How Enjin Is Helping to Solve Inflation in Virtual Economies
Virtual economies like the ones found in massively multiplayer online games (MMOs) all suffer from a very “real world” economic problem: hyperinflation. In the real world, moderate inflation can be useful to prevent thrift; however, too much inflation or hyperinflation caused by excessive currency debasement results in a worthless currency and a surge in the price of goods. The equilibrium lies with effective monetary policies maintaining an optimum balance in the supply of money.
In virtual economies, monetary policies are entirely out of balance; there is too much faucet and not enough sink. There are countless ways players can earn money (killing monsters, selling loot, accomplishing missions, etc.), but there aren’t enough currency sinks (death, in-game purchases, trading, etc.) to remove money from circulation, resulting in hyperinflation or mudflation (gaming equivalent). Game developers are consistently testing and implementing new game dynamics and currency sinks to help reduce excessive in-game currency debasement, yet mudflation endures.
In this essay, I will expound on the in-game dynamics that cause mudflation; I’ll then talk about current solutions and why they are ineffective, and ultimately, I will introduce Enjin — a blockchain SDK that can help game developers stymie mudlfation in MMO economies.
What Causes Mudflation?
In MMOs, the introduction of money into the virtual economy usually happens through the following gameplay:
- Killing foes 🗡️ 👾
- Accomplishing missions or tasks ⛰️🏆
- Looting 🔑 🔮 💎
- Selling Loot ⛺💰
Every player starts at zero and earns in-game currency (coin) each time they perform one of the actions listed above. Basically, the more players play, the more monsters they kill, and the more coin they’ll earn. With a lot of players playing MMOs, this translates to a lot of money printing, all the time.
The following currency sinks are generally used to help remove coins from the economy:
- Death 💀 (when a player dies they lose a portion or all their coin).
- In-game stores 🛍️ (where players can buy new items to improve their skills or cosmetic appearance).
- Vendors/fences/pawnshops (where players can sell loot, buy items, trade items, and fix damaged equipment ).
- Auction houses 🏠 (where players can buy/sell/trade items).
- Dojos 🧘 (where players pay to learn new skills).
- Map blocks 🚧 (roadblocks which require players to either gain a certain set of skills or items to proceed in gameplay).
Most MMOs are extremely drippy with overengineered faucets and underutilized currency sinks. Striking a balance between the two is paramount to building a functional virtual economy and not doing so can have some dire consequences for MMOs, as shown in the examples below.
Asheron’s call: in Asheron’s call the in-game currency had such limited use cases that most players defaulted to using a barter system where the defacto currency became shards, primarily because they were used to craft shadow armour, an essential item to the gameplay.
Diablo II: because gold was so abundant in Diablo II, in the early days of the game (DC2) most players substituted gold with a popular item called the Stone of Jordan(SoJ), which acted as the base currency and was used to price other in-game items. Unfortunately, because of its widespread popularity, multiple players duped SoJs so that they could trade them for precious in-game items. Subsequent patches closed SoJ duping loopholes and removed the ring from the game altogether, but successor items quickly took its place and fulfilled the role of in-game currency.
Gaia Online: in Gaia Online, the in-game currency (gold) became so worthless (due to gold generators), and the price of goods skyrocketed to such high levels, that the game developers offered to donate $250 to charity every time players threw away 15 trillion gold.
(The charts below show the huge rise in the price of goods in Gaia Online)
Ultimately, the currencies in these games lost so much value that it completely disincentivized players to keep playing, and it made the game less approachable to new players.
The Underlying Problem — Human Behaviour
In an ideal virtual economy, these currency faucets and sinks would work supremely well. However, gaming economies are not flawless, and, much like in the real economy, they are also prone to unfair competition & selfish human behaviours.
Inherently, MMOs have a strong demand for game time. The more players play, the more coin they earn, the more items they can purchase, the more they can level up, repeating the process until they hit critical mass. At critical mass, players compound their skill & coin earning capabilities much faster than other gamers — especially newcomers. This eventually leads to a concentration of wealth amongst very few players and drives up the price of in-game items making virtual life very difficult for other players. Although wealth inequality is not a new concept and is prevalent in the real world, people usually join MMOs to experience different realities.
