Combo Breaker: Beating Web3 Gaming’s Hype Cycle With Takinomics
Co-authored with Game7 as part of an ongoing collaboration.
Summary:
- Takinomics solves key problems in web3 games — hype and hyperinflation
- Takinomics is designed with hard rules to prevent inflation from player rewards.
- Traditional game reward systems are incompatible with the open economies of web3.
- Takinomics remains strong with a mature playerbase rather than relying on rapid new player growth to drive token demand.
- Takinomics’ revenue-based rewards are naturally resilient to price effects.
Web3 Gaming Has A Hype Problem
Web3 gaming’s open secret is that play-to-earn model has a hype problem. How do you reward players in a way that delivers on web3’s promise of player loyalty through ownership? How do you avoid hyperinflation and speculative bubbles to build a loyalty system based on value generation, not hype cycles?
Our solution: Make great games even better with web3 loyalty using deflationary rewards. We call this Takinomics.
Taki Games reward players for playing. But unlike the “play-to-earn” games of yesteryear, TAKI is awarded based on real value contributed. When player engagement generates real revenues for the games, those players are rewarded commensurately with TAKI.
This true incentive alignment ensures that all emissions are beneficial to the network. There is no problem with farmers or botters “exploiting” the system — if a user is earning rewards, the network is generating revenue. The microeconomics are tightened so that incentives are perfectly aligned. With Takinomics, a sybil attack turns into coordinated buying pressure for TAKI.
Deflationary Design Matters
Takinomics is designed with hard rules to prevent inflation from player rewards.
Hyperinflation is the rapid devaluation of currency, usually triggered by excessive money printing. and has infamously crashed the economies of Zimbabwe and Axie Infinity. Web3 games are often guilty of unsustainable printing. The “Play-to-Earn” faucet is opened to attract new players, but once the party gets going, nobody thinks to turn it off until it is too late.
Takinomics is designed to be deflationary, with built-in offsets for all reward emissions. Most reward systems are inflationary, as user reward emissions increase circulating supply. Takinomics reverses this by offsetting all user rewards with buybacks and burns. Whenever users are rewarded with TAKI, game revenues are used to purchase an equivalent amount of tokens from public DEXs to be burned.
This buy pressure and deflation will compensate for any sell pressure or inflation caused by player rewards. Players will not receive rewards unless there is sufficient revenue to perform this buyback-and-burn, ensuring that all rewards are not just sustainable, but deflationary. Whenever players receive rewards, the net circulating supply is decreased. This is the heart of Takinomics.
Web3 Shouldn’t Copy Traditional Game Rewards
Traditional game reward systems are incompatible with the open economies of web3. Takinomics solves these problems with redesigned rewards and tight incentive alignment.
Many traditional games like MMORPGs will reward players for basic play activity such as exploring dungeons and killing monsters. This reinforces the core game loop, increasing engagement and indirectly growing revenue. While there is some mismatch between engagement and revenue here, the closed and centralized nature of traditional MMOs dampen potential exploitation. Diablo 3 famously opened up their economy with the real money auction house and immediately ran into problems. Rather than address them, they opted to close the auction house, foreshadowing web3’s current dilemma.
Early web3 games often copied traditional reward systems, substituting in their fungible token for the MMO’s soft currency. However, the slight misalignment between engagement and revenue was wedged open and exploited by farmers who had very high engagement without contributing any revenue. Moreover, the open nature of web3 allowed those farmers to quickly extract and liquidate their earnings. Many web3 games, everything from Axie Infinity to Sunflower Land, have attempted to solve this by mimicking traditional games — keep the traditional reward systems and clamp down on withdrawals. This is costly and laborious, playing whack-a-mole with exploits.
Instead, Takinomics tackles the problem at the source — only offer users token rewards when they generate revenue. By keeping the incentives aligned, any “farming” activity is simply revenue-generating activity. For example, as Taki players generate revenue with in-app purchases or by watching advertisements, those players are rewarded accordingly. If players were somehow able to bypass those ads or avoid in-app-purchases, then they would be allowed to play but not able to earn any rewards. Simple as that.
A Better Model: Starbucks
Starbucks offers an example of the power of aligned incentives. Their goal is to maximize customer spending. In the past, their loyalty program was based on number of coffeeshop visits rather than actual purchases. Starting in 2016 Starbucks changed their loyalty points to be based on actual dollar amounts spent, more aligned with the actual behavior they wanted to incentivize. In tandem with this points change, Starbucks was able to offer better rewards as the customer behavior was more lucrative. The strategy has paid off. Rewards members now drive more than half of total revenue in US stores.
See this article for more details.
Growth and Maturity
Takinomics remains strong with a mature playerbase rather than relying on rapid new player growth to drive token demand.
A common criticism of early “play-to-earn” games was their dependence on user growth. Token demand was driven by new player growth rather than old player retention, as the games required a high upfront buy-in in order to play. If that flow of new players dried up then token prices would subsequently fall, even if the game maintained a stable mature playerbase.
As a result, play-to-earn token prices were a leading indicator of growth, becoming hypercyclical with respect to the game’s actual popularity. The dramatic booms-and-busts that resulted are infamous.
In Takinomics, token demand is driven by the active playerbase. The buyback-and-burn associated with deflationary rewards occurs based on player activity, both new and mature. There are no front-loading or anticipatory effects to push unsustainable speculation. In steady-state, Taki games network with a mature playerbase will still drive deflation, even when the playerbase is declining.
Stabilizing Currency Price Effects
Takinomics’ revenue-based rewards are naturally resilient to price effects.
Early play-to-earn games would usually pay out a fixed quantity of their token, regardless of its market price. If Axie’s SLP doubled in price, it would suddenly double the wage rate and encourage a sudden influx of farmers. If Axie’s SLP halvened, the wage rate would fall in half and cause a sudden exodus. This kind of volatility is harmful for the stability of a game.
In contrast, TAKI rewards are based on real USD revenue. When a player generates $1 of revenue, they earn $1 worth of TAKI. This amount is based on the price of USD, not TAKI. If the price of TAKI doubles, then the quantity of TAKI rewarded will halven, but the USD value will remain the same.
This currency flexibility avoids the gold rushes and ghost towns created by fixed token payouts. Much in the same way currency effects balance international trade, encouraging imports or exports when the local currency is strong or weak, respectively, these currency effects add elasticity and resiliency to TAKI.
Closing Comment
The last wave of web3 games showed both the excitement and instability in early designs. Takinomics is our answer, specifically designed to solve these problems by turning the system inside out. Player rewards are deflationary and aligned with real revenue from a sustained mature playerbase.
With these economic fixes in place, Taki Games Network is aiming to deliver on the promise of mass-market web3 adoption through mobile games, and provide a model for other game developers who also aspire to bring web3’s economic opportunities to billions of players.
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