The core economic model is a Ponzi. Player earnings rely on new entrants buying tokens, not on external revenue from fun. This creates a death spiral where declining user growth collapses token value and gameplay.
the-state-of-web3-education-and-onboarding
Blog
Why Play-to-Earn Tokenomics Are Failing the Average Gamer
A technical autopsy of how P2E's core economic models are structurally designed to extract value from latecomers, alienating the core player base and ensuring eventual collapse.
introduction
THE STRUCTURAL FLAW
Introduction: The P2E Mirage
Play-to-earn tokenomics are structurally misaligned, prioritizing speculative extraction over sustainable gameplay.
Token value decouples from utility. In-game assets on Ronin or Immutable X become financial derivatives, not gameplay tools. This transforms players into unwitting liquidity providers for a volatile, yield-farming scheme.
The evidence is in the data. Axie Infinity's AXS token fell 99% from its peak, while daily active users collapsed by over 90%. The treasury model failed to create a sustainable flywheel.
key-trends
WHY TOKENOMICS FAIL
The Three Fatal Flaws of P2E Economics
Current models prioritize speculation over gameplay, creating unsustainable economies that punish the average participant.
01
The Hyperinflation Death Spiral
Token emissions are tied to gameplay actions, creating a one-way inflationary pressure. The supply side is infinite while demand is finite and speculative.\n- Axie Infinity's SLP lost >99% of its value from peak.\n- New tokens are minted faster than they can be burned or absorbed by new players.
>99%
Token Collapse
Infinite
Supply Curve
02
The Player-Investor Misalignment
The 'player' is redefined as a capital-efficient yield farmer. Game design is subordinated to tokenomics, creating perverse incentives.\n- Scholarship systems turn gameplay into a low-wage gig economy job.\n- Fun is a secondary KPI to daily active wallets (DAW) and token velocity.
Primary
Yield Motive
Secondary
Fun Motive
03
The Ponzi Demand Structure
Sustainability requires a constant influx of new capital from later players to pay earlier ones. This is a textbook Ponzi mechanic disguised as gameplay.\n- Collapse is inevitable when user growth stalls.\n- Real Yield models (e.g., Big Time, Parallel) are emerging to tie rewards to actual fee revenue, not inflation.
Ponzi
Demand Model
Fee-Based
Real Yield
WHY TOKENOMICS FAIL
The P2E Death Spiral: A Comparative Autopsy
Comparative analysis of economic models in major P2E games, highlighting the structural flaws that lead to hyperinflation and player exodus.
| Economic Metric / Design Flaw | Axie Infinity (AXS/SLP) | STEPN (GMT/GST) | Illuvium (ILV) | Sustainable Alternative (e.g., Fortnite) |
|---|---|---|---|---|
Primary Token Inflation Rate (Peak Annual) |
|
| Controlled via staking | 0% (No utility token) |
Sink-to-Mint Ratio (Sinks / Minting) | < 0.5 | < 0.3 |
| N/A |
New User Onboarding Cost (Peak USD) | $1,000+ (3 Axies) | $1,200+ (Sneaker) | $0 (Free-to-Play) | $0 (Free-to-Play) |
Core Loop: Earning vs. Burning | Mint SLP >> Burn SLP | Mint GST >> Burn GST | Burn ILV/Gas >> Mint ILV (Rewards) | Spend USD >> Burn Time (Engagement) |
Token Utility: Governance vs. In-Game | Governance (AXS), In-Game (SLP) | Governance (GMT), In-Game (GST) | Governance & Revenue Share (ILV) | N/A |
Revenue Source: Token Sales vs. Real Demand | Token Sales, NFT Sales | Token Sales, NFT Sales | NFT Sales, Game Item Sales | Cosmetics, Battle Passes (USD) |
Vulnerability to Mercenary Capital | Extreme (Scholarship Bots) | Extreme (Multi-Device Farming) | Moderate (Staking for Yield) | None |
Requires Continuous New Player Inflow to Sustain Price |
deep-dive
THE INCENTIVE MISMATCH
The Core Contradiction: Player vs. Speculator
Play-to-earn tokenomics structurally prioritize speculative capital over sustainable gameplay, creating a zero-sum environment for the average user.
Token value precedes gameplay. The economic model is the primary product, not a feature of a compelling game. Projects like Axie Infinity and STEPN launch tokens before establishing durable gameplay loops, attracting speculators who inflate asset prices.
