Is Free-to-Own the new Paradigm for GameFi?
0xed11
November 16th, 2022

Author: @0x长安 | @RealResearchDAO

Foreword

The process of blockchain games has changed from Play-to-Earn to X-to-Earn, and now Free-to-Own. A constant shift is seen in this specific industry of the blockchain world.

In the first half of 2022, the proportion of GameFi in the entire blockchain industry has gradually increased, with a total investment of $22.5 billion. The GameFi sector accounted for 16.4% of the total investment in blockchain of $3.7 billion.

The investment institutions have a relatively high awareness of GameFi. As a daily entertainment for people, games are highly accepted and easy to go viral, bringing incremental funds to the crypto market.

This article mainly explores the mechanics, advantages, and disadvantages of the new concept of Free-to-Own.

1.The Definition of Free-to-Own

After experiencing Play-to-Earn and X-to-Earn, the crypto market has witnessed a new concept: Free-to-Own. Before talking about Free-to-Own, we must first understand Digi Daigaku and Limit Break. The latter has brought the definition of Free-to-Own to the market.

Digi Daigaku chose to stealth launch and provide free mint on August 9 without any public information exposed, which was completely different from the traditional NFT publish method.

Limit Break is the company behind Digi Daigaku. On August 29, Limit Break announced that it had obtained a financing of $200 million. With the help of this financing news, the floor price of Digi Daigaku exceeded 15 ETH.

Limit Break believes that the Free-to-Play model is outdated and Free-to-Own will replace Free-to-Play. And later introduced to the market the concept of Free-to-Own (F2O).

Free-to-Own (F2O) is a concept based on Free Mint. Holding genesis NFTs will obtain subsequent NFTs through airdrops or other methods, none of which needs to be funded.

2.The F2O Business Model

2.1 Differentiated pricings

In traditional e-commerce platforms, sellers prefer to have a rich class of buyers and multi-level pricings of products. For example, if the price of luxury goods is higher, the audience will naturally be smaller. But sellers want more people to buy their products, what should they do? The answer is differentiated pricings.

But if you want to differentiate pricings based on consumption habits and mobile phone models, it will definitely not work. Buyers don’t want the price of the goods they buy to be higher than others. The traditional e-commerce approach is to use consumer coupons to distinguish the prices of commodities. If the consumers want to buy commodities at lower prices, they need to work hard to grind the consumer coupons by referrals, bargaining, etc.

Buyers with high consumption levels feel troublesome and will buy items at the initial price. Buyers with lower consumption levels will earn their consumer coupons in various ways.

Play-to-Earn treats everybody equally, all items that need to be purchased were at the same price. While Free-to-Own differentiates pricing for its consumers. Those with strong purchasing power can buy NFTs in the market, while those with weak purchasing power can also obtain airdrop income by playing games or other methods.

2.2 Ways of earning

Traditional Web2 game manufacturers make money by selling games, providing free games, making profits by improving players' experience, and advertising.

In Web3, the game developers make profits by selling NFTs, releasing tokens in the game, and handling NFT royalties, retaining a certain percentage of game products, and selling them to players at market prices.

Take StepN as an example: the dev team airdropped 10,000 pairs of Genesis shoes in the initial stage, and two shoes will breed a smaller shoe. As a result, users can buy shoes in the secondary market to breed more shoes. At this time, the number of shoes will explode, with more users entering.

In the process of trading shoes, StepN will receive 4% of the transaction amount as royalties, and the team also owns 14.2% of the total supply in $GMT token.

Many people may have doubts. Since Digi Daigaku is obtained by Free Mint, and will be rewarded by airdrop in the future, how does Limit Break make money?

Digi Daigaku has set up royalties of up to 10%, as of now: Digi Daigaku’s total trading volume on OpenSea is 9301 ETH, meaning Digi Daigaku has already earned 930 ETH in revenue.

In the future, an ecosystem will be built around Genesis NFT, which will be given to Digi Daigaku holders by airdropping NFT. There will be more and more ecological NFT collections, and the gaming systems will also increase, encouraging players to trade with each other and freely circulate NFT.

