It sounds like a 12-year-old's dream come true: play video games, and earn money. There's something almost fantastical about it, like a bottomless bag of potato chips or a lifetime supply of Mountain Dew. If it was possible, somebody's mom, surely, would put an end to it.
Yet what sounds like a hardcore gamer's pipe dream is actually one of the main selling points for the emerging Web3 or blockchain-based video game companies, which are attracting an avalanche of venture capital in recent months, as bigger investors get hip to the idea. 
What is a blockchain game? Most of the biggest names in the space work something like this: players create an avatar, play the game, level up, and then sell their upgraded character or gear to other players in-game or on existing NFT marketplaces, like Magical Eden or Fractal. 
This concept, called "play-to-earn," is drawing in video game players from all over the world, and spurring a debate over the future of gaming and where crypto-economics fits into it. 
This photo taken on December 15, 2021, shows people using their mobile phones to play Axie Infinity, an NFT game where players earn tokens that can be exchanged for cryptocurrency or cash, in a neighborhood alley in Malabon, suburban Manila. (Photo by JAM STA ROSA/AFP via Getty Images)
The leading blockchain game, Axie Infinity, accounted for $3.5 billion worth of NFT transactions in 2021, or about two-thirds of all NFTs transacted in the entire blockchain gaming industry, according to a report from analytics firm NonFungible. 
The game is also especially popular in developing countries such as the Philippines and Ghana, where the company claims some players are earning more than the local minimum wage. 
But recently, Axie Infinity has run into some challenges. Earlier this year, the price of its in-game token, Smooth Love Potion (SLP), which players receive for completing tasks, plummeted along with the rest of the crypto market, and trading screeched to a halt. 
As the price plummeted, players pulled their money out and created what was essentially a liquidity crisis. This is where in-game economics meets real economics. If money stops circulating (even if that money is called Smooth Love Potion) your market is in trouble. 
While Axie Infinity tries to restore its former glory — trading volume remains well below its 2021 heights — the crash has shined a light on the shortcomings of blockchain gaming, and encouraged new entrants to distance themselves a bit from promises of play-to-earn. 
This photo taken on December 13, 2021, shows Dominic Lumabi playing Axie Infinity on his computer, an NFT game where he earns cryptocurrency to support his family during the pandemic, in Marikina, suburban Manila.  (Photo by JAM STA ROSA/AFP via Getty Images)

Keeping the Money Flowing 

Genopets, for instance, is one such upstart that says its model is different. Similar to Axie, players have an avatar, but instead of leveling it up in the game by grinding away at whatever tasks give them points, players level up by physically walking around. 
The company even has a catchy new label for this kind of blockchain gaming. 
"The genesis of Genopets was about creating this move-to-earn category, where players could convert their physical activity into in-game progression, which could eventually lead to some amount of passive income," said Jay Chang, head of product management at Genopets
The elevator pitch here is that almost everyone has a pedometer in their pocket in the form of an iPhone or other mobile device, so why not earn a little money in the process? 
The way this happens, in theory, is that players would take their leveled-up Genopets and sell them to another player looking to get started at a higher level of experience. But since the game is free-to-play, and anyone can create an avatar, why would anyone buy one? According to Genopets, the reality is that most players simply won't buy or sell their avatars. 
"We actually don't think that the vast majority of players over time will want to sell their Genopets over and over, as a way of earning passive income," said Chang. 
That's why the company is offering a two-tiered system. While most players will get their Genopet, start walking, and leave it at that, there's a second option for more hardcore players who are more acquainted with NFT trading. These players will have the option to pay for the ability to forge items in-game, which can then be traded and sold to other players. 
In effect, more active players who have a financial stake in the game will provide the sell-side, while the less engaged players will provide the buy-side. This model recreates the economics of many mobile games, which pepper players with endless opportunities for new purchases and upgrades but in this case let's at least some players get in on the profits. 
"Like Candy Crush, you'll be tempted to acquire some item that will help you speed up your progression, whether that's a XP boost or some fancy skin that gets you some in-game reward," Chang said. "All of those assets are also NFTs and they're sold and traded on marketplaces."
In Chang's view, the ability to "forge" items and sell them is the answer to a potential liquidity crisis, because it provides more channels for keeping money in the game's economy. 
"Every player is going to be faced with this decision: do I pull my token out, or do I use my token for a potential longer-term earning opportunity," Chang said. 
This, of course, could require a high level of engagement from players, which runs counter to Genopets' other selling point: that it's appealing because you can use it passively. 

'Land of Opportunity' 

It's a tough balancing act, but this is the business. Blockchain game companies have tasked themselves with sustaining a mini-economy, while also delivering a compelling game experience. Just ask Federal Reserve Chair Jerome Powell how difficult that is (the "compelling game experience" in his case being a growing job market and rising wages). 
That's why Trailblazer Games, which is currently developing a blockchain game called Eternal Dragons, puts more emphasis on the game experience than the earning potential. 
"Some are coming into this space with play-to-earn being the core of everything," said Andreas Risberg, co-founder of Trailblazer and a former product lead on Candy Crush. "We've been in the business long enough to know that's not the reality. You've got to have inflows from somewhere. We're not designing an economy where we're trying to support an average play-to-earn player, or where the majority will profit immensely." 
In other words, if everybody earned, nobody would. Some players need to be spending money if other people are going to make it. Risberg said his company sees its role as making sure value is distributed fairly in the game, rather than guaranteeing that everybody earns. 
If most players are not earning, why bring economics into games in the first place then? With his background in game development, Risberg said he recognizes that your average console gamer probably isn't too gung-ho about trading NFTs on the latest triple-A game, but added that the industry is already highly profit-driven, even without the blockchain.  
Consider Candy Crush, he said, where Risberg used to work as a lead product developer. "They're great games, and players are so loyal, but part of that loyalty comes from the idea that they have sunk so much into the game that they're hooked." 
In this new model, he explained, some players will actually reap the benefits that previously just went to game companies. Put another way, this is a case of "if you can't beat 'em, join 'em," which echoes the broader argument made by blockchain advocates that their technology helps level the playing field — whether you're talking about high-finance or in-game purchases. 
But as Risberg made clear, not everyone is going to join 'em, let alone beat 'em, and he said the "jury is still out" on finding the right balance between earning and playing. 
"We still want to build that land of opportunity," he said. "We're not shy about the fact that you should be able to play and earn, but we're not naive. If everyone is approaching a product like this with an extractionist perspective, then where are the inflows coming from?"