Terry Chung 1kx Network
Translation: 0xHY
In the case of Axie Infinity, the P2E (Play and Earn) game has soared over the past year, but at the same time, there is a lot of controversy about the sustainability of its economic system. Most game developers and players are still resistant to this, for example, according to a recent Survey of Game Developers Conference (GDC), 72% of developers surveyed said they and their studios are not interested in integrating encryption systems into their games.
But in fact, designing an economic system for games is not the original creation of Web3 games, and how to create more revenue for game developers without destroying the game experience has always been an important issue for paid games. Terry Chung from 1kxnetwork released this article, which is a combing of various payment strategies for past Web2 games, and exploring the reference and future of Web3 games.
The following is the full text of the PANews translation:
For a virtual gaming economy to maintain economic equilibrium – the relative stability of its core currencies and goods – it must balance the issuance rate of assets and the rate of consumption/demand of assets.
That is, the entry and exit should be basically balanced.
To do this, it has several options:
Constantly improve the speed of users pulling new ones, so that there will always be new players buying things from old players.
The continuous introduction of updated, harder, and more resource-intensive "final game content" (PANews Note: refers to the content that can be provided to players in this class of players after reaching a certain level cap in RPGs or MMORPGs) allows existing players to consume more resources.
Balance the creation of coins and items (taps) with the removal (sink) of coins and items mentioned above in the game.
If this balance is not maintained well, the player experience and retention will be affected.
Fortunately, the virtual economy has been around for decades, and there are many failed experiments and hyperinflationary game precedents from which we can learn. We want to introduce how the previous virtual economy used the "sink" to achieve the return of game currency, as well as the effects of different strategies and user acceptance. In addition, we'll review some of the new balancing tools available for "community and culture first" P2E games.
directory
Part 1: Learn from previous games
1 Public facilities, rare collectibles and gambling mechanisms
2 Taxes on trade and land
3 Equipment casting
4 Pledge, convert high working cash into consumables/items
5 Unlock more gameplay
6 Donations/Events
Part2: Strategies unique to Web3 games
1 Incubate MOBs and forks
2 Community-based combustion mechanisms
3 Establish and own critical infrastructure
Summary: Conditions under which the "sink" or reflux mechanism can be implemented smoothly
Learn from Web2 games
Solution 1: Use of public facilities
Players are charged a fee to return the currency, and players can enjoy some minor gaming experience improvements or use certain public goods. This allows players to achieve a sense of accomplishment and save time.
Some examples include:
Flight routes and mounts/upgrades in World of Warcraft to increase travel speed (Magic Carpet in OSRS)
Armor repair (RuneScape, The Elder Scrolls), which is primarily a parody of real-life depreciation expenses
Access to certain areas (El Khalid City in RuneScape), including the cost of the quest
Virtual hair salon that can change the appearance or name of the character (Gaia's Durem hair salon)
Spend money to reset your status/skills
Buying and decorating homes (The Elder Scrolls, Final Fantasy)
Most of these types of reflux mechanics are accepted as standard operations for the game – similar to a permanent tax that causes negligible pain to players. On the other hand, there are also some special examples, because the tax is so crude that it drives out many players.
In the Tower of Eternity Retro Suit game, the Philosopher's Stone provides additional stat boosts for your weapons and armor. A competitive final game character, whether PvE or PvP, requires at least +10 armor and weapon boosts, with the maximum possible boost being +15. Each failure after exceeding +10 will revert to +10 for weapons/armor. Players not only brush the Philosopher's Stone for hundreds of hours, but also often fail, and each attempt to re-bonus require Krypton gold.
Dreamstar Online 2 uses the same upgrade mechanism. For the highest level weapons (11 or 12 stars), the chance of upgrading to +10 at a time is 0.0014%, and each weapon requires +10 three times to fully upgrade.
Summary: Brushing is not inherently evil. It can make people feel progress, but it should be moderate. The difficult upgrade design can be said to be a "golden sink" (PANews Note: Gold sink is a game term, through which the game currency or any item that can be corresponding to it in a video game is removed), but those that are more frustrating than the result of obtaining rewards can lead to player loss.
