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Macro Research

The Evolution of Gaming Monetization Models

Latest updates: Dec 15 2022


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In the 50+ years since the first commercial game was launched, the gaming industry has undergone enormous changes, from gameplay and technology to monetization methods (Figure 1).

Figure 1. The rise of gaming revenue (Source: Visual Capitalist)

In this article, we will first discuss some of the most popular monetization methods for game developers, how blockchain technology is being introduced in the gaming industry, the current development status of blockchain games, and the future outlook of blockchain games.

1. The state of monetization models in the gaming industry

In-game advertising

The very first in-game advertisement was just a few lines of text (Figure 2). It appeared in “Adventureland” in 1978 to promote the next game by Adventureland developer Scott Adams. As commercial advertising in television and cinema became more popular in the 1980s, brands started to realize the potential of marketing products via video games.

Figure 2. The first in-game advertisement for the next adventure.

Fast forward to the mobile era today: in-game advertisements have become commonplace and the greatest source of revenue for mobile game developers (Figure 3). This monetization method is here to stay as it has been proven to be the most effective channel for brands to market themselves to billions of mobile gamers.

Figure 3. Most used monetization methods for mobile gaming apps in 2021 (Source: Statista)

Unfortunately, mobile game ads are often overused in frequency and intensity, to the detriment of player experience. Figure 4 shows an example of Toy Blast’s ads, which appear randomly during the game and take up the entire screen.

Figure 4. Example of Delete-this-app-now Ads


Microtransactions (mtx) are the second most popular monetization method for game developers today. These transactions are often optional, which is the basis for the “freemium” model.

Famous examples of “freemium” games include Dota 2, in which gamers can pay for cosmetic items and Battle Pass, while CS:GO players can buy weapon skins, stickers, cases, and keys (to open more skins and stickers). These features have no effect on gameplay but offer customized and unique looks for the character, enhancing the player’s experience.

Mtx offers a better balance between user experience and revenue for developers. It requires addicting gameplay and compelling story content to build a player’s psychological need (and addiction) for game items, which are high on Maslow’s hierarchy of motivation. Freemium games are popular at the Esports level thanks to their low barrier to entry and profitable Mtx model.

Figure 5. N0tail - the player with the highest tournament earnings in Dota 2 Esports (left) and the M4A4 | Howl with StatTrak sold for a record-high in CS:GO (right)

Sometimes freemium monetization fails. This opens the door to another model: pay-to-win. This model is commonly found in mediocre MMORPGs, with some exceptions.

Many would point to MapleStory as an example. The game began as free-to-play, yet many local publishers chose to offer additional items/features that give players an advantage. This taps into a player’s desire to win and conquer the leaderboard, especially in games requiring higher skill levels that most ordinary people cannot attain.

Other examples of pay-to-win freemium games include Candy Crush Saga and Angry Birds’ Mighty Eagle. This type of game is easy to play yet hard to master and often requires many attempts to complete each stage. Or, the player can simply purchase in-game items to save time, as shown in Figure 6. Such optional back-scratching features can ease players’ frustration and disappointment, rather than feel “blood-sucking” as is often the case in MMORPGs.

The hierarchical dynamic and “FOMO” inherent to this model may feel unfair to players who can’t afford premium features. Freemium games cleverly create psychological needs to make players spend more than intended. So, Parental Guidance is advised!

Figure 6. Don’t you wanna save the bears now, little boy? Or play the round 30 more times?


This model is prevalent in AAA games and requires an upfront cost for game access. Players can expect a superb gaming experience with mesmerizing graphics and addictive gameplay, but those who can’t afford the game will be left out. In other words, there is a barrier to entry for new players, so game fundamentals must be strong enough to create a network effect and generate enough sales to be profitable.

Figure 7. Minecraft has sold over 238 million copies and generated around $3B in sales over its lifespan.

That covers the most popular monetization models, each with their own strengths and weaknesses. So, what are the innovative new models for game developers today?

2. Introducing NFT Gaming (or GameFi)

The Revolution

A new wave of blockchain games uses NFTs (non-fungible tokens) to represent ownership of in-game items such as avatars, cosmetics, equipment, and weapons. Games generate revenue from selling NFTs to players and fees from secondary sales. In many ways, this resembles the traditional premium model; however, blockchain technology offers a brand new framework for transacting and trading game items and verifiable proof-of-ownership. Players can safely trade NFT game items with each other or sell them for tokens with real monetary value. This is a revolutionary new level of in-game asset ownership.

Another innovative feature of NFT games is the fungible token rewards which can be redeemed for real money. This makes the game function as a micro-economy that must account for the flow and allocation of resources. These resources include the fungible token rewards and NFT in-game assets, both of which have a real monetary value. The financial earners are not limited to the developers, publishers, and pros; ordinary users are able to earn while playing their favorite games.

Game economics is, indeed, the special sauce for GameFi. These new technologies upend traditional game models and offer new opportunities for collaboration between game developers, gamers, and investors at a more robust level than we have ever seen in traditional gaming.

???? Given how new and unprecedented NFT gaming models are, we have yet to see a GameFi economy achieve long-term (multi-year) sustainability.

The Reality

A major draw of tokenized blockchain games is that players can gain real financial benefits from playing, which led people to coin the term “play-to-earn” (P2E). Investors and speculators take advantage of the model to earn as much as possible before moving to other games, which heavily damages the balance of both the play and earn elements.

