Tokenising Existing Free-To-Play Games
How difficult might it be to turn existing Free-To-Play games into new Play-To-Earn experiences through tokenisation?
In this newsletter I’m exploring the implications of tokenising in-game economies. I want to understand whether blockchain and cryptocurrency can deliver genuine innovation within the videogame sector as many cryptocurrency enthusiasts advocate, or whether those innovations might be implemented just as effectively without the use of blockchain, as many game developers insist. I want to understand, definitively, whether blockchain is a necessary component of gaming’s Play-To-Earn business model or not.
So far, on route to doing that, I have defined an analytical framework for evaluating game designs better, shown how a real-world economy can emerge spontaneously by adding a token to even the simplest arcade game, and suggested how an exchange rate mechanism based on "Proof-Of-Play" can allow a cohort of players to transfer value between multiple arcade games. Even if those games have their own individual real-world economies, and without diminishing the core player experience for other players that choose not to participate in the real-world economy.
That's already answered a lot of questions I had before starting this newsletter, and the thoughtful, constructive criticism I've received from a variety of people I would consider experts in this field (thank you everyone!), has been universally positive so far. Most surprisingly, while we might quibble around the edges, nobody has yet been able to drive a coach and horses through the basic logic I've used to arrive at my conclusions. So I’m currently as confident as I can be that my ideas and insights are built on some really solid ground at this point, despite being well outside my typical domain of expertise.
That said, as far as I’ve come, it’s still a long way from my ultimate aim of knowing definitively whether blockchain or cryptocurrency is a necessary component of gaming’s Play-To-Earn business model or not. Therefore, if I was to self-critique my work so far I'd probably say something like, "that's all fine showing how tokenisation can spontaneously create real-world economies within simple arcade games, but it still doesn't prove it will work with modern, Free-To-Play game economies that are much more complex. Nor does it show whether there's actually a need for a blockchain or not."
Fair criticism for sure, so that's the specific question I plan to dig into further with this article: do the same foundational principles I've established from analysing classic arcade games also apply to more modern Free-To-Play game economies, or are there additional elements that introduce design complexities and render their application ineffective?
Well, spoiler alert - having now studied this issue from first principles over my previous articles, I find myself more confident than ever that it would be easier to tokenise Free-To-Play games for Play-To-Earn, compared to the complexities of tokenising classic arcade games, as I've just finished doing. So in many regards, it seems to me as if the hard part of the puzzle is introducing tokenisation into a game to begin with, and from there the challenge actually becomes easier to solve.
That's because Tokenisation is already fully integrated into the Game Design stack of most modern Free-To-Play games, albeit only internally. That means it’s only the complexities associated with connecting the tokenised game economy to the real-world economy that need to be solved, rather than the entire vertical. From the Play and Rules Design, right through to the Product, Value, and Experience Designs, Free-To-Play games are already designed from the outset to recognise and reward players' actions based on a tokenised reward system.
Whether that's points, gold, platinum, credits, diamonds, gems, or something else doesn’t matter. As in-game currencies they are all functionally identical from my perspective: a receipt given to a player by the game in exchange for an action performed in-game. And providing the game’s Free-To-Play designers have done their job, then the reward system will already be balanced commensurately with effort to create a solid foundation for the "Proof-Of-Play" system that will be needed at the heart of any sustainable Play-To-Earn game design.
When I was doing this with Pong, I needed to convince myself that the Value Design changes I was making to accommodate tokenisation could be appropriately supported by corresponding changes in the Play, Rules, Product, and Experience Designs. That’s because any design changes one makes to a completed Game Design have the potential to act like a spanner in the gears of a well-calibrated machine and break the entire game. It’s therefore very important to maintain a holistic view of the entire Game Design, rather than just focusing exclusively on the Value Design where the primary change is being made.
With Free-To-Play games however, despite the apparent complexity of their designs, there appear to be far fewer fundamental design risks to consider than with classic arcade or Purchase-To-Own games. That’s because tokenisation is already baked in at every level of a Free-To-Play game’s design during its original construction. It seems that the inclusion of tokenisation within Free-To-Play games removes most of the design risks when it comes to using them as a basis for building Play-To-Earn experiences.
I believe that moves any Game Design risk associated with building Play-To-Earn experiences on top of Free-To-Play games well down the risk curve. At that point their potential to derail a project is minimal, and they simply become another operational concern requiring appropriate resourcing throughout development.