3.F2O's Gameplay & Mechanics

Although F2O was introduced by Limit Break, before Digi Daigaku, there were also projects that adopted F2O's gameplay. ill poop it nft is one major profound example. I intend to explain the mechanics of F2O by introducing ill poop it nft.

ill poop it nft was also released in the form of Free Mint, and the core mechanism was also more interesting: the project owner empowers NFTs at various stages, implying that each NFT will be useful, giving players the confidence to hold. And by empowering the creation of NFTs and creating a new series of NFTs, it not only takes care of the original holders, but also lowers the entry barrier for new users.

In the first stage, a total of 10,000 ill poop it nft came out as free mint.

In the second stage, they made the official announcement of the second-generation NFT collection - ShitBeast. ShitBeast is divided into two types:

The first is Genesis ShitBeast, with a total of 3095, users can combine two ill poop it nft into one Genesis ShitBeast, with an airdrop of 10 billion $SHIT tokens

The second is the ordinary ShitBeast, with a total of 6095 pieces, users can mint directly on the official website, the price is 0.06 ETH.

In the third stage, a new series of NFTs was launched - ShitPlunger. Owners of Genesis ShitBeast will directly receive ShitPlunger as airdrops. Holders of ordinary ShitBeasts need to purchase ShitPlunger from the secondary market with $SHIT.

In this step, the project owner continues to empower Genesis NFTs in the form of upgrade + additional issuance. Genesis NFT can continue to make profits in the ecosystem and protect the interests of early-stage holders, because there is still the expectation of continuing airdrops in the future to make them hold it.

The added NFT can also make the ecosystem stronger, allowing players who enter the game at each stage to gain a sense of game experience. Since the main storyline of NFT is relatively simple, it may not be very intuitive. If it is replaced by GameFi, the expansion of the ecology will enrich the gameplay and lower the entry barrier for new players accordingly.

Of course, the number of airdrops is limited, and the size of the game's ecosystem determines the life cycle of the game. Once the game ecosystem expands to a certain extent, a large number of airdropped NFTs need to be purchased by real users. When there are insufficient new players, a price crash will occur.

The reason why the floor price of ill poop it nft can be maintained stably is because the developers have empowered various parts of the ecosystem. In the F2O model, the airdropped NFT must be valuable before someone is willing to buy it. The value support of Genesis NFT also comes from the development of the entire game ecosystem and the value of subsequent airdrops.

What is the source of the value of subsequent airdrops? The main storyline of NFT is very simple, so the value support of ill poop it nft is more the airdrop reward that will be brought later.

F2O has a relatively large room to control in the game. In Web2 games, there is an organic huge group of players. They focus on the gameplay experience and are willing to buy in-game items, skins, etc., to improve their gaming experience. Usually these game items are priced and sold by the game developers, but in F2O, most of the game items and production materials are produced by the players themselves, and the produced items can be circulated in the market and be consumed by players who have their demand.

4.The Pros and Cons of F2O

Pros

4.1 Users are risk-free from rugpulls

Gabrie, the founder of Limit Break, said that the approach of free mint can dispel users' concerns about rugpulls with the project. Players don't have to worry about paying for assets and then waiting for a game that may never come true.

In the era of Play-to-Earn, many GameFi first sold their NFTs and Lands to collect start-up funds. Since the original GameFi narrative has slowly become unappealing, the project parties also recognized the status quo. Even if the game is launched, it will not attract many players. If no one cares about the game itself, the originally designed token will naturally have no value. The project parties will no longer be able to obtain follow-up funds after the game is launched. Therefore, many GameFi project parties chose to soft rug, and the game will never be progressed, with only a few occasional updates on Twitter.

4.2 Players prefer to indulge in F2O

In the X-to-Earn model, players first need to purchase the NFT from the market to start participating in the game. This also means that players must calculate the return before playing the game. The higher the return and the larger the game system, the more popular the game will be.

After the player participates in the game, the tokens produced in the game will be sold to the secondary market, because the player needs to earn back the invested funds first. Grinding and selling is a very common thing in GameFi.

In the F2O mode, the players don’t have to pay for their items , and hence don’t need to care about the return cycle from the beginning, and the subsequent rewards obtained by holding the Genesis NFT may be greater, so players are more willing to experience the fun brought by the game.

