In This Article
Esports refers to electronic sports, or what many of us would call electronic gaming. But there’s a revolution underway centered on Esports tokenization. What is Esports tokenization, and how does it work?
The concept combines the growing world of electronic games, “including action, strategy, and metaverse-based games, with blockchain-based digital tokens to provide value to players and the gaming industry as a whole.
A token is a digital representation of value, such as ownership of in-game assets or a digital “game ticket” that grants access or rights.
Let’s explore how gaming tokenization works before learning more about the evolution of the Esports ecosystem.
Key Takeaways
- Esports tokenization converts players and fans from passive participants into stakeholders through fan tokens and governance features.
- In-game items like skins, weapons, and avatars can be turned into tradable NFTs, giving players true ownership of digital assets.
- Blockchain-based ecosystems allows for cross-game interoperability as well as new revenue models for teams, publishers, and players.
- Real-world examples include fan tokens from OG Esports and Team Vitality, and NFT reward systems in games like Gods Unchained.
- Challenges include the ease of user onboarding, speculative hype, and unclear global regulations, but adoption is steadily increasing.
Esports Tokenization Explained
The Esports market is expected to reach 896 million users worldwide by 2029, representing a massive market. Many of these games feature game assets, and some even have in-game economies where players trade among themselves. Esports tokenization can play several roles in this evolving ecosystem, creating value for players and helping game publishers retain players. Let’s look at the core components.
- Tokens: Digital gaming tokens on a blockchain can represent in-game assets, such as gear (e.g., weapons or clothing), custom avatars, or achievements. They can also be used for in-game earnings or to allow players a voice in game development or rules, voting with their token holdings. This concept extends to team tokens, which grant fans financial stakes and decision-making power within their favorite esports teams or even tournaments.
- Marketplaces: Players can trade among themselves or “cash out” their tokenized earnings for other cryptocurrencies using in-game marketplaces, secondary marketplaces, or decentralized exchanges. This enables true ownership and liquidity for digital assets.
- Crypto wallets: Token transactions require a cryptocurrency wallet, a digital application used to securely manage and transact with blockchain-based assets.
In traditional electronic gaming, players are often paying customers, and in-game digital assets remain within the game’s “walled garden.” Esports tokenization promises to open up game economies, allowing players to truly own and control their digital game assets, and leading to deeper engagement and new forms of value.
This structure benefits both players and the video games industry by encouraging loyalty and opening new monetization avenues.
Tokenization Is Changing the Esports Industry: Here’s How
Esports tokenization promises to revolutionize fan engagement and shift the balance of power between players and centralized entities, such as game publishers. The move is already underway, with key game titles built explicitly for the Web3 space, including metaverse games like The Sandbox and Gods Unchained, as well as card-battle games like Splinterlands.
However, tokenization extends beyond in-game assets to fan tokens. OG Esports (Dota 2) and Team Vitality both introduced fan tokens, allowing token holders to participate in the process and earn rewards. The concept of team tokens has also expanded to real-world sports, notably EPL, racing, UFC, and Rugby teams.
From Spectators to Stakeholders
Fan tokens take center stage by bringing fans into the decision-making process. They may also provide financial rewards, and this dynamic spans both the analog and digital worlds. Whether Esports teams or popular real-world teams, tokens provide a way for fans to interact and show their team pride in new ways.
- A newfound voice for fans: Tokens open the door to voting on team matters, possibly including brand messaging, entry music for sports events, and which charities the team should support.
- Financial alignment: While tokens don’t confer fractional ownership of the team itself, fan tokens may become more valuable as a team grows in popularity. Rooting for your team becomes rooting for your wallet as well. Token holders own a piece of the hype, not unlike meme coins.
- Additional access: Fan tokens can also act as a VIP ticket or an elite membership. Token holders may enjoy extra perks, including meet-and-greet events, Q&A sessions with players, or exclusive content access.
Tokens can also aid fundraising initiatives. Revenue from token sales can fund investments to help the team, such as player recruitment, expansion into new leagues, training, or content creation that drives hype.
Game Assets Get a Digital Upgrade
While fan tokens are still finding their ideal role in the market, other types of tokens, such as in-game currencies and tokens representing game assets, are well-established.
Many of today’s games can be described as pay-to-win. In-game upgrades to armor, skins, weapons, gear, and avatars often come at a significant cost over time. In other cases, these upgrades are earned by playing or leveling up, which represents a significant investment in time and effort. These assets typically remain locked within the game, with no means of recovering the time or money invested.
Esports tokenization changes this dynamic by making in-game assets tokens that can be traded, sold, or may grant additional benefits within the game itself. The most common approach is to use non-fungible tokens (NFTs) to represent game assets.
For example, Axie Infinity uses NFTs to represent Axies, the breedable characters within the game. In a traditional electronic game, these characters (and their value) would remain locked within the game. As NFTs, they can be sold, allowing players to monetize gameplay.
Understanding the Technology Behind Esports Tokens
Esports fans are familiar with how traditional electronic games work: a player logs in to access the game, and all game features run through centralized servers run by the game publisher. Tokenization alters this process by utilizing a cryptocurrency wallet for logins. This wallet is an app that enables users to connect to the game and manage players’ digital assets within it.
Blockchain Foundations and Smart Contracts
Earning, buying, or receiving gaming tokens all center on the player’s crypto wallet. Under the hood, tokenized games use smart contracts (computer programs that form the backbone of blockchain technology) to mint tokens or control how tokens are used within the game. While smart contracts can be complex, at their core, they center on conditional statements: “if this happens, then do that”.
