Introduction

This post will explore the tokenization of communities and ‘X-to-earn’ of leading protocols such as Axie Infinity, StepN, and RabbitHole. In doing so, we will understand the culture of these protocols to identify what makes a sustainable and ideal x-to-earn protocol.

X-to-earn as a concept is quite controversial, and this post will explore various perspectives to identify the benefits and drawbacks of tokenizing communities with an x-to-earn mechanism.

What is X-to-earn?

‘X-to-earn’ has become a recent phenomenon in the past year, spawning concepts like; play-to-earn, walk-to-earn, and learn-to-earn. Tokenisation of each community has provided an opportunity for individuals to earn X token through an act that would not generally be rewarded in the traditional world.

The opportunity to earn money for tasks we take for granted, such as gaming or exercising, is now gamified and tokenized, providing users a chance to be financially rewarded. The current gaming ecosystem revolves around gaming companies, professional gamers, or streamers who mainly earn money from games. Now that script has been flipped, with an everyday user being able to earn money from games or tasks.

But does it come with a twist?

Completing activities such as learning or exercising can be a joy or a burden. Some of us love exercising, while some of us do not. Could tokenizing these activities encourage users to find joy in tasks they once hated? Could this be a boost of motivation for those tasks that some find mundane?

X-to-earn encourages the user to focus on a task, and in the short term, you are rewarded with an X token, which might have a monetary value, but what happens if you solely focus on the reward? Does it strip away that feeling of ecstasy when you finally reach that long-term aim?

X-to-earn plays a lot on the psychology of the mind. We should contemplate the power of x-to-earn and its suitability for specific tasks. In some cases, this could do more harm than good or it could nurture a mindset of short-term gain rather than long-term. We have seen the damage that social media has done to one’s attention span, could x-to-earn have a similar effect?

Axie Farms

Overview

Axie Infinity involves having a team of three Axies which are characters you will use to fight another team of three Axies. In playing these games, you would earn $SLP (Single Love Potion), a currency within the game that can also be exchanged for fiat money (GBP, USD, EUR). Another currency $AXS was used in-game for breeding purposes to generate more axies.

Each Axie was a Non-Fungible Token (NFT) meaning that you had complete ownership of that asset, meaning that players could buy and sell Axies on the marketplace. In comparison to owning a party hat on Runescape, you “owned” it within the game, but did not possess complete ownership. Creators of Runescape had the power to remove items from a player's inventory, and you could not take a party hat outside of Runescape. Unlike party hats, NFTs are owned by a user and no one can take that away.

Axie Infinity has a simple turn-based mechanism meaning that it is possible for everyone to play the game, and at the peak of the Axie Infinity craze, ‘farms’ of phones were used to capitalize on the financial gain.

Scholarships

Scholarships were introduced to the game, as the cost of an axie team during the bull market had risen to around $600 minimum. These scholarships provided an opportunity for those financially restricted to play the game, and they would split the profit with the original owner of the axies. Scholarships took ‘play-to-earn’ to the next level, formalizing a structure to create a business within the ecosystem.

A standard split between player and owner would look like this.

1. Player: 70-80%
2. Owner: 20-30%

Scholars would see an increase in their percentage of earnings, the longer and better they played. It was a great retention mechanism, similar to a salary increase, that helped owners retain their players. However, this simple P2E game had its own industrial revolution.

Scholars created phone farms of different axie accounts to play as many games as possible, farming as much SLP. It became a job but a better paid than full-time employment (FTE) in certain countries like the Philippines, where a majority of scholars were based. One week of playing Axie Infinity would equal one to three months of their salary, so why would they not take advantage of this.

A new opportunity for earning, but was this the true vision of ‘play-to-earn.’? It encapsulated the earning aspect of play-to-earn at a superficial level, providing players an opportunity to play games and earn from them. There were a variety of ways to earn money within this game, made possible due to the capabilities of NFTs and blockchain technology.

Axie players would use their team of axies to fight other axies, and in doing so, were rewarded with $SLP. Each battle resulted in a gain of $SLP, winning, obviously meant a higher amount of $SLP, but this simple mechanism allowed users to farm $SLP on a daily basis. There were other mechanics involved such as energy which prevented you from playing too many games, but to keep it simple, it revolved around these battles. It took an average of around four to six hours a day for players to complete their tasks, so for some, it was a reduced workload and increased salary.

