Defi vs. Play to Earn

Before "blockchain gaming" and "play2earn" was a real thing, I heard all of the critiques of defi and how crypto would never onboard the mainstream through defi because of it's so esoteric. Gaming, they say, is something everyone is used to and can easily get into.

I won't disagree that most people are stupid and lazy and need to be spoon fed new concepts like decentralization. I disagree with the premise, that blockchain needs to to onboard the mainstream. Whether crypto reaches out to include others or not, the tech is so much better than what came before that people will have no choice before long. In the meantime, people who realize they can get paid using Presearch/Brave/etc. instead of paying to use Google/Chrome/etc. will make all the money (and protecting their digital data and privacy, among other things).

If you came into crypto through gaming, that's cool. But if you found your way to this blog — which I've purposely hidden in a darker corner of cryptoland — understand there's more to this. Defi is where all P2E's cash is coming from. If you really want to participate in the new age of gaming, you owe it to yourself to dig.

But I'm not really writing this article for you. This is really for the folks who've been down the defi rabbit hole and found gaming through defi. So far, gaming is the most tangible product defi has to spend its money on. That doesn't mean gaming is the best move. In cases, it's not, and there's one reason why:

Human inefficiency.

P2E games are yield farms. Not yield farms; they yield farms. Gaming yield farms combine attributes of PoW and PoS whether investors play themselves or scale through scholarships. The PoW comes from the time spent playing the game and using electricity to power the hardware. The PoS comes from the standard most games now utilize — making you hold an NFT in order to play. Whether or not the game provides a direct staking mechanism is moot. If you sell the NFT, you can no longer play, so it's the same as staking.

So already, you are putting in more effort to participate in gaming than in defi (if you don't count understanding those dense whitepapers, I guess). And we haven't even gotten to the inefficiency part yet.

Most games in this generation of P2E are idle games, meaning they require no skill. Axie Infinity was actually the outlier in the space, as it does actually incorporate strategy into gameplay. What we've found is that skill-based gameplay is a necessity. I won't get into all the details here, but for a P2E system to sustain itself beyond its initial funding round, it must exclude players from rewards and make distinctions between players based on some criteria. There must also be some element of a lottery system included. All of these paradigms have one thing in common — they require players in the aggregate to agree to receive less than they put in. Regardless of what fancy words are in the whitepaper, the system only survives if it takes in more from its players than it gives to them.

Yeah, I know. The digital revolution was supposed to free everybody. Cheer up — it still can if the value created scales past the value that can possibly be used by the 9 billion people on earth. Believe it or not, this is very possible because the digital space is infinite, and building huge amounts of value for humans doesn't kill the digital space like it kills Earth. But this scale will require AI, because humans can't build it on their own. That's another topic.

For now, with humans programming games and humans playing them, just know that successful games will limit rewards to players and segregate those rewards. How does this affect you as an investor?

Well, you should be very careful when looking to P2E as an investment. When you stake your value into defi, your returns are automated. There is no human inefficiency present in a properly coded system that simply provides you the APR it states on the UI.

When you stake your value into players in a P2E game, you assume their inefficiency. Defi code doesn't go to the bathroom or get sick, nor does it perform with less skill and produce less on Wednesday than on Thursday. Defi is clockwork. P2E is somebody's work. And human nature hasn't changed. When people go to work unsupervised, they slack off. They perform with less passion in some moments. And some people just aren't cut out for the jobs they get — they pursue and accept those jobs based on necessity. None of these are great for investors.

How to overcome this and successfully navigate the P2E space? Because there value in P2E. If there wasn't, I'd stick with defi.

First, the basic rules of crypto investing don't change.

A. Get in early. Early birds get the most rewards.

B. Buy low, sell high. If you follow pumps, you're going to get rekt.

C. Have an exit strategy. P2E is notorious for short-lived games. Don't let gameplay get in the way of profit. Hate to say that, but that's where the space is right now.

Second, I like to have a baseline ROI for what I'm willing to accept. That baseline comes from my defi investments, which is 0.4% per day. (Yours may bedifferent based on your skill level and risk tolerance.) You may also calculate your ROI differently. I'm a farmer, so I focus on daily yield with an eye to capital gains on assets. If you are looking at capital gains first, your strategy will be a little different and you'll probably get into games I'd overlook.

But for me, if a game doesn't give have the potential to give me at least 1% per day on my investment, I'm not playing. Notice I said potential for 1% and my defi baseline is 0.4%. That's because of human inefficiency. If a fully efficient game gives me 1% (which will drop over time, trust me), then I figure I can get above 0.4% even with those inefficiencies.

Now why not just stick to defi? Why deal with people at all in P2E? Isn't crypto meant to be automated and provide passive income?

Fact is, there are opportunities in P2E that provide better returns with less risk than defi. As long as you have a minimum returns baseline, you can properly measure the daily returns you should expect from your scholars. But they still require a good buy-in point (see basic rules of crypto investing don't change above), and you need to watch your returns, because the law of diminishing returns is still the most powerful force in today's crypto market. That APR you see today won't be there tomorrow, unless you're talking about Osmosis liq pools.

A well-run guild can also get you closer to cap tables. That's something we may explore later, but honestly that's billion-dollar info. You may have to pay me for that. 

t.me/alucard0x