Crypto winter is in full force and it has had some negative effects on the wider blockchain industry. One of the most notable impacts has been the waning demand for play-to-earn games, which are a new kind of game format that revolves around cryptocurrency and non-fungible tokens, and make it possible for players to earn financial rewards for playing games.

P2E games were one of the hottest topics of 2021. According to a recent report from Dappradar and the Blockchain Game Alliance, the so-called blockchain gaming market grew by more than 2,000% over the preceding 12 months, with various games and metaverse products boasting a collective value of $2.5 billion by the end of Q2 2022.

It's not just the numbers that are impressive though, with stories abound of gamers who made it big. One 22-year old gamer from the Philippines managed to buy two houses from money earned playing the hit P2E game Axie Infinity, and there were countless others who claimed to be earning thousands of dollars each month from their efforts.

Since the start of the year though, things have begun turning pear-shaped for the nascent P2E gaming industry. With a number of historic hacks leading to big losses and declining curiosity from gamers, there's a lot less excitement about the space than before. It all started with the broader downturn in crypto markets that began earlier in the year amid a wider economic slump. As the year has progressed, things have gotten worse with the horror story that was the Terra blockchain ecosystem collapse, exacerbating the negative market sentiment. The failure of TerraUSD created a lot of fear about the reliability of digital assets that are meant to be a store of value. In addition, a number of P2E games that were built on the Terra blockchain itself quickly found themselves in a pickle, with their native tokens and NFTs becoming worthless overnight. Titles like Flokiverse and Fanfury were forced to hit the pause button and switch to new blockchains, causing huge upheaval.

Where Play-to-Earn Gaming Is Now

To understand the current negative sentiment of P2E games, we can look at some of the numbers. Total NFT sales at the end of the second quarter were down almost 90% from the year before, according to NonFungible's latest market report.

The declining NFT sales are mirrored by the price of in-game tokens. With steep price drops across the board, some have even questioned whether or not P2E games are in fact just some kind of elaborate Ponzi scheme. If the P2E gaming industry is to unlock its true potential, it needs to understand why such questions arise and improve its business model accordingly.

One of the realities that has become apparent from most P2E games is that earning is less about playing than it is about investing. With games like Axie Infinity, players have to invest hundreds of dollars buying NFTs or renting them from a gaming guild. Then, to make any return on that investment, those players are reliant on future players joining the game and spending money on it to keep the economy ticking over.

Of course, such a dynamic doesn't usually end well. The negative crypto market sentiment has decimated the capital moving into the space, and today the value of Axie Infinty's two native tokens is far below the all-time high it hit last year.  Similarly, the floor price of Axie NFTs has fallen dramatically, from a high of $340 to just $6 last month.

How The Industry Is Responding

Interest in P2E games might be waning, but that's not to say the sector is dead. Rather, P2E games developers have responded by evolving to meet the needs of gamers, who primarily care about the actual gameplay rather than the earnings potential a title might have.

With that in mind, P2E developers today are more focused on developing games that don't depend on the price of their NFTs or native tokens to maintain interest among players. The concept is simple - that games should be fun to play to earn, with stimulating gameplay that will ensure a thriving community regardless of the monetary motivation. If a game is primarily entertaining and fun, then it will stay in demand irrespective of the price of its NFTs.

For P2E games to remain relevant, developers are required to change a few things. The first is ensuring longevity of their games, or in other words, ensuring the game has no clear end result from players winning the game. The reality is that most early P2E games don't provide enough entertainment to keep players engaged for long. Very often, it becomes far too easy to win by investing in the right in-game items. So the goal for next-generation games developers is to create titles with more purpose than simply making money.

