Translator's language: How to build an economic model of a game to ensure maximum vitality? This issue, whether it is a traditional game manufacturer or a GameFi developer, needs to be seriously considered. On the issue of curbing in-game inflation, traditional games and GameFi share the same pursuit, but with different motivations.
We believe that now that the concept of GameFi has exploded, it is urgent to establish a more three-dimensional and underlying cognition in order to take the lead in the next layout.
This article thinks from the two aspects of traditional games and GameFi, has a new interpretation of the future development prospects of GameFi, and makes a foresight of the blockchainization of traditional games, which has a high learning value, so it is translated for free. Readers.
Introduction
Whether it is a traditional game or the emerging GameFi, as long as there is a currency mechanism, it will inevitably face the problem of inflation.
Inflation is a matter of supply and demand. When there is more currency in the market and demand remains the same, the purchasing power of the currency decreases, which means inflation occurs.
M x V =P x T。
M stands for the total supply of money, V stands for velocity (i.e. money in circulation), P is the price level, a measure of inflation, and T stands for total transaction volume, the total output in the economy.
Whether it was Angola in 1991 or Bolivia in 1984, the consequences of runaway inflation were manifested in many market economies, and Zimbabwe even became a model for the failure of economic governance and the emergence of hyperinflation.
For game systems, inflation is inevitable because the number of in-game tokens always grows faster than the number of players.
Traditional games: Most tokens are rewarded for player performance in the game. Players can burn tokens to upgrade their heroes or weapons. These upgraded heroes/weapons will reward players with more tokens, and the cycle continues.
GameFi: Players entering the game must first purchase an in-game asset (NFT), which will generate an infinite total supply of tokens. Although players can use these tokens in the gaming ecosystem, the existence of a marketplace allows players to sell (tokens and NFTs). With the accumulation of a large number of tokens over time, the market selling pressure will increase, and inflation is inevitable.
In solving the inflation problem, traditional games and GameFi share the same pursuit, but with different motivations.
Traditional Gaming: The business model is to convert non-paying players into paying customers. Inflation is encouraged because deflation can degrade the gaming experience and scare away gamers.
GameFi: The P2E business model attracts more players to the game, which will stabilize the market price within a certain period of time. The Token price is reflected in the average consensus of players on the project.
Traditional Gaming: Inflation & Gaming Experience
In the early stage of the game, the prices of in-game items and the exchange rate of fiat currency to game currency were mostly maintained in a stable range. As the game enters the mid-to-late stage, this stable range will be broken: although fiat currency can be exchanged for more game currency, it will also cause high in-game prices. Players cannot reduce the cost of their games in the process of currency devaluation. On the contrary, it becomes more and more difficult to accumulate wealth, which in turn causes damage to the interests of guild players, resulting in an overall decline in the game experience. This is the damage hyperinflation is doing to the game economy and ecosystem.
For traditional games, moderate inflation is conducive to the operation of the game ecology, and the blind pursuit of deflation will also have a negative impact.
We will analyze at three levels:
Hyperinflation hurts gaming experience
We know that structural inflation in the real world drives wages up. As a result, both commodity prices and wages have become defensive. In the gaming society, the official will not increase the output of game currency in-game rewards due to rising market prices. This means that players need to invest more real wealth to meet the advanced needs of the game. Under the premise of rising prices, the value of rewards given to players through additional content such as game tasks and activities will decrease accordingly. Increasing the difficulty of accumulating wealth in the game will reduce the motivation of players to participate. Ultimately, this process leads to player churn.
Deflation hurts the gaming experience more
In-game prices for high-end gear/props will drop despite high shrinkage. In-game currency will have higher purchasing power compared to fiat currency. However, under the condition that the price of the basic props provided by the official remains unchanged, the player's in-game survival cost will also increase accordingly.
In a hyper-deflationary scenario, the in-game currency appreciates relative to fiat currency. Players' spontaneous demand for tokens increases, the value of in-game assets decreases, the in-game economic ecology becomes more fragile, and the overall in-game experience declines. Deflation has reduced players' desire to play in the ecosystem, and games have had to downgrade their intended business model.
