What Is Play to Earn in Crypto?

Video games have always involved earning: experience points, in-game currency, rare items, achievements. For most of gaming’s history, everything earned inside a game stayed inside that game. It had no value outside the platform, could not be sold, could not be transferred, and disappeared entirely if the game shut down or the account was deleted.

Play-to-earn, commonly abbreviated as P2E, is a model that changes this dynamic fundamentally. In a play-to-earn game, the assets earned through gameplay, whether tokens, characters, items, or land, are real cryptocurrency assets recorded on a blockchain. They can be sold, traded, transferred to other players, and in some cases used across multiple games or DeFi protocols. The time spent playing generates assets with genuine economic value outside the game environment.

The implications of this model attracted enormous attention and investment between 2020 and 2022. It also produced some of the most instructive case studies in cryptocurrency hype cycles, unsustainable economic design, and the gap between a compelling concept and a durable product. Understanding what play-to-earn is, how it works, what went wrong in its first major wave, and where the model is heading in 2026 is valuable context for any investor or gamer evaluating this space.

How Play-to-Earn Works

The play-to-earn model combines three elements that blockchain technology makes possible simultaneously: true ownership of in-game assets, tradeable cryptocurrency rewards, and open secondary markets.

True asset ownership through NFTs. In traditional games, in-game items are stored on the game company’s servers and belong to the company. The player has a licence to use them within the game’s ecosystem. If the game shuts down, the items are gone. If the company changes the rules, item values or availability can be altered without the player’s consent.

In play-to-earn games, in-game assets like characters, weapons, land, and collectibles are typically issued as NFTs: tokens on a blockchain that the player genuinely owns. The NFT exists on the blockchain independently of the game’s servers and can be held in a personal wallet, transferred to another player, or sold on secondary markets regardless of what the game developer does.

Cryptocurrency rewards for gameplay. Play-to-earn games distribute cryptocurrency tokens as rewards for gameplay activities: completing quests, winning battles, achieving milestones, or simply playing regularly. These tokens have real market value that can be converted to other cryptocurrencies or fiat currency on exchanges. The time invested in gameplay generates assets with monetary value beyond the game itself.

Open secondary markets. Because in-game assets are blockchain-based, they trade on open secondary markets where prices are set by supply and demand between players globally. A rare character or powerful item can be sold to another player for whatever the market will bear, with the transaction settled on-chain without requiring the game developer’s involvement or permission.

These three elements together create an economy: players earn through gameplay, the most valuable assets appreciate as demand from new players grows, and the game’s native cryptocurrency circulates as the medium of exchange within the ecosystem.

Axie Infinity: The Defining Case Study

Any serious discussion of play-to-earn must engage with Axie Infinity, the game that defined the model, demonstrated its potential, revealed its flaws, and ultimately illustrated the risks of tokenomics that depend on continuous new player growth.

Axie Infinity, developed by Sky Mavis, launched its play-to-earn mechanics in 2020. Players collected, bred, and battled digital creatures called Axies, each an NFT with unique attributes. Gameplay rewarded players with Smooth Love Potion (SLP), an in-game token with real market value, and AXS, the game’s governance token. Players in lower-income countries, particularly the Philippines, Vietnam, and Indonesia, discovered they could earn meaningful daily income by playing the game.

The growth was extraordinary. By mid-2021, Axie Infinity had millions of active players, a secondary NFT marketplace processing hundreds of millions in monthly trading volume, and an AXS token market capitalisation in the billions. The “scholarship” model emerged: players who couldn’t afford the upfront cost of purchasing Axies (which had risen to hundreds of AUD each) received Axies from investors (managers) in exchange for sharing a percentage of earnings. Entire communities in Southeast Asia were earning their primary income through Axie gameplay.

Then the economic model began to unravel. The play-to-earn economy relied on a continuous flow of new players purchasing Axies and tokens to fund the earnings of existing players. When player growth slowed, the demand for SLP tokens fell but their supply continued to be generated by players grinding for rewards. SLP’s price collapsed from its peak. Axie NFT prices fell as the earning potential they represented declined. Many players in developing countries who had come to depend on Axie income for their livelihoods saw their earnings evaporate. In March 2022, the Ronin bridge used by Axie Infinity was hacked for approximately $625 million USD, one of the largest cryptocurrency hacks in history, further damaging the ecosystem.

The Axie Infinity cycle illustrated a fundamental challenge in play-to-earn tokenomics: an economy where earnings come primarily from new entrant capital rather than external revenue is a Ponzi-like structure, as covered in our Ponzi schemes in crypto resource, regardless of how engaging the game itself is. Sustainable play-to-earn economics require genuine external value creation, not just redistribution of capital between players at different stages of the adoption cycle.

The Broader P2E Ecosystem Beyond Axie

Axie Infinity attracted the most attention but was far from the only play-to-earn game. The same period saw the launch of dozens of P2E titles across multiple blockchains, many following similar economic models with similar trajectories.

Gods Unchained is a trading card game on Ethereum where cards are NFTs owned by players and tradeable on secondary markets. The game’s economic model is less aggressive than Axie’s in its play-to-earn mechanics, focusing more on competitive gameplay with asset ownership as a feature rather than income generation as the primary appeal.

The Sandbox and Decentraland are virtual world platforms where land parcels are NFTs and the native tokens (SAND and MANA respectively) are used for transactions and governance within the virtual economy. These platforms attracted significant institutional investment and brand partnerships during 2021 and 2022, with major companies purchasing virtual land and developing branded experiences. The actual user activity on both platforms has remained modest relative to the valuations at peak.

Splinterlands is a digital collectible card battle game on the Hive blockchain that maintained a more modest but more sustainable player base than many of the 2021 wave of P2E games, partly because its economic model was less reliant on new player growth.

Star Atlas on Solana represents the high-ambition end of the play-to-earn space: a space exploration metaverse with an elaborate in-game economy, NFT assets, and dual token economics. Its full game remained in development through the period covered by this resource’s knowledge cutoff, illustrating the long development timelines common in the space.

Play-to-Earn Economics: Why Most Models Struggled

The structural economic challenge of play-to-earn games is understanding where the value in the system actually comes from.

In a traditional game economy, in-game currencies and items are earned through gameplay and spent on more gameplay: they circulate within the game ecosystem without needing an external source of value. The game generates revenue through game sales, subscriptions, and cosmetic item purchases that fund the developer and sustain the ecosystem.

In a play-to-earn economy, gameplay generates real cryptocurrency with external market value. Players extract this value by selling their earnings outside the game. For the economy to be sustainable, the value flowing out must be matched by value flowing in. In most first-generation P2E games, the primary value flowing in was new player capital spent purchasing NFTs and tokens to enter the game. This created a growth dependency: the economy required constant new entrants to fund the earnings of existing players.

As covered in our tokenomics resource, the token supply dynamics of most P2E games compounded this problem. Gameplay continuously generated new tokens, inflating supply, while demand for those tokens depended on new players wanting to enter. When growth slowed, the supply-demand imbalance became a deflationary spiral for token prices.

Sustainable P2E economics require sources of external value that don’t depend on new player growth: genuine entertainment value that attracts players willing to spend money on the game independent of earning expectations, competitive esports ecosystems generating viewership and sponsorship revenue, licensing and IP revenue from brands wanting to enter the virtual world, or in-game purchases by players who value the experience rather than the income.

The most durable play-to-earn adjacent models in 2026 tend to be those where blockchain asset ownership and tradeable tokens enhance an already-compelling game rather than being the sole reason to play.

The Evolution Toward “Play-and-Earn”

The lessons of the 2021 to 2022 cycle prompted significant rethinking of the play-to-earn model in the subsequent years. The industry has increasingly adopted the framing of “play-and-earn”: games where blockchain ownership and earning mechanics are integrated into a genuinely engaging game experience rather than being the primary value proposition.

