Blockchain Games and a Disruptive Corporate Business Model

Abstract

This Article is the first to identify and theorize on a new disruptive corporate business model unfolding in the gaming industry that is larger than both the movie and music sectors combined. Corporations in blockchain gaming reject the old paradigm of amassing profits by turning the public into spenders for and consumers of corporate products. The new corporate business model transforms members of the public into producers and true owners of new corporate property while earning income and garnering governance voting rights. Through a case study of Axie Infinity, a blockchain game launched in 2021, this Article explores how the new corporate business model challenges traditional theories of the corporation and relationships among stakeholders. Additionally, the disruptive model percolates implications of decentralized property ownership in the age of widening income inequality.

Introduction

Reports on the widening of income inequality paint a stark reality of wealth concentration in the CEO class and meager pay for workers.1 Ownership of corporate stock is concentrated in the hands of the wealthiest. In fact, the wealthiest ten percent of Americans own eighty-nine percent of all U.S. stocks.2 During the pandemic, the top one percent pocketed $6.5 trillion in corporate equities and mutual fund wealth.3 In corporate law and management literature, despite income inequality and the plight of the workers today,4 shareholder primacy theory and its cousin stakeholders theory reign supreme, conveying that corporations serve shareholders whether corporations solely exist to serve shareholders or to serve both shareholders and other stakeholders.5 Because the wealthiest Americans are shareholders of almost all U.S. stocks, corporate theories seem to exist to justify corporations’ wealth maximization and ability to ignore income inequality and workers’ plights.

Corporations amass wealth through targeting and selling their products and services to institutional and individual customers. The more customers spend, the richer the corporations become. The more customer networks expand, the larger the share of the market the corporate enjoys. In other words, the consuming class and the working class fortify the existence and wealth of corporations.6

For example, the gaming industry, which is short for videogames distributed through platforms, consoles, and mobiles, is larger than the movie and music sectors combined, spanning 2.9 billion players globally. Games publishers are now giant tech companies, including Microsoft, Facebook, Google, and Apple. Gaming corporations are known to force their employees to perform long hours: up to a 100-hour week or 14-hour working days and weekend. Gaming corporations cement a business model in which customers pay to play and pay to win. Essentially, the players labor away hours at games to enrich games corporations, which reaped $175 billion in revenue in 2021, with outsized profits.

The arrival of blockchain technology and the collusion of blockchain and games infused with entrepreneurial spirit challenges the traditional business corporate model of wealth maximization for the selected few. This Article is the first to identify and analyze the disruptive corporate business model in blockchain games.

Through a case study of Axie Infinity’s game company and ecosystem, this Article explains a new theory of users as producer-and-owner of corporate property. Here, the players spend their skills, expertise, and time playing games to earn a living and own corporate property. With play-to-earn (“P2E”), the players are not the passive employees enriching the corporations. The players of blockchain games earn in-game tokens recorded on the blockchain. They can use the tokens to breed unique characters that are non-fungible tokens (“NFTs”). They are the true owners of the fungible tokens and NFTs. They can invest, trade, or hedge their fungible tokens and NFTs in the exchanges worldwide. They are rewarded with governance tokens for voting rights on important matters related to the platform. Over time, the community of players has control of the platform. In other words, blockchain games enable users to be the producers and owners of decentralized property, contrary to the traditional corporate model of wealth maximization for the interest of the selected few.

This Article also contributes to the corporate law literature by offering five striking features of the new corporate business model in blockchain gaming: (1) Players as producers and owners of NFTs, (2) market-driven property produced by players, (3) decentralized governance for a community of players, (4) dynamic layering of different business sectors on blockchain games, and (5) transnationalism. These features radically distinguish blockchain games from the traditional structure of stakeholders in the gaming industry. Most importantly, within these features evolves the emergence of the users as producers-and-owners of corporate property.

The Article proceeds as follows. Part I describes NFTs and tokens. Part II contextualizes blockchain’s impact on entrepreneurship. Part III reveals the gatekeepers in the gaming industry and how entrepreneurs disrupt the industry with blockchain games. Part IV discusses corporate law theories on employee-ownership, shareholder primacy, and stakeholders, and it further analyzes the P2E paradigm shift. This Article concludes with observations on the implications of blockchain games on decentralized property ownership and corporate governance.

I. Non-fungible Tokens (NFTs) Primer

The popular bitcoin and ether are decentralized cryptocurrencies represented by entries on immutable blockchain ledgers.7 A bitcoin or an ether is fungible because a bitcoin possesses the same value as another bitcoin and can be exchanged or traded at equivalency.8 Also, fungible coins are divisible, enabling a fraction of a coin to be transferred.9 For instance, 1 ether (ETH) is divisible into 1 quintillion wei, and a buyer can purchase 0.005 ETH.10 Similarly, tokens minted using Ethereum’s ERC-20 blockchain protocol are also fungible.11 Companies utilize the protocol to create their tokens, set the token names and symbols, and launch an initial coin offering (“ICO”) of their new token.12 Fungible ERC-20 tokens are interchangeable; they are not unique, and they are easily dividable.13 Coins and tokens are prevalent today, as the public has witnessed in numerous reports and disputes involving these fungible digital assets in connection with fraud schemes in recent years.14

On the opposite spectrum, a non-fungible token (“NFT”) is a unique, one-of-a-kind digital asset with a verifiable identifier and cannot be replaced by another NFT.15 Developers adopt the ERC-721 protocol, instead of the ERC-20 protocol, to tokenize ownership of any arbitrary data.16 Accordingly, NFTs lack the associated fixed value like bitcoins, ethers, or any other fungible tokens. Therefore, NFTs cannot be exchanged at equivalency. They cannot be copied or divided in part like fungible coins and tokens.17

