NFTs for games sounded like a great idea; games are played online, so it makes perfect sense for a digital-native asset to represent items in an inventory or skins a character wears or commemorative art pieces. But game publishers have faced high degrees of backlash for announcing initiatives that make use of NFTs.

What caused such a wide rift between the potential and the reality of NFTs in the gaming industry? And what can be done to help bridge that gap? Before trying to come up with a solution, we first need to define the problem.

Problem: Gaming NFTs Suck

Centralized business models are fundamentally incompatible with decentralized technology. This is because they are designed to centralize ownership of a brand and then extract all the value that accrues to it. Such models are antithetical to crypto, where the point is to distribute ownership amongst users and subsequently share in the accrued value. Put simply, there is nothing in a publisher’s playbook that is better suited for a blockchain than a private database.

For this reason, customers intuitively understand that NFTs issued by a centralized publisher amounts to little more than a cash grab, trying to capitalize on “blockchain” branding to extract a premium from sales.

For example, Ubisoft’s initial NFT offering consisted of helmets with unique serial numbers for players of *Ghost Recon Breakpoint *to adorn their characters with.

The unique serial number of each Ubisoft NFT is indeed derived from an entry recorded on the blockchain, but their value is not tied to this entry in a meaningful way. Moreover, the NFT does not leverage the two most important characteristics of assets created on-chain: persistence and ownership. Persistence refers to how the asset remains in your wallet regardless of if the issuer goes bankrupt or stops supporting a game. Ownership means that you have complete sovereignty over the asset and can do what you want with it without permission from the issuer.

Persistence a pretty weak argument for NFTs in general, but especially so with ones from centralized publishers. Because they were issued specifically for use within the context of Breakpoint, if the game goes down, it would not matter whether they were on-chain or not; their value will be reduced to zero because they cannot be used anywhere else.

Had Ubisoft designed these NFTs to represent in-game wearables across multiple games in their portfolio, their claim to using blockchain would be stronger because a distributed ledger excels as a single source of truth for multiple applications.

Ownership is a weak argument for related reasons. Because the NFT does not have usefulness outside of a single game’s ecosystem, the fact that ownership records exist on a public ledger does not make the information intrinsically more meaningful than if they existed in a trusted database. If the goal was to use the blockchain as payment rails, purchasable content has been a part of gaming for decades without NFTs. If the goal was to stimulate a secondary market for the skins, doing so without blockchain is a solved problem.

Universally provable ownership would matter if the NFTs represented some type of stake in the underlying brand, such as voting rights or a percentage of revenue. However, as previously stated, this would conflict with everything the publisher knows about monetizing games and probably appears too risky.

In the absence of strong arguments for why the NFTs should not just be database entries, gamers are rightly questioning whether the publishers have their best interests in mind.

Blockchain-Native Games

Games like Axie Infinity were designed to use NFTs as core pieces of their gameplay. So, while the value proposition is much better suited to a decentralized environment than NFTs from centralized publishers, they still face adoption issues. One is that their startup cost is much higher. Axie Infinity, for example, requires three “Axies” to do anything in the game, but the cheapest ones are nearly $40 (even in Feb 2022, after all crypto prices took a big hit). But at its peak in November 2021, a minimal viable Axie team cost more than $1,000.

They also experience negative feedback loops when it comes to achieving scale. Due to the nature of the token economy, the more successful a blockchain-native game becomes, the higher the barrier of entry is, like with the $1,000 team. But even if players are willing to swallow initial costs, it is challenging to design game tokenomics that can support the high prices. Axie Infinity experienced this firsthand; more players joining caused reward tokens to flood the markets, nearing hyperinflation status. Coinciding with the market correction around the beginning of the year, this caused the token to crash from $0.28 to less than $0.01, significantly decreasing the monetary incentive to play.

In December 2021, Axie Infinity had 2.5 million monthly active users. During the same period, free-to-play Fortnite had nearly 25x that with 62 million. These numbers seem to confirm that Fortnite’s feedback loops attract players at scale, while Axie’s rejects them.

Lastly, play-to-earn games are not very fun. Check out this Twitter thread on these dynamics. The overarching point is: while blockchain-native games have a better claim to using NFTs, they can still benefit from seeing how tokens can be used to create better player retention that is not tied to market conditions.

Solution: Community Driven NFTs for Centralized Games

Instead of trying to act as a central issuer for NFTs, game publishers should instead focus on community enablement that lets players contribute creatively to the game’s ecosystem. Practically, this would manifest as allowing players to create NFTs based on the game’s lore. Doing so would produce three outcomes: aligned incentives with the player base, influx of user-generated content, and improved IP monetization.

Using the Ubisoft example, instead of being a central issuer and launching a skin themselves, they could introduce an SDK or interface that defines skin specifications and enables the community to design their own. The player expends time and effort to create the skin, tying it to their identity, which forms an intrinsic emotional connection. When they mint it on-chain, there is meaningfulness in the fact that it is a provably ownable digital asset because it is as unique as the player.

A flexible platform that gives users a sense of agency in how they experience the game enables positive feedback loops in player growth. For example: a core group of players creates cool skins, which inspires those that they play with to create some of their own, which further spreads word and excitement. Greater amounts of user-generated content gives publishers more data to analyze to improve the game, allowing them to iterate much faster.

To mint a skin, players would still have to go through the “official” smart contract. Certain guardrails could thus be programmed in, such as securing a percentage of royalties from secondary sales for the publisher and giving the publisher rights to remove skins deemed unfit by community guidelines. Minting would essentially be tantamount to a franchise agreement that allows the player to use the underlying brand IP in the form of the skin while allowing the publisher to have final say in whether it can exist.

Allowing outside parties to leverage the brand in this way would create a revenue stream for the publisher while expanding the audience. Imagine a major gaming sponsor releasing a set of limited-edition skins and marketing them to their fans. Fans of the sponsor, but not (yet) the game, may buy one and start playing just to show support for one of their favorite brands. Most importantly, the NFT sale benefits all parties; the publisher receives royalties and recognition, the sponsor works a novel brand angle, and the players can show off their sponsor swag.

NFTs do not need to be limited to just skins, either. The publisher could set up IP licensing for art, or for film rights, or even for derived games. IP management thus becomes much more streamlined. If a piece of online content cannot prove that it is linked to the official smart contract, the publisher can take their standard legal action. Only with a public ledger can fan-created content and a centralized brand co-exist and create positive-sum revenue.

Engaging in the steps described above requires a complete shift in business philosophy, because again, the centralized publisher model is fundamentally incompatible with crypto. They must become comfortable with the fact that they will not be able to hoard all value derived from the brand. But in relinquishing some of that control, they can mobilize their entire community as evangelists and creators at a scale that they could never achieve through traditional methods. It should thus be a shift that they embrace whole-heartedly.