Improving the gaming experience could curb inflation
Reasonable burning mechanism (the best way to fight inflation) ←=====→Enhanced game experience (increase users and WTP)
The gaming experience consists of two parts:
The level of enjoyment of the game content.
The material rewards that games and transactions bring to players.
Game experience determines players' willingness to pay:
In traditional games, in-game equipment purchased by players is sold for less than the original price.
Example:
Players spend $100 to buy weapons. Affected by the depreciation, players later sold it for the equivalent of $70 in game currency. The $30 price difference is seen as a way for the player to pay for her gaming experience.
"I have this weapon and my gaming experience is more enjoyable". Transactions based on this starting point will virtually complete the transfer of game experience costs. If the weapon sells for more than $100, it means that new buyers recognize the value of the game experience that the weapon brings. Therefore, if the overall experience of a game is very good, it will attract more players to pay for it, which will eventually drive down inflation.
GameFi: Inflation and Market Relations
GameFi's inflation problem
The existence of markets is inherent to blockchain technology: players need token liquidity to find item value reflected in market prices.
Currently, almost all GameFi projects issue cryptocurrencies on the blockchain and circulate on the secondary market. (Even) some GameFi projects will issue two or three cryptocurrencies to complete the construction of complex economic models. For example, Axie Infinity has a three-token mechanism consisting of dual tokens (AXS and SLP) plus Axie NFT.
Tokenomics: Why Inflation Is Delayed, But Can't Be Solved
The GameFi development team will seek maximum profit for itself through the design of game mechanics and the management of common players' consensus. At GameFi, the team not only undertakes the task of game operation, but is also one of the main participants in the complex consensus game of the entire game ecosystem. Therefore, the token mechanism in GameFi naturally generates inflation and transmits the consequences of inflation to players through the ecosystem.
We take Axie Infinity as an example, whose governance token AXS has a long-term deflationary model. Its special two-token (AXS & SLP) mechanism and the use of NFTs allow SLP to bear all the selling pressure of the three assets. On the other hand, officials also support the emergence of inflation: moderate inflation keeps the price of AXS stable, which will lower the entry barrier for new players and expand the amount of entry.
In Axie Infinity, the team holds a large amount of AXS, while the gold mining association YGG holds a large amount of Axie NFT (NFT is similar to a production tool, YGG rents Axie NFT to Jinnong, helps them earn SLP, and charges a handling fee). The majority of players and gold users hold a large amount of SLP, which is the consumption token used in the daily activities of the game.
Since more SLP is produced than consumed, SLP is destined to flow into a "death spiral" of falling prices. Meanwhile, the price of AXS and Axie NFTs may continue to rise. This increases the barriers to entry and reduces the income of gold users. Therefore, falling SLP prices will push them out of the market.
In the long run, inflation trends will negatively impact the earnings of the Axie team. The team made a series of adjustments to the exchange ratio between the three token mechanisms and the market making in the secondary market. These changes (exogenous factors) cause SLP prices to temporarily increase, delaying player churn.
While inflation won't be fixed, Axie Infinity presented specific ideas for slowing down GameFi project inflation:
From its economic model setting:
The multi-currency & NFT model constantly transfers the inflation and selling pressure of a single currency to other related currencies, giving the game development team more room for supervision and regulation. This provision delays losses and manages to retain users in the long run.
From its supply and demand settings:
Increase SLP consumption --> Adjust Axie NFT breeding formula --> SLP cost increased by 3 times --> AXS cost reduced to 0.5 ⇒ Increase SLP usage scenarios.
Reduce the amount of SLP released -> cancel the daily reward SLP after player level 800 -> players no longer get SLP from adventure mode -> SLP output mode changes to PvP mode ⇒ Gradually reduce or even cancel daily tasks and reward PvE mode.
GameFi's approach to curbing inflation
GameFi has four main strategies to curb inflation:
Charge users transaction fees and burn a portion of them.
Introduce NFTs to lock the selling pressure on NFTs with lower liquidity. Creators are empowered by the concept of NFT (ie social avatars, new currency production, asset certificates) to reduce user selling behavior.