Leveraging immutable blockchain technology, when an asset is tokenized with an NFT, the data exists on a blockchain.18 Any subsequent transaction related to the NFT is a new link on the chain.19 All the transactions on the chain are recorded in the distributed or decentralized network of computers and cannot be altered, reversed, or deleted.20 Further, the transactions are open and transparent for others to view and verify due to the decentralized nature of blockchain.21 That means for each NFT, immutability, authenticity, transparency, and ownership are openly built into the code and decentralized.22

Consequently, to mint unique tokens, entrepreneurs utilize the existing Ethereum ERC-721 protocol to develop NFTs.23 The protocol’s smart contracts provide governance of the NFTs developed on Ethereum.24 The protocol’s smart contracts are specific codes that cover essential information for managing transactions like verification or transfer of NFTs.25 That means each NFT is unique based on the information housed in the NFT’s metadata.26 The metadata can include the token’s identity directed to “image, artwork, web domain or significant digital resource.”27

With these characteristics, NFTs have stirred excitement worldwide as some believe that they represent a new blockchain revolution.28 Reports of the wonders of NFTs have appeared in many different sectors of the economy, from arts and music, to real estate and patent licensing, among others.29 NFTs were previously used to validate proof of ownership, authenticity, validity, and indisputable proof of transfer transactions.30 A notable example of early use of blockchain technology to validate ownership and authenticity is MIT’s graduation diploma.31 More recently, media attention has gravitated towards new applications of NFTs. Reports on the NFT of the video of a LeBron James dunk,32 the NFT of digital artwork by Beeple,33 and the NFT of the first tweet by Twitter founder Jack Dorsey highlighted how these simple digital assets captivated the public with unanticipated large sums for their sale transactions.34

Additionally, NFTs can be used to detect unauthorized use of a digital work.35 The owner of an NFT can be embedded in the NFT identification hash in the digital work subject to a license for distribution and is subsequently detected if the purchaser-licensee has engaged in unauthorized transfers of the licensed digital work.36 With physical goods, NFTs can be used to tag tangible goods for purposes of origin tracing, ownership, provenance verification, and authenticity certification; therefore, this may lead to a reduction of theft, counterfeits, or fraud in sectors dealing with precious gemstones,37 luxury goods,38 arts,39 supply chains,40 and trade finance.41

In summary, NFTs open up new ways for entrepreneurs in different sectors to combine the existing characteristics of blockchain and the uniqueness of nonfungibility for disruption, as seen later in this Article. A macro-understanding of blockchain’s potential impact on entrepreneurship, however, is necessary for subsequent contextualization of NFTs in blockchain games and their disruption of corporate business model.

II. Blockchain Impact on Entrepreneurship

Entrepreneurs have gravitated to blockchain technology in recent years. Blockchains are known to encourage entrepreneurship by democratizing access to funding and investing opportunities, building community of early adopters and developers, and facilitating open-sourcing of projects.42 Entrepreneurs embrace blockchains by adopting relevant protocols and creating tokens to represent scarce assets in funding strategy.43 Moreover, tokens are dynamic in value and can be traded, sold, and hedged in the secondary market, enabling some entrepreneurs who own them to further invest or transfer the tokens for new funding to finance new projects.44

Before the arrival of blockchains, when entrepreneurs needed funding, they typically looked to traditional equity financing, debt financing, VC financing, and crowd funding for their business enterprises.45 Under traditional equity financing, entrepreneurs often must give up some of their control and ownership of their business to investors in exchange for the funds.46 In other words, equity financing is costly to the entrepreneurs.47 Debt financing, however, is cheaper than equity financing since entrepreneurs in debt financing typically do not lose control of their business when they obtain a loan from lenders with the promise to pay back the loan plus interest.48 Unfortunately, debt financing is only available if the entrepreneurs satisfy stringent loan requirements.49 Overall, however, obtaining traditional debt and equity financing are difficult due to startups’ lack of credit history, credit rating, and high risks of business failure.50 Investors with high risk appetites like venture capitalists are more willing to fund emerging companies with promising technologies in return for high rewards.51 In VC financing, entrepreneurs often lose control of their company because the investors often control the board of directors and management team with a focus towards exit strategy through selling the startups to others.52 With crowdfunding, entrepreneurs solicit donations from ordinary investors online for their projects.53 Entrepreneurs often utilize crowdfunding platforms for assistance in posting materials related to potential projects and managing the collections; and in return, they pay the platforms a percentage of the donations.54

The rise of blockchain is transforming how entrepreneurs obtain finance for their business. Through token sale or “initial coin offering” (ICO), entrepreneurs pitch their business directly to the public and sell tokens to finance the operation and development of the enterprise’s services.55 The tokens can subsequently be traded on a secondary market via cryptocurrency exchanges.56 The ICO initial transactions and subsequent transactions of tokens are conducted through a distributed system of transparency and trust, reducing the cost of capital formation.57 In other words, the public capital markets are available to entrepreneurs worldwide, and the funds are immediate, without the interference of traditional intermediaries and the cumbersome process associated with raising capital.58