What about the design of the tokens themselves then? When working through the requirements for Pong I came up with a set of four variables that I said would be important to keep in mind when issuing tokens in a game if they are to have a monetary value attached to them. These variables are:
1. The value of a token;
2. The total number of tokens;
3. The conditions of token issuance, including rate of issuance;
4. The conditions of token redemption, including the rate of redemption;
An aspect that became clear during the process of tokenising Pong was that the first variable (value of a single token) did not seem to be so important providing there was no external monetary value attached to the token. For example, if the token's only value was in providing access to other parts of the game, such as Pong's hypothetical Silver or Gold Bat, then there would be no redemption risk for the business. All redemption value would be delivered in-game and any actual real-world value would emerge entirely within the wider exchange market, where transaction costs are borne by the buyers and sellers rather than the business.
Likewise, providing there was no intrinsic monetary value associated with the tokens issued, then the total number of tokens (second variable) wasn't an issue for Pong either. At least, not from the game's perspective; there would be second-order effects on the market price for buyers and sellers depending on the supply cap set, but these are a wider economic issue to be considered at a business level, rather than an immediate Game Design issue. While there may be circumstances that could justify limiting the total number of tokens available to players as part of Game Design, or as part of the economic model for the business, there appears to be no additional complexity to doing this for modern Free-To-Play games, providing the redemption cost to the business remains entirely in-game.
Variables three and four are also easily accommodated by most modern Free-To-Play game designs and so needn't be considered an additional risk when moving from a Free-To-Play to a Play-To-Earn value model. That said, just because Free-To-Play games can accommodate token issuance and redemption mechanics easily, it should never be assumed this will be completely risk free.
This was highlighted in the last article I wrote about the practicalities of tokenising multiple classic arcade games within a videogame arcade, that could itself be tokenised. That article highlighted a subtle second-order complexity to do with the condition of token issuance. These effects would be important to dig into more if linking multiple Free-To-Play game tokens from different games together, and needs to be considered carefully as it has the potential to derail things otherwise.
Essentially, I noted that my updated Value Design for Pong was using an issuance condition (Win Game) that wasn't available in any of the other games I chose to compare it with (Pac-Man and Space Invaders). This necessitated transitioning to a points-based issuance system, since that was a common factor across all three games. On further reflection, I don't believe that will be such a problem with modern Free-To-Play games since they already have token issuance conditions built in anyway, but it would be important to double-check this aspect for every game just to be sure. For that reason, I'll be diving into it further in a future article that considers the implications of linking multiple Free-To-Play games together into a Play-To-Earn ‘arcade’.
Therefore, as far as those four key tokenisation variables I established during my thought-experiments with classic arcade games are concerned, there appears to be no additional complexities converting modern Free-To-Play games to Play-To-Earn, that haven't already been highlighted and resolved.
That’s all very reassuring, but now I'm suspicious that I've missed something important, because that seems too simplistic. I'm left wondering whether there might be any additional aspects that haven't been properly considered yet, because they simply weren't even present in such a simplified example as a classic arcade game? For example, some Free-To-Play games use several in-game tokens to manage multiple game loops. Could that present an insurmountable barrier that would stop such a game being converted to work as a Play-To-Earn game?
Well, try as I might, I really can't imagine it would. I mean, providing we're only considering previously released Free-To-Play games, then regardless of how many different tokens a game uses to balance its game loops, their exchange rates will already be established within its game economy by the game's designers, and easily adjusted if needs be. So we can assume that's all going to be functional, which means the only additional risk being taken by making one (or more) of these tokens externally tradable is the additional commercial risk associated with any capital cost those tokens are given. But then, that risk would be manageable through all the usual, well-understood exchange mechanisms that businesses use all the time; whether that's letting the value float freely on the market (probably best in the case of a non-purchasable Free-To-Play token), or imposing a commission on each transaction (probably best suited to the case of a purchasable Free-To-Play token)
The other criteria I defined during another previous article, considered how to ensure that adding a Play-To-Earn mechanic to an existing game would not impact it in negative, unhealthy ways. I’m keeping an open mind regarding whether Play-To-Earn is an ethically reasonable business model for videogames to adopt, and have identified that any game using a Play-To-Earn business model should therefore expect to uphold a set of positive and fair incentives that:
1. Do not diminish the experience of occasional players
2. Enable dedicated players to participate fully in a single game of their choice without being forced to pay more than they choose to
3. Reward all players with some form of property right they wouldn't get from a standard Free-To-Play game
4. Create a genuine, sustainable, "real-world" economy around the game
I've discussed before about all business models being vulnerable to exploitation by opportunist actors if sufficiently motivated. Whether that's Social Media games leveraging social capital by encouraging players to spam their friends lists in exchange for "energy", Virtual Pet games leveraging emotional capital by encouraging players to return frequently if they don't want their pet to "suffer" or "die", or even Premium game publishers leveraging advertising capital by encouraging journalists to give their titles undeservingly positive reviews if they want them to keep advertising with their publication. No business model is immune to exploitation by those who would choose to exploit rather than serve players, and so it seems unrealistic to expect Play-To-Earn to uphold a different standard.
