Don’t Write Off NFTs in Gaming Just Yet

Chris used to spend hours a day playing League of Legends, but he stopped after deciding he was sinking too much time into the popular battle arena game. When he saw Axie Infinity last May, though, he was hooked. Inspired by Pokemon, Axie Infinity is a video game about training and battling monsters. That sounds like innumerable other games, but one element distinguishes Axie Infinity: It’s built on the blockchain.

Axies are the Pokemon of Axie Infinity, but they’re owned as nonfungible tokens, or NFTs. A cryptocurrency called Smooth Love Potion is earned by battling these Axies. Players can also breed Axies, then either sell or battle with them. Chris, who declined to give his real name and goes only by the pseudonym Cryptobarbarian, felt he could justify playing video games again — as long as it paid.

“It was fun for the first few weeks, but it gets boring really fast,” the 28-year-old said. From there, he said, Axie Infinity became purely about making money.

Axie Infinity is a browser game. Accessing it is free, but you need to buy a team of three Axies to play. At its peak of popularity, bottom-tier Axies cost around $350 each, meaning playing the game once required a four-figure investment. The game allows Axie owners to lease out their monsters to other players, however. A longtime crypto investor, Cryptobarbarian told me he bought $30,000 worth of Axies and loaned them out in return for 40% to 70% of the profits. (CNET wasn’t able to verify his purchases.)

The strategy paid off at first. Axie Infinity was a hot ticket in CryptoTown, generating over $15 million a day last August. But thanks to a combination of poor in-game economics, inflation threatening the real world’s economy and a $600 million hack reportedly caused by a fake job posting, the price of Axies and the game’s Smooth Love Potion cryptocurrency collapsed. The same monsters that cost hundreds of dollars last year now fetch under $10.

“I got around 100 players playing for me with high-end Axies,” Cryptobarbarian said to me over Twitter, “which overall cost around $100,000 at the height and are now worth nothing.”

To gamers, stories like this provide ample reason to reject “Web3 gaming,” a term referring to the integration of NFTs and cryptocurrency into games. The significant carbon footprint of ethereum and bitcoin adds to the resentment. Be it Ubisoft bringing NFTs into Ghost Recon or Square Enix investing in cryptocurrency technology, gamers have fiercely resisted the blockchain coming anywhere near their industry.  

The fear is that crypto and NFTs will deform gaming into a side hustle, transforming its purpose from entertainment to moneymaking. Play-to-earn titles such as Axie Infinity prove the point; they’re not games as much as they are financial speculation with the veneer of a game.

“I’ve never met anyone that played it just for fun,” Cryptobarbarian said of Axie Infinity, “only to make money.” 

But Axie Infinity doesn’t represent the future that many Web3 developers envision for gaming. Video game firms, both small and large, are developing titles they hope will clean the slate of Web3 gaming. All are on carbon-neutral blockchains such as polygon or solana, which are far more efficient than ethereum. (Whether they’re as secure is an open question.) The goal isn’t to make titles that entertain crypto speculators, but rather to make games fun enough that people can justify playing them regardless of whether they earn crypto. 

“I’ve long been a believer that gaming is one of the consumer internet categories that is most likely to bring on mainstream adoption of crypto,” said Amy Wu, head of gaming at FTX Ventures, the investment arm of the FTX crypto exchange. “But I also believe when you have a hit game with Web3 elements, it’s very likely that the majority of players will never actually trade those tokens. They’re just playing the game.”

Free to play, play to own

The upcoming wave of Web3 games will range from free-to-play mobile titles to big-budget AAA games for PC and console. On the simpler end of the scale is Shatterpoint. With an art style inspired by Legend of Zelda: Breath of the Wild, it’s an action RPG for Android and iOS that, on paper, looks like many top App Store games. There’s a single-player campaign plus a PvP multiplayer mode. You earn new weapons and gear as you progress and, much like Fortnite and Call of Duty, the multiplayer is broken up into different “seasons.”

But these seasons, segmented by “the shattering” in the game, is where the blockchain comes in. Players will be given a certain list of goals each season. If they complete one — say, being one of the first 100 players to reach level 50, or staying atop of the PvP leaderboard for a certain amount of time — their character will be converted into an NFT. Only a limited amount of NFTs will be minted per season. 

There are two reasons why players might want to bother scoring an NFT. The shattering acts as an in-game reset, so any gear you’ve collected will vanish. NFT characters, of which there will be a limited amount each season, are permanent. However your character looks when it’s minted into an NFT, with whatever combination of gear equipped, that’s how it’ll look in perpetuity. The second benefit is that these NFTs can be sold on a marketplace — if there’s a market for them.

There are three crucial elements that make this model sustainable, says Shatterpoint developer Benas Baltramiejunas. First, the game is free to play — unlike P2E games like Axie Infinity, which requires the upfront cost of three Axie NFTs. Second, none of the items retained as an NFT can resemble “pay to win” mechanics. There can only be cosmetic benefits to owning it, not a competitive edge. Last, and most important, the game is designed with the assumption that most people playing won’t be interested in minting their character as an NFT. It has to be fun for them too.

“We’re using the NFT approach to create a bit of competitiveness, to incentivize players to play,” he said. Shatterpoint is monetized by traditional microtransactions and from taking a small cut of NFT sales — 2.5% is the traditional cut creators take. Baltramiejunas hopes that focusing on NFTs will result in both better game design and fairer prices. If developers can create a compelling game, revenue can theoretically be sorted out organically through whatever the player base sets as the value of the NFTs. 

“In free-to-play games you have whales which account for 10% of the player base but 90% of the revenue,” Baltramiejunas said. “If you only have those microtransactions for monetization, you are only focusing on those whales during the content creation, and you’re leaving everybody behind. However, with NFT integration, you don’t need to monetize that aggressively. The market decides.” 

NFT brands expand into gaming

While Shatterpoint is a mobile game that produces NFTs, the coming years will see many examples of the reverse: NFT collections turning into games. NFT drops, such as the famed Bored Ape Yacht Club, are doubling as crowdfunding platforms that produce games. Creators earn millions in royalties from sales, and use that money to expand the brand, theoretically boosting NFT prices in the process. Some brands are expanding into TV and film. Many are dabbling in gaming.

One such example is My Pet Hooligan. It’s a product of AMGI Studios, an animation studio where former Pixar animator Colin Brady serves as chief creative and technology officer. The studio sees Unreal Engine 5 and blockchain technology as the next technologies that will drive entertainment, Brady told me at the recent NFT.NYC conference. 

AMGI Studios’ goal of 2021 was to use Unreal Engine 5 to create an animated film for Netflix at half of the traditional cost. While the film was being greenlit, Brady explained, AMGI technical lead Kevin Mack approached him about starting an NFT collection. 

The result was My Pet Hooligan, a set of 8,888 3D rabbits. “We sold out in less than a minute, and all of a sudden people started saying, ‘hey, when movie? When TV show? When video game?'” Brady said. “So we said, we actually already have a studio full of Unreal Engine programmers, let’s try making a game.”

The result is Rabbit Hole, a sandbox game that looks like a mix of Grand Theft Auto and Ratchet and Clank. Rabbit Hole is currently in closed alpha, available only for My Pet Hooligan NFT holders with only one map functional. The build of the game I saw at NFT.NYC was intriguing. It was certainly incomplete, with noticeable frame-rate issues, but had the clear foundation of a fun sandbox game.

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Unlike Shatterpoint, which will integrate just NFTs, Rabbit Hole will use both NFTs and crypto. It will have a play-to-earn mechanic — or play and earn, as technical lead…