Game Asset Ownership — Part 3: Better Economic Models

In the first article of this set, we looked at the history and evolution of the gaming industry, and the design problems related to players owning digital assets. In the second, we discussed how blockchain addresses many of these design problems, making true digital asset ownership — as opposed to licensed control of a digital object possible. In this third and final article, we conclude by exploring the mechanism by which blockchain tokenization enables innovative new economic models. Together, these articles provide context for the ways in which digital asset ownership can literally “change the game” both for developers and for players.

The standard unidirectional sale of goods from developers to players is, in essence, a misaligned command economy, which has been shown across economic history to be very difficult to properly manage; keeping up with demand, and supplying the right goods to meet changing needs, is challenging without the robust signals that marketplaces can provide.

By embracing tokenized assets, game developers also embrace a better alternative economic model to solve for these challenges: What we call community economics. A number of benefits arise as a result:

• Player and developer interests are aligned: In-game peer-to-peer marketplaces enable the secure, trustless transfer of assets and value, reducing the need for third-party markets (though items on blockchain can be transferred on third-party platforms as well). Players can make an income selling in-game assets, which developers can benefit from by taking a share of each transaction, creating a “win-win” scenario in which both players and developers have an interest in enhancing item turnover and thus, the expansion of game economies.
• Value is created for players: Player purchases are transformed from pure expenditures (currently valued at over $100 billion per year) into asset investments. True ownership empowers players with the agency to resell assets, to invest stakes into new items, and to develop entrepreneurial capacities — for example, item leasing, service economies where players are paid to earn items for other players, or even banking and mercantile enterprises, all of which grow the overall game economy.
• Asset provenance eliminates the need for “trust”: Because the history, authenticity, and ownership status of an asset is immutably preserved and independently verified by the blockchain, players have explicit, transparent evidence of the value and integrity of their assets. The greater the trust in a system, the larger the economy built on top of it can grow.
• Smart contracts allow for new incentive structures: Developers can design novel incentive structures to reward or incentivize players for actions that support the game community. For example, developers could design a smart contract that grants in-game currency to a high level player for helping a new player through a dungeon for the first time.
• Blockchain governance allows players to have a share of voice in the direction of games or in-game institutions: Games can incorporate governance mechanisms that allow players to vote and influence decisions in-game, either among themselves (e.g., guild governance) or for the game overall. This, too, enhances trust in the system, encouraging the growth of the game and its economy.

A tokenized asset, by any other name

But when we talk about “tokenized assets,” what do we actually mean? A token is simply a digitally stored record that encapsulates the nature of an asset — what it is, how it works (e.g., any rules for how it interacts with its environment), and who owns it and has owned it in the past.

But tokenized assets fall into multiple kinds of categories, generally defined by two characteristics: Fungibility and Divisibility.

• Fungibility is the property that defines whether individual units of an asset type are freely interchangeable with others of its kind. For example, in the real world, a $20 bill has fungibility — that is, one $20 bill is worth the same as other $20 bills. Just like a $20 bill, Game Coins have fungibility, such that one Game Coin can be freely exchanged for another Game Coin, and the particular instance of the Game Coin doesn’t make any practical difference. Non-Fungibility, by contrast, means that the token in question is considered unique. A game might have Magic Swords that are fungible (all bearing the same traits, and indistinguishable from one another in value or function) and a single Vorpal Blade that is non-fungible (there’s only one Vorpal Blade, and it can only be acquired from the person who is the current holder of the blade).
• Divisibility is the property of assets that defines whether they can be divided into smaller, identical increments that can be used in exchange for goods of varying values. Currency is generally divisible. For example, a $10 bill can be divided into two $5 bills, or ten $1 bills. In the same way, 1 bitcoin can be divided into fractions (i.e. 0.0005 bitcoin). But weapons and other items are generally indivisible: Breaking a sword in half will not give you two smaller swords.

So how does this express itself into different asset categories? We’ll show this using the hypothetical example of a game called Outer Frontier, a game where players are colonists seeking to explore and colonize the universe by collecting resources that allow them to travel from planet to planet and create settlements.

Fungible, Indivisible Assets:

Game Coins and Stackable Assets fall under this category.

• Game Coins: Moon Dust is the lowest denomination of game currency in Outer Frontier. One can think of it as the equivalent of a penny — fungible, but not divisible (since it is the smallest possible unit of the currency).
• Stackables: Stackables are fungible, indivisible assets that are not game coins. In Outer Frontier, one such Stackable Asset is a mining drone, which players can use to enhance their ore mining output. While multiple mining drones can be stacked to increase ore mining, each drone remains interchangeable with any other drone, and any given drone can’t be broken down further into smaller identical pieces.

Fungible, Divisible Assets:

With this type of asset, it’s possible to own a fraction of a unit. In our game Outer Frontier, Moon Dust is the base unit (Fungible/Indivisible) of the OF currency, but it comes in different higher denominations of Moon Dust (MD): Gold Moon = 1K MD, Red Moon = 100K MD and Blue Moon = 1MM MD. These 3 Moons can be thought of as both fungible and divisible down to Moon Dust.

Non-Fungible, Indivisible Assets:

These are unique assets that are one-off and not interchangeable, such as a collectible item. In Outer Frontier, these include cosmetic items that a player may be able to affix to their combat spacecraft to add a personalized touch. Non-fungible skins are distinct from their fungible counterparts, in that their provenance and history of accomplishments are carried with them. For example, a camouflage spacecraft ski carries with it the history of owners and battles that it has taken part in.

Non-Fungible, Divisible Assets:

Finally, a non-fungible yet divisible asset could be something composed of two or more assets. For example, in Outer Frontier, a combat spacecraft asset can be equipped with a camouflage spacecraft skin — a non-fungible, indivisible asset — and five laser blasters, which are fungible, indivisible and stackable assets. Should she choose, the asset owner could sell both the combat spacecraft and/or the individual items within it.

These categories define just the loose boundaries of how tokenized assets can operate in games. There are many more iterations within these categories that provide almost infinite possibilities for innovation: Interactive NFTs, NFTs as experiences, “land” assets that serve as real estate (for example, Decentraland) and social tokens for brands, guilds and celebrity identity. And as tokenized assets become more complex, the interactions among them become more sophisticated — as do the economies that they make possible. For developers, the creation of ownable assets and the subsequent emergence of robust, collaborative economies in which both they and players participate has an array of positive benefits: It aligns player interests and agendas with theirs, since both now have a real stake in evangelizing the game and expanding the game economy. It produces new revenue streams, which supplement rather than replace existing ones. And it makes games more sustainable over time, as the ability to own, buy, sell and earn from play will encourage players to be more loyal and to integrate these games more deeply into their lives.

And ultimately, this seems inevitable. Over time, “digital assets” will simply become assets, and “game economies” will simply become part of our real-world economy. We’ll explore the implications of this evolution in future articles — in particular, how it impacts the ways that assets are sold and traded, the potential areas by which game economies can be abused and ways to stem and prevent such abuses.

Interested in contributing to our Community Economics series? We’d love to hear from you. Comment below or email us at cec@forte.io

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