Investing opportunities exist on the other side of obtaining funding. Blockchains democratize access to investing opportunities.59 Average investors generally encounter very few opportunities to invest in early-stage business enterprises.60 Angel investors, venture capitalists, and investment banks are the typical investors in startups.61 For instance, in 2020, early stage investments reached historically high levels, with $150 billion spent to fund new deals for venture investors.62 Venture investors, however, assume high risks in association with investments in early-stage enterprises because the liquidity with private company investments is limited.63 The arrival of blockchain has transformed investing opportunities, allowing average investors equal access to invest in early-stage deals worldwide.64 The average investor can purchase tokens issued by the entrepreneurs who need to raise funding directly from members of the public for their projects.65 Moreover, by investing via a purchase of blockchain tokens, investors do not face liquidity problems because they can sell the tokens when they desire via the various exchanges existing as borderless through internet connection.66 Some of the investors are themselves entrepreneurial; they hold on to the tokens or sell the tokens for the funding of their enterprises.67

Blockchain tokens play a unique role in building a community of a new projects or platforms. Legacy enterprises know that their platforms are attractive to users after the platforms have acquired strong network effects.68 For example, Facebook, Google, YouTube, Amazon, Uber, and Airbnb, among others, are enterprises with significant appeals to users due to the strong network effects they have created and nurtured over time.69 The strong network effects also attract third-party providers to adopt, develop, and furnish their complementary products and services on the platforms to enhance and expand the network effects.70 To compensate for a lack of network effect, entrepreneurs turn to blockchain tokens to build a community of early adopters and developers.71 Entrepreneurs issue tokens to reward these individuals.72 The early adopters and developers are true believers who share the visions of the new projects, enterprises, or ecosystems.73 These true believers are the pioneers, builders, and promoters of the network effects.74 The blockchain tokens, therefore, are strategically used to entice and compensate the adopters and developers for the lack of network effects and reward them for their own entrepreneurship.75

Another function of blockchain tokens in shaping entrepreneurship is to potentially encourage and facilitate open-source projects.76 Before the emergence of blockchain, society-at-large has greatly benefitted technologically from open-source.77 From the notable to the obscure, 78 from WikiLeaks79 to Wikipedia,80 a myriad of open-source projects have created value for society.81 Through open-source software projects, the public enjoys software innovation as developers contribute to writing and fixing code.82 Through open-source projects, the public learned about the Pandora Papers, where twelve million documents revealed how the elite shield wealth and engage in tax avoidance and money laundering activities.83 Wikipedia provides enormous value with its vast database of information in many languages, but Wikipedia also relies on donations from the public for continued development.84

The bootstrap and cash-strap problems faced by open-source projects raise this question: why does begging for funds exist when tokens can be issued for funding purposes? Moreover, core developers or contributors in existing open-source projects don’t receive compensation. Why, then, must they continue to bootstrap projects? By leveraging blockchain models, open-source projects receive funding for their ongoing development through token sales and incentivize developers through token rewards.85 The core developers of open-source projects can also share in the success because platforms reward them with tokens that they can either keep or sell off as they wish to capitalize on their shares of the success.86

In summary, blockchain technology supplies a new means for democratization of funding, investment, and participation. Entrepreneurs in different sectors worldwide can utilize blockchain technology to make an impact through their own visions of innovation. In particular, they have tackled disruption of the formidable gaming sector.

III. Gaming Gatekeepers and Disruptors

A. Gaming Industry and Gatekeepers

Players in the gaming industry constitute an astonishingly large portion of the global population. There are 2.9 billion people worldwide playing games.87 For the games market, the industry generated a value of $180.3 billion in revenue in 202188 and is expected to reach a revenue of $268 billion by 2025.89 The revenue from game surpasses the total combined revenue of movies ($45 billion), live music ($30 billion), ad-supported video on demands ($30 billion) and recorded music ($21 billion).90 The growth rate in the gaming industry generates both admiration and envy from other sectors, surging from $8 billion in 2006 to $160 billion in 2020.91 Regarding profits, while other media sectors suffer losses, the gaming industry enjoys large returns and gained $180 billion in profits in 2021.92

The growth in revenue and profits warrants a closer look at the business model in the gaming industry. The industry is known for treating workers who create games as “disposable.”93 Long working hours typically extend to 14-hour working days and weekends.94 Creative employees in the gaming industry sleep in the office instead of going home.95 They develop games but must “build their lives around the studios” for the crunch conditions.96 Founders of some studios exploit their employees with 100-hour weeks.97 Employers know that since individual developers love to create games, the job insecurity and the crunch conditions do not deter passionate and creative individuals from seeking jobs in the gaming industry.98

The gaming industry features powerful gatekeepers who are publishers of games.99 The publishers generally comprise of larger corporations with the resources to take games to the finish line and into the market of players.100 The publishers provide resources and expertise related to the production, delivery, and support for games on their platforms.101 They market and enhance the visibility of games, including electing to showcase certain games through dedicated launches or game stores.102 The publishers also furnish developers with the necessary finances to create and produce games.103 Some large publishers, however, nurture a home-grown games division, and they publish both home-grown games and third-party games.104 Overall, publishers invest enormous resources in games and, to ensure handsome profits, they often dictate or influence games development.105 Publishers exert control over developers in the concept and content creation of games, decisions regarding when and how to release content, and the maximized monetization of content.106

Major games publishers today include Activision Blizzard, Valve, Bethesda Softworks, Electronic Arts, Ubisoft, and Sega.107 Microsoft extended into the game industry through its Xbox console and later launched a streaming service to enable players to stream Xbox games.108 In January 2022, Microsoft expanded its prowess in the gaming industry by announcing its pending acquisition of Activision.109 Other tech giant companies like Facebook, Google, and Apple also entered the gaming industry with game streaming platforms like Facebook’s Unity Technologies, Google’s Stadia, and Apple Arcade.110 Facebook, anticipating games in the metaverse, changed its holding company’s name to Meta.111

Game publishers, traditional or tech giants, continue to dictate how games are developed, monetized, and distributed. An entrepreneur with a desire to create games faces daunting barriers. Solo developers are non-existent today.112 Indie game developers are entities with up to 100 employees with limited resources working on either a single game or a small group of games.113 The fiercely competitive gaming business environment, however, is not conducive for indie games companies to succeed, and many game studios fail before they can accumulate a loyal fanbase.114 Alternatively, entrepreneurs are beholden to game publishers to provide games development under a contract where the publishers dictate the game’s vision and creative control.115

The arrival of the blockchain is a perfect storm to disrupt the gaming industry.

