Author: Tobin Kuo, Founder and CEO of Seraph

The Play-to-Earn (P2E) model has essentially collapsed, a model that once promised anyone could earn digital assets through gaming and convert them into real income.

In the first quarter of 2025, Web3 gaming funding plummeted by over 70%, with several major projects announcing closures, and player engagement is declining at an alarming rate.

Tobin Kuo points out: "This crisis reveals a fundamental error—rewarding gaming behavior with highly volatile tokens turns every player into a speculator, making every game update a market risk factor."

This model tightly binds entertainment to fiat currency, with project survival relying on a continuous influx of new users willing to invest. Once token prices stabilize, the entire structure collapses. In light of this new reality, the industry must shift towards a model that prioritizes asset utility and long-term engagement: Play-to-Own (P2O).

Critics may insist that P2E can still empower emerging markets or argue that token incentives are crucial for player growth. However, data and market results tell a completely different story.

The P2E model is built on a foundation of token inflation, where developers mint tokens as rewards for in-game activities, hoping that increased engagement can offset sell-off pressure.

Indeed, this model was briefly effective; user numbers grew, and token prices soared. But once price momentum disappeared, the wave of exits accelerated. Recent reports show that the number of daily active wallets in April 2025 hit a year-low of just 4.8 million, down 10% from the previous month.

This is not a temporary adjustment but a structural collapse. Players entering mature P2E games later often face diminishing returns, and the appeal of participation significantly decreases. As players exit, liquidity dries up, token values fall, and developers lose a critical source of revenue. This vicious cycle continues until both the player base and project funding are exhausted.

Traditional online games never expect users to view in-game currency as a financial asset. Once this happens, the gaming experience faces market volatility risks that most players neither understand nor expect.

P2O offers a more viable development path by decoupling gameplay from token issuance. This model does not inject rewards into the economic system in large quantities but treats digital items—skins, weapons, avatars, etc.—as fixed supply assets that players can trade in secondary markets. These items, as collectibles with provable scarcity, derive their value from in-game utility and aesthetic appeal.

Recent market research strongly supports this direction. Professional analysts point out that the NFT gaming sector is expected to maintain a nearly 25% compound annual growth rate (CAGR) through 2034, driven primarily by ownership rather than speculative behavior. Notably, in traditional gaming, players have long assigned value to rare digital goods—blockchain technology merely makes this value portable and verifiable.

To achieve success with the P2O model, developers need to make strong design decisions. They must create engaging games that give ownership real significance. Decorative items, virtual land, and upgrade components should be released in limited quantities and equipped with well-designed consumption mechanisms to control supply over the long term, thus avoiding the inflation issues that plagued the P2E model.

Critics argue that the resale market will attract speculative profit-seeking behavior, but this viewpoint can be countered in two ways. First, secondary trading is healthy when it reflects the characteristics of the physical collectibles market, with price fluctuations primarily based on perceived cultural or aesthetic value rather than a predetermined token issuance mechanism. Second, a well-designed consumption mechanism can remove assets from circulation and stabilize supply, which is essential.

Ownership does not equate to permanent inflation. Instead, it requires active market management and maintenance.

Industry experts note that there is an astonishing failure rate in the Web3 gaming sector, with over 90% of announced blockchain game projects having failed. Data shows that GameFi projects have generally dropped 95% from their historical peaks, with most projects surviving for less than six months before disappearing.

The current state of the Web3 gaming market operating under the P2E model is concerning, with most failure cases committing the same error—placing cash extraction ahead of the gaming experience.

Industry observers indicate that in these projects, tokens come first, and the gaming experience lags, which players have clearly noticed. In contrast, a few surviving projects that have shifted towards fixed supply assets and robust consumption cycle mechanisms still show an upward trend in user wallet activity, even amid a broader industry funding drought.

The P2E model promised a revolution but only delivered a brief period of prosperity. Many once-coveted projects have vanished, and even survivors are turning towards fixed supply economies and deeper gaming loops. These shifts reflect a consensus: the core mechanism of P2E—earning and then selling—is unsustainable at scale.

Market analysis indicates that projects adhering to token issuance-based reward models may face continued shrinkage, especially as user growth slows and capital attitudes become more cautious. In contrast, games built around ownership rather than asset extraction may successfully weather the current funding winter and emerge stronger in the future.

The blockchain gaming sector currently does not need more incentive mechanisms but rather higher-quality games and healthier economic models. This shift should begin with abandoning the token drip model and building game ecosystems that encourage players to remain engaged long-term, even after short-term earnings disappear.

Viewpoint presented by: Tobin Kuo, Founder and CEO of Seraph.

Related: DefiLlama data shows LetsBonk surpassing PumpFun in 24-hour revenue.

Original article: “Burn Tokens, Keep the Loot: The Play-to-Own Model Becomes the Next Trend”

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