In turn, many players — especially newcomers — are forced to seek quicker methods for obtaining currency so that they can compete fairly; this is where gold farming comes into the equation. Gold farming — usually performed by shady outfits who use cheap labour workers — is the process of playing MMOs to retrieve as much gold as possible and selling it to players for real-world cash. It allows players to obtain gold much more quickly and levels off the unfair competitive advantage pioneer players have over everyone else. However, it greatly exacerbates the mudflation problem in MMOs.
Unfortunately, no matter how many currency sinks are added to the game, they will never exceed the sheer willpower of players willing to grind to snatch more coin & level up their characters. There is also a fine line when it comes to controlling inflation in gaming; add too many sinks and you risk being intrusive, which will just scare players off. After all, games are played to have fun. So, how do game developers keep inflation in check?
How Is This Being Solved?
World of Warcraft — the most popular and wildly played MMO — launched a rudimentary reserve currency system known as a premium currency in 2015, in part, to hinder the illicit gold farming operations, but also to give its in-game currency (gold) some real-world value and in turn reduce mudflation. This premium currency is called the WoW token, and it acts as a secondary currency which indirectly allows players to buy WoW gold. For $20, gamers can buy a WoW Token from the in-game store and then sell that token to other players via the in-game auction house for a set amount of gold, dictated by the market value. This is a one-off purchase, and once bought, the WoW Token cannot be resold. Instead, WoW tokens can pay for game time/subscriptions or can be used to purchase other items in the Blizzard universe — like Hearthstone cards and Overwatch loot boxes.
Although the introduction of the WoW token helped reduce player dependence on illegal gold farming operations, it didn’t do very much to stive off inflation. In fact, the WoW token acted as the perfect economic indicator for inflation in the WoW realm. As evidenced in the chart below, one can notice that the price of WoW tokens (in WoW gold) fluctuated enormously throughout their lifespan.
This happened primarily because WoW tokens do not have a finite supply, and instead are being minted every time a player purchases them for $20. WoW tokens also don’t have a maximum price cap and are instead priced according to the market, which again is very difficult because no one knows the circulating supply of WoW tokens. Moreover, despite prohibiting the resale of WoW tokens, gamers still found ways to profit off them. When the price of WoW tokens dropped, gold-rich players bought up the max WoW tokens they could hold in their inventories (10 ) and used them to pay for game time. When the price of WoW tokens increased, gamers bought $20 WoW tokens to accumulate as much gold as possible and waited for the price to decrease again so that they could buy cheaper WoW tokens.
In essence, the WoW token was just another currency sink which failed to help balance the enormous amounts of gold generated through gameplay. Other MMOs with more complex economic models like Eve Online, also adopted a pseudo reserve currency token ( called PLEX) to reduce player dependence on farming outfits and provide more utility to their in game-currency, ISK. Again, this did little to nothing to stop mudflation.
To truly stop mudlfation, in-game currencies need to attain real-world value through:
- Reserve Currency Mechanics: tieing in-game currencies to a secondary underlying currency (preferably one with real-world value) would greatly help reduce mudflation as it would effectively create a price floor. This would also mean adapting currency sinks and making currencies more scarce.
- Real-World Utility: the single most significant reason in-game currencies have a tendency to hyperinflate is because of their lack of real-world utility. There is only so much food 🥩 , potions 🧪, and skills 🧘 players can buy. If players could spend their hard-earned gold or coin on a new console, headphones, sunglasses or even order pizza through Dominoes, this would remove enormous amounts of currency from virtual economies.
Gaming companies have thought about and experimented with these solutions before, only to be met with regulatory scrutiny. Which is why most MMO developers have avoided real money trading. Current payment rails have also made such solutions burdensome and expensive to use.
That is until Enjin came into the equation.
