The current model is broken. Axie Infinity and StepN demonstrated that speculative asset farming creates death spirals where player earnings depend solely on new user deposits.
the-state-of-web3-education-and-onboarding
Blog
The Future of Play-and-Earn: Moving Beyond Speculative Grinding
The 'play-to-earn' model is a dead end built on extractive speculation. The future is 'play-and-earn,' where compelling gameplay drives value, and earning is a byproduct of engagement, not a job.
introduction
THE PIVOT
Introduction
Play-and-earn must evolve from speculative asset farming into sustainable entertainment economies.
Sustainable models prioritize fun. The next generation, like Illuvium and Parallel, uses interoperable asset standards (ERC-6551, ERC-404) to decouple asset utility from pure financial yield.
The infrastructure is maturing. Layer 2 solutions like Arbitrum and Immutable X provide the low-fee, high-throughput environment necessary for complex game state without punishing transaction costs.
Evidence: The 2022-23 crash saw the "Play-to-Earn" market cap collapse by over 90%, proving that models built on token inflation without gameplay depth are fundamentally unstable.
key-trends
ARCHITECTURAL SHIFTS
The Three Pillars of Sustainable Play-and-Earn
The current model of speculative asset farming is collapsing. Sustainability requires rebuilding the tech stack from first principles.
01
The Problem: Speculative Tokenomics
Game tokens are treated as yield assets, not utility. This creates a death spiral where player exit leads to token collapse.\n- 100% of value tied to inflation, not gameplay\n- Ponzi-like reliance on new player capital\n- Zero intrinsic demand for the in-game currency
>90%
Token Collapse
0%
Utility Demand
02
The Solution: Sunk-Cost Game Design
Value must be created and destroyed within the game loop. Assets should be consumable inputs, not speculative stores.\n- Burning mechanisms tied to progression (e.g., crafting, upgrades)\n- Non-transferable skill/achievement NFTs (Soulbound Tokens)\n- Dynamic difficulty that consumes resources to scale rewards
~70%
Sink Rate
10x
Loop Stability
03
The Enabler: Autonomous World Engines
Games must run on credibly neutral, persistent state machines. This removes developer control over the economy, creating provably fair rules.\n- Fully on-chain logic (e.g., MUD, Dojo, Argus)\n- Permissionless modding and composability\n- Persistent worlds that outlive any single studio
24/7
Uptime
L1/L2
Settlement
deep-dive
THE PIVOT
Deconstructing the Grind: From Ponzi Loops to Player Loops
Sustainable play-and-earn requires replacing extractive tokenomics with gameplay that generates intrinsic value.
Ponzi loops collapse. The first-generation model—where new player investment subsidizes old player rewards—is a zero-sum game that fails when user growth stalls. This is not a game design problem; it is a fundamental economic flaw.
Sustainable loops require external value. A player-driven economy must generate value outside its own token system. This means creating digital goods, services, or entertainment that non-speculative users will pay for with fiat or stablecoins like USDC.
The pivot is from speculation to utility. Projects like Axie Infinity's Origin and Parallel are experimenting with this by decoupling gameplay from token emissions. The goal is a game that is fun first, where earning is a byproduct of skilled play, not the sole objective.
Evidence: Retention over inflation. Successful models will track player retention and secondary market volume of non-fungible assets, not just token price. The metric that matters is the ratio of organic revenue to token incentives.
THE FUTURE OF GAMING ECONOMICS
Generational Shift: Play-to-Earn vs. Play-and-Earn
A data-driven comparison of the dominant economic models in web3 gaming, contrasting the extractive first wave with the emerging sustainable paradigm.
| Core Metric / Feature | Play-to-Earn (Gen 1) | Play-and-Earn (Gen 2) | Traditional F2P |
|---|---|---|---|
Primary Economic Driver | Token Inflation & Speculation | Sustainable Asset Utility | Fiat Monetization (MTX) |
Player Motivation | Financial ROI (Grinding) | Fun + Ownership (Engagement) | Entertainment Only |
Token Emission Sink | Sell Pressure (Exchanges) | In-game Utility & Crafting | Not Applicable |
Asset Value Determinant | Token Price (Ponzinomics) | Player Demand & Scarcity | Developer Pricing |
Typical Retention Curve | < 30 days (Hyperbolic) |
| 90-120 days (Logarithmic) |
Developer Revenue Model | Token Sale / Treasury Dilution | Protocol Fees on Asset Trades | App Store / Platform Fees |
Example Titles | Axie Infinity, STEPN | Parallel, Pirate Nation, Shrapnel | Fortnite, Genshin Impact |
On-Chain Settlement Layer | Native L1 (Ronin, Solana) | Appchain / L3 (Ronin zkEVM, Arbitrum) | Centralized Databases |
protocol-spotlight
THE FUTURE OF PLAY-AND-EARN
Architecting the Future: Protocol Case Studies
Current models conflate gameplay with financial speculation. The next wave separates fun from finance, using crypto for composable assets and verifiable scarcity.
01
Parallel: The Asset-First Gaming Protocol
Treats in-game items as sovereign, tradable assets first. The game is a high-fidelity client for those assets, not a financial sink.
- Composability: Assets usable across games built on the protocol, creating a unified digital layer.
- Developer Incentive: Protocol captures a small fee on all secondary trades, aligning revenue with ecosystem growth, not player retention metrics.
- Speculation Decoupled: Value accrues to asset utility and rarity, not daily active grinding.
100%
Asset Sovereignty
0%
Inflation Tax
02
Pixels: Onboarding via Social Play, Not Yield
A farming MMO that grew to >1M MAU by hiding its tokenomics. The 'earn' layer is a subtle bonus, not the core loop.
- Frictionless Entry: Email/password login abstracts wallets; assets are custodial until a user opts in, reducing cognitive load by ~70%.
- Social Capital > Financial Capital: Progression is tied to reputation, community contributions, and land development.
- Sustainable Sinks: The game's economy uses its token for premium features and land taxes, creating organic, gameplay-driven demand.
1M+
MAU
<10%
Speculative Churn
03
The Problem: Speculative Grinding Kills Fun
Traditional 'Play-to-Earn' forces gameplay into a daily active earning model, turning players into underpaid laborers optimizing for token emissions.
- Ponzi Dynamics: New player inflow must fund earlier adopters, leading to ~90%+ collapse in token price post-hype.
- Gameplay Last: Mechanics are designed around wallet activity, not engagement or skill, resulting in shallow, repetitive experiences.
- Misaligned Incentives: Developers are rewarded for inflationary tokenomics, not for building a fun, lasting game.
90%+
Token Collapse
30d
Avg. Retention
04
The Solution: Fun-First, Verifiable Assets
Separate the game client from the asset ledger. Use blockchain only for what it's good for: provable ownership and permissionless markets.
- Dual-Token Model: A non-inflationary asset token (NFTs) for ownership and a volatile utility token for in-game actions, preventing value leakage.
- Off-Chain Game State: Run the actual game on centralized servers for performance, settling only final asset transfers on-chain (~$0.01 cost).
- Interoperability Standard: Adopt frameworks like ERC-6551 (Token Bound Accounts) to let assets own other assets, enabling complex in-game economies.
$0.01
Settlement Cost
ERC-6551
Composability Std
05
Immutable zkEVM: The Infrastructure Mandate
Gaming requires high throughput, negligible fees, and a secure ecosystem for developers. A dedicated gaming L2 built for scale is non-negotiable.
- Gasless Transactions: Sponsorship modules allow studios to pay fees, creating a Web2-like user experience.
- Unified Liquidity Layer: A single, deep marketplace for all games on the chain (e.g., Immutable Marketplace) boosts asset liquidity and discoverability.
- Developer Certainty: Zero gas fees for trading and robust SDKs reduce the operational risk of building on-chain games by an order of magnitude.
9k+
TPS Capacity
$0
Trade Fees
06
The Endgame: Autonomous Game Worlds
The final evolution is a game whose core rules and economy are governed by a decentralized autonomous organization (DAO), resistant to studio shutdowns.