B. Blockchain Games Disruptors

For entrepreneurs with passion and dreams of breaking through the barriers to enter the gaming industry, the world of crypto collides and jolts the world of games worldwide, creating new opportunities.116 The democratization characteristics of blockchains for funding, investing, and community-building weaponize the entrepreneurs to disrupt the gaming industry. As a case study, this section will analyze Axie Infinity, the poster child of disruptors in the gaming industry.117

In late 2017 and early 2018, three Vietnamese, one Norwegian and one American gamer founded Sky Mavis studio in Ho Chi Minh City to develop a blockchain game called Axie Infinity.118 Three years later, by early October 2021, Axie Infinity shocked the world of VC finance and the gaming industry with phenomenal valuations.119 Axie Infinity had reached $3 billion equity valuation.120 Axie Infinity’s native tokens AXS were then trading at $110, with the market cap of $7.8 billion and at a $29.5 billion fully diluted market cap.121 In other words, Axie Infinity is perched as one of the most valuable game companies in the world.122 Venture capitalists and institutional investors vie for their stakes in Sky Mavis, the parent company of Axie Infinity. Prominent VC firms in Silicon Valley like Andreessen Horowitz, Accel, and Paradigm fuel Sky Mavis with the latest round of funding to scale Axie Infinity’s infrastructure, growth, and distribution platforms.123

In 2021, Axie Infinity became the most popular blockchain game worldwide, transforming gamers into adopters and believers of the complex gaming ecosystem based on unique NFTs with different scarcity and utility levels.124 In Axie Infinity, the gamers are not there to play games for entertainment purposes. Gamers spend time, strategies, and skills to breed and battle teams of creatures called Axies that are NFTs. They fiercely compete against each other to victory, and they play to earn and own their hard-earned new property.125 Winning games earns Smooth Love Potion or SLPs, in-game tokens developed on the ERC-20 protocol, which are needed to breed new and rare Axies NFTs created on the Ethereum ERC-721 protocol.126 The rarest Axies were sold in the hundreds of thousands dollars.127 For instance, Origin Axies and Mystic Axies are NFTs among the rare Axies.128 Each of these rare Axies is unique with its distinctiveness, upgraded aesthetics, characteristics, and fighting prowess.129 One Mystic Axie with four mystic parts was priced at 5,000 ETH or $13,3337,875 in August 2021.130

Axie Infinity carefully designed the game with structures to regulate supply.131 Illustratively, an SLP is permanently removed from the supply pool once the SLP is used in the breeding of an Axie.132 By removing used SLPs, the game controls inflation.133 Also, more SLPs are required to support the higher the breed count of the parent Axies.134 Again, this mechanism forms part of the supply regulation. Moreover, Axies face a breeding limit, and the ability to breed decreases over time.135 That means there is a cap on the growth of all Axies, rendering them both scarce and valuable cryptoassets.

Further, the breeding of an Axie depends on its parents or genetic algorithm, and each Axie born is an ERC-721 NFT token with various levels of rarity and in-game utility.136 Consequently, battling Axies is a highly complex and strategic game for players.137 The games players breed and battle hold real economics: players earn profit SLPs while they play; and players can breed, raise, battle, keep, or sell their hard-earned unique Axie NFTs in the marketplace.138 Axie Infinity takes 4.25% commission fee for any sale transaction involving Axies.139

Axie Infinity also releases its own governance ERC-20 tokens called Axie Infinity Shard (“AXS”) tokens.140 In early November 2020, Axie Infinity held a public sale of some of AXS at the price of $0.1.141 In the crypto parlance, sharding is “synonymous with the idea of splitting ownership among a large group of people.”142 Axie Infinity Shards governance tokens suggest that “ownership of the game will be in some way distributed amongst its holders.”143 Accordingly, Axie Infinity uses AXS as rewards for playing games and participating in governance votes, but AXS tokens are not involved in battle gameplay.144 That means players are able to earn both AXS and SLP, but only SLPs can be used to breed Axies NFTs.145

With a myriad of economic factors embedded in the Axie Infinity ecosystem, it is no surprise that investors and traders engage in the market of buying, selling, and hedging AXS across exchanges. The price of an AXS today (as of November 21, 2021) is $129.79 with the lows and highs in the past twenty-four hours at $128.31 - $141.39.146

While developing Axie Infinity, Sky Mavis rewards its workforce of only forty employees with AXS tokens.147 Currently, eighty percent of the Sky Mavis employees are Vietnamese.148 According to the CEO, the developers of Axie Infinity hold a total of twenty-one percent of the total supply of AXS tokens, of which the company holds seventeen percent and the other four percent is used as a bonus for the developers.149 The tokens are currently locked and will be gradually unlocked to ensure the commitment from both the company and the employees to the game.150