Introducing Enjin
Enjin, which started off as feature-rich website platform (think WordPress for gaming) boasting 20m users, has since evolved into an all-in-one blockchain ecosystem that allows anyone to fund, grow, monetize, and design virtual worlds. The Enjin ecosystem can best be categorized by its core features:
Platform: Enjin’s platform is open to everyone, but is specifically geared towards game studios who can integrate Enjin’s blockchain technology with popular gaming tools and engines like Unity by downloading the Enjin SDK. In addition to being fully compatible with gaming tools, Enjin’s platform also connects game developers to the entire Enjin gaming multiverse — enabling co-designing, co-marketing, and cross-play features to a universe of games and virtual experiences. Also, because Enjin is built on the Ethereum platform, all the games built on Enjin can make full use of extensive Multi Token Protocol Standards like ERC-1155 which allows them to create multiple currencies and digital collectables for their games. Some of the ERC-1155 core features are:
Wallet: The second core element of their ecosystem is the Enjin Mobile Wallet, which is designed to be trustworthy, safe, and easy to use. Enjin’s digital smart wallet is the perfect tool to help ecosystem constituents receive, transfer, and send cryptoassets & cryptocollectables — like the ones they earn through gameplay or buy on auction houses/market places.
Explorer: just like an x-ray machine, the Enjin explorer allows anybody to discover, verify, and monitor all aspects of the Enjin ecosystem. For example, to learn more about Enjin’s multiverse I spoke of earlier, I searched it in the explorer and was able to retrieve its bio, ecosystem rank, treasury/reserve currency amount, date of creation, accounts and more.
If this sounds like the beginnings of James Halliday’s OASIS, it’s because it is! Since launching, the Enjin ecosystem has over 10 projects (mainly games)that are being built on it — including a digital badge rewards pilot program by Microsoft Azure. And I only expect this adoption to grow thanks to their Multiverse Program.
How Does This Solve Inflation in MMOs?
If you hadn’t guessed already, Enjin’s ecosystem is powered by Enjin Coin (ENJ), an Ethereum based cryptocurrency that acts as a reserve currency system to directly back the value of in-game currencies and items/collectables. Unlike premium tokens (I spoke of earlier), ENJ is a scarce digital asset, with a total supply of 1 billion tokens, 81% of which are currently in circulation, and have a market value of ~$0.152 per ENJ token. This effectively means that all in-game currencies and items built on ENJIN will have real-world value and thus will no longer have a tendency to hyperinflate.
Here’s how it works:
More specific to an in-game currency system, consider this rudimentary example:
I am an aspiring game studio that wishes to create a next-gen space-themed MMO, like EVE online, except without a hyperinflationary in-game currency. Aside from the story and mechanics, I need to devise a way to balance the circulation of my in-game currency. Here’s what my basic monetary system would look like:
- Buy ENJ on the open market to create a game treasury (would act as a central bank). Let’s say an initial amount of 800,000 ENJ (~$120K) at current prices.
- Create an initial supply of in-game currency (let’s call them Woolongs) with an uncapped total supply. Let’s say an initial amount of 1 Billion Woolongs(W) are minted and backed by 1/2 the amount of ENJ in the reserve (400k ENJ/~$60K).
- Then set a price per ENJ, for argument sake let’s take this month’s average ($0.10 per ENJ). This would give us a currency reserve amount of $40k.
- This would effectively mean, that the highest W could inflate to or the lowest price it could go to is ($40k/ 1 Billion W) = $0.00004 per W. This translates to $1 =25,000 W or 1ENJ =2,500 W at current prices.
- The remaining (400K ENJ/~$60k) would be used to back in-game items also giving them real-world value like Enjin has done with The Monolith — which is backed by 1,155,777 ENJ (~$175K) and located somewhere in Enjin’s Multiverse available to anyone who completes the Main Multiverse Quest.
I am quite certain someone smarter than me will be able to come up with a much better monetary model and will sort out all the kinks that come with fluctuations in crypto prices, but I think my point is clear. By using a cryptocurrency like ENJ as a reserve currency, in-game currencies will no longer inflate to infinity and beyond.
Why Trust ENJ as Your Reserve Currency?
Besides the benefits mentioned in the chart above, ENJ is a more attractive reserve currency for game developers (then say Bitcoin or Ethereum) primarily because of the ERC-1155 protocol; which provides game developers with a variety of nifty features at affordable costs. The token economics behind ENJ also make it attractive as a gaming currency; the more games use ENJIN, the more ENJ is locked up, restricting the token supply, which (through supply/demand dynamics) increases the value of the ENJ token as adoption increases.
In addition, using the ENJIN ecosystem & ENJ opens up a wealth of features previously unimaginable in gaming. I discuss some examples below.
