EM’s new jobs driver: “Play to earn gaming”
Source: Axie infinity
Traditionally, one of the easiest ways for a developing country to get a leg up was to welcome mass manufacturing, even if the initial “value add” of that manufacturing activity wasn’t high. In fact, especially, if it wasn’t high. Why? Because mass manufacturing achieves mass employment without requiring huge amounts of technical expertise or education.
Jobs for the masses, a steady income and eventually a mortgage and education for the children – these were the hopes and dreams of many generations before us. And in a specific window of time, it was a fantastic opportunity. Amongst many other factors, the openness to mass manufacturing was arguably one of the biggest contributors to the success of the Asian Tigers in the post-war era, allowing even relatively small or ravaged economies like Taiwan, South Korea and Singapore to transform themselves into economic powerhouses, moving up the ranks of value-add industries over the decades.
The greatest beneficiary of this formula is undoubtedly China, which took more than a billion people out of poverty over the span of 40 years, while becoming the factory of the world, dominating production lines for all products that we consume, but for those at the very cutting edge, right at the top of the value chain. Its competitive edge is more than just technological – the ecosystems and infrastructure that support an efficient supply chain operation make it the most compelling manufacturing hub for mass production, not to mention the robotics and AI that supplement (or even supplant) the human labour in the process.
Of course, competitors like Vietnam have stepped up the plate to launch a credible (but relatively small) challenge against China’s primacy in manufacturing. But for everyone else in the developing world, all of this is bad news: the formula for mass employment and escaping the trap of mass poverty seems to have been invalidated.
With that magic formula off the table, governments need a new solution to create productive mass employment.
And so, we consider this possibility: What if “play to earn” goes from “side hustle” to “national industry”, driven by a fully articulated policy framework?
Just as China and the Asian Tigers became key components in the supply chain of the industrialised world, is there now an opportunity for developing countries to stake a claim on the supply chain for the “metaverse”?
Players for hire
The year is 2016. Crypto was still in the process of inflating its first major bubble. Gaming was a pastime for antisocial kids. Pro gaming? Definitely not a serious business.
In that context, a paper was published by Edward Castronova, Professor of Media at Indiana University, entitled “Players for hire: Games and the Future of Low-Skill Work”. To quote from the summary of his paper:
“In this whitepaper I will use trends from automation and video game revenue models to make the following predictions about the future of low-skill work.
Within five years, some game companies will be paying players in some way to play their games. This will be in the form of small points-based incentives that can be liquidated in the form of purchasing power.
Within ten years, paying for players will become a standard revenue model in the game industry. Payments will either be in the form of liquid virtual money or real cash.
Within twenty years, game playing will be a significant source of income of the low-skill workforce. Wage-playing will be the primary means by which the extreme gains of the wealthy will trickle down to the poor.”
If it weren’t for the fact that these papers were archived with timestamps on the SSRN website, one would’ve thought that Castronova was a time traveller. Fast forward almost five years from when this paper was published, and we are already seeing all three of these predictions coming to pass, not only because of the nature of the predictions made but also because of the reasons identified for these developments to happen: automation in mass manufacturing and the inability of education to create mass employment.
The impact of play to earn as a revenue model on the video games industry is something we explored in great detail when we wrote about Axie Infinity a couple of weeks back in our note here. In that note, we looked at how the rebalancing of economics between game developers and players could set an interesting precedent for upending the established order in the video games industry.
This time, however, we want to explore a different angle: the possibility of building a new supply chain – for the so called “metaverse”.
Manufacturing for a non-physical world
The obvious question here is whether a supply chain for the “metaverse” matters, especially when the “goods” produced aren’t physical.
We’ve attempted to tackle the problem of valuing intangible items from both a practical, financial standpoint in our note here, as well as from a more philosophical, cultural standpoint in our other note here – but without belabouring the point even further, our view is that in the existence of a comprehensive “metaverse” with a relatively sophisticated internal economy, there will be monetary value accrued to in-world assets for the purposes of consumption, capital and even signalling, much like the real world.
After all, just as one could argue that a Hermes Birkin bag serves as much utilitarian purpose as a recyclable grocery bag from a supermarket, and agree that the bulk of the value of the former is attributed to its signalling as a luxury good, so too the same may apply in the multiverse.
But it’s all about the quality of materials and the effort and handiwork that goes into making each particular item, one would argue. And we would tend to agree – it is indeed the common knowledge that an item has taken many man-hours to create, and even more man-hours to source the raw materials for its creation, that contributes greatly to its scarcity and rarity. Much like Beluga caviar as opposed to salmon roe from the supermarket – it’s all “fish eggs” anyway. Same-same, but very different.
These same principles are likely to apply – and already seem to apply – in the “metaverse” that is emerging before our eyes. In a way, just as “proof of work” involved work being done by GPUs to mine bitcoin and Ethereum, so too we are seeing a new version of proof of work in games like Axie Infinity. The work is the time spent in-game completing quests and winning battles, the proof is in the SLP rewards, and that proof is saleable as raw materials for breeders in the other segment of the economy who are willing to pay up hard cash to avoid the work.
In a way, this is as described in Castronova’s still-amazingly-prescient paper – that the combination of growing inequality and automation will severely curtail the available opportunities for low-skilled labour, with one exception: playing video games, which are themselves designed so that all players have fun, regardless of skill level.
We won’t regurgitate more of his paper, but would strongly recommend you read it – link again here, for convenience.
Emerging markets’ new opportunity
The structural impedance that industrial automation places on the pursuit of prosperity by many still-developing countries is acute, and further exacerbated by a growing sense of inequality across the world.
The challenge for governments in these economies is to find a new means of mass employment and income generation that will allow them to give the population a means of earning a decent living. Subsistence agriculture is out of the question, and now so is mass manufacturing, especially in the absence of incumbent infrastructure and technological know-how.
But everyone can play games, and almost all countries in the world by now have decent access to the internet – if they don’t, all the more there now exists a strong incentive to invest in providing that infrastructure. The opportunity here is for governments to embrace manufacturing in its new form – within the budding “metaverse” – as a substantial and significant source of national income and invest in facilitating the participation of its population in these activities.
The benefits are pretty obvious: improved income levels lead to improved tax income, while the need for connectivity and infrastructure provides a natural magnet for incremental investment. Invest more to earn more: just like the factories and highways of decades past, the economy of the future demands fibre broadband and wireless coverage.
The second-order effects that follow as a result are profound too: a digitalised economy operating on a purely digital basis provides ever-growing transparency, while facilitating the growth of the “real” economy through the spending of this newfound income on goods and services through e-commerce and food delivery. Moreover, because of the decentralised nature of gaming, gamers don’t need to physically move to the same location to participate in the same game – as a result, pressure on overpriced, overconcentrated real estate in each nation’s mega cities can be alleviated as people choose to remain in the suburban regions, further distributing wealth more broadly across each country, fuelling regional economies that previously faced little chance of survival in the wake of an exodus of talent (and income) to capital cities.
The opportunity now for a forward-looking government is to embrace the opportunity and facilitate, rather than eschew, a rapidly accelerating trend. After all, at the end of the day, gamers are voters too, and helping gamers earn a living is the easiest way to get their vote in elections.
Reorganising borders
Above all, perhaps the most interesting opportunity is the impossibility of pricing arbitrage: the “metaverse” knows no physical geographical boundaries, and pays the same for the same commodity produced regardless of where it came from. As a result, being in a “lower-cost” country doesn’t penalise gamers – all that matters is being good at the game and winning.
It is said that there is strength in numbers, especially when it comes to the economy. In this new economy, gamers are as much consumers as they are suppliers, and reflexively have influence over how games and their respective internal economies are built and structured. The perennial debate around planned vs free-market economies will surely rage on within the “metaverse” as it did in the real world over centuries past, but with one key difference – if planned, then planned by whom?
In the absence of governments having any form of participation – as most are – in the development of the “metaverse”, the role of governance has fallen to the developers (in a centralised context, like Roblox) and/or the players (in a decentralised context, like Axie Infinity). In practice, the realm of the decentralised is seeing the growth of collectivism, as entities rise up to organise the collective interests of players not just within a single game, but across all games that are available to play.
Collectives like Yield Guild Games, which is itself a “guild of guilds”, have the potential to influence policy development in the “metaverse” in unprecedented ways: as a function of its ownership of critical in-game assets across multiple gaming worlds as well as its representation of (and influence over) large numbers of players in these games. Ultimately, after these players turn off their phones, they go on to operate in the real economy, further extending the influence of an otherwise decentralised organisation (Yield Guild is organised as a DAO) into the “real” world, and not just in a single country.
Players guilds as a vehicle for representing the interests of gamers, along with an ability to influence and craft the nature of these digital economies, may well turn out to be more successful versions of the trade unions that came in the previous era. After all, there aren’t any of the “old ways” to overturn. To yield both the political clout AND the creative, wealth-seeking imagination of a decentralised free-market ethos would make organisations like Yield Guild truly formidable in both the “metaverse” and the real world.
We are in the early days of gaming as the new wave of manufacturing for the “metaverse”, but to say no one could have seen this coming would be patently false.
It is already here, the land grab is on, but nonetheless, few know about it.