The greatest challenge for NFT games is how to design a well-balanced game economy. Let’s take a look at the most common model, which features two tokens:

  • The Governance token is deflationary and typically earned via tournament or PvP modes. It represents decision-making governance power within the game’s DAO long term.
  • The Utility token is inflationary and can typically be earned in both PvE and PVP modes. It is often used as in-game currency.

The most common use case for both these tokens is to mint new NFTs, which is essential for expanding the user base. Problems arise when there is an imbalance in the supply & demand of the tokens and the NFTs. When the price of the governance token rises, the cost of minting a new NFT also rises, which makes the NFTs more expensive for new players wanting to access the game. On the other hand, an abundance of newly created NFTs may overwhelm demand, reducing the incentive to mint, and thereby slowing the minting, or “breeding” rate (Figure 8).

Figure 8. New Axies (NFT) minted per hour (Maxbrand99)

More users also mean higher reward token selling pressure, as everyone is more incentivized to earn/sell tokens to fiat rather than spend them on in-game features. The result is that the demand for the tokens cannot keep up with the selling pressure. This is what has occurred in the case of Axie Infinity— the most successful NFT game to date.

The overemphasis on ‘’earning’’ from P2E games greatly contributes to this death spiral. Since investors, as well as gamers, seek to realize profits, there is a strong incentive to dump the tokens and seek the next P2E investment. Decreases in price combined with poorly crafted gameplay can cripple a game’s adoption rate. The financial allure of NFTs, fungible tokens, and P2E game models is currently overused as a marketing tool rather than achieving the full potential of these new technologies.

Overall, NFT games incur two main problems: a high barrier to entry and an unsustainable player base. We will now analyze these challenges and explore possible solutions.

High barrier to entry

GameFi is a premium model, but blockchain offers solutions to transform it into free-to-play.

Gaming guilds emerged to solve the financial barrier to entry of blockchain games through arrangements called “scholarships.” Guilds purchase game NFTs and lend them to players, collecting a percentage of the profits they earn. More NFT games are facilitating these arrangements within their own platform, making them effectively free-to-play for everyone.

Gaming guilds also play a crucial role in building communities of gamers and assisting game developers in designing better games. Guilds are also building better infrastructure for managing scholars, banking, and token launchpads, which allows game projects to outsource complex community-building tasks and focus on developing the best possible game for players.

Unsustainable player base

As previously mentioned, the challenge of an unsustainable player base stems from players treating the game more like a job than a hobby. A number of NFT games lean into their potential for players to earn, but how long can this model really last?

Figure 9. Daily new users of Axie Infinity, Defi Kingdoms, and Pegaxy

The general trend we can observe from Figure 9 is that the time it takes for NFT games to reach their peak in terms of daily new users is getting shorter. It took Axie Infinity, the OG, three years to reach its peak. It took Defi Kingdoms a year and half, and for Pegaxy, only a matter of months. This cycle has been exacerbated by speculators who support the game early on, take profits, and move on to the next opportunity. The cycle repeats faster and faster until the rewards for playing are too small to justify the initial investment.

The solution

Today, it’s clear that only the games that provide real entertainment value will survive this boom-bust cycle through compelling narratives and innovation. These games will shift the motivation of players to the play-and-earn (P&E) model. In P&E games, monetary rewards are not the focus nor even a requirement, but rather an extra bonus on top of the game’s true purpose: having fun. From now on, the gameplay, content, and social elements of games will be the most crucial drivers of success for NFT games.

To do so, we can combine several approaches to redesign the tokenomics of Utility tokens.

  • Control inflation according to user growth. The inflation rate should be curbed when supply exceeds demand and vice versa.
  • Incentivize real utility for the token, not limited to minting NFTs. This is more of a stick and carrot game. Suggestions: Earning capability; limited Pay-to-win; unique customization of game content through open-source tools.
  • Selective Rewards should be based on levels of contribution. As such, highly skilled players on the top leaderboard make the game more challenging and addictive to ordinary users, streamers support player engagement with compelling content, and early-stage guild managers don’t sell but mint more NFT to grow the ecosystem.

This way, the potential of blockchain and NFTs in gaming will be more fully realized with less contamination from mercenary speculators.

3. Conclusion

For the long-term sustainability of games, whether they involve NFTs or not, game developers should always focus on user experience. When they market their products, they should direct attention to the gameplay, i.e., the play rather than the earn. The Play-to-earn model may not disappear, but it is already losing relevance as more enjoyable Play-and-earn games are introduced.

NFTs and fungible tokens should be used for more than just in-game earnings; there is so much potential to be explored in the ownership and customization of game NFTs. Last but not least, gaming guilds will continue to play a role in removing barriers to entry and driving community growth for NFT games, which helps game developers to focus on the game itself.

Game developers now have a choice to make: Follow the old models, or adapt to these exciting new technologies.

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CyBall is a turn-based card game in which users create teams of NFT cyborgs (known as CyBlocs) to train and compete against each other in soccer matches, earning rewards based on tactics and skill. Just like in real soccer, superior strategy and a little luck can always tip the scales in favor of the underdog.
2021 - Emergence of the GameFi Era
During this great Emergence of GameFi in 2021, many blockchain gaming services were launched, facilitating capital flow into the industry. In this report, we analyze the GameFi on ecosystems, the funding landscape, and breakthrough services of last year, namely Guilds and Launchpads.
  • The state of monetization models
  • Introducing NFT Gaming
  • Conclusion