Crypto and gambling collide in high-risk ‘play-to-win’ economies

April 8 (Reuters) – Jarindr Thitadilaka says he earned up to $2,000 a month last year from his collection of digital pets, which he would raise and send to battle to earn crypto- currencies.

The 28-year-old from Bangkok was playing Axie Infinity, one of the new blockchain-based online games, dubbed “play-to-earn”, which mix entertainment and financial speculation.

These games can create lucrative businesses amid the hype around NFTs and virtual worlds, attracting millions of gamers and billions of dollars from investors who see games as a way to introduce more people to crypto- cash.

In Axie Infinity, users buy virtual blob-like creatures with varying attributes like NFTs or non-fungible tokens — digital assets whose owner is recorded on the blockchain — for tens of dollars to hundreds of thousands. Read more

Players can then use the pets to earn money by winning battles, as well as create new pets, the value of which depends on their rarity. Assets can be traded with other players on the platform, which says it has around 1.5 million daily users.

“It’s not just a game anymore. It’s more like an ecosystem,” Thitadilaka said. “You can even call it a country, right?

The dangers of this speculative ecosystem and the largely unregulated crypto gambling industry were suddenly brought to light last week when Axie Infinity was hit by a $615 million heist. Hackers targeted part of the system used to transfer cryptocurrency in and out of the game. Read more

Vietnam-based Axie Infinity owner Sky Mavis says it will repay lost money through a combination of its own balance sheet funds and $150 million raised by investors including the crypto exchange -currency Binance and venture capital firm a16z. Read more

Sky Mavis co-founder Aleksander Larsen told Reuters that if he could have done things differently, he would have focused more on security when growing the game, which launched in 2018.

“We were running 100 miles per hour, basically, to even get to this point,” he said. “The compromises we made may not have been the ideals.”

The hack, one of the biggest crypto heists of all time, shone a light on play-to-win games, a young world largely unknown outside of crypto and gaming circles, becoming big business.

Gamers spent $4.9 billion on NFT in games last year, according to market tracker DappRadar, which represents about 3% of the global gaming industry. Although demand has cooled for a peak last November, gaming NFTs still saw sales of $484 million so far in 2022. read more

Investor interest in NFT-based games has also exploded, with projects attracting $4 billion in venture funding last year, up from $80,000 in 2020, DappRadar said.

“There are so many users who want to interact with technology,” Larsen said, adding that Axie Infinity’s revenue topped $1.3 billion last year. “It’s like finding a new continent… like finding America again.”

HAS AND HAS NOT

Adding layers of complexity, unofficial financial networks have also emerged around these games as some players mine their coveted in-game possessions for additional gain.

Thitadilaka in Thailand decided last July that he wanted to make more money than he could by just playing by himself, so he and his friends decided to form what is known in gambling lingo a “guild”. They allowed their NFTs to be used by people who wanted to play Axie Infinity for free, without investing in any asset, and took a share of all winnings in return.

This pattern is common in play-to-earn games. Thitadilaka said his guild, GuildFi, had grown into a network of 3,000 Axie Infinity players who shared their revenue with asset owners 50/50. Thitadilaka now runs GuildFi as a full-time job and the company has raised $146 million from investors.

Southeast Asian countries such as Thailand and the Philippines have become one of the hottest global gambling hubs.

Teriz Pia, who is 25 and lives in Manila, quit her job as a preschool teacher last June after her brother founded a game-to-win guild, Real Deal Guild.

Now, she says she makes up to $20,000 a month from her network of over 300 players across multiple games, as well as other crypto assets.

For Axie Infinity, Pia lets her players keep 70%, while she takes a 30% cut. In another play-to-win game, Pegaxy, where players buy and trade virtual horse NFTs to compete in races to win crypto tokens, she splits it 60:40.

“I don’t call them workers. I just call them my friends or my academics,” she said. “The salary in the Philippines if you’re a teacher…I’m a college graduate, I’m an educator, but it’s not enough. I never imagined I could earn that kind of money.”

But Pia warned that it was a dangerous business.

“There’s a lot of risk involved. When I invest in a new game…being a member of Real Deal Guild, we have a partnership team, we have researchers, but at the end of the day, it’s always crypto is still a risk.”

One of the biggest play-to-win networks, Yield Guild Games, said it had 10,000 Axie Infinity players in the fourth quarter of 2021 who kept 70% of their revenue and received $11.7 million. in total.

Australia-based Corey Wilton, 25, founded Pegaxy, which he says has around 160,000 daily users. He estimates that 95% of play-to-earn game users participate as “renters”, generating revenue without owning the assets, while 5% own the assets.

“HOW PEOPLE GET HURT”

Legal experts warn there is no safety net for players who invest effectively in risky assets, leaving them highly vulnerable if a project fails or the asset market dries up .

As global regulators seek to master cryptocurrencies themselves, there is little oversight of NFTs or the relatively niche offshoot of gambling-to-win games, which typically use in-game crypto tokens that can then be cashed out. in traditional silver.

“Storing value in projects like this is risky. The in-game gain for winning, blockchain-based games is often through rewards paid into the project’s native token,” said David Lee, cryptocurrency partner at London law firm Fladgate.

“There is no guaranteed value of the token or in-game asset as their value is often determined by supply and demand in the market. This means that there can be significant price volatility and, if the project becomes less popular or is abandoned, then there is a potential for the assets to become worthless.”

Yet proponents of these games claim that success relies on a combination of factors such as skill, strategy, and luck.

“There’s definitely money to be made, but there’s also money to be lost here,” added Wilton of Pegaxy. “Playing to win shouldn’t be confused with charity, that’s how people get hurt.”

Reporting by Elizabeth Howcroft in London; Assembly Pravin Char

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