One up and coming project that looks to have realized this is Infinity Skies, which can be thought of as a kind of metaverse within a game. Players are tasked with building a castle that extends, infinitely, into the skies, competing with one another to create the most beautiful and "prestigious" structure according to their peers. To that end, there are multiple elements within the gameplay, as players have to build, socialize, trade and take part in numerous adventures to achieve their goals. By taking part in adventures, players get to win NFTs that represent the building blocks of their castle - including all of the structural components, furniture and decorations. The social aspect is especially important. Players can welcome others to their castles, chat and interact, go on adventures together and more. By growing their network of friends, they can receive more votes for their castle, increasing its "prestige".

This prestige system is a key element of Infinity Skies, because there's a lucrative reward system tied to it, wherein players can win extremely rare and valuable NFTs that cannot be obtained anywhere else. Each month, the prestige points awarded to players are totted up, with the highest scoring castles winning incredible rare rewards they can use to improve their structures further. At the end of each month, all prestige points are reset, thereby leveling the playing field for the next month and ensuring everyone has a chance to compete.

Another key element to ensure the success of P2E games is accessibility. New titles must be free, or extremely affordable, for new players while still incorporating a rewards mechanism. This is a tricky challenge that's being tackled by Apeiron, the first-ever P2E God-game that features a unique, triple token economy and has simulation, metaverse and card-battle gameplay mechanics.

While NFTs are required to play Apeiron and access the P2E rewards, users have the voice of buying one through direct investment or earning one through gameplay. In this way, Apeiron avoids becoming a "pay-to-play" game while retaining its P2E characteristics. 

Players in Apeiron will enjoy various game formats. They take on the role of "Godlings", essentially gods that have the ability to control the elements and answer the prayers of the "Dodds", who are the cute and chubby inhabitants of the "planets" they control. The planets themselves are NFTs and each one is unique, with its own distinctive biome. Godlings take charge of their planet and are required to grow their community of Dodds into an advanced civilization. At the same time, they can participate in player-versus-environment World Exploration to roam the "Godiverse" and explore other planets. There's also a player-versus-player mode, which allows Godlings to interact with other players either competitively, or cooperatively by building alliances.

P2E games also must foster a strong and loyal community that will continue to play the game irrespective of token dynamics, simply because it's enjoyable. Apeiron will solve this with the introduction of frequent, large-scale Galactic Events, World Bosses and Alliance-level PvP and Guild-versus-Guild battles - creating a social gaming element that will enable it to grow for a sustained period. To incentivize this, Apeiron introduces a unique, third token besides its rewards and governance tokens, known as Ringularity, which provides access to exclusive venues, shops and yield farming mechanisms, where players can invest their rewards to earn interest on them.

Where Is The P2E Game Industry Headed?

The emergence of titles like Infinity Skies and Apeiron tells us that the P2E gaming industry is here to stay, because their developers do not focus on the ups and downs of the crypto market or its earnings potential. What's more there are positive signs elsewhere, with DappRadar reporting that blockchain games raised a cumulative $2.5 billion in the first quarter of the year, despite the negative crypto market sentiment. Developers will continue to bring their ideas forward, irrespective of what everyone else is doing.

At the same time, big gaming companies are showing interest in the P2E gaming space too. For instance, Ubisoft, the creator of the Ghost Recon franchise, recently introduced its first NFT-based items to test the waters, and has also backed a number of promising P2E games financially. Meanwhile, Gamestop has launched its own digital wallet, with plans to follow up with an NFT marketplace in the not too distant future.

The video game economy of the future will be built atop of the metaverse, cryptocurrencies and NFTs. NFTs are especially interesting as they provide more than just utility for games. They can provide value outside of games too. For instance they can be traded for cryptocurrencies like Bitcoin. They can also provide social value, similar to how the Bored Ape Yacht Club NFTs provide exclusive access to its metaverse.

The P2E gaming model is still a work in progress and it is yet to mature. It will continue evolving until it reaches mass adoption, at which time it may well have outgrown the current "P2E" label to become an essential element of gaming, along with aspects such as fun, engaging gameplay and a strong community. By the time we get there, it will become the norm for players to participate in games that are not just entertaining, but highly accessible and social, complete with the chance to win digital assets with real-world value.