That being the case, I believe it isn't necessary to waste time detailing the ways Play-To-Earn could be implemented so as to create negative or unhealthy outcomes for players. I'm sure the market will take care of that, and I believe we’ve already seen numerous examples. Therefore, my interest is solely on demonstrating whether it would be possible for honest actors to deliver positive and healthy outcomes using a Play-To-Earn system, or whether the very inclusion of a Play-To-Earn system is enough to signal "ahoy! Scam ahead!" as so many in the game community currently believe.
As far as I can tell, the same logic I used to show it would be possible to deliver positive, healthy outcomes by tokenising classic arcade games, seems to hold true if one swaps arcade games for Free-To-Play games. Again, this is probably not as surprising as it might first seem, since the way I am envisaging Play-To-Earn being implemented, is as an additional Value Design layer around an existing, functional game (such as Pong, Space Invaders, Pac-Man, or whatever their Free-To-Play equivalents are), with only the absolute minimal design changes to hook a Play-To-Earn Value Design into the wider Game Design.
Just as with the Tokenomics Design above, the severity of changes needed within the Play, Rules, Product, and Experience Designs of Free-To-Play games is substantially less than those I’ve already considered for classic arcade games, because there is such a big overlap in the design requirements between Free-To-Play and Play-To-Earn. In that regard, I strongly suspect that the design challenges developers already overcame to convert their Pay-To-Own games to Free-To-Play games, were way more difficult to solve than those required to transition Free-To-Play games to Play-To-Earn games.
That's not to say there will be no significant design or commercial risks to overcome in that process, of course there will; it's just that my investigations so far suggest they’ll almost certainly be easier to solve than the challenges the videogames industry already solved successfully when transitioning Pay-To-Own games across to Free-To-Play. Which should hopefully be reassuring for anyone considering building a games business in this new market.
In principle, without starting the conversion process itself and unearthing what exact challenges emerge, applying a Play-To-Earn Value Design to existing modern Free-To-Play games seems eminently deliverable. Most importantly, the associated risks appear to be well within the levels of commercial risk that investors or businesses would typically expect to take on when exploring new market opportunities.
With that said, and for any investors or game developers considering making that bet, I think it would be worth reiterating just how important I believe my earlier insight about using released Free-To-Play games may turn out to be for the Play-To-Earn sector.
If I were asked to say what my strongest conclusion has been from my research into the practicalities of applying blockchain, cryptocurrency, and digital property rights to videogames so far, it would be this: be cautious of starting with a blank sheet of paper and a plan to design the perfect Play-To-Earn game from scratch. Instead, I’d recommend starting with a finished Free-To-Play game that's already survived being punched in the mouth by the market, and focus on adapting that to Play-To-Earn.
It's clear that there are many “known unknowns” and “unknown unknowns” around the Play-To-Earn/cryptogaming sector right now, just as there has been with every business model evolution in the videogames industry to date. The commercial risks and design complexities it introduces are significant and very real, even if I'm yet to be convinced they're as large as those games businesses overcame during the industry's previous transition from Pay-To-Own to Free-To-Play games. However, the one area where I see so many fintech or software originated entrants to this market seriously miscalculating their risk profile is when it comes to building entirely new games from scratch.
Even today the biggest and most successful game companies in the world expect more than 80% of their new products to fail before finding product market fit. That's the kind of risk a company can adopt when it either has deep, well-funded pockets, or an existing successful games franchise they can iterate on relatively safely. But for new market entrants with limited runways available, and often with little or no previous experience of prototyping, producing, and publishing games, it's not even remotely sustainable.
That’s often not immediately obvious to those looking at the industry from the outside, because there appears to be no shortage of amazing games, so obviously it can’t be that hard to make them, right? Well, it works at market scale because it is significantly over-supplied, like most entertainment industries. That means the <10% of titles that eventually raise their heads above the surface to breathe profits is still a large and lucrative pool of products in aggregate.
This can give those who are not so intimately familiar with the economics of creative industries a false impression that 'making games must be easy', because there are so many of them after all. But that is heavily skewed by survivor bias, where we see the hundreds of amazing games and assume a 1:1 or 1:2 ratio between starting a game and releasing a successful game. In reality, it is more likely 1:10 to 1:20 or more abandoned projects for every 1 that makes a profit. Those numbers work fine across a whole market, but makes the risk profile for any individual company building a single game very high.