The multi-currency/Token model transmits inflationary pressure and continuously transmits the selling pressure of a single currency. For example, players burn AXS and SLP to generate Axie NFTs, which are then staked in game activities to generate SLP.
The positive expected release of Token is mainly aimed at token holders in the secondary market. Raising positive expectations for the token will reduce selling pressure on token holders. On the other hand, new users may enter the market with positive market expectations.
Advice for GameFi
GameFi's control of inflation is centered almost entirely on its Tokenomics. This approach lacks flexible control from a game content perspective. With the gradual maturity of GameFi and the widespread use of blockchain technology, GameFi games will bring players closer to the real virtual world. The GameFi concept is considered an early prototype inside the Metaverse. It is foreseeable that the number of Play-to-Fun's GameFi will increase substantially. But if its token economics remain only regulated internally, its downward spiral may be too significant for the market as a whole to bear.
Therefore, a stable token economy is needed to guide a mild inflation cycle. Combining the deflationary approach common in traditional games with the best token market design, the GameFi project will enjoy a better development and operation cycle to realize its market vision.
The GameFi project is still evolving and growing, so time will tell what is the best way for GameFi to control inflation and create a mutually beneficial gaming experience.
Assign assets to multiple properties for more use cases
In traditional games, assets owned by players (i.e. rare cards, characters) are given different attributes. Such as color, race, level, occupation, skills, equipment, summoned beasts, etc. are all examples of character attributes. The empowerment of various attributes increases the application scenarios. If players want to gain higher combat power, they need to invest in many different digital assets, which will increase the deflation of game assets in disguise.
Set a time interval for profit-making activities and set a reasonable damage mechanism for profit-making props
A game's "fatigue value", "time card", etc. are measures of energy in a given game. These features prevent players from producing unlimited in-game currency, increasing the online cost for users. They are incentivized to play longer and spend currency to level up. Specifically, in GameFi, the "loss" attribute should be added to NFT. With the generation of "loss", the wealth output of NFT per unit time should gradually decrease.
Increases the cost of capital outflows and provides a massive wealth deflation scenario
The project party will charge auction fees and storage fees (5%-15%). At present, most GameFi games have introduced the official trading platform mechanism. However, the deflation of huge funds (in GameFi) means that there are no more innovative solutions than stake mining.
Launch campaigns and manage reasonable price volatility
According to the dates of some major festivals around the world, the project team can launch various activities that fit the theme at the same time. Moreover, on the day of the festival, the official can take the initiative to provide a large amount of scarce materials to break the market balance. Although it will have an impact on the entire market economy in the short term, after the balance is broken, officials can stabilize the market by adjusting prices. In the long run, with the intentional guidance of the team, the market fluctuation of prices will become the average consensus of value.
External transformation of internal resources
While the project team adjusts the token distribution internally, it should also explore different ways to use external resources. The exchange of rights and interests between traffic owners and advertisers, the publication of IP-derived films, the functions of literary works and peripheral products are potential sources of value. Game projects aim to gain more attention on the internet and attract potential players to enter. At the same time, this move can also enrich the presentation of game content, and use the data collected by internal products to improve the loyalty and willingness of internal players to pay.
in conclusion
Newzoo believes that the gaming market will grow at a rate of 8.7% and is expected to cross the $200 billion mark by 2023. With more and more people willing to pay for virtual experiences. Therefore, GameFi can also ride the momentum and increase its market share.
At that time, GameFi, with its excellent economic ecology, self-correction mechanism and more scientific deflation model, is expected to stand out in the game competition.
This act of providing benefits to users of the GameFi gaming ecosystem is completely new to the gaming market. And asset tokens like AXS that demonstrate the integration of Web 3.0 and DeFi will also become more and more. Additionally, the integration of traditional game interfaces and the increased level of detail in the digital look and experience are currently growing in GameFi. Therefore, GameFi has room for growth in terms of UX improvement, player interaction, and mechanism implementation. The new game mechanism and Tokenomics design can bring positive market response and player feedback to the game, and ensure the longevity of the GameFi ecosystem.