$SLP itself was an ERC-20 token meaning that you had control of those tokens and had the ability to buy and sell them across decentralized exchanges such as UNISWAP. $SLP also was used for the breeding mechanic within the game to generate more axies. It was an option of burning your $SLP to create more axies or selling the $SLP now for fiat.

Guilds

The owners of axies would grow to own many axies and have a team of scholars through a combination of breeding or buying more from their $SLP. This means an owner would end up with around five to ten scholars working under him, playing on his axies, essentially earning him passive income. On a larger scale, this spawned the creation of guilds within the Axie ecosystem, precisely like the guilds we know from World of Warcraft, Runescape, and other games.

Examples of popular Axie Infinity guilds include YGG and BlackRock. These guilds would delegate axies from owners to scholars, taking a management fee for every SLP earned by a scholar. This spawned an industry where the aim was to reach a minimum amount of SLP per day and eventually where scholars could earn enough to buy their axie team.

A standard split between guilds, managers, and scholars would look like this.

1. Player: 60-70%
2. Owner: 15-20%%
3. Guild: 15-20%

This was not only seen as a business but as a community too. The power of financial compensation within a game spawned worldwide communities. This is play-to-earn.

Scholars in the Philippines would continue to make higher salaries than in their actual jobs. Some scholars would run events and give back to their communities as a sign of thanks and appreciation. It was a dream for many of them, a dream that was too good to be true.

Guilds and managers developed rules and policies for playing under them. You had to earn a minimum of SLP per day, check-in with your manager, and clock in and out. Members had to undergo training and meetings to ensure they were on track for their daily and weekly SLP earnings. This game had produced a different type of job, except it came with the traditional values of a job. Reporting to a manager, reaching the minimum SLP threshold and the threat of expulsion.

This reduced the game back to a job, albeit a temporary job. Token values being associated with the wave of the market meant that it was inevitable that the token was going to drop and scholars' salaries would be worth very little. During late 2021, the market took a turn for the worse and a new mechanic was introduced into Axie Infinity. Axie teams below a certain ranking were no longer eligible to earn SLP until they reached the minimum ranking. In combination, this changed the Axie ecosystem.

Play-to-earn

In this case, Axie Infinity focused on the financial reward earned from playing the game and they did an amazing job. They managed to create an ecosystem that allowed players to earn large amounts of money from a game. However, it was only large amounts during a bear market. The other side of the grass meant that this game would take a hit during the bear market with both user activity and token value decreasing.

With so much money flowing during a bull market, it makes us question whether it was the lifestyle and financial improvement that made the game attractive or the game itself? Maybe it could be a combination of both, but the idea of ‘phone farms’ makes you lean towards the former.  Will Axie continue to be popular during the bear market or will people jump onto the next big game?

The next biggest question is, does one get the same emotional feeling when completing a game vs earning money from a game?  I am not sure, but I assume that each provides a different feeling, and as great as it is to make money, not every game needs that financial incentive. One of my favorite games is League of Legends and when I made money from boosting accounts there, it never felt the same, compared to playing on my own account.

Many gaming YouTubers and streamers seem to burn out over playing the same game over and over, but because their channel is built on a specific game, they see no other option. Financial compensation is one of the main reasons that those YouTubers or streamers continue playing the same game, because it yields them both a higher viewer count and financial reward, compared to introducing a new game to their channel, which is risky.

Another limitation of play-to-earn is that the token value is pegged to the sentiment of the market, meaning your job is vulnerable to the market. Both $SLP and $AXS have taken quite hard hits, and it is probably hard for scholars to continue playing at these levels. Playing under such a turbulent market can be quite stressful, so could there be a way to alleviate that stress?

Exercise is good for the Wallet

Money Making Sneakers

Walk-to-earn is a more recent phenomenon in the blockchain world but it has been adopted by both blockchain and non-blockchain users, as protocols made it much more user-friendly. The most popular protocol StepN, which runs on Solana, introduced NFT sneakers, which would earn tokens based on the number of steps that you walked that day.

StepN made it simple for any user to use their app with little mention of blockchain technology within the app. It looked like and functioned like any other app, however in the back-end, it ran on blockchain technology. I believe this was one of their greatest reasons for success as it enabled the mass market to use their technology without feeling isolated due to complexity. As these sneakers were NFTs, it also meant that each user owned that pair, proving ownership of that pair, thus preventing users from gaming the system.

Walk-to-earn

Walking is an act that everyone should be doing daily, but realistically this is not the case for everyone. Plagued by technology, we have succumbed to less movement throughout our day and more tweeting at our laptops. Would a tokenized version of movement encourage users to walk more?

Improve your health and earn money. Personal trainers hate them.

On paper, this looked like an amazing opportunity, and for some, it really was. That is, only if you were early enough. A pair of NFT sneakers cost around $1000, and you would earn $100 or more a week along as you walked or ran each day for around 10 minutes.  Clearly, it was not sustainable. StepN relies on new users to buy sneakers to continue rewarding the early investors, which is similar to a ponzinomic structure. The early contributors earn the most, but those who are late to the boat, end up losing their investment.

Walk-to-earn, yes. Sustainable, no.

The Achilles Heel

This lack of sustainability meant that it was only a matter of time till the plug was pulled and people would no longer be making money from StepN. However, StepN has taken multiple measures to prevent this by limiting the number of players on StepN and how much they can earn per day. This relies on individuals re-investing into the game and not withdrawing their money, but once there is a greater outflow of withdrawals over inflow, there will be issues for StepN. This is a temporary band-aid.

Disregarding the failed tokenomics in StepN, they actually developed a relationship where the user technically had a win-win scenario, where they completed a healthy activity and received a reward. Unlike Axie, StepNs “side effect” of walking is a positive benefit for the user of the app and instead has few drawbacks to the activity itself. From an activity perspective,walk-to-earn encourages the user to become healthier and take care of their body, by motivating them to walk, whereas play-to-earn can affect a player's health if they become addicted.

This perspective of getting rewarded for fitness could be a game-changer for those who do not normally find exercising appealing. Since fitness can be a slow journey whether that be in skill or aesthetics, these short-term “gains” of tokens could be a great way to motivate individuals to continue exercising. Gamifying tasks has always been a way to motivate individuals to reach their goals and x-to-earn capitalizes on that mindset.

With no current business model, Stepn revolves around the new users to fund old users and so forth until they onboard advertisers to generate income for users. This is a Ponzi scheme until they are able to get external money incoming through advertisements, brand deals, or sponsorships.

Even though the concept of walk-to-earn is good, maybe this pushed it to an extreme as it is not sustainable to pay $100 or more per week for someone to walk. A tweaked model with a reduction in rewards and an earlier focus on advertisement or deals with health insurance companies could make StepN more sustainable. More importantly, these sneakers NEED a price reduction. You can’t expect everyone to get involved with such steep prices…

The future cannot be “Be rich to get involved in x-to-earn” otherwise it becomes a “rich gets richer” game. That is something we are meant to be moving away from, and instead, provide equal opportunities for everyone to get involved.

What does it mean “to earn”?

These x-to-earn examples we have looked at so far revolve around making money. After all, that is the first idea that comes to mind when you say “to-earn”. However, what if we looked at the word to earn from a different perspective.

There are different things that you can “earn” such as respect or skills.

Over time, one earns the respect of their peers and colleagues through the hard word, kindness, or other positive attributes shown. Or, as one “falls down the rabbit hole” they become more knowledgeable in that specific field, increasing their skill set and opportunities.

These are different from a monetary reward as one is not directly being rewarded with money, but indirectly, one can see great success from advancing their knowledge, expanding their network, or developing a positive reputation.

Down the RabbitHole

Learn-to-Earn

Rabbit Hole is a platform that supports and encourages you to complete certain tasks in Web3, such as DeFi tasks like; staking, lending, and borrowing. This practical experience acts as an on-chain resume to demonstrate your comprehension of Web3 protocols and how to use them.

Completing a task such as ‘lending’ and ‘borrowing’ on Aave or participating in a ‘party’ in PartyDAO enables you to claim credentials from RabbitHole to showcase your learnings. Most of the time there are partnerships with these protocols and the users who complete these tasks the fastest will be rewarded with the protocol's tokens, albeit it is a small reward of around $10, but a reward nonetheless. The advantage of RabbitHole is that the financial rewards aren’t the most enticing part of the protocol, but it is the credentials that you receive.

Win-Win

For those entering Web3, it is a great way to become exposed to a variety of dApps and understand they work. This is an x-to-earn that encourages a win-win relationship for both the user and protocol, with no hidden side effects.

This is a new way for web2/traditional workers to showcase their web3 skills to their employers in either web2 or web3 because there is no way to game this system. Unlike other online traditional courses, on Coursera or Udemy, you can’t fake or game the system. Each user can only redeem a task as completed through on-chain verification.

Not only that, but RabbitHole encourages education and creates a fruitful relationship between the user and the protocol. They provide supporting articles to help users navigate protocols and complete these tasks. It is also unlikely for RabbitHole users to become addicted or to lose their money in using their protocol.

Instead, users of RabbitHole are encouraged to explore the web3 space, and in return, they gain online credentials that can be used for their education, career, or exposure to other dApps. Experimentation and exploration are a user's greatest tool, and RabbitHole successfully implements that without feeling like homework.

RabbitHole does not have a token, and with a low reward from protocol tasks, combined with the gas costs to complete these tasks, it is unlikely that users complete these tasks for financial gain.

Learning is a unique experience, and it is hard to compare it to the other two examples I provided. However, RabbitHole has managed to make completing the task and learning more of a priority rather than a financial reward. In contrast, Axie and Stepn users focus more on monetary compensation.

What is true X-to-earn?

X-to-earn has a different meaning for every person, but would you take x-to-earn to mean earning money?

I believe that x-to-earn gamifies our day-to-day experiences, which is a great tool and encourages people to adopt more habits such as running, walking or learning, etc.  However, as the article's theme has been so far, I believe a user's lifecycle is more important than the reward itself. Protocols should strive to create an ecosystem where the task (learning, exercising) is made the priority and the “to-earn” aspect is more of a supplement rather than the main aim for the user.

If a user of a protocol enters an x-to-earn knowing they will make a lot of money at the start, then it is most likely unsustainable and a way to attract users to buy in. Whereas more sustainable protocols encourage x-to-earn to create a complementary relationship between the activity and the reward.

RabbitHole does not see their users as their reasons for success; they see the adoption of protocols and exploration of new protocols as their success metric. As you can see below, RabbitHole has successfully encouraged users to explore protocols with a majority completing all three pathways.

RabbitHole also has a Dune Analytics dashboard to identify how many users completed a task through their website, exploring other metrics that you can see below. Explore more of their dashboards here.

Does that mean games should stay away from play-to-earn?

Not at all. Play-to-earn will be part of the future, and CryptoKitties and Axie Infinity have definitely showcased the power of play-to-earn. However, I do believe that we should stay cautious, as we do not want to create games that are attractive solely for the financial incentives and not for the gameplay.

Simply, there is one key question to ask.

“Would you play this game if there was no token?”

The joy of playing as Ezio Auditore in Assassin's Creed or Teemo in League of Legends could be lost if players solely played these games for financial incentives. Sure, you might still play the game, but do you think you would play it the same way if there were no financial incentives?

The Future of X-to-earn

Currently, X-to-earn will probably revolve around being the most financially attractive, but in the more distant future, x-to-earn will take a different shape. All these protocols of sleep-to-earn, sex-to-earn, and eat-to-earn are funny, but they aren’t groundbreaking.

The future of x-to-earn will gamify superficial relationships and tasks that we complete daily and allow users to “reward” someone. One example is MintKudos, a protocol where you mint kudos as soulbound tokens to capture community contributors. As non-transferrable tokens, this would allow communities to identify the popular community members on a continuous basis.

If these kudos could be customized to last X amount of time, then kudos could last the same length of a season or cycle that a DAO run, to showcase those members who have earnt the respect of their peers and could be rewarded via monetary compensation or promotion. Users will be “earning” kudos from other users for their hard work. In this way, the kudos is not the ultimate aim but a side effect of one’s hard work and commitment.

Closing thoughts

As with most concepts in the space, we are in an experimentation phase. Research and experimentation will help us understand the power of the x-to-earn and how we can implement this mechanism in our day-to-day lives.

However, with new x-to-earn protocols coming, I will continue to question the relationship between the task and the reward which links to the longevity and sustainability of these protocols and the user's lifecycle.

• Do I want to earn a token for every task that I complete?
• Do I want to be rewarded for this specific task?
• Do I want to pay X amount of money to be involved in an x-to-earn protocol?
• Can I handle another “game” to manage?