization model as being entirely meta-game oriented. These metagames are like spin-offs of purely skill-based games. Metadata can be thought of as data that describes other data. By extension, metagames can be thought of as derivative games that describe or are rooted in the core game. Importantly, the market game is different from the core competitive cycle.

Football is not a market game per se - it is a game of skill on the pitch. Its path to monetization starts with a focus on sports itself, then takes metadata from the most meaningful games and uses it to play meta-games.

In the context of video games, in acknowledging that the core magic circle of games must remain the same, one might wonder how we can accommodate a larger audience that is not interested in individuals ascending to the top echelons of a given game. After all, there are countless archetypes of users in modern games, including whales who want to spend money, speculators who want to bet on top players, and more casual enthusiasts who enjoy games in other ways. As we discussed at the end of Part I, money will always tend to dominate motivation if left unchecked. Therefore, the first thing we need to do is to separate the market game from the core game loop. In this way, we can begin to define separate magic circles that coordinate with each other but do not interfere with each other. No one is fooled into playing someone else's game.

As with the professional sports model, lack of experience matters. This is reflected in the technical level, but also in the pace of the game. In football, Cristiano Ronaldo only steps on the pitch once a week. For NOR, a pioneering implementation of PlayFi, the lack of experience and real risk are driven by permadeath tournaments. In these games, players are themselves NFTS and are permanently destroyed if they lose. They have full ownership of their data and metadata and benefit directly from the economy surrounding the core game. The goal of the PlayFi model is to encourage users outside of core competitors to play meta-games using metadata. In theory, the more people care about the game, the more they will spend directly on the metagame. By maximizing meaning generation and competition in the core game, we can maximize revenue through peripheral monetization around it. In addition, we retain the promotional benefits of the freemium model, because players can play for free, and we can effectively price differentiate those who are willing to spend more on the meta-game, while also avoiding the disadvantages of pay-to-win.

At the heart of this framework is skill-based competition, which requires the match system to work. NFT is a foundational technology that allows us to Tokenize any unique digital project. For example, let's look at the figure below, which has a total of eight entry level slots. Each starting point can be sold in a primary auction and then traded freely in the secondary market without affecting the core gameplay. Smart contracts representing the prize pool can receive 50% of all revenues (except sponsors), further boosting the appeal of the competition.

While this may sound similar to some modern esports, we can't adequately emphasize how much Web3 has improved. Ultimately, cryptocurrencies will primarily serve as back-end accounting engines, facilitating ticketing, payments, player NFT contracts (reputation on the chain), smart contracts for automated tournament bounties, and more. Cryptocurrencies unlock new transparency for player profiles, facilitate a deep layer of liquidity for seamless payments, and new ways for people to bet without having to navigate cumbersome infrastructure. In addition, many features of encryption, such as digital provenance, open up a new way of thinking about the digital realm. How much would you pay for Ali-Fraizer gloves? So, how much would you pay for a skin for an esports tournament you care about a lot?

We now have a rich digital experience where fans can collect items from meaningful moments in esports history. The excitement of building this architecture in cryptocurrencies is the ability to unlock open source infrastructure that can be used for many applications across the industry. All esports style games should meet the same standards, and Delphi hopes to contribute to some of them. Once all the data, metadata and infrastructure is consolidated in one place, we can let third parties come in and develop their own meta-games around those games. It's hard to imagine that this will lead to many more popular downstream applications, but it's exciting to see what emerging behaviors and gameplay can be unlocked. Once the technical foundation is in place, we believe users will continue to drive creativity in their respective ecosystems. Finding the best meta-game for professional sports takes time, and we expect PlayFi to do the same.

Tokenization of game assets in "play-and-earn" games 1) increases startup costs because players require NFTS to play the game; 2) Because in-game assets are NFTS with secondary market liquidity, pay-to-win also undermines competitive play. In the PlayFi model, the first change is that you don't need an NFT to play the game. Importantly, this does not mean that NFTS cannot and will not occur. Rare and unique digital assets still have their uses, but the way these assets enter the game matters. For example, I might still get a digital collectible as a reward, but it should mean something to me in the context of the game. Furthermore, because all monetization can occur outside of the game, we are able to alleviate many of the distribution frictions associated with crypto games in traditional app stores.

What's interesting about these components is that they don't necessarily conflict with current P2E games and guilds. For example, a game like Axie could offer a free mini-game mode and award NFT to tournament winners as a true badge of honor. This also reduces the resistance for new players to adopt the game.

Guilds like YGG are able to continue to grow their businesses, and in addition to providing player mobility to guide new gaming ecosystems, they can now leverage player NFT attributes to attract talent to their guilds as traditional esports teams do. Then they can make them take part in competitions to win money and earn rewards for their efforts.

While unproven, we believe PlayFi has what it takes to propel esports into a golden age and unlock its true potential as a global entertainment heavyweight. We will actively support NOR and other projects to build infrastructure in this area.

conclusion

The past year has been a milestone for crypto gaming, and despite all the growing pains, we look forward more than ever to playing a role in its evolution. Again, the industry is still in its early days, so it's hard to determine which models will win out over time. As supporters of this space, we regularly challenge our assumptions and try to map out new ways these technologies can improve games for players and developers alike. We believe this is a good time for developers looking at this space to reflect on the complexities involved in an open economy and the extent to which these games contribute to over-financialization. We hope to use PlayFi's path to further explore how cryptocurrencies can improve games and how they are monetized. The only way we can reverse the prevailing perception is to build experiences that showcase the power of this technology.

Importantly, we think there are many other models that are particularly suited to cryptocurrencies, but we don't go into them here. Platforms focused on user-generated content, for example, are well suited for integration into cryptocurrencies. The ability to program royalties on derivative works from third-party developers is very promising. We are particularly encouraged by projects such as Webaverse, which builds an open source game engine that is entirely browser-based. In addition, we remain excited about the prospects for on-chain gaming. While there is still a long way to go, we believe that one of the biggest drivers of innovation over time will be building this native technology based on this new medium. We're excited to see teams like Lattice, Topology, and Matchbox DAO pioneering this space, although we think we're still years away from these ideas having broad appeal. Many of the best gaming experiences come from the Modding community, and on-chain games offer true composability that no other approach can.