Now that all the talk about blockchain gaming liberating the poor has subsided maybe we should look behind the curtain and see if there was any truth to these claims, to begin with.

Let Me Tell You a Short Story

The year was 2000 something and most of my friends were glued to their computers playing World of Warcraft. The game was very fun and addictive but almost all of us had no money to pay for the monthly subscription so we settled on the second-best option - playing WOW on a private server.

The game felt the same and there were enough people playing it to crash the server at least a few times a day. If you didn't knew that you are playing on a private server you would hardly be able to tell the difference but all of that changed when I found out that private servers don't really work the same as Blizzard's public servers.

The issue with private servers is that data can be intercepted and the game can be fooled in many ways if you knew how. I wasn't a tech genius but I knew how to follow tutorials and once I got my hand on CheatEngine and a few scripts, the economy in the game collapsed very quickly.

The name of my favorite script was written in all caps and was very self-explanatory. The script file was named DUPE DUPE STACK STACK and it did exactly what you would expect it to do. It helped you duplicate in-game items that can be sold on the auction house so I obviously started with the most expensive and the rarest material in the game at that time - Mooncloth.

Getting enough material to create one Netherweave Bag was a real hustle but with the CheatEngine exploit I managed to create hundreds of them and make a small fortune trading them on the market. It took about 2-3 days before news broke out and everyone was duping and stacking which eventually completely broke the in-game economy. Mooncloth was everywhere and all listed items related to it were selling for just a few copper coins.

To understand why I'm telling you all of this let's look at GameFi and some very insane tokenomics models.

Smooth Love Potion (SLP) vs Mooncloth

The most popular game among the newcomers seems to be Axie Infinity so I'll use it as an example here. I'm also intentionally skipping Splinterlands because the DEC tokenomics model actually makes some sense to an extent.

In Axie, players earn SLP tokens when they win battles or tournaments but earning is a very misleading term here.

The SLP token does not have a hard cap to its total supply, and its circulating supply is in constant flux. This is because SLP tokens are continuously being generated from in-game activities, and are burned each time new Axies are spawned from the breeding process.

Source

As we can see, the SLP tokens are actually printed on demand and you don't have to perform any work (except playing the game) to earn them. To completely understand why they make absolutely no sense we need to compare Axie to a casino for starters.

When you enter a casino you are very aware of the fact that you will be playing a zero-sum game where the house will always have a slight edge over you. People still chose to participate for many different reasons and there is nothing wrong about it as long as all parties are informed about the potential risks.

In a casino there is a fixed amount of money and there is no way to create more no matter how hard you try. If I enter with $100 and there are 5 other players in the casino with $100 each, and the house has a balance of $1k, there is a total of 1600 US dollars inside the building. No money can be burned or created through the games we play. It can only change hands.

How does this compare to Axie you may ask? Well, here is a counter-question - What exactly are you earning when you win a game of Axie Infinity?

If we take the above perspective of a Casino setting there is absolutely no difference. A set amount of money has been poured into SLP thanks to investors that are speculating on the future price of the token. The only reason you can cash out your earnings is because someone thinks they are smarter than you and that the tokens you are selling will be worth a lot more in the future. If we all thought SLP is worthless you would have no one offering to buy them on the other end.

To make it even simpler, let's assume that only 10 people invested $10 each in SLP tokens at a time when there were only 9 SLP tokens in circulation. This would give SLP a market cap of $100 and the token a price of roughly $11. Now you enter the game, win one match and get rewarded with 1 newly minted SLP token that you want to sell in the market.

What happens here is very simple. You sell the earned SLP for $11, the token price and market cap both go down because you took $11 from a pool that held $100. Now there are 10 SLP tokens worth about $9 apiece at a market cap of $89.

If we keep repeating the process and keep dumping our *earned SLP into the LP there is no reason to assume it will have a different ending than what happened with Mooncloth in my story. The economy will eventually collapse once we run out of buyers.

So to recap, the only thing you are earning by acquiring more SLP tokens through gameplay is the right to dilute a liquidity pool on Uniswap or wherever you may choose to sell them. Simply playing the game generates absolutely no revenue for both you and the game publisher so what is all of this play to earn hysteria about?

Scolarships Are The New Cheat Engine

7 Tips for getting an Axie Infinity Scholarship

Axie Scholarships are so popular even Coin Gecko had to publish a guide on how to get them. Since buying into Axie and getting started can cost thousands of dollars, those that are at a disadvantage need to find someone to cover these costs. Out of this necessity, scholarships were born and the SLP printing reached maximum efficiency.

Instead of playing the game as intended by the game creators, wealthy investors started creating scholarship programs onboarding poor people from all over the world. They would split the profits with the players and instead of having one revenue stream they could now have thousands. All in-game items still belonged to them and the players only get a share of their earnings.

You know what other game had very similar issues? World of Warcraft...

Chinese gold farmers were all over the place at one point. Just like Axie scholars, they were paid to play a game and earn as much gold as possible that would then be sold on secondary markets. The only ones earning a considerable amount were the people that ran the operation, not the players.

Once I heard about Axie scholarships popping up I figured that the token price simply has to plummet in the long term due to a constant increase in supply and surely enough, I was right.

Due to the constant minting of SLP tokens from newly created farms disguised as scholarship programs SLP is on its way to hitting new lows with no signs of stopping.

Exactly what you would expect to happen to a token with an infinite supply.

Burning Mechanisms To The Rescue?

No...

Right now, SLP is burned only when new Axies are created in the game and that will never catch up with the newly minted tokens earned through gameplay. Considering that all scholarship-backed players will rarely get an upgrade for their setup (since they are only there to grind SLP) they will rarely have the need to burn any SLP and spend it in the game.

Blockchain gaming in its current form is not structured as a business and has no ability to generate revenue. Everything that is earned in the game is actually created out of thin air and if there was no exit liquidity those earned tokens would be completely worthless.

An even bigger problem is the incentive that whales will always exploit. In the case of Axie, they will not stop onboarding new players that don't mind playing Axie for pennies as long as it keeps them afloat and as long as it proves to be profitable for both parties.

At the end of the day, players and whales are not to blame. The whole Play-To-Earn craze was an opportunity to earn some free money on the side and most of them acted on it. I would put the blame on a very bad tokenomics model but that would also be unfair because it is unclear if this issue can ever be fixed.

Without forcing players to spend money on items and gameplay access the game itself can't generate any revenue. Sure, you may see Axies selling for thousands but they are worthless if they can't earn any money and right now they aren't very productive. If there is no constant inflow of new money we can easily remove *earn from P2E because it has nothing to do with earning.

To prove my point, simply consider how much work goes into writing an article. The rewards you get from upvotes on Hive and Leo aren't the same as the SLP you earn in Axie because your article has tangible value. Knowledge is a scarce resource and people are more than willing to pay for it either through staked Hive and Leo tokens or through a paid course online.

I highly doubt they would go through the same trouble for SLP and any other in-game currency that generates zero revenue but somehow still has a market value.

That's my perspective at least... If you have a counterargument I would love to discuss it in the comment section.

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