Prize Pools, Gaming Mechanisms, and the Breakthrough of GameFi

A Suggestion to STEPN from a Dota Player

Recently, discussions around the GameFi unicorn STEPN have gone viral. Odaily, a crypto media press, published the article “How to get out of the predicament of STEPN, here are some suggestions”. In the article, the author analyzed STEPN’s current circumstances and problems, and gave advice on its development direction.

Apart from the controversy caused by the recent actions of the development team, I would like to talk about STEPN from another perspective — the new revenue model buried in blockchain games, which can accelerate the game development; Blockchain games can also learn from the prize pool model of Web2 games to encourage a three-way win-win condition for the players, professional players, and game development companies.

The reason for such an intention is to start with two representative works of Web2 games, Dota2 and League of Legends.

Dota2’s annual tournament prizes are very high. The data indicates that Dota2 has about 400,000 monthly active players, and the prize pool of the TI10 tournament has reached 40 million US dollars. League of Legends, a game with daily active players of 27 million, also has a first prize of more than 2 million US dollars in the annual tournament called The Worlds.

Average players of these two Web2 games don’t have to earn, they pay for fun and their love of the games. At the same time, the game’s derivatives, IP authorization & recreations, and the excellent competitive event systems have injected new stimulus into the game’s development, allowing new and old players to keep entering in. In my eyes, this is a three-way win-win for average players, professional/semi-professional players, and game development companies, with so many advantages.

Can the “prize pools” of this Web2 game be carried on blockchain games? Take Dota2 as an example, the income source of Dota2’s is huge due to its free trading market of cosmetics and selling Seasonal Paases. These two mechanisms perfectly match the three high-frequency operations of blockchain games: minting, transfers, and trading. The NFTization of cosmetics also solves the ownership problem. Although the Seasonal Passes may require extra work on the developer’s side, it is not a difficult problem for a mature and high-quality blockchain game project. Moreover, after each Seasonal Pass task is completed, if you can obtain permanent NFT rewards, to empower your NFTs with more utilities (for lottery draws, competition predictions, etc., refer to Valve’s design). Seasonal Passes will energize the participation of loyal players even more.

Bringing this set of mechanisms into the blockchain game design will in turn generate more fees because of the high-frequency operations in the game, and will further circulate the game economy.

Take STEPN as an example. It has brought a profound impact to the development of GameFi, not because the price of its token has skyrocketed, but because of its surprising profit from the transaction fees.

Let’s look at STEPN, a blockchain Move-to-Earn game with a monthly revenue of over 100 million US dollars and a daily net profit of 3–5 million US dollars. The introduction of prize pools may create more possibilities.

The three small and high-frequency operations of minting, transfers, and trading have brought “endless” self-sustainable fee income to high-quality blockchain games. If the project can use these profits and the mature game task mechanism and trading system in the current Web2 game, and the combination of small, medium and large competition events, is there any chance to make high-quality GameFi a “perpetual motion machine”?

The cycle design ideas of this type of game can be roughly divided into these parts (of course, it can be further subdivided): the first part is the to-earn cycle, which attracts users; the second part is the Social cycle, which transforms the users who have already paid to loyal active users. It is no longer simply for just earning, but for playing; the third part is the rebirth after death, because once to-earn is the primary goal, any token system will enter the stage of death spiral, and due to the Social cycle, users will continue to play blockchain games but the number of users will decline. When the number of users who prefer to-earn decreases, the users who prefer to-play will increase, so that the dying blockchain games will continue to lower the barrier of entry. Through the adjustment of the economic model of a game project, it will again enter the earning process to attract new users or the return of old users (the game economic mechanism design and adjustment will become very complicated).

If we combine the mission rewards, event rewards, cosmetics, and trading systems together, there will be the following changes.

The reward mechanism will encourage the entry of new users and the conversion of loyal users, thereby prolonging the time of the death spiral. The most important thing about the mission system is to change the concept of leading users to earn, such as adding the party mode, health mode, and online battle challenge mode, etc, to remind users what physical changes may have happened to their bodies after completing the tasks (even if you don’t have much earnings you will also be healthier), thus converting users from to-earn to to-social. Moreover, to-earn elements can not only come from the token itself, BTC, USDT and other tokens from events and other tasks can also be acquired. This will not only improve the user’s expectation of returning, but also improves their retention and participation to a certain extent.

Cosmetics synthesis and market trading once again meet social needs. You can use mystery boxes to randomly combine your cosmetics or customize your own exclusive items to your preference. You can also sell rare items to accelerate the circulation of the three operations of minting, transfers, and trading. Moreover, the mechanism of skins and accessories, which has been verified by countless game products, is irresistible to any player who is willing to pay to win.

In the meantime of STEPN’s explosion, I have seen countless predictions of its collapse. But even if the predictions all point towards its collapse, the authors still choose to participate.

We can actually make an assumption. If STEPN’s payback period is long enough, the entry however becomes relatively low, there will still be some players who are willing to experience it, since STEPN is already a unicorn product. For non crypto-native people, if the entry for such new and interesting things is low enough, they are also willing to try it, and it is also an opportunity for users who missed the early stage of the game. This player group will not be too small.

With a large number of users, development teams can do activities with companies from the traditional industries, e.g. collaborations, etc., and can constantly attract investments and new users to join, thus creating a positive cycle. After completing these attempts, there is a high probability that there will be a large number of loyal consumers in STEPN-type of blockchain games, turning GameFi into a “perpetual motion machine”.

This kind of perpetual motion machine is a relatively ideal stable state of operation, the number of users can be kept within a certain range, and the game project will not be closed due to insufficient funds. In the third stage, sufficient funds will allow the project to gain its new life again.

At the same time, for the GameFi project, in addition to the design of prize pools, the three small and high-frequency operation designs of in-game minting, transfers, and transaction give the project party the opportunity to achieve balance of payments and even generate huge profits without relying on selling tokens. Setting the appropriate operation matching the appropriate game stage becomes one of the important factors that the game project side needs to experiment with, because this is not only for the users’ experience, but also to find another way to make the blockchain game have a better and smoother operation.