Players become exit liquidity. The core loop requires new capital to fund existing player earnings. This creates a Ponzi-like structure where late-adopting players, the intended userbase, subsidize early speculators.
In-game utility is extractive. Token sinks like breeding fees or repair costs are designed to burn tokens and support price, not enhance player enjoyment. This turns game mechanics into financial chores.
Evidence: Axie Infinity's AXS token peaked at $165 in 2021 and trades below $7 today. Its daily active users collapsed from 2.7M to under 50K as the speculative bubble deflated, proving the model's unsustainability.
counter-argument
THE FUNDAMENTAL MISMATCH
Steelman: "It's Just a Market Cycle / We've Learned"
The core failure of Play-to-Earn is a fundamental misalignment between token supply inflation and sustainable player demand.
Ponzi-like tokenomics define the model. Projects like Axie Infinity and STEPN create a closed-loop economy where new players' capital directly funds veteran rewards. This creates a structural dependency on hypergrowth to maintain token price stability, which is mathematically unsustainable.
Token supply is inflationary, player demand is not. Every in-game action mints new tokens, while the primary utility for holding is speculative resale. This diverges from successful models like Fortnite, where cosmetic item demand is driven by status, not financial necessity.
The player-investor dichotomy is fatal. The average gamer seeks entertainment, not a second job managing token emissions and LP positions. This misalignment was exposed when the Axie Infinity (AXS) treasury could not outpace the sell pressure from its own scholarship programs.
Evidence: The Sky Mavis treasury once held over $1B but faced a bank run during the 2022 downturn, proving that even well-funded models cannot defy the basic economics of constant sell-side pressure from players.
takeaways
WHY P2E IS BROKEN
TL;DR: The Builder's Checklist
Current play-to-earn models prioritize speculation over gameplay, creating unsustainable economies that alienate the core user.
01
The Ponzi Token Emission
Tokens are minted as gameplay rewards, creating massive sell pressure that outpaces utility demand. This leads to hyperinflationary death spirals where early adopters profit at the expense of latecomers.
- Axie Infinity's SLP collapsed from ~$0.35 to ~$0.001.
- >90% of new tokens are immediately sold, not staked or used.
-99%
Token Value
>90%
Sell Pressure
02
The Player-as-LP Fallacy
Gamers are forced to become liquidity providers, fronting capital for expensive NFTs just to play. This creates a prohibitive paywall and turns gameplay into a high-stakes job.
- Axie's floor price peaked at ~$300 per Axie, requiring a ~$900 team.
- This model conflates player acquisition cost with protocol TVL, masking real traction.
$900+
Entry Cost
0 Fun
Primary Loop
03
Zero-Sum Game Design
Earning is directly tied to extracting value from other players, not creating it. This fosters toxic environments and unsustainable player churn.
- PvP-focused models make winners and losers, not collaborators.
- Referral schemes prioritize recruitment over retention, a classic pyramid signal.
>80%
Monthly Churn
Zero-Sum
Economy
04
Solution: The Diablo 3 Model
Separate the fun token (gold, loot) from the governance token. The fun token is soulbound, inflationary, and only for in-game utility. The governance token is deflationary, earned via achievements, and grants protocol rights.
- See Parallel's split of Card NFTs (gameplay) vs. PRIME (governance).
- This isolates gameplay balance from speculative markets.
2-Token
Model
Soulbound
Game Currency
05
Solution: Subsidize Entry, Monetize Engagement
Use subscriptions, cosmetic NFTs, and battle passes for revenue. Provide free, soulbound starter assets to eliminate the paywall. Monetize the player's time and identity, not their initial wallet.
- Fortnite generates ~$5B/year from cosmetics.
- Pirate Nation's free Founder's Pirates demonstrate this principle.
$5B
Cosmetic Market
$0
Entry Fee
06
Solution: Value Creation Loops
Design economies where players earn by creating valued content or achieving verifiable prestige. This shifts from extraction to contribution.
- Dark Forest's zkSNARKs create provable skill as an asset.
- AI Arena lets players train and rent out NFT fighters, creating a creator economy.
- Align incentives with fun, skill, and community, not just token price.
Creator Econ
Focus
Skill = Asset
Core Loop
ENQUIRY
Get In Touch
today.
Our experts will offer a free quote and a 30min call to discuss your project.
NDA Protected
Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall