Tokenomics_001: Incentivizing burn mechanisms

Tokenomics have been one of the most exciting topics in the web3 space in the past few months. This is not something that can be covered in a single blog post so I will breakdown some of my thoughts around it throughout a series of blogs, this is part 001 and my opinions could change over time so I may re-address things in the future.

First: what are tokenomics?

Put very simply it is the economy revolving around a token, or cryptocurrency.

So, when we talk about tokenomics we are generally talking about supply and demand which involves issuance, value or use cases, and burn mechanisms.

Today I only want to focus on burn mechanisms and specifically in games.

Web2 games today generally have tokens but they are honeypots (meaning you can buy but you cannot sell) so there isn’t a large concern with having well-rounded burn mechanisms for a variety of gamers. Due to that fact, burn mechanisms have not been as important previously in games but they have been looked at before just not at the extent which will be required for web3 games. It is also extremely important when designing an in-game economy that will be subject to external forces, many of which can be used to disrupt said economy and will if allowed to do so but we will leave that for another post.

Burn Mechanisms

Burn mechanisms (can also be referred to as token sinks) — tend to drive the majority of the value/use cases for tokens in-game. You need to burn the token to receive something else in return, the task at hand is incentivizing the entire player base to burn the token instead of selling it which can be difficult when said token could drive a decent price.

This is inherently difficult because not everyone is the same, so they spend differently and for different reasons. For example, an extrovert will enjoy time spent at a bar more than an introvert will and an introvert will enjoy their time spent reading a book in isolation more than the other. It is a tad more complex than this but it is a great example to set the tone.

Another way to look at things was captured perfectly by this tweet from Tin Nguyen who is building Sipher:

Different types of players are looking for different experiences.

You can see there are several gamer archetypes highlighted — all of them will approach the game and their spending differently. This isn’t unique to games, in fact here is a summary of this scientific journal that discusses how personality can be derived from spending habits in general.

And another from Yale

Let’s talk about personality-based burn mechanisms

We can start with what we have seen gamers spend money on to date:

Clout

• Skins, wraps, collectibles/rare items, expressive experiences [Expressionist/Treasure hunter]

Social

• Online play, multiplayer experiences, access to groups (FWB), raiding [networker]

Advantages

• consumables, boosters, improved sights, aim-bots [King of the hill/Skill Master]

Financial

• Additional assets, easier access to assets, higher value assets [Treasure Hunter]

Experiences

• asset variation, character variation, game enhancements, enjoyment, mods [Strategist/Thrill seeker/Skill master]

Time

• saving time, buying pre-leveled accounts, WoW mounts to travel faster [King of the hill]

So when we think about incentivizing burn mechanisms to drive demand to the tokens we should ensure we provide value for a wide variety of personalities. This seems to not be as widely spoken about in this space as p2e has been extremely financially motivated in the past and most burn mechanisms were financially incentivized or for an ‘expressionist’, i.e. skins, collectibles, or to sell. I am not saying a game’s tokenomics will only be successful if they incorporate all of these burn mechanisms into their game but I think being well-rounded will be more important for broader enjoyment of the game & its long-term success.

Burn mechanisms should fall into as many of these buckets as possible to incentive different players & personality types to spend money with the expectation of one of the above rewards in return. This is how you align gamers by rewarding them with something of value that is not directly monetary and how play & earn replaces play to earn. I may have also left some other examples of personality spends out so feel free to tweet at me if you have additional ideas!

Here’s another great read on the topic by Terry Chung

I want to put $10 in and get $3 out but also have fun doing it. That’s the future of web3 gaming.

P.S. I see myself as a thrill seeker mixed with strategist & sometimes king of the hill.