We venture into the world of Web3 economics, where we explore the fundamental strategies behind building robust and self-sustaining in-game economies. In this article, we dive deep into the central idea that forging a mutually beneficial connection between delivering value to players and generating financial rewards is crucial for monetization in the gaming sector. It not only acts as a source of income but also enhances the overall gaming journey.
Business model
In summary, three distinct business models for games exist:
- Premium (e.g., Call of Duty),
- Free to Play (e.g., League of Legends),
- Play to Earn (e.g., Axie Infinity).
Although reality is more nuanced, these models provide a starting point.
How to determine these? I highly recommend you to read “Economics of digital media firms” by CHRISTOPHER KACZMARCZYK-SMITH head of game economy at Star Atlas.
To sum up, we can identify 4 main parameters to consider:
- The target audience
- Market demand
- The type of product the company is creating
- The industry and market trends
All these parameters can help determine which model is most likely to succeed. Needless to say, the business model is highly dependent on the type of game and what you want them to achieve. A comprehensive evaluation of these factors can help in identifying the most suitable model. I intend to delve deeper into this aspect in an upcoming article, but for now, let’s return to the in-game economy.
The game economy in general
A game economy is a virtual system that defines all the in-game mechanics (such as currencies, time progression, experience points, levels, pricing, etc). Different game economies can shape distinct player behaviors within the same game.
The ultimate goal goes beyond a well-designed game economy is not just make a balance game or make the company earn money. It encompasses the strategic aim of prolonging player engagement, thereby significantly augmenting the player’s lifetime value (LTV) to the company. In essence, the article advocates for a holistic approach that not only boosts financial gains but also fortifies the player-developer relationship by prioritizing player satisfaction and prolonged interaction with the game.
I don’t like to make long paragraphs about each component, so I’ll just mention them to make it more comprehensive.
- Reciprocity in Monetization: The central concept revolves around the principle that providing value to players can yield financial returns.
- Monetizing Non-Paying Players: The primary objective is to generate revenue from players who do not make in-game purchases.
- Value-Centric Advertising: Suggests incorporating enticing advertisements that enhance the player experience.
- Revenue Enhancement: The approach aims not only to boost revenue, but also to keep players engaged for extended periods (through incentives).
- Elevating User Lifetime Value (LTV): By prolonging gameplay, the overall value that each player brings to the company is increased.
- Continuous Growth of User Base: To maintain economic equilibrium, one approach is to consistently increase the rate of new user acquisition. This allows older players to sell their assets to newer players, seems like a ponzi schema but just helps to balance the economy like faucet and sink do.
Faucet and sink
Let’s move on to something more familiar to the web3 business community, namely faucets and sinks. To ensure economic stability in a virtual in-game economy, it’s essential to harmonize the pace at which assets are created with the pace at which assets are used or demanded. This balance helps maintain the stability of the primary currency and in-game items. Stability is acquired thanks to Faucet (in flow) and Sink (out flow).
On the faucet side, we can find various faucets :
- Leaderboard
- Emissions (staking)
- Staking pass
- Tournaments
- …
On the sink side, there are several options available:
- Tax fees: Charging players a small fee to upgrade repair guns/weapons/cars… Can also be applied for ownership, like house ownership.
- Gambles: It can be seen at a lootbox or opening pack, but it’s quite impressive. With en EV- (Negative expected value) you can burn the resources or money for a chance to obtain rare cosmetics or items.
- Betting : PvP and both players bet money. The winner wins all less 5% burn (make it EV-)
- Crafting: Using crafting as both an item and currency sink.
- Staking/Locking up Currency: Encouraging players to lock up high-velocity currency in exchange for rewards.
- Donations/Events: Creating community-friendly gold sinks through donations and events.
More information about Faucet and sinks in this article !
Web3 games with their own token
For web 3 games it’s also quite complex because the economy has to be stable, self-sustaining & profitable for gamers/investors, so it needs good tokenomics to attract more of them.
The question every project asks itself is “do I need a token?” The best person to answer this is the project itself. It all depends on what you want to do, how you want to do it, how much money you have… So I’m not going to decide for you, but I can give you some answers.
Creating a token is a cost for the project :
- Revenue sharing is a loss or cost for the company
- Bring a volatility asset that can disturb the whole economy of your project if managed badly
- Bad marketing if the token drops because players associate it with the game
But you can also have an edge :
- You can use it as a marketing tool to bootstrap the game and gain players.
- New way to raise funds without too much pressure like big studios (EA, Activision in the gaming space).
- NFT/SBT can gamify the experience with identity and reputation in game and in the whole ecosystem with more composability.
- You can use it as a retention tool to keep players from leaving the game, but it’s not really sustainable in the long term because gameplay is the main motivation behind every gamer.
- Open to New business models as royalties for example
I’m not talking much about nft, which also plays a vital role in this ecosystem and are bringing in new and very interesting concepts, in particular SBTs, which I find very interesting.
Treasury
I’d also like to draw attention to a player/module that plays a crucial role in the gaming ecosystem: the treasury. Efficient treasury management is a critical component for ensuring the enduring viability of an economic model. This encompasses the careful oversight of funds within the gaming ecosystem, striving for equilibrium between outflows and inflows and juggling between earning a return on assets and keeping them safe and liquid in case of need. As your game continues to expand and develop, exploring avenues for revenue generation, such as transaction fees, in-game purchases, or alternative monetization strategies, becomes imperative. Sound treasury management is the linchpin for maintaining a robust and self-sustaining ecosystem.
Last but not least
In conclusion, achieving a balance between asset creation and removal is essential for a stable virtual economy. The effectiveness of sinks depends on player motivation and the additional utility they perceive from using the sinks. Balance inflow of players and outflow is also extremely important to keep your economy balanced. Use web3 mechanisms like NFT and royalties carefully, even though they open new opportunities, their integration requires careful forethought to mitigate unintended repercussions.
In open economies, players are more aware of the real-world value of in-game assets, making it crucial to offer compelling reasons for them to participate in sinks. Crafting game economies that are both sustainable and prosperous in the Web3 era demands a profound grasp of economic principles and meticulous attention to diverse factors.
Thanks for reading, if you have any feedback do not hesitate to ask me !
Pokenomix is an independent research and consulting firm specializing in the design of web3 projects. If you create a project and would be interested in exchanging it, do not hesitate to contact us on our Twitter or by mail: contact@pokenomix.fr
Our Twitter:
