Squid Game can (not) make you rich: New cryptocurrency Squid Game (ticker: SQUID) surged uncontrollably to hit a peak of USD 2.9k this morning, up more than 300k times its value of USD 0.01 on Tuesday and putting its fully diluted market cap at a staggering USD 2.3 tn — more than Bitcoin and Etherum combined. Then SQUID developers pulled out the funds, and disappeared, taking with them USD 2.1 mn, according to Gizmodo.

Wait, so was this a scam? Apparently. Just before noon today, the cryptocurrency flatlined, losing more or less 100% of its peak value in seconds and ending up worth less than when it started. Then CoinMarketCap, which was already warning potential buyers that some were having technical difficulties trying to resell SQUID, updated its warning to note that the developers’ website and social media are no longer functional and the currency cannot now be sold on Pancakeswap.

What is/was this thing anyway? The currency was launched in mid-October as the exclusive coin of the play-to-earn Squid Game platform, which was set to offer players the chance to compete in a virtual version of the deadly tournament at the center of Netflix’s standout Korean hit. The currency and online game are not affiliated to the show or its producers.

How did it work? Starting this month, gamers could supposedly pay in SQUID to enter successive rounds of online Squid Games, with 90% of the proceeds going to the prize pot and 10% to the developers. “The more people join, the larger the reward pool will be,” according to the currency’s now-deleted white paper. “More importantly, we do not provide deadly consequences apparently.”

The story was still developing as of dispatch time, but the alleged currency is part of a growing GameFi phenomenon that has upped stakes for gamers, by translating their earnings into cryptocurrency.

What is GameFi? Mash the decentralized finance (DeFi) and gaming communities together, and this is the result. On GameFi or play-to-earn platforms, users play to earn, and exchange blockchain-protected cryptocurrencies or non-fungible tokens (NFTs) like digital avatars, objects and outfits. In Axie Infinity, one of the best known such games, players battle using monsters they built out of NFTs and earn Ethereum as they play. These can be spent or exchanged for fiat currency, making GameFi a potentially lucrative niche for players, and reviving many’s childhood dream of a chance to make a living wage from home by playing video games. Axie Infinity now has 1 mn users in its home country of Vietnam.

Play-to-earn is taking off in developing markets: After cryptocurrency exchange Huobi found itself unable to operate in the country where it was founded after China banned crypto trading, it set up a USD 10 mn fund to back GameFi projects across South East Asia, including India, Vietnam and Turkey. Countries with a pre-existing gaming culture, high crypto trading uptake and a large number of retail traders are ripe for GameFi investment, Huobi global strategy exec Jeff Mei told Markets Insider. Meanwhile, US-based startup Playdough last month raised USD 2 mn to widen access to play-to-earn in Western markets.

But there’s a catch: you have to pay in before you can get paid. As the popularity of a game increases, the initial buy-in required will also go up. In the case of Axie Infinity, your NFT monsters will now set you back around USD 3k, one GameFi platform exec told Forbes.

Sometimes GameFi products are straightforwardly fraudulent: Crypto scams come in many shapes and sizes, all with silly jargon attached. “Pump and dump” is when investors get into a new currency early, drum up excitement to inflate its value, and then exit at the peak. Developers raise investment for projects that turn out never to have existed in “vaporware” or “rug pull” scams, which seems to be the case with SQUID. And then there are the straightforward, OneCoin-style Ponzi schemes.

Some insiders say it's all just fun and games: Established investors and banking regulators tend to frown upon meme-stocks, volatile crypto trading and strange new DeFi schemes. But some say that most buyers understand that the currencies they are buying are (like the memes they are based on) just a joke, or there to make a point rather than to hold value. “It's also a way of expression for many,” one crypto-exchange exec told Bloomberg Quint. “The rise of meme coins shows how humour is being leveraged to endorse the larger crypto ecosystem.”

But when you gamble, you should be prepared to lose it all: Even without fraud to contend with, crypto speculation comes with its own risks: Squid Game “joins a long and growing list of digital coins and tokens that piggyback on random memes or cultural phenomena,” Cornell University economist Eswar Prasad told the BBC. “Remarkably, many such coins rapidly catch investors' fancy, leading to wildly inflated valuations. Naïve retail investors who get caught up in such speculative frenzies face the risk of substantial losses.”