- Persistent Worlds: Game state and logic are partially or fully on-chain (e.g., Dark Forest, Primodium), enabling permissionless modding and extensions.
- Player-Led Curation: Asset rarity and utility are determined by verifiable on-chain activity and community votes, not developer fiat.
- Value Capture Flips: Value accrues to the most engaged players and builders, not a centralized publishing entity.
100%
Uptime
DAO
Governance
risk-analysis
THE REALITY CHECK
The Bear Case: Why This Is Still Incredibly Hard
Play-and-earn faces fundamental economic and technical barriers that speculative tokenomics cannot solve.
The economic flywheel is broken. Sustainable in-game economies require sinks that match token issuance. Most projects, like early Axie Infinity, fail because token rewards outpace utility, causing hyperinflation and player exodus.
Speculative grinding replaces gameplay. When the primary incentive is asset extraction, game design warps into repetitive, unfun labor. This alienates core gamers and creates volatile, unsustainable user bases.
Interoperability remains a mirage. True asset portability across games requires universal standards like ERC-6551 for composable NFTs and secure bridges like LayerZero. These are nascent and create massive technical debt.
Evidence: The Axie Infinity (AXS) token is down >95% from its 2021 peak, and daily active users have collapsed, proving the fragility of pure Ponzi tokenomics.
takeaways
THE FUTURE OF PLAY-AND-EARN
TL;DR for Builders and Investors
The current model of extractive, speculative grinding is dead. The next wave will be defined by sustainable economies built on fun-first gameplay and composable assets.
01
The Problem: Speculative Grinding Kills Games
Ponzi-like tokenomics and mandatory grinding for yield turn players into mercenaries, destroying retention and gameplay quality. The result is a ~90% failure rate for P2E projects and a negative public perception that stifles mainstream adoption.
90%
Failure Rate
<30 days
Avg. Retention
02
The Solution: Fun-First, Earn-Second
Prioritize compelling gameplay loops where earning is a byproduct, not the core mechanic. Look to Axie Infinity: Origins and Parallel for models where skill-based competition and narrative drive engagement. Sustainable revenue comes from premium cosmetics, battle passes, and a small transaction tax on a high-volume secondary market.
70%+
Engagement Driven by Fun
5-10%
Sustainable Fee Revenue
03
The Infrastructure: Composable Digital Objects
The real value is in portable, player-owned assets that exist across games and platforms. This requires:
- True ownership via non-custodial wallets (e.g., Sequence, Privy).
- Cross-game asset standards beyond ERC-721 (e.g., ERC-6551 for smart contract wallets).
- Interoperable worlds enabled by ecosystems like Ronin, Immutable zkEVM, or Arbitrum Orbit.
ERC-6551
Key Standard
1000x
Asset Utility
04
The New Business Model: Sinks & Faucets
Replace inflationary token rewards with a balanced in-game economy. Faucets (sources of value) are fun activities and player skill. Sinks (value removal) are cosmetic upgrades, consumables, and entry fees. Successful models, like Pirate Nation's onchain crafting, create circular economies where value recirculates instead of being extracted.
1:1 Ratio
Target Sink/Faucet
Onchain Logic
Core Requirement
05
The Investor Lens: Metrics That Matter
Ignore Daily Active Wallets (DAW) and token price. Focus on:
- Player Retention (D1, D7, D30) and session length.
- Organic user acquisition cost vs. paid marketing.
- Secondary market volume and fee revenue.
- Developer activity within the game's ecosystem SDK.
D30 > 20%
Healthy Retention
LTV > CAC
Positive Unit Econ
06
The Builders' Playbook: Start Onchain
Architect for composability from day one. Use autonomous world engines like MUD or Dojo. Deploy on app-specific rollups (e.g., Lattice's Redstone) for low-cost, high-throughput transactions. Integrate account abstraction for seamless onboarding. The winning stack is modular, cheap, and open.
<$0.001
Target Tx Cost
MUD/Dojo
Core Engine
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