Game studios bailing on NFTs

In late 2021, as crypto prices hit new records, several major gaming studios attempted to position non-fungible tokens as the next big thing.

Only months later, falling prices and criticism from players and their own staff have dampened that enthusiastic chorus.

Studios anticipated that cryptoassets would create opportunities for players to own their digital items in-game, while also opening up a new revenue stream for publishers. The reality was less simple.

Speculative assets such as NFTs or in-game cryptocurrencies fundamentally change the dynamics of a game and the expectations of its players.

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These items, even if it’s a magical sword or a robot costume, are real financial assets.

They have an embedded level of speculative risk, with the potential for both gains and losses. Their presence in a game turns both developers and players into investors.

Mojang, the Microsoft-owned developer behind one of the world’s best-selling video games, said NFTs create “scarcity and exclusion.”

The Minecraft developer banned companies from creating worlds on blockchain networks or game-related NFTs, effectively ending some ongoing experiments.

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“NFTs are not inclusive of our entire community and create a scenario of haves and have-nots,” Mojang said in July blog entry.

“The speculative pricing and investment mentality surrounding NFTs diverts focus from gaming and encourages greed for profit, which we believe is inconsistent with the long-term enjoyment and success of our players.”

In the world of crypto-native games, this “investment mentality” is even more evident.

One of the most well-known blockchain-based games is Axie Infinity, which allows players to unlock and earn so-called in-game tokens Smooth love potion.

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These tokens can be traded on crypto exchanges or exchanged for currencies like US dollars.

In Axie, it is not free for players to generate these initial rewards. To qualify for “Play to Earn,” as the mechanic was called, players first had to acquire three NFT “monsters.”

At its peak in July 2021, that would have cost almost $1,400, or about $446 for each NFT, according to data from NonFungible. The potential income was about $700 every two weeks.

Classic tactics like guilds, used by teams in traditional games like World of Warcraft to grind for rare assets, made an appearance in games like Axie.

In exchange for covering these costs for the so-called scholars to play the game, guild managers would indefinitely receive a share of their teams’ crypto earnings — sometimes up to 90%.

In March, hackers stole more than $600 million from Axie, a major attack that prevented gamers who had relied on the game from accessing their earnings.

In response, the flagship play-to-earn gaming model has renamed the category to “play-and-earn” – shifting the focus to the “fun” of gaming rather than the monetary reward.

game of trust

For game engineers, skepticism about the model is linked to the perception that these games are bad experiences for players.

Discussions on platforms like Reddit and Discord are full of complaints from game developers that blockchain games are less concerned with being high quality or fun and more focused on how much hype their financial assets can generate.

This focus on the hype around the gaming experience is leading to a betrayal of trust among players, the developers say.

Studios are also becoming aware of the potential reputational damage they could suffer from being involved in crypto without a clear focus, said Catherine Flick, a researcher working on a paper on the ethics of NFTs from De Montfort University in the UK.

Players form a sense of “identity” with the publishers they buy from, Flick said.

Mark Venturelli, a game developer whose criticism of this type of game went semi-viral in gaming circlessaid programmers don’t like the focus on NFTs because they are video game lovers and more tech-savvy than most.

“When you combine those two things, it’s easy to see why they don’t see the appeal of a gimmicky technology that offers nothing of value except a scheme to make a quick buck,” he told Bloomberg in an email.

It’s also difficult to compete with competitors within the blockchain sector unless the game is at least fun, said Kevin Beauregard, CEO of crypto gaming startup Atmos Labs.

“If people just want to play an economic simulator, then they end up breaking this competition piece,” he said at the Bloomberg Crypto Summit in July.

To attract new talent and players, Sky Mavis, the studio that developed Axie, created the intellectual property for Axie freely available to developers who wanted to base their own games on it.

Teams wishing to participate in the so-called Builders program will receive grants in the game’s crypto tokens, and all player payments must also be made in these cryptocurrencies.

A portion of all revenue generated by the game must flow back into Axie’s treasury to support the ecosystem’s economy.

In short, the financial success of an Axie-based game – and the livelihood of its developers – are inextricably linked to the performance of these tokens.

Phil Spencer, chief executive of Microsoft’s gaming division, said he’s wary of play-to-earn games.

“Sometimes a hammer is looking for a nail when these technologies come up,” says Spencer said Bloomberg TV in August.

One of the main reasons for investing in NFT development was interoperability, a future scenario that would allow an item purchased in one game to be used in another.

Players could get property tokens for the items they earned, thus not only making a potential profit from later selling that item, but also taking those magic swords and robot costumes with them in different games.

While some of the larger blockchain experiences like Alien Worlds, Decentraland, and The Sandbox are trying harmonize their platformsMost crypto games struggle to combine incompatible game engines and art styles, competing blockchains, and carefully licensed intellectual property franchises.

For traditional studios, even developing NFTs playable in a single game hasn’t been smooth sailing.

French publisher Ubisoft has canceled an experiment with an in-game NFT marketplace called Quartz earlier this year after a quick backlash from staff and players.

When Quartz shut down, players who bought the NFTs were left with largely useless tokens attracted few, if any, bids on secondary market platforms like Rarible.

A spokesman for Ubisoft said the studio is in a research and development phase when it comes to digital assets, adding that “both internally and externally we will continue to deepen the value proposition that web3 tools offer”.

Rival Square Enix started an art collection from its blockbuster Final Fantasy franchise last month that came with an NFT to prove its authenticity, after a promise “aggressive” investments in space in 2022.

Others have stuck to outsourcing the effort via third-party partnerships. Square Enix, Ubisoft, Sega, and Bandai Namco have all pledged to support an outside company’s gaming blockchain network.

“It’s a bit like a ‘cover bets’ situation, isn’t it?” said researcher Flick. “There’s always a chance it will fail, and maybe if it doesn’t fail, this one could become really lucrative.”

Meanwhile, Take-Two Interactive Software Inc., a New York-based company behind the hugely popular Grand Theft Auto game franchise, bought mobile developer Zynga for $12.7 billion in Januaryciting his blockchain skills.

Since that acquisition, however, Take-Two has completely ignored the topic of its ambitions for crypto on every subsequent conference call.

The gaming industry has weathered several clashes of negative press in its short history, from a panic over in-game violence that led to the creation of age-based ratings to more recent regulators’ concerns about “loot boxes‘ – virtual purchases that can include multiple, random and potentially high-value items – akin to introducing children to gambling.

“We will not create an economy to accommodate our increased speculative activity,” Take-Two CEO Strauss Zelnick said at a Jefferies conference in January.

“Are we going to gamble? Well, not unless we’re regulated and honest about it, direct. And even then, I’m not sure it’s here.

But we will certainly not like to pretend that speculation is entertainment, even if we could make money from it.”

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