The key distinction is the primary motivation for playing. In the first P2E wave, many players were explicit that they were grinding for income with little enjoyment of the game itself. The game was a job. When the income dried up, the players left. In a play-and-earn model, players engage primarily because the game is fun, and the blockchain ownership and earning mechanics add value on top of the core game experience rather than being the core experience themselves.

Major traditional gaming studios and publishers began exploring blockchain integration during this period, bringing professional game development quality to assets and economies with blockchain characteristics. The challenge of integrating blockchain mechanics into genuinely high-quality games without alienating traditional gaming audiences who are often hostile to NFT integration remained a significant industry tension through the period of this resource.

Real World Adoption Context

As covered in our gaming and crypto play-to-earn resource, the gaming sector represents one of the most significant potential pathways for cryptocurrency and blockchain technology adoption into mainstream consumer behaviour. Gaming is already a multi-hundred billion dollar global industry with hundreds of millions of active participants comfortable with digital economies, virtual asset ownership, and online transactions.

The integration of blockchain technology into games addresses genuine user-facing problems: true ownership of items earned or purchased, interoperability of assets across compatible games, transparent scarcity of collectibles, and verifiable provenance of rare items. These are real improvements over traditional game economies where players can invest significant time and money in assets that disappear if the game shuts down.

Layer 2 networks and Solana-based games have significantly reduced the gas fee friction that made Ethereum mainnet gaming impractical for microtransactions, addressing one of the key infrastructure limitations of the first P2E wave.

Tax Treatment of Play-to-Earn in Australia

The ATO’s position on play-to-earn gaming income is that cryptocurrency received as rewards for playing games is assessable income at the AUD value at the time of receipt, consistent with the treatment of other cryptocurrency income.

If you earn SLP, AXS, or any other game token through gameplay, the AUD value of those tokens when they are received is assessable as ordinary income. If you subsequently sell the tokens at a higher price than the income inclusion value, the gain is subject to capital gains tax. If you sell at a lower price, you have a capital loss.

NFT assets earned through gameplay are treated as cryptocurrency assets with a cost base established at their market value when received as income. Selling those NFTs triggers capital gains tax events. For players who engage in P2E gaming at scale, the record-keeping requirements are significant: every token reward received is a potential income event requiring an AUD valuation.

As covered in our cryptocurrency tax Australia and ATO crypto reporting resources, maintaining accurate records of all gaming income and NFT transactions is essential for compliance. Professional advice from a tax accountant familiar with cryptocurrency is recommended for anyone engaged in play-to-earn gaming at more than a casual level.

Key Takeaways

Play-to-earn is a gaming model where in-game assets are blockchain-based NFTs owned genuinely by players and gameplay generates cryptocurrency tokens with real market value. Axie Infinity demonstrated both the model’s potential and its fundamental economic vulnerability: when growth in new players slowed, the token economies that depended on new entrant capital collapsed rapidly. Sustainable play-to-earn economics require genuine entertainment value and external revenue sources, not just redistribution of player capital.

The industry has evolved toward “play-and-earn” models where blockchain ownership enhances genuinely engaging games rather than being the sole reason to play. Layer 2 infrastructure improvements have reduced gas friction significantly. Tax treatment in Australia treats gameplay token rewards as assessable income at receipt, with subsequent disposals generating capital gains tax events. Gaming represents one of the most significant pathways for cryptocurrency adoption into mainstream consumer behaviour if the economic model challenges can be durably solved.

For everyday investors who want to understand how blockchain gaming and play-to-earn fit into the broader cryptocurrency ecosystem and the real adoption landscape, our Runite Tier Membership provides the education and context to evaluate this space clearly. For serious investors who want personalised guidance on emerging real-world adoption sectors and how to position across the cryptocurrency landscape, our Black Emerald and Obsidian Tier Members receive direct specialist support. Find out more at shepleycapital.com/membership.