Unlike traditional structure and dependency between publishers and developer studios in the gaming industry, Sky Mavis was not dependent on game publishers for concept creation, production, and distribution in developing and releasing Axie Infinity blockchain game.151 Sky Mavis did not turn to game publishers for financial backing of their game.152 The five founders designed and created the game successfully through unleashing the democratization of funding, investing, and community-building power of blockchain tokens.153 Sky Mavis uses tokens to retain talented workforce and attract members of the public for funding for continued development of game infrastructure.154 The early adopters who play the game are rewarded with AXS tokens, at first with significantly low value in the marketplace that later rise in value as the number of adopters increases.155 Also, the early adopters are akin to early-stage investors who seize the investing opportunity to participate by believing in the game ecosystem and battling against each other in games.156 As the community of adopters of the games of Axie Infinity expands, the network effects increase, which translates into real economics as seen in the rise in value of the Axie NFTs and AXS.157

In disrupting the gaming industry, what Sky Mavis is also accomplishing is the fortification of a new corporate business model of play-to-earn (P2E) that revolutionizes a new generation of gaming experiences with real economies in the new blockchain era.158

IV. The P2E Paradigm Shift

P2E is how users become producers and owners of new corporate property. Before delving into the new corporate business model of P2E as a departure from existing corporate business models, a detour to examine the entrenched corporate thinking is critical to appreciate how P2E confronts income inequality by transforming players-as-consumers to players-as- producers-and-owners of new property with market value.

Due to space limitations of a law review article, I will only focus on traditional corporate business models and theories most relevant to the scope of this Article.

A. Traditional Corporate Business Models and Theories

Employee-ownership, shareholder primacy, and stakeholders are briefly discussed here to frame the context for the disruptive P2E paradigm shift.

1. Employee-Ownership Theory

Employee-ownership in the company with Employee Stock Ownership Plans (“ESOPs”) is thought to increase employment incentives, job security, and workplace productivity, in addition to narrowing “the gap for wage and wealth inequity.”159 Tracing its history, the idea of employee-ownership in is not a modern corporate business model. Before the founding of the United States, Benjamin Franklin implemented employee-ownership in his print shops in 1733, five years after he started his own printing company in 1728.160 With his keen business sense, Franklin became the publisher of the Pennsylvania Gazette and the successful Poor Richard’s Almanac.161 He expanded his business with new print shops in different cities.162 For each shop, he structured the finance of the shop with the journeyman employees by providing the upfront capital costs which were sufficient to cover the equipment shipped from England and one-third of the expenses.163 The employees paid two-thirds of the expenses and kept two-thirds of the profits in the subsequent six years after the shop opened.164 With the profits, the employees could then purchase the equipment and subsequently own the print shop themselves.165 In this early form of employee-ownership, Franklin observed that most of the employees succeeded in becoming the owners of the print shops after the six-year term.166 The implementation of the employee-ownership business model yielded a winning strategy to both the company and the employees, as both obtained profits and shared the ownership, expenses, and liabilities.167 Franklin’s early form of employee-ownership marks this type of business model as older than the republic itself.

In modern incarnations, employee-ownership appears in various forms. In the mid-19th Century, Procter & Gamble, Railway Express, and Sears & Roebuck compensated employees for their long term employment at the company by giving company stock to employees upon their retirement.168 The Great Depression and economic inequality in the 20^th Century led to the passage of a federal law in 1974, the Employee Retirement Income Security Act, to formally protect employee stock ownership plans (ESOP) for their retirements.169

Some companies today allow their employees to own a piece of the company by participating in an ESOP or a 401(k) plan that has the company stock as part of its assets or receiving an option to purchase stock, among others. For instance, Publix Super Markets is the largest employee-owned enterprise with 193,000 employees at 1,281 retail locations across many states, $34.6 billion in revenue, and $2.3 billion in profits.170 The company’s common stock is owned entirely by the employees and non-employee directors through an employee stock ownership plan and the company's 401(k) plan.171 Employees at Publix, however, can earn stock in the company after working there for twelve months.172 On the opposite end of the supermarket sizing spectrum, an employee-owned company can be seen in a substantially smaller entity. For instance, Carlson Capital Management employs thirty-eight workers who are all high-value professionals together owning the company and managing $1.3 billion dollars for their clients.173

With the arrival and explosive growth of the tech industry, startups often entice new hires to exchange their sweat for equity in new enterprises. Investors, founders, and very early employees own preferred stock, while regular employees in tech startups face stock option schemes. The employees typically must stay an entire year in order to vest any stock, and the stocks are trickled out over a period of time.174 The employees of startups who receive stock options typically face dilution of their shares as the company raises new rounds of funding.175 As startups stay private with the influx of VC or equity funding, startups push going public to ten or more years, and employees see no financial incentive to stay at the same company for a long tenure.176 In today’s economy, employees work for a short tenure of two years at a startup, and by the third year, fifty percent of the employees at a startup leave the enterprise for other opportunities.177 Tech companies, in adopting an employee stock option plan with investors and founders holding preferred stock and employees at the bottom of the stock option scheme, represent a model antithesis to employee-owned entities like Publix or Carlson Capital Management.

