Sustainable Play-and-Earn Game Economy - Part 1: Lessons from F2P and Spend-To-Earn ratio

Paradise Tycoon
9 min readMay 6, 2022



While Axie Infinity’s enormous success has undoubtedly brought a lot of new players and publicity to blockchain gaming, it has also been suffering from an unsustainable game economy along with similar games from the so called GameFi 1.0 generation. In short, Token and NFT prices decline when the increase in daily active users (DAU) is slowing down and players quit when the return of investment (ROI) decreases. A destructive chain reaction is caused by tokens with no supply cap (Fig. 1), inadequate inflow mechanisms, a market saturated with new NFTs and of course, players that are only playing to earn

(Here’s a couple of really good articles on the topic by Deconstruction of Fun, DeFi Vader and Eva Wu)

Fig 1. High increase in DAU results in SLP supply exceeding burned SLP tokens in Axie Inifity [Defi Vader — Axie Inifity Part 2: Sustainability]

In the article series called “Sustainable Play-and-Earn Game Economy”, I will deep dive into the game economy of Paradise Tycoon, explain how the team has addressed the above-mentioned issues and ultimately how we can mitigate the effect of the crypto market cycles on the game economy.

Free-to-play monetization and game economy

The Idle Tycoon-games we have developed and published in the past gives us lots of experience on the do’s and don’ts of in-game economy. Some would argue that the F2P game economy can’t be applied to Play-and-Earn (PAE) games because the in-game currency has no real value, and therefore you do not need to worry about recession. This is not true.

“… companies like Supercell operate an ad-free revenue model where revenue is generated from in-app purchases …”

If the F2P game economy is unsustainable it is almost impossible to make the game profitable and here’s why. While some developers focus on in-game ads, many successful games companies like Supercell operate an ad-free revenue model where revenue is generated from in-app purchases (Fig. 2). At Empires, we preferred a hybrid of ads and IAPs (in-app purchases) model. However, applying a strict policy of no forced ads. The main source of new players has been paid user acquisition (UA), with an average Cost Per Install (CPI) ranging between few cents to tens of dollars depending on targeting and optimizing. For the game to become profitable, this is the minimum return of investment needed to monetize with the ads and IAPs, sometimes over a very long period of time.

Fig 2. Top games publishers by European revenue in 2020 on the App Store and Google Play. Most of them publishes free-to-play games [sensor tower: state of mobile gaming 2021].

In a bold act of simplifying the IAP monetized free-to-play games design, I have written three simple laws to create a foundation for profitable free-to-play games.

First Law: The game should have a high entertainment value, i.e. it should be fun and keep the players engaged over a long period of time (good retention!)

Second Law: The game should have well-designed in-app purchases to increase the entertainment value further without conflicting with the first law.

Third Law: The game should have recurring purchases to add more entertainment value without being in conflict with the first or second law.

Let’s return to Axie Infinity for a moment to reflect on the first law. In a Reddit poll with around 2000 votes, 83% of them answered that they would not play Axie Infinity without the earning potential (Fig. 3). Let’s call these earn-first players. We can assume the rest of the players are enjoying the entertainment value of the game enough to play it without the earning potential, the so-called games-first players. And then we have investors who are mostly speculating on token value. Of course, the player base is never really this polarized but rather a spectrum. Regardless, it’s obvious that Axie Infinity was designed for earn-first players. The entertainment comes from earning and not so much from the gameplay. Being very early in the crypto space, Sky Mavis did a wonderful job at this.

Fig. 3. The infamous poll on reddit undermining Axie Infinity’s entertainment value

However, as we move towards GameFi 2.0 it is inevitable that the games-first approach takes over with a focus on entertaining gameplay and sustainable economies while still being lucrative for the players.

Most of the play-and-earn games lack a free-to-play option. To get started players need to purchase NFTs, which are sometimes very expensive. In free-to-play games, the players decide if they find it entertaining enough to spend money (or watch ads) after playing the game for a while. After the initial NFT purchase in games designed for earn-first players, players can further spend tokens to increase profit.

GameFi 2.0 needs New Metric

The second law to monetize free-to-play games is to design IAPs which increases the entertainment value of the game. Success can be measured by Paying User Conversion (PU%) and Average Revenue Per Paying User (ARPPU) compared to the Cost Per Install (CPI), which determines the profitability of the game (Fig. 4). These are very brutal and honest metrics which can decide whether the game has a future or not.

Fig 4. Average Revenue Per paying User (ARPPU) in Mobile Games H2/2018-H1/2019 [Mobile Gaming Industry Analysis for H1/2019]

Play-and-earn games have a huge advantage over free-to-play games because the IAPs can increase the entertainment value but also have earning potential. Meaning there can be a whole spectrum of different types of IAPs and the economy will remain sustainable, as long as we optimize the player incentives to spend tokens. Free-to-play metrics like PU% or ARPU can’t be directly applied to measure this, so I made up one. I’m going to call this metric the Spend-to-Earn ratio (STE), but let’s leave it hanging for now and get back to it later.

“…Play-and-earn games have a huge advantage over free-to-play games because the IAPs can increase the entertainment value but also have earning potential…”

Third law is to make the purchases recurring, and it could be the most challenging one. The fundamental requirement is to keep the players engaged long-term. Games designed for earn-first players can have astronomical long-term retention (day 30 or day 90) compared to free-to-play games. This is understandable if you think about the concept of earn-first, which is basically, a job. Retention should be considered as one of the main KPIs for games-first approach as well, although we might need to settle for lower numbers. What makes retention so important is that typically conversion rate to a returning buyer is higher compared to a paying user conversion rate. Therefore, a successful game design generates high life-time value (LTV) with recurring sinks to which players will periodically spend more money making the game experience more fun.

Balancing the economy with the Spend-To-Earn ratio

Now we have the foundation for a sustainable economy, a gameplay with high entertainment value keeping players engaged with recurring sinks to which they can spend tokens to be more entertained, and possibly increase earnings. However, if the increase in earnings is excessive or the IAPs with lower effect on earnings are not entertaining enough, it may create a flux in the game treasury with devastating results as we have seen happen before.

Therefore, the inflow (total spent tokens) and outflow (total earned tokens) must be in balance, and a proper metric to look at would be the Spend-to-Earn ratio. STE is the ratio between tokens a player has spent in-game and the tokens earned. The spent tokens include any tokens spent, whether earned, gifted or bought from an exchange. The earned tokens include any tokens received from in-game treasury. In Paradise Tycoon those would be the NPC traders, quests & event rewards. STE is a close relative to ROI but to avoid confusion, in this context ROI gives the potential return of the investment permitted by the game economy as a function of time, whereas STE is a player performance-specific metric that gives developers the data of what the actual return average is.

Fig 5. Speculated Gaussian distribution of spend-to-earn ratio among players required for sustainable game economy

A high average STE (above 1.0) retains sustainability of the economy, and just like higher PU% and ARPU are pursued in free-to-play games, developers of play-and-earn games should pursue to increase the portion of players with higher average STE. Likely STE will be distributed according to Gaussian distribution with values between zero and ∞ (Fig. 5). STE can be optimized by adjusting the size of the rewards, IAP’s effect on earning, or designing IAPs with entertainment value only, with the last one being most efficient. In the end, it all comes down to how well the game and the IAPs have been designed, just like in free-to-play (Fig. 6).

Fig 6. High Scale schematic of balanced token inflow & outflow in Paradise Tycoon

The simplified example below demonstrates how a player’s STE is determined.

A player enters Paradise Tycoon with no previously bought NFTs or Moani tokens. The player begins farming crops and collecting resources, and exchanges the resources with NPC traders for a few tokens. At this point, the player’s STE is 0, but soon the player’s tools need repairing. To keep up the good progress, the player pays for the repair with tokens. After a while, the player has built a nice little villa but is eager to customize it with an IAP. Each of these steps will gradually increase the STE.

Sustainable and engaging game economy

“…some players can earn more than they spend even to a point where they can make a living out of it, others will happily spend more tokens than they have earned…”

For a sustainable economy, spending tokens should always increase the entertainment value. While some players can earn more than they spend even to a point where they can make a living out of it, others will happily spend more tokens than they have earned. For most players, gaming is entertainment, not a job and it is the first that enables the latter.

Fig 7. Schematic presentation of average spend-to-earn as a function of time in earn-first (GameFi 1.0) and games-first (GameFi 2.0) approach

As mentioned before, in Axie Infinity the earning is the entertainment and not the gameplay. However, we can still evaluate the average STE Axie Infinity players would likely have as a function of playing time (Fig. 7). The average STE would be extremely high at the beginning because of the initial purchase of Axies, gradually decreasing as players keep playing the arena, completing daily quests, breeding more axies and withdrawing value. Although breeding has its limitations, the $SLP supply is not capped and in theory the STE can go all the way to near 0. Opposite behavior of STE at early-stages of the game would be a great way to on board players and engage them with low spending, to gradually scale up.

However, a certain level of caution is advised as any early stage earning can potentially bring in a lot of bots. This issue can be mitigated by using gates, or withdrawal limits which we get back to in the next article discussing Paradise Tycoon economy.


We have now covered the foundation, and the design of the recurring sinks. Next, we will take a look at the different token models and what we chose for Paradise Tycoon. In the third part we will take an in-depth look into Paradise Tycoon in-game economy and showcase the in-game features regulating the token inflow (including player-to-player economy) and outflow. We will also expand on how NFTs fit in all this and why the topic has not been touched yet! The final part we will analyze how the game economy reacts with the market.

Timo Juuti

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