Play 2 Earn will most likely lose you money. As I predicted at the beginning of the year, earning back value from your NFT’s if going to be a major theme throughout all of 2022. As of this writing P2E in the NFT space is typically defined as an NFT project where by holding or staking an NFT you in return receive an ERC-20 token from a smart contract. The longer you hold the more tokens you receive. Almost every major NFT project now is launching with some form of staking for tokens. The issue here is maintaining value for those tokens has proven to be near impossible. A very small group of whales take all the value and a vast majority of retail investors are left holding the bag. These imbalances create massive instability in the token price and the NFT price, eventually leading to total collapses of both. In order to fix these issues NFT creators need to rethink project design and the economics behind these projects. It’s no longer good enough to just give a token for holding a project, you need to balance a delicate economy and increase investor value. The answer is simple- instead of creating a “Play To Earn experience”, you need to create a “Play And Earn” experience.

Let’s talk about how most P2E NFT projects work today. You buy an NFT. It makes you 5 $FAIL token a day. In order to start earning 6 FAIL a day you need to spend 100 FAIL in order to level up your NFT. The small fish investor is motivated to save up because currently the FAIL token is at $1. On the flip side, the whale holds 100 of these NFT’s, netting 500 FAIL a day. The whale doesn’t care about leveling up their NFT’s because the milk being produced from their large fleet of cows is so valuable. So instead of burning their tokens they just flip them daily for ETH, sucking all the liquidity out of the liquidity pool. By the time the small fish investor has enough to level up their NFT the price of FAIL has dropped to a penny, making none of this worth it. Their goal of making 6 dollars a day has vanished before they’ve even cashed out for a buck. In disappointment they sell all of their NFT’s related to the project. They’re so angry that their dreams are dashed they go into the project Discord and spread FUD, causing more people to sell. This chain reaction slowly, then quickly destroys the entire ecosystem of the project.

By creating projects that are simply “Play 2 Earn” players will invest with the sole objective of earning. Once they earn their token, they will have completed their objective and cash out, thereby destroying the project. Instead, creators need to build “Play And Earn” experiences. Investors will enter the project to be a part of an experience, and by being a part of this experience they will earn tokens. The key is this, that experience needs to be worth more than the tokens they’re earning. The tokens need to be secondary to the experience the investors are having. If investors would rather keep the token in order to enhance their experience in the game, the token price will grow, bringing more people to the project. If the experience isn’t worth the price of the token, whales will dump, destroying the project from within.

Simply printing tokens and giving them to investors just isn’t enough. You need to create an experience that will create an economic environment beneficial for the tokens being printed. To create this environment, two things need to be accomplished. One) tokens need to be burnt and two) value needs to be created that encourages the acquisition of more tokens. If the supply is ever expanding every second of the day, there will be constant downwards pressure on the price. Mechanics need to be put in place that burn tokens at a rate close to that of the expansion. These mechanics typically involve the holder spending tokens to enhance their NFT. Some examples are leveling up your NFT’s, changing appearances, and entering raffles. The major issue here is this is simply not enough. You can burn 99% of tokens, but if people aren’t receiving enough value where they’d want to acquire more, then prices will still go down. That’s why my second point is equally if not more critical, value needs to be created that encourages the acquisition of more tokens.

This value can’t simply be the opportunity to acquire more tokens. For instance- a lot of P2E games will let you spend tokens in order to level up your NFT so you can acquire more tokens. That’s the value. Unfortunately this is an example of ponzinomics. This will lead to price collapse and failure. Actual value needs to be created in order to maintain the value of the token. This value can be many things. In an ideal scenario, this value is an experience investors want to participate in. This could include experiences like video games. Take for instance, The Sandbox. The Sandbox is a blockchain video game where players can build and explore custom worlds in order to earn $SAND token. By fighting in dungeons, killing enemies, and exploring worlds, you earn a token which you can then use to buy items that enhance your experience. This could be a sword that allows your character to kill more powerful monsters, or a dragon that allows you to travel further. By providing experiences that are desirable to investors, the SAND token maintains value. The more tokens the investor has, the more unique their experience. This therefore not only adds a burning mechanic, but also drives demand to acquire more of the token. These two factors keep the value of the SAND token high and demand for the project higher. You’re playing and earning. Not playing to earn.

Unfortunately not every project team can create a full fledged AAA video game experience. But there are other ways to burn tokens and create value for the holder. Another project doing this well is Llamaverse. Llamaverse allows holders to stake their llamas for $SPIT token. This token can then be used to buy whitelists for partner projects, giving the investor more opportunity to earn real value. They can also use these tokens to buy other NFT’s from outside projects. Raffles and contests are also available for entry with the token. On top of that the founding team is using royalty fees to purchase NFT Worlds so investors can have virtual experiences dedicated to the community. Any tokens generated from these other projects are also returned to the investor, giving them even more value by participating in the experiences. By acquiring all these assets, the SPIT token is burnt. Additionally, investors want more of the token in order to get into more of these whitelists, driving hire demand and prices. This is an example of a project not only controlling inflationary pressures, but also creating demand.

Another project I’m watching is 420 Game. In this project you’ll be able to use $HIGH token to create your own online digital weed empire. By burning tokens you can produce more buds, cross breed them, and sell them to others. You can also use these tokens in online gaming experiences including chess and poker. On top of that, partnerships are being formed with real world cannabis companies where HIGH token will be able to be used to acquire real world items. By creating experiences that burn the token and drive higher demand to acquire real world items, the HIGH token should be able to maintain value on launch, increasing the value of the whole ecosystem.

I just want to reiterate one point. The value being created by the P2E experience can’t be the opportunity to acquire more of the same token. The value typically needs to be acquisition of other assets, unique fun experiences, or real world items. By creating actual value outside the original ecosystem it turns the economics from ponzinomics to an economic structure that benefits everyone in the project.

Simply printing a token is not enough. This will only benefit the whales in the short term, and just the founders creating royalties in the long term. Investors need to become more sophisticated in order to detect these traps. You need to know which factors to look for when researching P2E projects. You need to look for mechanics that not only burn tokens at a high rate, but also create value that will drive demand for the token itself. It’s a difficult balance to strike, but it’s critical for the health of the project. If this balance can’t be found, it will be the retail investor that pays the price. P2E isn’t going anywhere. Almost all major utility projects coming out will have P2E mechanics. By introducing these mechanics a lot of risk is introduced. If the mechanics aren’t balanced well, the whole project will fail. Hopefully by reading this article you learned what to look for when investing in P2E projects and won’t be the one holding the bag.

If you found this article informative and would like more research in your inbox, feel free to subscribe to my absolutely free newsletter. Also engage me on Twitter if you have any feedback, would love to hear from the community.