Suddenly, the time for making money from playing online games has come — and the venture capitalists are taking notice. 

Dozens of foreign funds and technology investors are plowing or looking to invest big money into startups in the play-to-earn space, according to Gabby Dizon, the co-founder of Yield Guild Games (YGG), a pioneer of gaming guilds in the Philippines. Gaming guilds are any organized group of video game players, where players and owners agree to split the profits. 

“What you’re seeing is that because of the success of YGG, you’re seeing crypto funds, Silicon Valley companies, taking a look at Filipino startups or Filipino-founded startups that are serving the play-to-earn space where none of them have ever invested in a Filipino company before,” Dizon said at a recent virtual briefing hosted by local venture fund Kickstart Ventures. “There’s maybe at least 20 VCs that want to co-invest with us, from a BitKraft to an a16z to a lot of the crypto native funds.”

Dizon was speaking from experience. In August, YGG raised US$4.6 million from a consortium led by VC powerhouse Andreessen Horowitz (a16z), alongside Kingsway Capital, Infinity Ventures Crypto, Atelier Ventures and gaming entrepreneur Gabriel Leydon. This marked Andreessen Horowitz’s first-ever bet on a company based in the Philippines. 

It also came just five months after New York-based Delphi Digital led a US$1.325 million seed round for YGG, whose other co-founders are Beryl Li and Owl of Moistness, the name used by an anonymous investor. 

In announcing their investment, a16z general partner Arianna Simpson said: “The way we define a ‘job’ is quickly evolving because of crypto and gaming, and we think we’re just starting to glimpse what’s possible in this realm.”

Delphi Digital meanwhile wrote in a statement: “We believe that ultimately, the allure of these player-owned virtual economies could eventually serve as a trojan horse for onboarding millions of players into crypto more broadly.”

But while big money is now pouring into play-to-earn gaming startups, questions are being raised as to whether the play-to-earn economic model is sustainable.

How it all began

The Philippines found itself at the epicenter of the play-to-earn phenomenon through the game Axie Infinity, which utilizes non-fungible tokens (NFTs). The game is developed by Vietnam-based studio Sky Mavis and was released in 2018, but exploded in popularity in 2020 because of the recession wrought by the protracted Covid-19 lockdowns. Thousands who lost their jobs or source of income turned to it — first for some extra cash, and later on making it their full-time gig. 

Sky Mavis data shows there are a little over 2 million daily active users of Axie Infinity as of October, and the firm previously said about 55% are from the Philippines.   

“So what happened was that people cashed out their money, and then took a picture along with the milk and the food that they bought for their families. And then they posted [them] on Facebook, with the hashtag SalamatAxie (ThankYouAxie), and from there, Axie really started growing,” Dizon said. 

But as more people waded in, the price of the in-game assets called “Axies” that one needs to play began to shot up. Dizon, who before founding YGG also co-founded a mobile game studio called Altitude Games, soon saw an opportunity. He started leasing his Axies out to new players who couldn’t afford to buy in — a concept known in the industry as “scholarships.” The earnings are split between the “scholars” (70%), the guild (10%), and community managers (essentially the recruiters and trainers), if any (20%). 

YGG used its seed funding from Delphi Digital and a16z to buy “a lot more” Axies, hire staff, and build a network of community managers who could work — or play — from anywhere in the world, thanks to the ecosystem’s decentralized nature. To date, YGG has community managers in many remote provinces in the Philippines but also places like Indonesia, Malaysia, Thailand, Venezuela, Colombia and Brazil. Ultimately that means they can sell themselves to investors as a global brand. 

“It’s not like, if you raise money for a startup that is uniquely serving only the Philippine market, then international investors will probably give you some kind of valuation discount,” Dizon said. “We are seeing seed rounds that are raising US$3 million, at a US$30 million valuation, where if you have a purely local startup, US$30 million is probably your exit, right?”

Just a little over a year since its founding, YGG says it has invested in 15 other games — including Thetan Arena, The Sandbox and F1® Delta Time — and holds about US$850 million in assets under management. 

Is the play-to-earn model sustainable?

But questions have been raised about the long-term prospects of the play-to-earn business model. In November, monthly revenues for Axie Infinity had fallen again — for the third straight month, according to data from

A recent report by Naavik, a gaming industry research firm, also suggests that the average Axie player actually earns very little from playing — less US$7.03 a day, which is lower than the minimum wage in the Philippines.

