Asset ownership is the durable primitive. Play-to-earn models like Axie Infinity created unsustainable inflation by conflating gameplay with financial yield. The verifiable on-chain asset—the NFT character or item—retains value after the tokenomics fail.
venture-capital-trends-in-web3
Blog
Why Asset Ownership Trumps Play-to-Earn Hype in Gaming VC
The 2021 P2E boom was a Ponzi of tokenomics. The sustainable future of web3 gaming is built on verifiable, composable, and durable in-game assets that create real user equity and developer moats.
introduction
THE REAL ASSET
The P2E Hangover
Sustainable gaming investment shifts from extractive tokenomics to verifiable digital ownership.
VCs now fund property rights, not casinos. Investments target infrastructure for composable digital objects, not inflationary reward tokens. This means backing ERC-6551 token-bound accounts and marketplaces like Tensor, not new 'X-to-Earn' schemes.
The data shows the divergence. The total value locked in DeFi gaming protocols collapsed, while NFT trading volume for profile-picture projects and gaming assets on ImmutableX and Polygon demonstrates persistent, utility-driven demand separate from speculative farming.
key-trends
FROM SPECULATIVE TO SUSTAINABLE
The Post-P2E Investment Thesis
The collapse of the 2021-22 P2E bubble exposed a flawed model. The new frontier is investing in infrastructure that enables true digital asset ownership and composable economies.
01
The Problem: P2E's Inevitable Death Spiral
P2E models like Axie Infinity conflated user acquisition with economic sustainability. The result was a hyperinflationary token death spiral where >90% of tokens were sold for fiat, not reinvested.\n- Ponzi Dynamics: New players' entry fees paid old players' yields.\n- Zero-Sum Game: No external value capture; game assets were purely financial.\n- Unsustainable Sinks: Token burns and sinks couldn't outpace inflationary rewards.
>90%
Sell Pressure
-99%
AXS from ATH
02
The Solution: Ownable, Composable Assets
The real value is in assets that exist beyond a single game's walled garden and can be used, traded, and leveraged across an ecosystem. This is the Interoperable Asset Layer.\n- True Ownership: NFTs and fungible tokens secured on L2s like Immutable, Ronin, or Arbitrum.\n- Composability: Assets usable across multiple games and DeFi protocols (e.g., lending a sword in Aavegotchi).\n- Creator Economics: Sustainable revenue from primary sales and secondary royalties, not token inflation.
$10B+
Gaming NFT Volume
1000+
Interop Projects
03
The Infrastructure: Digital Property Rights
Invest in the rails that make asset sovereignty possible. This is a bet on digital property rights as a foundational primitive, akin to Ethereum for smart contracts.\n- Scalable Settlement: Gaming needs dedicated L2s/Rollups (Immutable zkEVM, Ronin) for <$0.01 tx fees.\n- Asset Bridges & Standards: Secure interoperability via LayerZero and CCIP, not custodial marketplaces.\n- Developer Tooling: SDKs from Unity to Unreal Engine that abstract blockchain complexity.
<$0.01
Target Tx Cost
~2s
Finality
04
The New Metric: Player Equity Over Revenue
Forget Daily Active Users (DAU). The key metric is Player Equity—the total value of assets held and controlled by the player base. This aligns developer and player incentives.\n- Asset Velocity: Low turnover indicates assets are held for utility, not speculation.\n- Treasury Diversity: Protocol treasuries backed by a basket of blue-chip and native assets, not a single inflationary token.\n- Retention via Ownership: Players stay because they have skin in the game, not because of daily token bribes.
Equity/DAU
Key Ratio
70%+
Target Retention
05
The Adjacent Bet: On-Chain Game Engines
Fully on-chain games (Autonomous Worlds) like Dark Forest and Loot Survivor represent the endgame: games as persistent state machines. This requires new infrastructure.\n- Fully Verifiable Logic: Every game rule is a smart contract, enabling trustless mods and forks.\n- State Compression: Technologies like Solana's State Compression or EIP-4844 blobs to store vast game worlds.\n- Decentralized Physics: MUD and Dojo engines that make on-chain development accessible.
100%
On-Chain
MUD/Dojo
Key Engines
06
The Exit: Asset Liquidity Networks
The ultimate sign of a mature asset-based gaming economy is a deep, liquid secondary market that isn't dependent on the original developer. This is the role of specialized exchanges.\n- NFT AMMs & Aggregators: Platforms like Blur, Tensor, and Magic Eden for seamless asset trading.\n- NFT-Fi: Lending, renting, and fractionalization via NFTfi and Arcade.\n- Cross-Game Marketplaces: Aggregators that list assets from multiple gaming universes in one interface.
$2B+
NFTFi TVL
10-20%
Royalty Revenue
deep-dive
THE VALUE STACK
The First-Principles Case for Assets Over Tokens
Sustainable gaming economies are built on composable, user-owned assets, not inflationary token emissions.
Gaming tokens are monetary policy. Most are inflationary rewards for engagement, creating sell pressure that collapses their value and the game's economy. This is the Play-to-Earn death spiral that doomed Axie Infinity.
Digital assets are property rights. A sword in Ethereum's ERC-721 standard or Solana's Metaplex is a durable, verifiable asset. Its value accrues from utility and scarcity, not a protocol's printing press.
Asset composability unlocks network effects. A skin earned in one game can be equipped in another via ERC-6551 token-bound accounts or traded on Blur/Magic Eden. This creates a cross-game asset layer that tokens cannot replicate.
Evidence: The Illuvium team explicitly separated its ILV governance token from in-game asset economies. This structural separation is the model for avoiding the speculative traps of the last cycle.
VC INVESTMENT THESIS
P2E Tokenomics vs. Asset-Centric Models
Comparison of dominant Web3 gaming economic models based on sustainability, user incentives, and investor risk.
| Core Metric | Play-to-Earn (P2E) Model | Asset-Centric (Digital Ownership) Model | Hybrid Model (Emerging) |
|---|---|---|---|
Primary Value Driver | Token emission & farming yields | Scarcity & utility of in-game assets (NFTs) | Asset utility subsidized by sustainable token sinks |
Ponzi Coefficient (Risk) | High | Low | Medium |
User Retention after 90 days | < 10% |
| 15-30% |
Developer Revenue Model | Token sale & inflation | Primary NFT sales & marketplace royalties (2.5-10%) | Blended: Asset sales + controlled token emissions |
Inflationary Pressure | Uncapped, supply-side driven | Deflationary or fixed supply | Controlled, demand-calibrated emissions |
Example Protocol | Axie Infinity (AXS/SLP) | Parallel Studios (Prime Echelon NFTs) | Illuvium (ILV token + Asset ecosystem) |
Investor Exit Liquidity | Dependent on new user inflow | Tied to IP growth & asset demand | Dual dependency on token & asset markets |
Regulatory Risk (as security) | High | Low (if non-dividend bearing) | Medium |
protocol-spotlight
GAMING VC SHIFT
Builders Getting It Right
The smart money is pivoting from unsustainable tokenomics to infrastructure enabling true digital ownership.
01
The Problem: P2E's Unsustainable Fiat Faucet
Play-to-Earn models like Axie Infinity created hyperinflationary economies where token emissions outpace utility, leading to ~99% token price collapses. The game becomes a job, not entertainment.
- Ponzi Dynamics: New players fund rewards for old players.
- Zero-Sum Gameplay: Extractive design kills long-term engagement.
~99%
Token Drawdown
<1 Year
Cycle Duration
02
The Solution: Immutable's Asset-Centric SDK
Immutable focuses on the primitives for true ownership, not speculative rewards. Their zkEVM provides gas-free minting and secure, tradable assets as the core gameplay loop.
- Developer First: SDK abstracts blockchain complexity for studios like Illuvium.
- Real Scarcity: Assets are NFTs with provable rarity, not inflationary tokens.