Melting: because every in-game item is backed by ENJ (even if minute amounts) gamers will finally have the possibility to melt abundantly obtainable items (rocks, sticks, grass) and retrieve the ENJ that backs them. Using the proceeds to either buy more Wolong and in turn more in-game items or trade the ENJ for ETH or BTC. No more inventories filled with useless junk.
Renting: pioneer players or players with extensive game time under their belts that have earned rare & powerful in-game items (like magical swords, unicorn dust, or wizard staffs) can now rent out these items to less advanced/fortunate players in exchange for money. Helping to create a fairer game experience.
Collateral: players can now use rare items (like The Monolith) as collateral to obtain a loan. This may sound far-fetched but it is already possible thanks to products like Rocket — which will allow loans of up to 5,000 DAI (equivalent to $5,000).
Trading: thanks to Ethereum’s interoperable ecosystem, games built on ENJIN enable gamers to buy, sell, and trade their in-game items not only on the in-game auction house but also in third-party marketplaces like OpenSea — which currently lists thousands of digital collectables from hundreds of different games & applications.
E-commerce: as previously discussed, one of the single greatest mechanisms for removing excess currency from virtual economies would be through real-world trade. Although this does bring up serious regulatory concerns, gamers can effectively trade ENJ or in-game items for ETH (using OpenSea), then exchange ETH for BTC on Kraken Exchange and then purchase stuff with BTC on these websites. While this solution is really not sexy, it does work and it will only become more fluid with time.
What About Regulation?
Regulatory concerns remain the biggest unknown when it comes to cryptocurrencies, and despite clear guidelines being set by some regulators, not every jurisdiction will provide clarity or view cryptocurrencies in a positive light. Game developers should consult with their legal advisors and choose friendly jurisdictions before launching any games that interact with cryptocurrencies.
*THIS IS NOT LEGAL ADVICE
For example, In Switzerland, our regulatory body (FINMA) has classified tokens into three specific groups.
*definitions are taken from FINMA’s website.
- Payment tokens: (for example cryptocurrencies) are tokens which are intended to be used, now or in the future, as a means of payment for acquiring goods or services or as a means of money or value transfer. The issue of payment tokens is subject to AMLA provisions as a rule.
- Utility tokens: FINMA defines utility tokens as tokens intended to provide access digitally to an application or service by means of a blockchain-based infrastructure. The issue of utility tokens does not require supervisory approval if the digital access to an application or service is fully functional at the time the tokens are issued.
- Asset tokens: Asset tokens represent assets, such as a debt or equity claim on the issuer. In terms of their economic function, therefore, these tokens are analogous to equities, bonds or derivatives. The self-issue of asset tokens that qualify as securities does not require FINMA approval, but is governed instead by the prospectus requirements of the Code of Obligations (CO).
Based on these definitions, we could classify ENJ as a utility token, which does not require regulatory oversight. Therefore, in Switzerland, any games built on ENJIN and using ENJ as a reserve currency would not be subject to any regulatory supervision, and could still benefit from ENJ being a liquid and tradeable asset on exchanges like Binance. Basically, as long as games don’t create an exchange of their own, they would not be infringing any financial regulations and only gamers would be liable for any transaction made with ENJ outside the game. Again, this is only an example and SHOULD NOT BE CONSTRUED AS LEGAL ADVICE.
Conclusion
Mudflation in MMO economies is mainly caused by too much faucet and not enough sink. Excessive gametime is also the leading cause of wealth accumulation and inequality — often hindering healthy economic equilibriums. Current solutions to stymie mudflation have fallen short because they do not effectively utilize proper monetary policies — largely because of regulatory scrutiny and technological bottlenecks. Thanks to cryptocurrencies — like ENJ — and their underlying ledgers, game developers can now adopt gold standard inspired reserve currency systems for their MMO economies in an economically sound fashion and without fear of regulatory scrutiny. ENJIN is by far the most advanced and well-positioned blockchain-based gaming platform with a vibrant community, a highly skilled team, and an incredibly promising future.
I hope you enjoyed this article. I highly welcome and appreciate constructive criticism.
*Disclosure: This article is for information purposes only, and should in no event be construed as an offer, a piece of advice or a recommendation to buy or sell a particular cryptocurrency. All the investment decisions you make shall be based on your interpretation of the information available.
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