“Our analysis of Axie Infinity concluded that the game’s current economic model is unsustainable,” said Jimmy Stone, a consulting partner at Naavik and one of the co-authors of the report, in an interview with Forkast.News. “The game’s economy relies on growth in new players, who put new money into the economy, to pay out existing players who (based on available survey data) are primarily scholars that engage more as a job than fun.” 

Stone said this has caused inflationary pressure on the game’s in-game token — known as Smooth Love Potion, or SLP — as players convert it to local currency rather than use it to create new Axies. 

Naavik pointed out that Sky Mavis, the developer of Axie Infinity, is well aware of this issue and is already working on solutions to balance out the game’s economics. They’ve adjusted the amount of tokens needed to create new Axies, released virtual land, and are also planning to roll out new games. 

“Ultimately, we believe that sustainable game economies will need to attract enough players who are motivated to play a game for fun as opposed to those primarily motivated by profit or income,” Stone said. “And creating fun games is hard!”

“To use our co-writer Lars Doucet’s carnival analogy, you can’t have everyone pay $5 for a carnival and expect to leave with $10. You have to attract people who want to come for the popcorn and rides, and be ok leaving with less money than they came with,” Stone added.

SkyMavis disagrees with these characterizations. “Our economy does not rely on new users compensating earlier players,” Aleksander Larsen, co-founder and chief operating officer of SkyMavis, told Forkast.News. “Our economy works as long as players are interested in creating new Axies, but in the end, some players hold onto their Axies, because they love them or see them as collector items.”

Larsen said the Naavik report was thorough but “discounts the community too heavily.”

“Over half of people who play Axie do so for the community, and those players were neglected in Naavik’s report,” Larsen said. “To highlight this, only 4 to 5% percent of all Axies are listed for sale on the marketplace, because most players prefer to either use them in the game or hold on to them as collectibles.”

Another potential hurdle: the tax man cometh. The Philippines’ Bureau of Internal Revenue and Department of Finance are looking at ways to tax gamers and digital transactions, to boost the country’s battered state coffers. It’s certainly not the only country to have thought of it. 

“The fundamental rule is that all income derived from whatever source is subject to tax and, unless provided otherwise by law, will always be controlled,” wrote law firm Gorriceta, Africa, Cauton & Saavedra, which advises local blockchain companies, in the Asian Business Law Journal

A strict tax regime may turn more potential players off. But while the regulators figure out what to tax — the in-game asset? The cryptocurrency value? — YGG remains unfazed.  

“So in our view, and part of what we’re communicating, is that everything that we’re doing is already being covered by existing regulations, especially around gig economy work and marketplaces with independent sellers,” Dizon said.

The VCs are still coming

When pressed on who the “20 VCs” were that Dizon said wanted to invest in play-to-earn startups, YGG referred to a blog post they published that listed names such as Animoca Brands, Spartan Group, Infinity Ventures Crypto, 3commas Capital, Arca, Bitscale, CMS, Coingecko, Fenbushi Capital, GBV Capital, Mechanism Capital, Parataxis, Petrock Capital, Sfermion, and Stablenode

Animoca Brands, a blockchain gaming unicorn based in Hong Kong, is on a bit of a roll when it comes to investing in play-to-earn. This week, the company announced it would team up with Bored Apes Yacht Club to develop a play-to-earn game based on the popular NFT collection.

Australia-based gaming guild and YGG competitor Avocado Guild also recently raised US$18 million in a Series A round led by Animoca and QCP Soteria Node, a token sale advisory company. This valued Avocado Guild at over US$200 million. 

Avocado Guild co-founder and CEO Brendan Wong told KrAsia they would use the money to expand their scholarship program for games like Axie Infinity and that their 7,000 members are mostly in the Philippines and Indonesia. He told the publication their goal is to reach 12,000 members throughout Southeast Asia by the end of the year. 

Meanwhile, former Citigroup head of structured products Matt Zhang recently announced that he’s left Wall Street to launch a US$1.5-billion crypto fund under Hivemind Capital Partners. On top of investing in blockchain projects, the New York-based firm will have a “dedicated play-to-earn strategy” — for which, according to Bloomberg, he has hired Sam Peurifoy, who famously quit his Goldman Sachs banker job to play Axie Infinity.

Hivemind says it’s received “a decent amount of interest” from institutional investors including pensions, endowments and sovereign wealth funds. In a press release announcing news of the fund, Zhang said: “We believe blockchain technology is a paradigm shift, and we are still in the early innings.”

Dizon adds: “Now every crypto gaming investor in the map knows where the Philippines is.”