Is secondary market sales of whitelists a threat to Play-and-Earn games?
Despite the “bearish” trend in the crypto industry in 2022, the Play-to-Earn (PtE) and Play-and-Earn (PaE) games industry continues to grow and develop, providing users with opportunities to earn money. Let’s talk today about one of them, and about the danger that this opportunity brings to PaE projects — farming whitelists and selling them on OTC markets.
OTC trading (over-the-counter) is a term that came to NFT games from cryptocurrency trading. OTC, in essence, is the exchange of money for cryptocurrencies between individuals or organizations on aggregator sites or social networks. In the world of web3 games, OTC makes it possible to purchase NFTs without paying a commission to the marketplace, which can reach 10–15%, it is significant when it comes to expensive gaming NFTs worth several thousand dollars or more. You can also buy many other things on such sites: game accounts, in-game services and whitelists. Whitelists allow their owners to participate in game NFT drops before the rest of the community can buy game NFTs and sell them on the secondary market with a higher profit.
Usually whitelists are played by the creators of the game among the community using giveaway events. Often they have a referral program that allows you to get extra points for inviting new participants to the giveaway event. Of course, many users have started creating account farms to increase their chances of winning the event.
Why the spread of whitelist farming can be dangerous for the P2E and PaE games market? Historically, in new industries in IT, there are risks of bubbles. This was back in the days of the dot-com crash, this risk was (and still is) in cryptocurrencies and blockchains. Of course, this risk is also presented in the fledgling industry of NFTs and games created with this technology. Selling OTC whitelists may increase the risk of creating bubbles and undermining user confidence in the entire PaE gaming industry.
How does this happen?
Farmer finds the project and gets whitelisted one of the first. The only goal of the farmer in this situation is to resell the whitelist faster and at a higher price, so the whitelist is immediately placed on OTC. How is the whitelist price formed? As a rule, it is quite difficult to objectively evaluate a project at an early stage (when there is neither a product nor an MVP of the product, instead of them there is only a set of promises) if you do not know the team personally. Therefore, the farmer either starts from his expenses on the farm, which he wants to return and in addition to which he wants to earn some significant amount for the farmer, or even puts a price tag at random, for example, the average for the market.
Potential buyers see on OTC that the whitelist in the project is being sold for several hundred or even thousands of dollars. Many of them begin to admit cognitive distortion in their reasoning analyzing the project. People believe that if a whitelist is so expensive, it means that the project is valuable, high quality and should definitely take off. The excitement around the project is increasing and more and more farmers are starting to try to get a whitelist and sell it quickly. Competition among farmers is intensifying, that leads to higher prices for whitelisting in the secondary market, as well as increasing the difficulty of obtaining a whitelist for an ordinary user who does not have several hundred Twitter or Discord accounts at hand. The cognitive bias is getting worse — more and more people are beginning to think that since whitelisting is so hard to get, the project is definitely worth it.
Thus, an artificial hype is created around the project, based solely on the whitelist price in the secondary market. A price that has been formed independently of the project and has no real basis. The bubble is inflated and ready to burst. A project in which nothing has been done yet (and, perhaps, never will be done) has a turnover in the secondary market equal to tens or even hundreds of thousands of dollars. Along with the turnover, the expectations from those users who bought the whitelist of the project or received it after spending a lot of time and effort also grow. Of course, such expectations in most cases are difficult or impossible to justify. The soap bubble bursts, taking with it both money and user confidence in any projects in this area.
What to do?
If you are a game developer, then don’t rush to rejoice at the high prices for your whitelists in the secondary market. High prices are, first of all, high upfront expectations, and you will need to put a lot of effort into your project to justify them. It may be necessary to correct game mechanics and the economy so that such public expectations may be somehow achievable. We also advise you not to sell whitelists, but to give them away for free to avoid price pumps at the very start.
Crypto investors and crypto enthusiasts should correctly calculate their risks before deciding to buy another whitelist. Don’t let FOMO get the better of your mind, remember that whitelisting an NFT project is perhaps one of the highest risk investments in the crypto industry (which is itself a high risk). Everyone has different investment strategies, but we do not recommend allocating more than 1–5% percent of your investment crypto capital for the purchase of whitelists.
And if you just want to play a play-and-earn game for fun and for the opportunity to make some money, then don’t risk whitelisting at all. Wait until the game is released and play.
