Play to earn: P2E as a forerunner of the metaverse economy?
Blockchain and digitalization open up new opportunities and bring new values into our lives. Until quite recently, it was difficult to imagine the economic concept of "digital real estate", the possibility of renting it out. But today it is a reality, as well as the opportunity to increase one's social status by buying an NFT art object, the prices of which have largely surpassed the prices of real works of classical and contemporary art.
Moreover, the gaming industry has made it possible to combine business with pleasure and earn real money (virtual values, their purchase and sale for in-game currency has existed for a long time). Play-to-earn (P2E) technology, or “play to earn”, is responsible for this today, which directly offers the player to participate in the gameplay for money, buy and sell virtual items, rent digital real estate, exchange and, most importantly, , withdraw income in the form of a cryptocurrency, the demand for which remains at a fairly high level.
The topic of the legal regime of objects in computer games is of rather modest importance for the economy. At the same time, the problems that arise in this context are relevant for the metaverses that are emerging today, where the economic importance of virtual objects may soon begin to compete with objects from the real world.
Origins and Hits
The “play-to-earn” generation of computer games are blockchain projects that allow players to earn real money and even create a business by developing virtual characters or digital real estate. That is, this is a kind of mixture of games, the concept of the metaverse and the defi economy. The popularity of "play-to-earn" has skyrocketed after a five-fold increase in the capitalization of cryptocurrencies, and it is the latter that are directly related to the very essence of earning in "play-to-earn", since it is done mainly on the purchase and sale of virtual items, which are a kind of NFT (non-fungible tokens). The phenomenon was even given a name - “tokenomics”, as millions of people change (or find) jobs in virtual spaces (mainly in Asian countries with developing economies), and the capitalization of hit games is comparable to such giants of the gaming industry as Nintendo Activision Blizzard (World of Warcraft, World of Tanks). Enthusiasts organize their small business inside the gaming economy, with hired employees, and earn tens of thousands of dollars a month.
The most popular game of this type was Axie Infinity — capitalization in 2021 was -nbsp; estimated by at $29.9 billion. At the same time, it was launched in 2018, and today the creators of say about 10 million active players. No wonder, the phenomenon has attracted the attention of large investors, who quite seriously consider these games as a win-win investment option and an opportunity to receive, above all, passive and more or less stable income. The fact that tokenomics is based on cryptocurrencies gives reason to be skeptical about the sustainability of such an economy, but at the moment the numbers say that the projects are working and paying off.
The main problem of the phenomenon of play-to-earn games is their regulation by legislation, the legal component and, above all, the behavior of a virtual thing as a subject of intellectual property. About some of the nuances of IPQuorum tokenomics Maxim Bashkatov, head of the "Legal Development" direction of the Center for Strategic Research Foundation (hereinafter CSR), one of the authors of the report “Virtual Assets: NFTs and Virtual Items in Computer Games and Metaverses ” (hereinafter referred to as the Report).
Briefly about the mechanisms
Games with a play-to-earn monetization model are typically designed in such a way that, in order to enter and compete, users must purchase virtual items with real money or cryptocurrencies in order to be competitive. Your item can be "pumped" during the game, sold to other players; you can also purchase internal currency for a successful game. Virtual items usually exist in the form of NFT tokens, which can be bought and sold on special marketplaces.
Here lies one of the main catches of such games from a legal point of view. In both Europe and Russia, the legal qualification of NFTs remains uncertain. As pointed out by Report CSR, in France, for example, from the point of view of civil law NFT is movable property. The owner of the NFT has a number of rights, including rights of use and alienation. In Germany, NFTs are separated - in particular, art objects or shares in real estate (digital) property - from other utility tokens, since the former are unique objects in terms of turnover, "piece goods", but not part of the issuance of many tokens.-- nbsp;
In Russia, the legal regime of NFT is not directly defined in the current legislation. As stated in According to the CSR report , tokens are similar to cryptocurrencies, but in general they resemble things, although in the conventional sense they are not objects of the material world. Thus, the Russian doctrine proposes to classify NFTs as “other property” (as defined in Article 128 of the Civil Code of the Russian Federation).-nbsp;
Looking at the issue from a copyright perspective, in Europe an NFT is a blockchain-based digital certificate that authenticates a digital good, but is distinct from that digital good. The EIPO notes that next year the 12th edition of the Nice Classification (of goods) will be supplemented with the term "downloadable NFT-authenticated digital files". This will expand the possibilities of virtual goods, which today should belong to the 9th class of goods (they also include, for example, devices and instruments for scientific or research purposes, audiovisual and information technology equipment, software).
How to regulate the pyramid?
The fact that you need to invest in order to enter the game (after all, the principle sounds like “play to earn”), and that you can make a profit only by attracting new players, makes play-to-earn technology similar to financial pyramid. Many people, especially in Southeast Asia, quit their penny jobs and go to work in the virtual world. Let it take the whole day of the player. For him, these 400-500 dollars mean more than for a European or an American, who look at such games rather as fun.
“Indeed, if the payment is not due to some new source, but due to the involvement of other players, then this qualifies as a pyramid,” emphasizes Maxim Bashkatov.
This area of tokenomics - crypto income - is already worrying many states. In China, for example, straight warn citizens against participating in P2E projects, which are called "scam". The South Korean government recently issued a call to remove P2E games from the Apple App Store and Google Play, as the issue of fraud is quite acute. Experts believe that the business models of such projects are unstable, do not contain real value and are fueled only by the excitement of users.
However, if we turn to analytics, then sound doubts arise. As noted by the authors Report CSR, the organization of a financial pyramid (primarily in our country) is understood as "the organization of activities to raise funds and other property of individuals and legal entities on a large scale, in which the payment of income and the provision of other benefits to persons whose funds and other property attracted earlier are carried out at the expense of attracted funds and other property of other individuals and legal entities. The authors point out that the concept of play-to-earn from the point of view of law cannot be considered a financial pyramid. The fact that the influx of new players affects the value of domestic crypto assets does not make the game a pyramid scheme in the legal sense.
On the other hand, some examples show that the functioning and fate of some projects are similar to the fate of the history of the pyramids. So, Maxim Bashkatov draws attention to the popular Stepn project, which offered to buy virtual sneakers in the form of NFTs, and then walk or run “in the real world” with a smartphone and earn cryptocurrency in this way.
Bashkatov points to the fact that the project, which could be considered a financial pyramid, was trying to "get away from the pyramid qualification by making its tokens exchange." However, the project, according to Maxim, could not become sufficiently liquid: it turned out that the funds came mainly from newly arriving players.
Government regulation that would help fight abuse and speculation on the prices of in-game property is almost completely absent. As a result, all the rules of the game depend on the developers (operators).
In order not to run into scammers, experts recommend choosing conscientious developers and looking at games with free features (free-to-play). You can withdraw the funds earned in the game freely, however, as in the case of traditional investments, you need to remember that no one is immune from the fall in the value of assets. The high profitability of the game will be ensured only as long as its currency is quoted on the stock exchange and there is investor interest.
As Maxim Bashkatov points out, the main legal problem of the sphere is that “those objects for which a person, perhaps with a fraudulent purpose, wanted to take money, do not have the sign of objects of rights according to specific legislation.” Unlike the European and American legal systems, the Russian legal order fundamentally distinguishes between property rights and intangible objects. The right of ownership arises only for individually defined things. Russian civil law defines a thing as a bodily object of nature, thus rejecting the idea of incorporeal or virtual things.-nbsp;
Nevertheless, today the European and Russian doctrines are actively discussing the possibility of qualifying the NFT as a thing (as a fiction). Experts (in particular, the authors of the Report CSR) believe that without such qualifications in the Russian Federation, the rules of tort law, as well as the rules on unjust enrichment, may well spread to NFTs. If, for example, an attacker steals a virtual item in a computer game, then the injured party may demand compensation from him for the damages caused. “At least, the cost of such an NFT is reimbursed,” Maxim Bashkatov notes. If someone mistakenly transferred the NFT to the wrong person, then this already applies to the rules on unjust enrichment, since the transfer of a virtual item is not based on a legal and economic basis. Here you just need to return the token to the previous owner.
The expert is convinced that some regulation will soon follow, although, in his opinion, the size of the P2E games market, even for the creative economy, is rather small.
If you apply the criteria of intellectual property rights to NFTs, then there are also failures. The very concept of "intellectual property" (IP) is not disclosed at the regulatory legal level, i.e. this term in Russian legislation is conditional, since there is no talk of a traditional real right to a material object. IP in Russian realities is determined through a closed list, legal protection is provided to those results of intellectual activity that are listed in paragraph 1 of Article 1225 of the Civil Code of the Russian Federation (works of science, art, literature, inventions, databases). And objects that are not listed (i.e. NFT) are not protected and do not receive civil protection.
Today there is a bill to amend this article, which proposes to supplement it with the following subparagraph: “a non-fungible token of a unique digital asset (images, videos or other digital content or asset) in the form of non-fungible data stored in a distributed registry system (blockchain system)”. The project is under consideration by the State Duma of the Russian Federation.
Hype philosophy and social status
Difficulties with "paid entry" to the game for the poor, but who want to play and earn money, are overcome quite simply. The coveted token-artifact-thing can be borrowed by giving part of the profit to the landlord. There are even entire gaming guilds, which are investment companies that buy in bulk the necessary NFTs for the game and train those who wish to use them. The most famous guild, Yield, for example, has an estimated value of $600 million. Its working scheme is: 70% to the player, 10% to the guild, and 20% to the manager, who trains the players and is responsible for the safety of the property.
But even so, as already mentioned, the market is quite small. At the first approximation, it seems that everything is based not on income figures, but on some idea. Experts partly confirm this conjecture.
In the game economy, there are separate developers who are solely responsible for managing and configuring in-game economies. The advocacy for NFT integration is based on the concept that games are not about fun and pleasure, but about wasted time. But if the time is spent, then it can be perceived as an "investment in the game." Necessary for the project to stay afloat, the balance between having fun and making money is maintained with the help of virtual items such as NFTs.
In other words, the developers, the media, the players themselves, the entire blockchain culture are supported by hype (personal opinion based on familiarity with materials on the network; I agree with the pessimists). Many authors are inclined to believe that the entire P2E sphere, as well as NFTs and the idea of the metaverse, is primarily a strong catalyst for the growth in the popularity of cryptocurrencies. The latter is a very strong idea that has already reached the regulators. One has only to remember the idea of a digital ruble, the test version of which is is planned for launch as early as 2023. The more reasons to use the blockchain (be it Bitcoin, Ethereum or the little-known Star Atlas), the larger its audience, which is beneficial primarily to developers.
The other side of this idea is social status. The P2E concept follows real life models. You can buy digital real estate and rent it out, or you can buy property and also rent it out. Just as, for example, owning a yacht or a horse carries with it the cost of care and maintenance, but the owners of these "artifacts" receive much more. One has only to look back at the numbers: in 2021, two popular digital real estate metaverses had sold for $500 million, and only in January 2022 it was NFT tokens worth $6 billion were sold (however, by the end of the year there was a sharp decline in NFT sales: according to according to the DappRadar blockchain tracker, in the third quarter of this year alone, total NFT sales fell by 60%, dropping to $3.4 billion).
It is difficult to say, Maxim Bashkatov points out, how much digital real estate and digital property will be used as an asset in society, especially given the latest trend in the decline in the sale of NFTs. However, according to analysts, the same principles of property circulation that have been tested in large gaming platforms may begin to spread in the metaverses. The mechanisms for the transition of virtual objects from one subject to another have been developed in the gaming industry, and as soon as the metaverses become a mass phenomenon, they will migrate there. “In fact, we are training on cats with the help of gaming equipment,” Bashkatov notes.
It is quite possible that the principles of P2E will migrate to the metaverses and become key elements in them. It may be worth investing in digital real estate and virtual property now to catch this train. But, apparently, only if the legal foundations are developed and consolidated that determine the status of NFT items that regulate the digital economy, which can save the metaverses from turning into the Wild West.