4.3 More audience

In Play-to-Earn, the faster the players earn back their invested funds, the more players will be in the game. And the more players, the higher the price of the game entry coupon NFT will be. The higher the price of NFTs, the fewer people will be willing to enter the game. Once the players who enter the market cannot support the price of the token to keep a balance/increase, GameFi will fall into a death spiral.

Therefore, the project parties don’t hope that the entry barrier being too high and the willingness of potential users to enter the market weakens. However, this problem cannot be well solved in the original Play-to-Earn mode.

In the F2O mode, since there is no need to invest any funds, players no longer need to spend money to buy NFTs to play the game before entering. Therefore, in terms of the number of players, the number of players in F2O must be greater than the number of players in the P2E mode.

4.4 The game content is more substantial and beautiful

In the P2E era, many anonymous project parties can sell NFTs and obtain an ideal income. Project parties that are short-sighted choose to rugpull, without taking the risk for subsequent development.

F2O requires the project team to create the game, and the game needs to be in a fully delivered state. Only when the game is running and players are interested in the game and trade the game's assets can the project make money.

Compared with P2E, F2O has a certain contribution to the project party, because the project party first needs to pay the cost. The project party lives with the market. Only by creating excellent games can it be possible to recover their initial funds and earn income.

So the difference between P2E and F2O is like, P2E is working for people, whereas F2O is like starting a business.

Cons:

4.5 High royalty draw

ERC-20 tokens can be used as an example. In a bull market, the price of a certain token is pushed up because of the participation of speculators. Speculators think that the token is organically profitable and expected to rise, and they will choose to buy it.

In the process of price rising, some people choose to sell after the price has reached their expectations, and some people think that the rise will continue. Therefore, in the process of buying and selling, the trading volume is actually very large.

But this all stems from the fact that a large number of investors believe that it is profitable, and the high royalties will suppress the desire of investors to sell. For example, if the current floor price of a Digi Daigaku is 9.5 ETH, the actual placed order of a Digi Daigaku sell has to rise above 10.45 ETH can the seller be considered to protect its capital. The higher the price, the more royalties are collected from the investors, and the number of speculators will be greatly reduced.

4.6 Botting

Low entry barrier will also be a double-edged sword. The first thing Musk did after acquiring Twitter was to launch Twitter Blue. Users can pay $8 a month to get verified, so as to reduce robot comments.

In Castaways, the botting problem is very rampant. In the points competition launched by the official, the top ten winners are all robots (the subsequent rewards will be screened out by the official and excluded).

Too many robots will speed up the process of the game and the prices of materials produced in the game, causing the irrational prosperity of the game ecology and destroying the game experience of ordinary players.

4.7 Insufficient exposure of the project

The start-up stage of F2O projects will be difficult. Unlike Play-to-Earn, which sells NFTs to raise funds first, F2O requires a development team to start with its own funds.

Therefore, for a small development team, the funds will be focused on game development, and the expenditure on media exposure will be relatively small, which is not very friendly to the start of the project.

4.8 Too many stakeholders

Binance's CEO CZ also commented on F2O: "If everything will be free in the world, why do we have to work so hard..."

This sentence well explains the problem of F2O. Under F2O, Genesis NFT holders will be continuously rewarded and empowered, so it is destined that the number of Genesis NFTs will not be too much, otherwise the life cycle of the game will be very fast.

In this case, there are too many vested interests in the early stage, and genesis NFTs only exist in a small number of people. These holders will continue to receive airdrop rewards and sell airdrops to cash out as simple as holding the genesis NFTs. So in essence, F2O and P2E are the same. They are all leeching funds from the ecosystem. The only difference is F2O has a longer life cycle and that’s it.

5. Conclusion

In general, the F2O concept introduced by Limit Break provides a good idea for blockchain games. Players' attention will gradually shift from Earn to Play, which was originally heavily financialized and covered with DeFi under the disguise of GameFi. The pattern of blockchain games will gradually be shifted.

It is foreseeable that in the future, blockchain games will be more and more specialized and institutionalized. After the entry of traditional game manufacturers, the playability of blockchain games will certainly be greatly improved.

References

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