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Web 3.0: SIPHER, Code and Game Theory

Why Code is a competitive edge in Web 3.0…

As Web 3.0 gains traction, one of the most important skill sets is the ability to understand the language of Code.

This edition looks at a live example of how Code plays a central role in our internal decision-making process.

Incentives ought to be the eighth wonder of the world. In a world powered by programming languages, this dynamic manifests in the arcana of lines of Code. How does one divine incentives in a ‘trustless’ world composed of anonymous participants?

By building the ability to understand the language of Code.

This edition:

[I] Background on Sipher

[II] Code and Game Theory

[III] VCs and Game Theory

[IV] Decentralization and Game Theory

[I] Sipher

Sipher was founded in Mar’21 and is a blockchain-based PvP (Player versus Player), PvE (Player versus Environment) video game for all age groups.

From the company:

SIPHER is a live action, light-roleplaying, a procedurally generated, cooperative and competitive dungeon crawler and battle arena game with a great story and fun cast of playable characters. The world will be set in the sci-fi fantasy world. The environment will feel immersive with aspiring characters that will keep the players engaged for years to come.

Sipher is presently running an initial token sale (called an ‘IBCO’, Initial Bonding Curve Offer) of its $SIPHER token. The company is looking to raise c.$15 MM, by selling 4% in the initial token sale. The game has an active Discord community (~200,000 members).

Prominent VC investors invested a little under $7 MM in Oct’21. The lead investor Hashed was also lead investor in popular crypto game Axie Infinity.

Use cases for $SIPHER

From the company

$SIPHER is the multifunctional governance token of Sipher Universe, with application both in-game and in real world policy.

$SIPHER is required for the cloning creation of new characters, marketplace transaction fee for in-game items and to purchase specialty items from the Sipher Laboratory.

$SIPHER can be used for staking for Sipher Vault Governance and earn staking rewards, incentivizing all participants that contribute to the Sipher Universe.


Lifetime supply of $SIPHER token = 1 Bn.

Initial Token Sale = 40 MM (looking to raise about c.$15 MM).

Source: Sipher

[II] Code and Game Theory

In the Web 3 world, the open-source nature of Smart Contract Code means anyone can peer under the hood for some fun.

SIPHER is built on the Ethereum blockchain. Initial Token Offer applicants are free to withdraw their ETH before the initial token sale is closed.

However, they cannot withdraw 100% of their application ETH.

Here’s the most interesting piece of code from the SIPHER Smart Contract that caught our eye. This is an extract of a piece of the Smart Contract Code that governs how much an applicant can withdraw before the IBCO close. The fun part is highlighted in Orange.

SIPHER Smart Code excerpt

For those that apply ≤1 ETH (line#88–89), full withdrawal is allowed during the initial token sale.

For those that apply >150 ETH, withdrawal cap is 3%.

The interesting bit is in line#94, which includes hardcoded quadratic coefficients, with a complicated withdrawal profile. In this zone (deposits > 1 ETH and ≤ 150 ETH): For some values of ETH, the Withdraw Cap function allows larger withdrawals, and then it drops precipitously (like an inverted U).

The Withdrawal profile looks like this: x-axis is ETH applied for, y-axis shows how much of the ETH applied can be withdrawn, based on the Smart Contract code.

Withdrawal profile based on SIPHER Smart Contract code.

To understand why this restricted withdrawal approach was probably taken, it is useful to look at the pricing mechanism of the IBCO process itself.

IBCO Pricing Mechanism

From the company, (excerpted for flow. Bold emphasis ours).

In our $SIPHER Initial Public Sale, 40,000,000 (4%) of $SIPHER tokens will be pre-minted and will be sent to the Token Sale Smart Contract. The price of each $SIPHER Token will start at $0.36, and given the bonding curve method used as part of the IBCO, each time funds are contributed, the settlement (final) price of the token will increase. This is following demand/supply theory. Alternatively, withdrawing funds will lower the settlement (final) price of the token for everyone.

Why restricted withdrawals?