Different Token Types in Esports
Let’s discuss the different types of tokens commonly seen in Esports tokenization. Several of these token types also overlap with fan tokens.
- Fungible tokens (regular tokens): Fungible tokens refer to tokens that are all the same, similar to how one dollar bill is the same as the next.
- Non-fungible tokens (NFTs): A non-fungible token means the token is unique. NFTs first reached popularity as digital art with projects like CryptoPunks. This same type of token can represent in-game assets, like avatars, land, spaceships, or weapons in electronic games. NFTs can also represent real-world assets.
- Semi-fungible tokens (e.g., ERC-1155): A semi-fungible token is a token that can transform. It begins life as a standard (fungible) token, but can evolve to become a non-fungible token if certain conditions are met.
- Fan tokens: Esports fan tokens can be any of the above token types, although fungible tokens are most common.
Why Esports Tokenization Matters
Tokenization could prove a boon to the gaming industry, sports organizations, and fans alike, with each benefiting from the introduction of a token economy.
- Fan engagement is enhanced through voting, rewards, exclusive access, or appreciation in token prices.
- Player-generated content can be minted as NFTs. This allows players to monetize their gameplay or recoup their investment for purchased NFTs.
- Blockchain technology can enable cross-game interoperability. For example, an NFT in one game may be transferable to another game, or standard tokens may be used in more than one game. The STEPN (GMT) token, for instance, plays a role in both STEPN and STEPN GO.
- Tokenization also allows teams to pursue a new funding model for initiatives such as recruitment, team gear, training, and events.
Real-World Examples of Esports Tokenization
Esports tokenization isn’t just theoretical; the Esports industry and teams have already launched several successful tokens. These include OG Esports ($OG), a dominant team in Dota 2, and Team Vitality ($VIT), which competes across multiple titles.
Fan Tokens on Dedicated Platforms
Fan tokens play a more significant role in the real world of sports. Platforms such as Socios and FanTokens provide detailed information about specific tokens and serve as a gathering point for fans.
However, several popular Esports teams also have tokens that allow fans to participate rather than just spectate.
NFTs in Competitive Gaming
Gods Unchained gave out unique NFTs to commemorate player performance in ranked seasons. NFTs can serve as a form of recognition while also giving players bragging rights. Other use cases include sports NFTs, an already vibrant market segment, which paves the way for Esports NFTs. Most common among these are NFT trading cards and highlight reels, immortalized on the blockchain.
Tokenized Ecosystems and Marketplaces
Projects are building full ecosystems where players, fans, and teams interact through a unified token economy. This includes anything from in-game purchases to digital event tickets.
Challenges and Considerations
This brave new world brings adoption challenges and technological hurdles. While the proven tech for Esports tokenization has been in place for a decade, the percentage of the fan base that is crypto-savvy remains a minority. However, this disparity is expected to change in the coming years as more people become comfortable with Web3 tools.
Accessibility and User Experience
Crypto wallets have come a long way in terms of usability, and many crypto wallet apps prioritize the user experience. However, the concept remains foreign to many fans and gamers. Much like other areas of personal finance, a bit of education goes a long way.
Users must learn how a crypto wallet works, basic crypto safety and best practices, and how to decipher tokenomics (including the number of tokens, their distribution, and whether the supply is inflationary).
Balancing Speculation and Utility
Well-considered tokenomics create value in the tokens rather than just hype. While gaming coins can be similar to meme coins in some ways, such as uniting communities, fans in the gaming world deserve a token economy that can stand the test of time.
Legal and Regulatory Uncertainty
Although governments are working toward better-defined regulatory structures, crypto tokens remain largely unregulated. This creates two primary concerns for fans and the industry at large. Fans need to be vigilant against potential scams, and the industry as a whole must exercise caution in how it launches tokens, as well as how those tokens are utilized.
Famously, the US Securities and Exchange Commission (SEC) sued LBRY, Inc. for allegedly selling unregistered securities when it sold LBRY tokens. In a similar case, Ripple, the company behind the XRP payments network, faced similar allegations in a still-ongoing federal court case.
Conclusion
Esports tokenization, while well-established with popular gaming titles, has only just begun to gain momentum. As the electronic gaming industry continues to grow, expect more tokenized games, monetizing gameplay, and creating value for players.
Game publishers benefit as well. Tokenization, when executed effectively, can foster player loyalty and increase brand awareness. Teams also benefit from ways to raise revenue and connect with fans, and blockchain technology is at the heart of this growing trend.
References
- Esports – Worldwide (statista.com)
- Litigation Release No. 25775 (sec.gov)
- SEC, Ripple wants to settle crypto lawsuit, but US judge rebuffs them (reuters.com)
FAQs
What does tokenization mean in crypto?
A token is a digital representation of value, which could include real-world assets, in-game access, or digital assets that grant access. In a gaming industry context, tokens can provide an in-game economy or represent in-game assets, such as skins, avatars, or other digital collectibles and achievement awards.
How do P2E games make money?
Play-to-earn (P2E) games provide a means for players to earn specific cryptocurrency tokens within the game, which can then be traded for other cryptocurrencies or converted into cash. Game publishers often make money by selling initial items, such as sneakers in a running game, or by reserving a percentage of the token supply for the gaming developers.
Do you have to pay taxes on crypto games?
In most jurisdictions, crypto earnings are taxable as income. Appreciation in the value of tokens is taxable as capital gains when the tokens are sold or disposed of.
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