Research

Reflections on the Healthy & Incentive Gamefi Tokenomics

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Abstract:

The healthy development of Gamefi tokenomics must satisfy to attract the input of external assets and diversified non-monetary gains. The key point of its design is to solve the cyclical contradiction between the new demand of growing players and the new supply of tokens and pay attention to the utilization efficiency of currency as well as game resources. Considering several factors such as players’ quantity, incentive mechanism, token circulation, in-game core asset, user profile, game guild, leasing, and other factors, you can get the most incentive and sustainable Gamefi tokenomics.



In the summer of 2021, the Gamefi craze started by Axie Infinity stormed the Philippines, making the concept of P2E (Play to Earn) familiar, but Axie eventually fell from the throne as its token price collapsed, and its tokenomics was to blame. The hottest blockchain game in 2022, Stepn, however, brought global users to the era of M2E (Move to Earn), announcing the opening of the X2E (X to Earn) model. So what is the core of a healthy Gamefi tokenomics? Before that, we need to clarify the relationship between Gamefi, P2E, and M2E.

As shown above, Gamefi is the largest in scope, just as Game in English includes both pure games such as hide-and-seek and sports competitions like football and basketball, so P2E is a subset of Gamefi. There are also M2E, B2E (Bike to Earn), and a series of other modes, which we put together with P2E under the framework of X2E. The difference between the two is that the action is different, one is running, and the other is playing; if we introduce Stepn into the racing mode, we will find that there are some points of similarity between the two, and the same logic can be applied to many other X2E ways. The F2P (Free to Play) mode is more focused on gameplay, where players can pay to get a better experience and potential revenue, so it is also a subset of Gamefi.

In addition, there are many blank parts in the above diagram because Gamefi is not only for 'Earn', or this kind of 'Earn' is no longer only for money in the narrow sense, but an asset, which can be tangible monetary assets, but also intangible non-monetary assets such as health, happiness, friendship, identity, Etc. This process is collectively called game-related Crypto financialization, known as Gamefi.

Prerequisite: Diversified Non-monetary Gains & External Asset Inputs

After understanding this crucial point, let's explore why inchoate blockchain games like Axie Infinity are unsustainable. The most important reason is that it lacks external asset input and diversified gains, so it is just a zero-sum game that will only gradually die out and become a scam that most participants lose money except the early dropouts.

Most of the people who play Axie are not attracted by its gameplay but by the wealth effect, meaning that almost all the folks who are willing to spend the money to come to Axie first can make a fortune as long as they sell before others. The wealth earned by the initial players is the capital spent by the later newcomers entering the game; if you become the last poor man during the pass-the-parcel, then no outside money from new players enters behind you, and you will be left with no money. Therefore, a healthy and sustainable Gamefi tokenomics should first consider how to attract external assets. The input of external assets is purposeful. As for Axie, players just come to make money, indicating that they would leave with their wealth and more investments in the ecosystem. According to the character of a zero-sum game, players will go against their original intention in Axien and lose money. Thus the rapid demise of the game is doomed from the beginning.

On the other hand, Stepn still has countless new users coming in today, partly because it is still in an upward trend of making money, and there is a constant influx of new capital; but more importantly, at the beginning of the model, Stepn imported a non-monetary gain output to the model, which is health. It makes the return on investment include wealth for users and an essential incentive for their health by using stepn consistently, and this non-monetary benefit will make this Gamefi ecosystem not a zero-sum game because it generates a positive benefit called "health" in the Game. In addition, Stepn is gradually seeking more non-monetary gains to diversify its benefits. For example, as recently revealed in Stepn's May podcast, it may involve more social play to help users build social networks, allowing people to make more friends and fellow runners, thus not just focusing on monetary ROI.

A sustainable and well-developed blockchain game must meet a significant premise in tokenomics design, which is that this game should give users non-monetary benefits, such as health, social, or entertainment. Otherwise, it is a pass-the-parcel scam built under the Ponzi scheme, not Gamefi.

As a result, starting in 2022, more and more Gamefi began to focus on the gameplay and playability of the project itself, and there was a boom in investment in 3A blockchain games. At the same time, it also brought the X2E model because the model can at least attract X-focused enthusiasts so that they are willing to pay for the hobby or relevant rewards, rather than only with the mentality of "I'm here to make money" to cash out.

There is another way the game itself can allure external asset investment to grow the monetary assets in the game ecosystem. This method generally includes but is not limited to IP operation, advertising implantation, professional tournament operation, and game co-branding. For example, traditional Web2 Moba games such as Dota2, League of Legends, and Honor of Kings have their own global tournaments and have developed Esport industrial chain, accumulating huge profits by selling skins and other peripherals. This path is more suitable for F2P games and requires them to set up the corresponding 'breakthrough mechanism' - so that players who are willing to pay for F2P to get a better game experience or game identity. For instance, although Genshin Impact's players spend little on monthly subscriptions, they get enough excess in-game revenue to probably gacha the new avatar in a seasonal pool with the help of a minimum mechanism, enhancing the comfort level of players considerably and deciding to pay for the free game. The game that follows this path must aim to become an oligopoly game in a particular region or even globally to have the potential to attract external assets to invest. In other words - the requirements for gameplay are incredibly high.

Since Gamefi is still in the early stage of development, there are no games that can stand out due to gameplay, so it is not easy to raise external investments. But I believe that with time, there will definitely be games that meet players' needs of gameplay and make some players willing to pay the premium rather than earn profits, and meanwhile, the ecosystem can be funded by external sponsors to replenish.

After avoiding the pure zero-sum game, Gamefi still has many problems. The most difficult and significant one is how to prevent the death coil when the token price drops. It is not essentially a game problem but an economic supply and demand problem for tokens.

Key: Solve the cyclical contradiction between the new demand of growing players and the new supply of tokens

Resource: https://pro.nansen.ai/multichain/ronin

Here we still take Axie Infinity as an example. As shown above, at the very beginning, the surge in the number of new users made the demand for currency rise rapidly and drove the development of the game itself to make it known outside of the fixed area quickly, and then absorbed more users; the influx of new players took over the old players' demand for cashing-out, and due to the rapid growth of players' market, the amount of currency it consumed far exceeded its production, therefore the token price was soaring in the early stage. However, due to the severe over-issuance of currency, even if the team tried to increase the difficulty of farming and the rate of consumption in the game to regulate the demand for currency, the token distribution was so fast that APR dived, causing the price to slump. This phenomenon still could not stop the long-term panic selling due to the fear that the currency price would continue to fall and even squeezed the minting of Axie NFT, the way of token consumption. Hence, the demand side of its currency consumption was squeezed, and the balance of supply and demand was broken again. Eventually, the economic model failed with the decrease in token price and users, leaving only a death coil. (as shown in the chart below)