…This mechanic is critical to prevent whales to commit large sums of $ETH to the contract with the sole intention to inflate the price of the $SIPHER Token, deterring our community from taking part in the IBCO, only for them to then withdraw the bulk of their contributions at the very last minute, which would allow the whales to acquire majority of the $SIPHER tokens committed for IBCO at a cheaper price than the actual fair market value.

💡 A simple way to understand how an IBCO’s price discovery works would be the following example:

Assumptions: Initially, there are 1000 $SIPHER Tokens for Sale in the IBCO, at a starting price of $1 per Token.

1st Interaction:

- Person A contributes $1000

- There is now $1000 and 1000 $SIPHER Tokens in the $SIPHER Initial Token Sale Contract

- The current price is $1 for each $SIPHER Token

2nd Interaction:

- Person B contributes $1000

- There is now $2000 and 1000 $SIPHER Tokens in the $SIPHER Initial Token Sale Contract

- The current price is $2 for each $SIPHER Token

3rd Interaction:

- Person A withdraws $500

- There is now $1500 and 1000 $SIPHER Tokens in the $SIPHER Initial Token Sale Contract

- The current price is $1.50 for each $SIPHER Token


As IBCO applicants deposit ETH, the final Discovered Token Price rises. As applicants withdraw ETH, the final Discovered Price falls. There is no friction on the way In (Deposits), but lots of friction on the way Out (Withdrawals).

Discovered Price =

Total Deposits Received ($ XXX MM) / Tokens for Sale (40 MM)

It is Day 2 of the initial offer as of this blog, and 71% of the target amount is already in the bag.

Sipher will release all 40 MM Tokens in the IBCO, at the final Discovered Price. This implies that all Deposits applied in the IBCO will be part of the final raise. Team & Advisors have a natural incentive to ensure higher prices.

It seems that Sipher is interested in attracting long-term Gamers/HODLers.

Or, it could be a way to ensure early investors make a good return on their investment.

Or, perhaps, both?

[III] VCs and Game Theory

VCs invested in Sipher in Oct’21. They received 113 MM SIPHER’s for $6.8 MM ($0.06 / SIPHER), valuing Sipher at a $60 MM fully diluted market cap. Team and Advisors have a 16 months lock-up followed by an 18 months vesting. VCs would likely own a little under half of the Team & Advisors fully diluted share of 25%. Both VCs and Team incentives are aligned to have at least a 16-month view on this.

From the token distribution, Team & Advisor holding = 25% (250 MM SIPHER tokens). Assuming conservatively that the IBCO Discovered Price is $0.375/SIPHER token (this will only be known after the IBCO is closed), Sipher would have a market cap of $375 MM for, while the Team and Advisor stake alone will be valued at $94 MM.

Here is an interesting extract of a Discord chat between the Lead and a participant. The Lead responded with this to a question on the mark-up that the VCs seem to have made in 2 months.

Discord Chat

VCs invested at $60 MM valuation for Sipher in Oct’21.

After the initial token sale, Sipher valuation would at least be $375–400 MM.

Update after conclusion of initial token sale: Final Price was $1.1/SIPHER token, giving Sipher a fully diluted market cap of $1.1 Bn.

VCs have enjoyed an 18x (unrealized) mark-up in 2 months.

It will take over a decade to have 250 MM SIPHER tokens in circulation.

Scarcity (major jurisdictions could not participate in the initial token sale) + IBCO Price mechanism (flexible on the way up, restrictive on the way down) is a good combination for price setting at the initial sale.

[IV] Decentralization?

One of the alluring aspects of Web 3.0 is the prospect of Decentralization. The hypothesis is that a central entity cannot exercise unilateral control over the participants.

Here are some hidden gems from the Terms of Service

Sipher itself is…a central entity!

SIPHER Tokens = what governance?

From the Discord Chat it is apparent that most participants were ignorant of the basic mechanics of even the initial token sale; much less the sum total of risks that are being assumed.

In an upward biased pricing environment, none of these concerns merit any attention.

How the tide turns will be a function of how the game, and the game theory dynamics play out.




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