Why GameFi became a hostage of its own economy

In 2021, games with the Play-to-Earn or P2E model exploded in the Web3 industry and attracted millions of new users, including many outside the world of cryptocurrencies.

The widespread release of P2E games led to the emergence of an entire sector of the crypto market, known as "game finance" (GameFi). The capitalization of some GameFi projects reached several billion U.S. dollars.

However, between 2022 and 2023, the GameFi segment experienced a significant decline, and the P2E game market lost more than 80% of its capitalization. The number of daily active users dropped from a peak of 2.8 million to 300,000 over the same period.

Analysts consider the leading cause of the fall of the P2E game segment not to be the temporary bear market in crypto, but rather the Ponzi economics built into most such projects.

The P2E model as the main mechanism of GameFi's destruction

Ponzi economics makes it possible to attract a large number of users in a short time by incentivizing them with rewards. A striking example is the 2021 hype around Axie Infinity.

From June to October 2021, the project's market capitalization grew more than 45 times — from $200 million to $9.1 billion. At its peak, Axie Infinity had more than 1 million daily active users — a figure even Ethereum didn't reach at the time, despite being the leading blockchain platform.

The approach used in P2E games resembles blogger giveaways and raffles, which professional marketers consider ineffective or even a destructive form: activity spikes briefly and many new followers appear, but once the event ends, these numbers collapse just as quickly.

The same happens with P2E games: according to DappRadar data as of August 2025, the number of unique active wallets in Axie Infinity within 24 hours is 110,000. That's about 10 times less than at its peak, though the game remains relatively popular in the GameFi segment.

The biggest problem of the existing P2E model, used in almost all GameFi projects, is the need to maintain a continuously growing demand from investors — something that is simply impossible.

With the constant issuance of new tokens (distributed to players as rewards) that are literally created out of thin air, the value of these assets inevitably collapses under relentless sell pressure. This was vividly demonstrated by the P2E projects that thrived in 2021–2022 but suffered dramatic crashes after the bull run.

Here's how much popular P2E tokens have lost from their all-time highs (ATH):

• Gala (GALA) — more than 98%
• The Sandbox (SAND) — more than 96%
• Decentraland (MANA) — more than 95%
• Axie Infinity (AXS) — more than 98%
• Illuvium (ILV) — more than 99%

Such in-game assets are called "mining tokens" by crypto experts, whose value depends entirely on demand from new players. This strongly resembles Ponzi schemes, on which financial pyramids are based. Once the influx of new users stops, the token price collapses, making the game economically unsustainable.

Experts argue that if a token's value depends solely on the growth of new players, this is not an economy but a pyramid scheme. Real games create value through entertainment, not recruitment, and Ponzi schemes are inevitably doomed to failure.

Other problems of P2E

P2E projects face other challenges, too. One is the high concentration of "motivated players." For example, a Cambridge University study found that 60% of Axie Infinity users were Filipino "farmers" who relied on the game as their primary source of income.

When the native token of Axie Infinity, SLP, collapsed in value, the income from playing fell below the minimum subsistence level, forcing these players to leave the project.

Analysts note the lack of real demand for the tokens of major P2E projects: most P2E projects fail to create internal demand.

For example, SLP in Axie was used only for NFT "breeding," but as interest in the game declined, the token lost all value. According to Delphi Digital, only 12% of GameFi tokens have burning mechanisms or utility features to reduce inflation.

A BCG analysis showed that 89% of failed P2E projects spent 70% of their budget on marketing rather than development or gameplay. Blockchain games have proven that only engaging gameplay can retain players when incomes decline; otherwise, users stay only for profit.

The situation may worsen as regulators already view P2E as fraud. For example, the U.S. Securities and Exchange Commission (SEC) could block tokens if real assets do not back their economics. PwC estimates that 30% of P2E projects will shut down due to legal risks, while the survivors will gain legitimacy and a chance to restore user activity.

Can Play-to-Earn Recover and Under What Conditions?

The collapse of P2E is not a failure of blockchain technology but rather a consequence of ignoring fundamental economic laws. Experts believe the GameFi industry can revive if developers prioritize gameplay, while earnings remain secondary.

Although the P2E concept has failed, the GameFi sector still has a chance to recover if:

• Developers abandon monetization through constant recruitment of new players.
• Gaming projects create real demand for tokens (for example, through scarce in-game items).
• Gameplay becomes the main driver instead of a side effect, and GameFi projects move from Ponzi economics to more sustainable models.

For context, sales volume in GameFi has dropped to $120 million per month, hitting a two-year low, while in traditional games like Roblox and Fortnite, this figure has grown to $1.2 billion.

The industry may also be saved by rethinking game concepts and shifting from P2E to "Play-and-Earn." According to BCG analysts, about half of the "surviving" GameFi projects will generate 70% of their revenue from in-game purchases rather than tokens.