And that's just the risk associated with building a traditional game in a traditional market. Compound that with the need to use a non-market tested game design to support a new community as well as an unproven Play-To-Earn tokenomics model, and my own personal risk-o-meter quickly reaches "critical" levels. Even as a game developer with 30 years experience at this point, I honestly couldn't tell anyone how I would go about solving the Play-To-Earn market using a single, brand-new game, that’s being built from scratch. The risks involved in a project like that seem beyond comprehension to me, unless the investors were literally prepared to take a "solve it, we don't care how much it costs" approach.
For everyone else, and certainly for myself, I'd consider starting with a profitable Free-To-Play game a pre-requisite to investing in the market. As I've illustrated throughout both this and previous articles, doing so mitigates the excessive market risks associated with creating a game from scratch. Most importantly it lets the team focus its energy on solving the parts of the puzzle that are specifically associated with Play-To-Earn, which is likely to result in the maximum return for stakeholders.
It's complicated enough building a robust Tokenomics Design around a game that has a stable and well-tested Game Design. And, as I've learned from decades of trying to build assets for videogames whose designs are constantly changing, it's usually a frustrating waste of time for all involved. The optimal speed of development of a commercially sustainable videogame is the speed of confirming where the fun is for players, and that tends to be much slower than coders can code, designers can design, producers can produce, or artists can art. After having been directly involved in the development of more than a hundred videogames, I have learned the humility to know that it is always difficult, regardless of how many times we’ve done it before, because the audience never stays still. Their expectations are constantly raising the bar, and so simply doing what you did last time is rarely good enough.
For me at least, starting with a market-tested Free-To-Play game would be table-stakes when exploring a new business model such as Play-To-Earn. Will some teams manage to do it successfully from scratch? Sure - that happens in video game development all the time too, where circumstances line up and a team captures lightning in a bottle. I've enjoyed a better ring-side seat than most people when it comes to watching that happen in practice, and so I know what it takes. Which is precisely why I wouldn't choose that strategy to explore a brand new market if I had the option to choose an alternative.
In summary, and on reflection, this particular thought-experiment really did not go where I expected it to. When I initially chose the tokenisation of a classic arcade game as a lens through which to explore the cryptogaming space, I assumed that solving the design challenges would give me a useful steppingstone to help me solve the real challenge; which I expected to be the tokenisation of modern Free-To-Play games. What I hadn't anticipated is that tokenising a classic arcade game would highlight more about the inner workings of Play-To-Earn and how it interfaces with every layer of the Game Design Prism than I would have discovered had I started out by trying to tokenise a Free-To-Play game in the first place. But that's precisely why I've found first-principles thinking such a useful tool throughout my career when it comes to navigating new business opportunities where there’s no convenient map to follow.
I'm now confident this places the practical challenge of tokenising and exchanging value in multiple Free-To-Play economies squarely within the "challenging, but very possible" category, rather than the "foolhardy, and near impossible" category that many people I've spoken with seem to assume it’s in.
That brings me neatly on to the other concern I hear a lot when considering using Free-To-Play games with an established community to explore the potential of Play-To-Earn gaming, which is this: "how would it be possible to transition a Free-To-Play game to Play-To-Earn without alienating all the existing players?"
Well, my first thought when I hear that question is that it seems to imply existing players would be offered something less than a compelling reason to check out the new, Play-To-Earn version of their game. As I mentioned above, in the short term, during the early days of a new market, it's always possible for opportunist actors to exploit new business models at the expense of players. I believe this is a large part of what we've witnessed already, with the scams and rug-pulls that have created an atmosphere of immediate suspicion from gamers whenever anything to do with Play-To-Earn gaming is mentioned.
So, we already know what those type of projects would look like. But what about honest actors? How would an honest actor approach this opportunity if their genuine aim was to build a reputable business that delivered value-for-money to players and shared the accrued value of the game more equitably with them than in an existing Free-To-Play game? What type of hallmarks might we see in a business like that? Obviously it's hard to be sure, but I suspect we would see businesses:
1. Leave the existing player base and game experience intact, with no insistence to partake in a Play-To-Earn experience against their will
2. Thoroughly build and test its Play-To-Earn experience behind closed doors, before inviting any paying players to participate, especially existing players who already have a lot of time and energy invested in their accounts
3. Launch their Play-To-Earn experience as an entirely separate and voluntary mode that players can choose to investigate or not
4. Market the Play-To-Earn experience to the existing community by incentivising players to join by offering additional rewards, rather than any threats of losing anything they already have.
That list is only indicative rather than exhaustive, but I think it's reasonable to assume any businesses exhibiting these hallmarks could be considered taking a responsible and ethical approach. It may seem a tall order to operate a Play-To-Earn business in this way, especially given where many cryptogaming projects currently are, but I believe these features would be the kind of hallmarks we'd expect to see emerge in this space as the need to establish long term trust with traditional gaming communities continues to grow. So is it even remotely practical?
A major advantage of building Play-To-Earn on top of Free-To-Play rather than creating an entirely new Play-To-Earn game from scratch, is the ability to measure important game metrics, such as the baseline acquisition cost per player, the lifetime value per player, the day 1 retention, day 7 retention, etc., rather than having to assume values. It means that all the Tokenomics Design can be constructed based on “known knowns”, rather than “known unknowns”, which reduces project risks considerably. But it’s extrapolating beyond that where the benefits of building around a released game starts to become really powerful.
That's because it would be possible to design a Play-To-Earn Tokenomics system, and implement it on a development branch of a project to keep it completely separate from the existing Free-To-Play game, just as required to satisfy point 1 above.
Then, it would be possible to feed live player data from the released Free-To-Play game into the Tokenomics model that's still safely behind closed doors on the development branch. That would allow the Play-To-Earn experience to be thoroughly tested using actual live player data, but without asking players to take on any additional risks themselves. This would allow the Tokenomics Design to be monitored and iterated for as long as it takes to arrive at a system that meets all the business requirements, such as ensuring commercial sustainability, as well as compatibility with the game’s existing design and incentive structures. This satisfies the requirements of point 2 above.
Once sufficiently tested the development branch could then be made publicly available, but without replacing the existing live version. Both versions could exist completely independently, with their own entirely separate player 'entrances'. Or else the development branch could be constructed so as to appear as an optional mode within the existing live version of the Free-To-Play game, accessible from a slightly redesigned front end or options menu. This would satisfy the requirements of point 3 above.
And finally, because the development branch would have been tested and iterated using live player data from the live Free-To-Play version, it would be possible to record all the tokens that would have been awarded to each player based on their organic usage of the Free-To-Play game. It would therefore be possible to pre-create Play-To-Earn accounts for all existing Free-To-Play accounts and allocate the actual number of tokens that each player would have earned during the test period as if they had been actively participating in the Play-To-Earn test themselves.
In cryptocurrency parlance this is termed "Airdropping" and is a technique often used to kickstart new blockchains when they fork from their parent chain. This ensures a sufficient level of user awareness and interest in it on launch. By adopting a similar approach, where a parent chain is essentially created through the actions of players throughout the test period, a Proof-Of-Play 'donor' chain would be built that fairly rewards players for their participation. This would provide a bonus reward that can be claimed by the player if they choose to try out the new Play-To-Earn mode, without risk of losing any items, functions, or features within the Free-To-Play game.
And yes, obviously the resulting Tokenomics Design would need to ensure some sort of 'maturity' of tokens to prevent everyone simply signing up, claiming the tokens, and immediately dumping them on the market; however, again, this is all behaviour that can be modelled more accurately by basing it on real player data from an active Free-To-Play game, such as average session lengths, number of sessions per day, etc. This is something that would be much harder to do with an entirely new game and, most importantly it satisfies the requirements of point 4 above.
In conclusion then, while there are undoubtedly still many unknowns to be resolved in the Play-To-Earn space, and the difficulty of solving these should not be underestimated, I believe what I've outlined here is a reasonable, informed assessment of the risks involved in transitioning a Free-To-Play business model into a Play-To-Earn business model. It shows:
1. That utilising a Play-To-Earn Value Design does not immediately make a game any more or less of a potential "scam" than utilising any other Value Design
2. Why tokenising modern Free-To-Play games to work as Play-To-Earn games is actually more straightforward than tokenising classic arcade games, or Pay-To-Own games
3. The considerable benefits to be gained from using an established Free-To-Play game as a starting point when exploring the Play-To-Earn space, and
4. A set of hallmarks that can be used as a general heuristic by anyone keen to avoid potential scams associated with Play-To-Earn games.
Hopefully by bearing these points in mind many more gamers and investors will be able to separate the genuinely innovative projects from the opportunistic ones, and explore this emerging space with more confidence.
That’s the overall theory anyway and sets the groundwork well for the next challenge: diving into the specific practicalities of converting a Free-To-Play economy into a functioning Play-To-Earn economy.