$0
Mint Gas
200+
Games Building
03
The Problem: Walled Garden Asset Lock-In
Traditional gaming assets are trapped in publisher-controlled databases. Players have no equity, portability, or secondary market rights, destroying long-term value accrual.
- Centralized Risk: Publishers can ban accounts or devalue items at will.
- Liquidity Silos: No composability with DeFi or other gaming ecosystems.
0%
Player Equity
$0
Portable Value
04
The Solution: TreasureDAO's Interoperable Metaverse
TreasureDAO is building a decentralized gaming ecosystem where assets (like MAGIC and Legions NFTs) are the connective tissue across multiple games, creating a composable economy.
- Cross-Game Utility: An item from one game can be used in another.
- Community-Owned: Ecosystem governed by DAO, not a single studio.
10+
Linked Games
$100M+
Ecosystem TVL
05
The Problem: Clunky Web3 UX Killing Adoption
Seed phrases, gas fees, and slow transactions are existential barriers for mainstream gamers. Studios building directly on L1 Ethereum face >90% user drop-off at onboarding.
- Friction Overload: Requires non-gamers to become crypto experts.
- Speed Kills: 15-second block times break real-time gameplay.
>90%
Onboard Drop-Off
15s+
Base Layer Latency
06
The Solution: Arbitrum's Gaming-Specific Rollup
Arbitrum provides the scalability and cost profile games need, with projects like XAI and Treasure leveraging its tech stack for sub-cent fees and ~2.3s finality.
- Seamless Onboarding: Social logins and sponsored transactions.
- Proven Scale: Handles >100k TPS in testing, ready for mass adoption.
<$0.01
Avg. TX Cost
~2.3s
Time to Finality
counter-argument
THE REAL ASSET GRAPH
The Liquidity Counter-Argument (And Why It's Wrong)
The argument that play-to-earn mechanics create sustainable liquidity is a fundamental misreading of value accrual in digital economies.
Token emissions are not liquidity. Projects like Axie Infinity and STEPN conflated inflationary token rewards with genuine capital formation. This creates a ponzinomic death spiral where sell pressure from rewards consistently outpaces organic demand, collapsing the in-game economy.
True liquidity follows asset ownership. Games like Parallel and Pirate Nation focus on non-inflationary digital assets (NFTs, cards, land). These assets create a durable, tradable base layer where liquidity pools on Blur or Tensor reflect real speculative and utility demand, not mercenary capital chasing yield.
The protocol analogy is instructive. Just as Uniswap v3 concentrated liquidity outperforms v2's passive pools, games with defined, scarce assets enable targeted capital efficiency. The liquidity migrates to the assets themselves, not a fungible reward token with no terminal value.
Evidence: The total value locked (TVL) in DeFi protocols like Aave or Compound represents genuine, sticky capital seeking yield on productive assets. The TVL in a typical P2E reward farm is ephemeral, exiting the moment emissions slow—a distinction every gaming VC must internalize.
risk-analysis
FROM SPECULATIVE TOKEN TO TANGIBLE ASSET
The New Risk Matrix
The gaming VC thesis is shifting from ephemeral tokenomics to the durable value of verifiable, player-owned assets.
01
The Problem: The P2E Ponzi
Play-to-earn models like Axie Infinity create inflationary death spirals. Token rewards are a liability, not an asset, leading to >90% token price collapses and unsustainable player churn. VCs funded the ponzinomics, not the game.
- Unsustainable Sinks: Token emissions outpace utility.
- Misaligned Incentives: Players are mercenaries, not a community.
-99%
AXS from ATH
>90%
Player Drop-off
02
The Solution: Own the Primitive
Invest in the infrastructure that enables true digital ownership, not the fleeting games built on top. This means backing asset standards (ERC-6551), scalable L2s (Immutable, Ronin), and discovery layers. The value accrues to the rails, not the temporary traffic.
- Durable Value: The ledger outlives any single game.
- Composability: Assets become financial and social primitives across ecosystems.
