Play-2-Earn Games in Defi

This week we discussed the idea of game theory. Game Theory is a concept that I am very familiar with because of my involvement in Defi and Cryptocurrencies. Game theory is a branch of mathematics involving probability, preferences, and decision making. It is almost always seen as two or more competitive and rational entities attempting to make the best decisions, they can with the information that they have. Game theory often has no choice but to simplify a person’s wide range of beliefs, attitudes, and strategy into simple black and white preferences, this is what I believe to be the most basic problem with this branch of mathematics.

In Decentralized finance there are plenty of schemes that can make or lose people money, and most are based on some aspect of game theory or another. Most of the time these schemes don’t create any real inherent value, take the example of play to earn games. Often what happens is that initial investors spend a certain amount of money to buy into the game (usually by purchasing an NFT that allows their wallet to access the D-APP), often paying anywhere from fifty bucks to hundreds of thousands of dollars. Buying into these projects provide the initial liquidity for the games to exist, and, unless the project is just a straight up scam, that money eventually goes back to the players of the game with some people winning and some people losing. These are almost always zero-sum games, however, they still involve probabilities and luck, as well as a degree of strategy depending on how the game is set up to give you a real chance winning. It’s understood however, that in each one of these Play-2-Earn blockchain games you are playing against the clock. Once the game loses its hype or its liquidity pool gets too small, people will get out of the project as fast as they can, leaving anybody still holding the bag at a loss.

In each of these plays to earn games, there is a clear competition to get in and get out while you are in profit. Everyone tries to do the same thing and it can often lead to predictable outcomes, however timing these plays is incredibly risky and something I choose to not participate in as I’m not a big fan of projects where in order to win someone else must lose. It is interesting that unlike in the broader economy where Ponzi schemes are illegal, this space is unregulated, and many people choose to invest their money into these schemes with a full understanding of how it works.