Nationwide, very few companies are employee-owned.178 The total number of companies with an ESOP is 6,501.179 Another report indicates that only ten percent of Americans hold equity ownership in the companies where they work.180 The increasing wealth gap in the United States necessitates a call for companies to provide workers with opportunity to buy shares in their workplace, raising the workers’ standard of living and enhancing their well-being at work.181

2. Stakeholder Theory

The basic tenet of a corporation is the separation of ownership and control.182 The allocation of power within a corporation between the shareholders and the board of directors is fundamental to corporate governance.183 Shareholders possess a passive role in the direction of the corporation, while the board of directors and managers control the decisions regarding the corporation.184 In exchange for the passive role, shareholders enjoy wealth maximization because the corporation exists only for the maximization of shareholders.185 Managers are responsible for the best return for the shareholders.186

Critics have long questioned shareholder primacy theory.187 A corporation targets other purposes beside wealth maximization for shareholders.188 Though the corporation must be profitable, the corporation does not exist for the sole reason of enriching shareholders. According to American philosopher R. Edward Freeman, founder of the stakeholder theory, a business is a system to create value for stakeholders, internal and external to the business.189 Internal stakeholders include employees, managers, and owners, while external stakeholders cover suppliers, creditors, shareholders, customers, government, and society.190 Instead of only maximizing the wealth of the investors, stakeholder theory recognizes businesses exist for a purpose.191 Entrepreneurs with purpose or passion to start a business, not just to make money, succeed.192 Businesses today operate with dynamic corporate purposes, not a static corporate mission statement, and employees and other stakeholders participate in shaping their purposes.193 Through different stakeholders and their relationships, a company creates value to sustain the business and meet stakeholder expectations.194 In mutual stakeholder relationships, stakeholders are both recipients and co-creators of the joint-value creation processes of the enterprise.195

Though many companies today embrace a stakeholder theory of the firm, income inequality continues to persist as employees are poorly treated and customers are designed to consume. Prominent scholars have also observed that laws overtax employees as consumers while under-taxing corporations.196 That means both employees and customers are neither producers nor owners of a firm’s property. This is the gap where blockchain games enter with a new corporate business model that truly addresses the meaning of corporate purpose and the transformation of customers as producers and owners of the firm’s property.

B. Play to Earn – A New Corporate Paradigm

For many decades, the gaming industry appears profitable with players as customers who pay to play. Players pay to play arcade games or purchase home game consoles to play the games in the comfort of their home.197 Whether today’s console of choice is PlayStation or Xbox, players pay to play, enriching the corporations in the gaming industry.198 As gaming companies create and release games on online platforms, players play to connect with others through multiplayer gaming experiences. The gaming industry turns to a subscription model to charge players. For instance, Xbox Live Gold costs $10 per month, $40 for six months, and $60 for one year to play.199 Some game companies release “free-to-play” games that require players to spend money to purchase in-game content in order to be successful at playing.200 In other words, “free-to-play” is “pay-to-win”.201

Through various monetization schemes, the gaming industry has successfully dominated the entertainment sector, diminishing the size of the music and movie sectors. The industry has also long treated the players as consumers who will continue to consume newly released games by paying to play or paying to win. Unanticipated for the industry, the collision between games and blockchain technology challenges the entrenched corporate business model with the new P2E paradigm and questions the existing employees-ownership, shareholder primacy, and stakeholder theories.

The play-to-earn paradigm contains five features, notably the democratization of property production and ownership made possible by the combination of NFTs and blockchain games.

1. Players as Producers and Owners of NFTs

One of the striking features of blockchain games is the role of the players as producers. The players are playing the games with their skills and expertise like all passionate players of games, but they are treated as producers, not consumers, of games. In traditional games of “pay to win,” the players must pay for the content in order to enjoy playing the game at a more optimal level.202 As producers of game digital assets, the players own the NFTs they produce through battles and breeding.203 The producers’ ownership of the property is recognized, as they can participate in real world, dynamic market to transfer, trade, and hedge their hard-earned NFTs.204 That means the players reap what they sow, and they do what they wish with their property.205 With real world market for their NFTs, the players’ ownership of NFTs is not dictated and controlled by the game developers and publishers who have traditionally fixated on game monetization and profits maximization.206

Moreover, the total value of the NFTs truly belongs to the gamers who expend their own time, efforts, skills, and experience to earn each of their NFTs.207 The total value of the NFTs does not belong to the corporation that creates and publishes the blockchain game.208 This is contrary to the gaming industry wherein the value of the game translates into one direction of wealth maximization of the shareholders and managers.209 From the early days of gaming to the present, the gaming industry has treated players akin to submissive workers without pay and benefits.210 The new paradigm of players-as-producers-and-owners of NFTs rejects the traditional corporate business model in the gaming industry. As owners, the players control the NFTs property they produce in games with real world economies.

Moreover, the new paradigm democratizes property production and ownership by allowing the players to earn a living wage.211 During the pandemic, many workers lost their jobs or some quit their jobs and turned to blockchain games for their new working model of playing video games to earn NFTs that are theirs to keep or trade for a living.212 In summary, the blockchain games do not enrich only the corporations who create and publish the games; the developers design the games to ensure the players produce and keep their property for their own living purposes.213 In other words, property ownership is decentralized into the control of the players-as-producers.

2. Market-Driven Property Produced by Players

A fundamental tenet for a business to succeed is the existence of a market for its product.214 The product is valuable if there is a market for the product.215 Whether the marketplace is niche or worldwide, exclusive or nonexclusive, physical or online; the existence of a market for the product is paramount.216 Real world economics fuel the market in determining the value of what the producer produces.217 In blockchain games, the NTFs produced by the players are market-driven property with real economic consequences.218

For example, Coinbase, FTX, Gateio, and many other exchanges worldwide are where Axie Infinity’s tokens for blockchain games are purchased and sold.219 A glance at Bit$Screener for Axie Infinity (AXS) tokens reveals that the trading at the exchanges for the tokens is live and 24/7.220 There is a spread in price for AXS among the exchanges, ranging from $141.16 on Bitstamp to $146.39 on Korbit. That means traders are actively trading, and hedge funds are engaging in exchange arbitrage to exploit the price differences among exchanges.221

Also, the players of Axie Infinity can use their Ronin Wallet to gain direct access to the Axie marketplace for ease of selling and buying Axie NFTs.222 The sellers can sell their Axie NFTs at a fixed price or as an auction.223 When selling at a fixed price, the sellers set a specific price and their Axies will be listed at the price for sale on the Axie marketplace.224 When selling as an auction, the sellers decide the start price, end price, and duration for the auction period.225 If the sellers wish to cancel their listings before any purchase occurs, the sellers can do so with ease.226 Further, Katana, the Ronin decentralized exchange, allows players and outsiders to swap their various assets within the Axie Infinity ecosystem; players can trade AXS tokens, SLPs, and other tokens including USD Coin and Wrapped Ethereum on the new exchange.227

The real-world dynamic market provides players of blockchain games with a decentralized system allowing complete control of their NFTs and other tokens, moving the players from the realm of playing games solely for entertainment into the world of true ownership and control of their property in the marketplace.228 The players’ transactions with NFTs are recorded on the blockchain.229 They can keep, trade, or do whatever they wish with their NFTs. The marketplace is at their disposal.230 Consequently, their hard-earned NFTs through battling and breeding are valuable property, as they are market-driven.231

3. Decentralized Governance for Community of Players

Another remarkable feature of blockchain games is the opportunity for players to have a meaningful voice in the games’ platforms: players who own native or governance tokens obtain voting rights.232

Illustratively, AXS is a governance token of Axie Infinity that allows holders of AXS tokens to vote and create proposals for any item concerning the platform.233 Each AXS token represents “a little slice (shard) of the Axie universe.”234 Specifically, AXS holders can vote on how to use the protocol’s accumulated earnings stored in the Community Treasury. In addition, they can vote on the control of the game, as the founders of Axie Infinity will turn over control in a specified period of time.235

Axie Infinity limits the total number of AXS tokens to 270 million in accordance with the transparent schedule of distribution. To encourage the formation of a community and players to employ a long-term mindset, Axie Infinity adopts a staking strategy of airdropping $60 million worth of AXS tokens to early adopters.236 These early adopters are to lockup their AXS tokens for about 5.5 years and receive rewards in the process.237 The 5.5 years constitute the length of time before all 270 million AXS will be released.238 According to Axie Infinity’s staking strategy, the AXS holders gain the opportunity to vote on the fate of Axie Infinity’s community treasury, which stores all protocol earnings. The value of the Community Treasury is now over a billion dollars in tokens.239

The radical purpose behind this staking strategy is to phase out direct control “over the game and hand governance to the community.”240 Axie Infinity introduced Axie Infinity Shards (AXS) in November 2020 to ensure the game becomes “the first game owned by the community that plays and supports it.”241 Players can earn AXS tokens through their games skills and expertise by placing on the leaderboard during certain times and by winning tournaments.242 Overall, individuals can earn AXS both “through gameplay and contributions to the ecosystem.”243

The phase-out of control aligns with the vesting of the founders of the Axie Infinity game in their total twenty-one percent of tokens to be unlocked over the remaining 4.5 years.244 Under the decentralized and open game business model implemented by Axie Infinity, developers take “less than 10% of the revenue,”245 and the players-as-producers enjoy their fair and large share of forty-nine percent tokens and reap world value of their NFTs.246

The combination of real-world monetary value and meaningful voice in the governance of the platform and the community treasury,247Axie Infinity’s approach is a “fundamental shift” compared to traditional games.248 The gaming industry, on the other hand, employs the governance model of complete centralization wherein the company owns “the entire ecosystem” with control that is “closer to a dictatorship” where all revenues flow back to the company.249

4. Dynamic Layering of Different Business Sectors on Blockchain Games

Blockchain games enable the layering of different business sectors onto game tokens. For instance, valuable and liquid NFTs attract the lending sector. Because players utilize their efforts, skills, and experience to earn SLP tokens that are used for breeding Axie with different levels of skills for battles, some players want to borrow money to purchase Axies to start playing games. New players need three Axies to begin playing Axie Infinity games. To meet this funding demand, new lenders foray into this market.

For example, Patron, a startup in the Philippines, focuses almost solely on lending money to users who want to play in Axie Infinity.250 To play the game, a user must first purchase the digital creatures, Axies NFTs.251 The new lender Patron in turn receives funding from VC Andreessen Horowitz.252 In other words, two different business sectors layer and function in the blockchain games space: direct lending to players and VC financing to the lenders.

Another layer of lending creates a revenue sharing business model wherein the lender loans out the NFTs needed to start playing a blockchain game and then takes a share in the wins. The revenue sharing model is also called a “scholarship program” wherein a community manager of a “guild” lends the NFTs to a “scholar” or a player in return for a split of the rewards between the manager and the scholar.253 Blockchain Gaming Guild Avocado, for instance, operates a guild to lend NFTs to scholars playing seven blockchain games, including Axie Infinity, Cyball, and Revv Racing. This guild’s scholarship program includes over 7,000 members. For its own capital for growth, Blockchain Gaming Guild Avocado has recently obtained Series A funding from VC firms.254 Likewise, Yield Guild Games (YGG) raised a round of VC funding led by VC Andreessen Horowitz to expand its scholarship programs to players.255 YGG also has its own tokens, which currently have market capitalization of more than $490 million.256

Instead of direct lending or revenue sharing scholarship programs, platform lending marketplace firms also participate in the blockchain game space. AxieTree is an open marketplace for borrowing and lending Axies in the blockchain game Axie Infinity.257 Players can borrow three Axies to play and must return the Axie if they fail to meet the SLP earning requirements.258 Alternatively, players borrowing Axies using ETH for a specified term are not subject to SLP earning requirements.259 ETH is traded at $4,510.260