$2B+
Immutable Valuation
ERC-6551
Token Standard
03
The Metric: Sinks vs. Assets
Shift due diligence from Monthly Active Wallets to Real Yield & Asset Velocity. How much value is locked in non-inflationary assets (NFTs, land) vs. emitted as sell pressure? Protocols like TreasureDAO and Parallel demonstrate asset-first economies.
- Real Yield: Fees from asset trading, not token printing.
- Asset Velocity: High turnover indicates a healthy secondary market, not a dump.
$50M+
TreasureDAO Volume
Low Inflation
Key Metric
04
The New Bet: Player-Owned Economies
The endgame is player-run economies where studios provide content for asset-holder DAOs. This flips the traditional publisher model. Look at Star Atlas's ambitious asset-backed governance or Illuvium's ILV token staking for game revenue.
- Aligned Incentives: Players are co-owners, not customers.
- Revenue Share: Asset ownership grants a claim on ecosystem fees.
DAO-Governed
Economy Model
Fee Sharing
For Asset Holders
investment-thesis
THE GAMING SHIFT
The VC Filter: What to Fund Now
Sustainable gaming investment targets digital asset ownership, not inflationary tokenomics.
Ownership is the moat. Play-to-earn models like Axie Infinity collapsed because their token was a ponzi-like reward, not a claim on a productive asset. Sustainable value accrues to non-fungible, utility-bearing assets like land, characters, or items with in-game function.
The market demands composability. Isolated in-game economies are dead ends. Viable projects build for the open asset standard, enabling items to be traded on Blur/Magic Eden or used as collateral on Aave/Goldfinch. This liquidity premium is real.
Evidence: The failure of hyper-inflationary P2E versus the resilience of projects like Parallel and Pirate Nation, which treat NFTs as core gameplay components, not exit liquidity. Their assets retain value because they are scarce and useful, not just monetized clicks.
takeaways
GAMING VC ALLOCATION
TL;DR for Allocation Committees
Thesis: Sustainable value in crypto gaming accrues to assets with provable ownership, not transient engagement loops.
01
The Problem: The P2E Burnout Cycle
Play-to-earn models like Axie Infinity conflate user acquisition with sustainable economics. The result is a mercenary player base that churns when token emissions slow, leading to ~90%+ user decline post-hype. VCs funded user growth, not durable assets.
~90%+
User Churn
>2 Years
Cycle Duration
02
The Solution: Own the Digital Land
Invest in protocols and studios that treat in-game items as true digital property. This means prioritizing non-fungible assets with verifiable on-chain scarcity (e.g., land, unique items) over inflationary governance tokens. Value is captured at the asset layer, not the engagement layer.
- Direct Revenue Capture: Royalties on secondary sales.
- Composability: Assets usable across games and DeFi (e.g., Aavegotchi, Parallel).
- Permanent Sinks: Assets as value storage, not consumable rewards.
10-20%
Royalty Fee
>1M
NFT Collections
03
The Metric: Sinks > Faucets
Flip the investment memo. Instead of DAU and token price, underwrite based on net value flow into the ecosystem. Track:
- Asset-Backed Treasury: Ratio of protocol-owned valuable NFTs vs. liquid tokens.
- Burn Mechanisms: Permanent sinks (e.g., crafting, upgrades) that remove supply.
- Secondary Volume / Emission: A ratio >1 indicates assets are appreciating despite sell pressure. Projects like Illuvium and Big Time are pioneering this asset-first treasury model.
>1.0x
Healthy Sink Ratio
$100M+
Asset Treasuries
04
The Precedent: Look Beyond Gaming
The winning model already exists in adjacent verticals. NFT marketplaces (Blur, OpenSea) profit from asset trading, not usage. DeFi blue-chips (Uniswap, Aave) accrue value to fee-earning assets (UNI, aTokens). In gaming, the publisher/studio-equivalent is the asset issuer, not the token farm. Allocate to teams building Roblox-style economies with player-owned IP, not Ponzi tokenomics.
$10B+
NFT Market Cap
0.5-1.0%
Take Rate
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Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall