CryptoBlades a Ponzi Scheme?
A.k.a. The rise and fall of CryptoBlades (and the likes)
According to the SEC (USA), a Ponzi Scheme:
pays existing investors with funds collected from new investors… In the 1920s, Ponzi promised investors a 50% return within a few months… Ponzi used funds from new investors to pay fake “returns” to earlier investors.
To many CryptoBlades (CB) players, this description will sound familiar. Now, I don’t think that the project set out to be a fraud or a scam(they would’ve disappeared long ago), but it may end up being one, and hopefully also a teaching for the whole space.
Let‘s break it down…
Flawed economic design
To begin with and unlike successful blockchain games (e.g. see my MOMO Valuation guide*) the economics of CB don’t incentivize sustainable growth. They overstimulate the price of the game’s cryptocurrency $SKILL, promise impossible profit, and encourage next-level player FOMO.
*UPDATE: As of late Aug. I’m calling a likely cycle top in MOBOX MOMO although with much better long-term prospects than CB, IMO.
Game basics
All the info here comes from the official white paper (see Aug. snapshot).
The gameplay boils down to recruiting NFT characters (CBCs) that can share an NFT weapon (CBWs). Random weapons can be forged or purchased (and sold) in the CB market. CBCs level up by fighting random enemies, and can also traded.
Recruiting, forging, and trading is all done in-game with SKILL (+ BNB transaction fees), which creates demand for the currency as people want to play the game. But why do so?
The rewards pyramid 🔺
The main point of playing is to earn SKILL rewards, which you can later sell for fiat currency. But these are actually calculated in US dollars (same as recruiting and forging), based on an infamous “Oracle” contract that is supposed to feeds the market price of SKILL to the game (more on this later).
Rewards are distributed from a game wallet known as the rewards pool whose inflows come mainly from recruiting, forging, and taxes from market sales and reward claims. So newer players fill in the rewards pool, while earlier players earn them (🔺). Still this in itself isn’t necessarily broken, in fact the whole play-to-earn paradigm implies transforming growth into player profit in some way.
But why issue a BEP-20 token (SKILL) if everything is priced at fixed dollar amounts? 🤔 Perhaps the intention was to keep the entry price level fixed (recruiting for example was calculated at around $27 dollars) unlike games that price-out many players once they grow (e.g. $400 Axies).
The problems with this approach are that
a) There are no automatic stabilizers in the economy — the user base can grow (exponentially) once, until it hits a fundamental sealing; and
b) the economic rules are confusing and hard to predict (incidentally, unnecessary complication tends to be a feature of Ponzis).
The boom
Remember the Oracle system I mentioned earlier? Well it was originally designed to only update in-game prices a few times per day to “prevent players from taking advantage of the fluctuations in price” 🤷. As a side-effect though, once the price of SKILL increased too quickly, players started earning a lot more rewards than planned until the next Oracle adjustment. This of course encouraged even more people to join into the craze. “Free money! Instant ROI!”
To add gasoline to the fire, CB actually encourages individuals to setup multiple accounts unlike any other such game I know. And all this meant that when the project reached critical mass in mid July, it exploded faster than an unchecked virus. SKILL price increased over 3000% from a few bucks to over $200 in a mere 9 days. CB quickly jumped to the top of “most valuable” BSC games (sure, Binance makes fortunes in fees from all this).
At this point I’d like to introduce the game’s community (via Discord):
Of course everyone was a genius during this time. At least the more vocal (and lucky early) users 😏 I hope they all realized their paper gains!
The bust 📉
Evidently this was not sustainable, but very few people seemed to notice at the time. And whenever the bubble started to show signs of slowing down, game leadership would double and triple down on stimulus. This led to a series of severe errors that only made things worst…
The most infamous one was to create magical in-game-only (IGO) SKILL given out as new account sign-up bonuses (up to 5 SKILL, US$500 or more at the time!), after all this had already worked in the early adoption phase; The promo was announced to last for a week but they ended it 2 days early.
Meanwhile, the community started turning quite adversarial, even toxic…
Centrally planned economy
As the whole boom dynamics were reversing into a crash, a breaking point was reached when the Oracle contract was suddenly frozen by the game devs at a price of $62 (still there at the time of writing). As SKILL continued to dip sub $30, this meant that game rewards were artificially low, a punch in the gut to many players who were promised constant dollar earnings regardless of the price of SKILL.
IMHO, the worst error was to constantly intervene in the game economy. After all isn’t blockchain’s appeal a distancing from central authorities? And again, most blockchain game teams ironically exert a lot of influence over their “decentralized” economies, but CB took it to another level.
Ongoing debacle (predictions)
Incredibly, after all this, the economy seemed to stabilize. SKILL even rallied back from $30 to $65. Unfortunately, it was a dead cat bounce; the end was nigh. As the rewards pool balance approached dangerously low levels, the game devs manually cut the rewards “temporarily”, leaving only strong existing players with reasonable rewards. Another slap in the face of the community. And even then, it was too little, too late…
Finally, it happened.
The rewards pool ran out! The higher-than-planned reward claims a few weeks earlier, and all the IGO SKILL printed as stimulus ultimately resulted in many more claims on SKILL than actual circulating tokens. This resulted in de-facto capital controls in CBland (still in effect and I suspect forever so).
At the present time, a CB player no longer has an economic incentive to play the game: rewards have been further reduced to the point that BNB gas fees are always higher (you lose money on every fight). And the minuscule rewards (along with any amount not claim in time) are now trapped in the game which means the intrinsic value of in-game SKILL is closer to $0 than it’s market price (around $40 recently). Let’s call it $15?
My eye-balled price prediction for a bottom in SKILL is $2–6 at which point I expect devs to purchase a lot back for the rewards pool.
You can still play to level up your characters, buy relatively cheap weapons, and spend in all of that hoping that the bonanza will eventually come back somehow. But how? And can players trust the game to overcome a long list of failures? I hope they can! But if you ask me it’s a very dubious proposition.
Conclusion
Here’s the bottom line: in the past weeks all of the game metrics have declined sharply. No new players. No big investors. Falling SKILL and NFT market prices. Attempts to revive the economy like issuing shield NFTs and a new DUST in-game currency system have had little effect.
After constant price/supply manipulation, repetitive flip-flopping, community censorship, among other issues I didn’t have space to include here, the trust in the game seems to be turning into impenetrable skepticism.
In a space where growth is everything, how will CryptoBlades turn the tables, revive the economy, and re-energize its community? Especially when there are so many other competitive play-to-earn projects out there, as well as multiple CB spinoffs of course (like CryptoDrakeBall, a strange Dragon Ball rip-off).
Be careful out there…