In more granular detail, a lender who wishes to lend on an open borrowing and lending platform like AxieTree selects different types of Axies and deposit them into AxieTree for listing in the marketplace.261 The lender must pay gas (ETH) for the listing.262 A borrower who is qualified to borrow up to a maximum of three Axies from a lender to get started in Axie Infinity can use credentials from registration to begin playing the game.263 The borrower can borrow certain Axies for a fixed period of time by paying upfront with ETH or through an SLP revenue sharing model wherein the borrower gives up certain amount of their SLP earnings with the lenders.264 AxieTree, for instance, takes ten percent of the SLP earnings.265

The borrower, however, does not own the private key to the address holding the Axie.266 That means the borrower cannot breed or transfer the borrowed Axie.267 Consequently, the lender is protected.268 This type of transaction is similar to secured transactions governed by Article 9 of the Uniform Commercial Code wherein the secured party has control of the collateral. Here, the lender relies on technology to automatically control the Axie collateral.

When the term of the loan expires, or the borrowing period of the Axie ends, the borrower can choose to return the Axie and pays gas (ETH) to return the Axie or earn more SLP to keep certain Axies.269 If the borrower does not return the Axie themselves, the lender’s bot will retrieve the Axie from the platform.270 For instance, AxieTree Worker Bot “scans” the platform, identifies the loaned out Axie and returns the Axie with an expired loan period to AxieTree’s Marketplace.271 This type of retrieving Axie resembles the self-help mechanism of secured transactions, where the secured party can foreclose on the collateral without informing the debtor after default and when the borrower fails to return the Axie upon the expiration of the borrowing period.

Outside the different types of lending and VC funding sectors that layer on top of the blockchain games, other layers include the trading at exchanges and arbitraging of price differences among the exchanges for the NFTs. These layering of transactions from different business sectors build a dynamic economic system that is notably absent in the traditional gaming industry.

5. Transnationalism

Other striking features of the P2E corporate business model include transnational characteristics. The blockchain games, through the layering of transactions from different business sectors, bring people together across national boundaries and language barriers.

VCs from Silicon Valley are connected to founders in Vietnam and provide funds to scale the blockchain games worldwide.272 Mark Cuban from Texas and Reddit co-founder Alexis Ohanian from California were among early notable investors in Axie Infinity to signal their belief in the new business model before the VC firms became involved.273 Lenders from the Philippines are backed by VCs from Silicon Valley for funding to lend to users who want to start playing the blockchain games.274 Thailand-based GuildFi received seed funding from Singapore investment firm DeFiance Capital and Hashed Ventures.275 Entrepreneurs from different countries with different cultures and languages meet each other through playing blockchain games and executing their visions by overcoming barriers to found new enterprises.276

In addition to the diversity of founders, employees at the startup enterprises are also diverse, as seen in Axie Infinity: eighty percent of their forty employees are Vietnamese and twenty percent are from outside Vietnam.277 Early adopters and players span worldwide, engaging in the purchase of Axies to start their games, the earning of SLP tokens to breed Axies, and the fighting of battles for real earnings.278 The players are active participants in the real world economies of Axie NFTs.279 Likewise, exchanges and traders of blockchain games tokens face no national or other geographical limitations.

The transnational characteristics of P2E corporate business model in blockchain are absent from traditional games. Typically, in multiplayer games, the international players participate in playing the games.280 Traditional game developers and publishers are from the same country and gather together at conferences.281 In the P2E corporate business model, however, the world forms the center of the decentralized approach, and geographical boundaries are diminished for all aspects relating to playing, lending, funding, and hedging with real world consequences.

The transnational characteristics of the P2E corporate business model, if it continues to flourish, will assist in flattening access to capital for entrepreneurs in emerging economies. In addition, the community in P2E blockchain games is international in make-up but held together in the decentralized system and real world economies for their NFTs and other tokens; meanwhile, the community possesses the voting power in the governance of the game. In other words, transnationalism shapes the specific community and ecosystem of a blockchain game.

Conclusion

Blockchain games and their characteristics champion users as producers. Here, users are the games’ customers or players who possess skills and spend effort and time to produce corporate property, such as the SLPs, AXS, and Axies NFTs in Axie Infinity platform. Through blockchain technology, the producers are truly the owners of the property. The corporation, Axie Infinity, does not control or influence the ownership and value of the property. The producers (the gamers) are in control of their property as they build their community and expand their network effects. They accumulate governance votes on the platform and the community treasury. This business model radically challenges both the traditional corporate model of shareholder primacy and the celebrated stakeholder theory because the value created is predominately for the customers as the true producers and owners of corporate property. Customers’ skills, expertise, efforts, and time are recognized and rewarded through property ownership with economic realities.

The corporation’s employees are the developers of the games and are treated with true ownership of tokens recorded on the blockchain. There are no stock option schemes as commonly seen in the startup environment. The blockchain game whitepaper, as seen in Axie Infinity’s, explains what the employees will obtain in the token shares. In other words, employees are valued as producers of property. Additionally, the corporation treats its customers, who are players of their games, not as passive employees who toil hours of playing time and spending financial resources in association with labor. Instead, the corporation treats the customers as producers and owners of corporate property.

In summary, blockchain games and their characteristics open new conversations on novel ways of addressing the wealth gap and income inequality, exploring property ownership possibilities, and encouraging the blurring of work and play culture. Whether the disruptive model of blockchain gaming will influence traditional corporate wealth maximization for the shareholders remains to be seen. Nevertheless, the disruptive model has already jolted the gaming industry by centering the users as producers and owners of property with real world economics while all transactions are recorded on the blockchain.