Economy design and tokenomics form the basis of any successful GameFi platform or blockchain game. Poor design of these two foundational aspects can and will destroy an in-game economy, potentially cratering the price, and leaving the project unattractive to gamers and investors alike. Conversely, a well-thought-out tokenomics model supporting a carefully designed in-game economy can and will yield great success. Part of the reason some of the most famous blockchain games have been successful is that the in-game economy was designed so well. In this article, we will be exploring some of these games and the aspects of the in-game economy that made them successful.
Four-Factor Review
In the last article, we covered the four key aspects of tokenomics: token allocation/distribution, token supply, market capitalization, and the token model. In this article we’ll go a little deeper into some of these.
Token Models Revisited
At its simplest, the token model of any blockchain application is the function the token has within the protocol and the changes that will happen things like supply over time. A token supply can be inflationary (it will increase with time), deflationary (it will decrease with time), or fixed (it won’t change with time). The model itself could also be either a single (one token drives the whole protocol) or dual (two tokens with differing functions drive the protocol) token model. Put all of these factors together, and you’ll have a good foundation to build your understanding.
To give some examples, DeFi Kingdoms and Crabada, employ a single token model. $JEWEL and $CRA are governance tokens, and allow the player to participate in decision-making. Other games, such as Axie Infinity, employ a dual token model. $AXS, or Axie Infinity Shards, function as the governance token in the same way as $JEWEL and $CRA. A second token, in the form of $SLP (Smooth Love Potion), is the in-game fungible token and is the reward token that gave Axie its “Play-to-Earn” moniker.
What’s more, the behaviors players can undertake in these games vary wildly. DeFi Kingdoms is a decentralized exchange wrapped in a game skin with behavioral/economic incentives built around actions that support the growth of the DEX. Crabada and Axie are NFT powered turn-based battle games. NFTs are worth a special mention here, as they can introduce an element of scarcity around certain assets in the in-game economy. Controlling the supply and demand of these assets adds another dimension to economy design that cannot be overlooked.
Each of these games employs a different token locking/release schedule which factors into governance decisions and supports the token price. They also offer vastly different gameplay experiences, which in turn has a huge impact on the way in which the in-game economy functions and evolves. Despite these differences, all of these games have seen explosive user growth and increases in project valuation in recent months.
How Not To Do Things
A far greater number of projects than the few mentioned here have failed. The reason for this is that blockchain games make use of a variety of token models, have varied distribution and release schedules, and differ in total supply. Many of these projects are experimental, and there is no single “best” way to build a functioning blockchain game economy. There are, however, many ways to implode that economy.
Poorly thought-out release schedules can have a significant negative impact on project development. The reason for this is that pre-seed or seed investors are often able to purchase tokens with favorable terms. If those investors are able to offload those tokens either too soon or too quickly, or the incentives aren’t there to encourage holding, then there can be some significant negative price action. This can, in turn, shake confidence in the project.
Inflationary tokenomics models can have a similar effect. Massively increasing the token supply without a commensurate increase in market capitalization can and will crater the token price, which will again shake confidence in the project. The same effect can also be seen if the total supply of a project is too high, as token price increases may be slow to come, potentially making that token attractive to hold long term.
Conversely, if the supply is too low, and the price of the token becomes too high, the relative cost of executing in-game behaviors can also become prohibitively high. This is not a problem for early investors and gamers as they would have purchased the token at a lower price, but for late joiners, this can be problematic as they may not be comfortable paying such a high price to merely play the game as it was intended.
The Future
Economy design and its interplay with tokenomics will be the biggest predictor of whether or not a blockchain game or GameFi platform is successful. The pace of innovation in Web3 means there are new ways to build being created on a near-daily basis. The explosive rise and fall of hundreds of blockchain games show that there are many routes to both success and failure.
What does this mean for gamers?
There has never been a better time to switch over from web2 platforms that extract value from them to web3 platforms that can deliver financial freedom to them.