Rare collectibles
Regular auctions/sale of rare collectibles from the game. This can be done as part of a special event, continuously through a luxury merchant NPC, or designed as a gambling game. This is driven by players' desire for social impact and ownership.
Examples include:
Collectibles from Neo Pets
An auction hosted by Sergeant Knox in Neverwinter Night
Gold sold by NPCs in RuneScape to make (literally) gold sinks
According to our vote above, this is one of the best ways for the community to recycle in-game coins.
Gambling mechanism
The expected returns of gambling games are designed to be negative, but players are motivated to play because it's the only way to get rare items, either it's an easy way to get extremely rare items, or it's fun. For example, the card draw game. Each time a player participates, they must pay native tokens. Because the expected payout is negative, this will help the game recycle tokens. This is driven by the player's desire for ownership.
Expected Return = Fun - EV (Currency Loss) > EV (Monetary Gain).
Treasure hunter in RuneScape3
The Raffle House in The Kingdom of Disgust
Judging by our survey, gambling mechanics are by far the most obnoxious form of in-game currency recycling. We suspect that this is because many games create a path to paid winning.
Figure: The Least Popular Reflux Mechanism survey
Summary: Don't create a fast track to paid profits through gambling games. Embed rare collectibles into settings and experiences, or make them a meme. People like to show off their wealth.
Solution 2: Taxes, trade, and land
Taxation of auction houses, markets, P2P transactions and ownership of land/houses (a tax system where the land value tax is a single tax). This first requires the game creator to control the market.
Here are some examples:
Auction house fees in online games (World of Warcraft, Diablo, RuneScape). Of particular note is that the auction house fee in RuneScape (2% of the large exchange trade tax) is used to buy back items from the large exchange. This can be adjusted algorithmically to target those items whose supply is rising significantly. The tax also actively encourages interaction between players, adding social depth to the game.
Tax idle resources. Lars Doucet outlines how Henry George's single land value tax applies to Eve Online's plants and how it can successfully combat rampant factory speculation. Star Atlas will also take this approach (see page 6 of its economics paper).
A 4.25% tax is levied on Axie's sales in the market.
For the past two years, transaction taxes have been the biggest recycling channel for ISK (the currency in Eve). Broker fees (another kind of market tax) followed closely behind, in third place.
Figure: Top 10 "sinks" and "faucets" in Eve 2018.10-2022.01
In a game, trade becomes a larger part of the game later on — most MMO falls into this category — heavily taxing transactions, effectively withdrawing gold coins from the vaults of the oldest and richest players, i.e. taking the currency out of the richest parts of the game, while guaranteeing that new players who have just come online can continue to hold them.
Summary: Taxes unfortunately come in third place in the voting of the least popular way of gaming currency repatriation, but they are very effective. Tax markets, trade, and idle resources, and use the tax for additional burning, or community-oriented activities. Perhaps we can look for and experiment with new tax models from a large body of optimal tax literature, and find more efficient models that have been tried before.
Solution 3: Equip casting
Equipment casting can either supply the player with items or as a way to recycle money. Players use lower-level items to create higher-level items/consumables/skins that consume both items and sometimes in-game currency. This is driven by the player's desire to control, curiosity to explore new items and experiences, and creativity to find new combinations.
Guild Wars 2 has a casting mechanism for recycling items, which requires a lot of materials, like a black hole that absorbs low- and high-level materials.
Another example is the building skills in RuneScape. Raising the building level requires repeated construction and then destruction of furniture, thus destroying the materials consumed to make furniture. Every plank needed to build furniture costs money to build, while nails and other parts must be manufactured or purchased. In the presence of taxable markets, high-priced transactions motivated by skills that are difficult to train can be a powerful route of currency repatriation. Planks are the most traded items on large exchanges. Note that to reach the highest level, buildings require an investment of at least 100 million GPs (the fastest method requires nearly 400 million), which is a large sum for the average player.
Our recycling mechanism only works when items produced through construction are not widely available on the market or by other means. If an item can be acquired in less time and money than minting, and/or the player can easily buy raw materials and then sell the product for a profit, the end result is likely to be more in-game currency rather than less.
Summary: When used properly, Equipment Casting is both a complement to the game experience, settings, and socialization, while providing a healthy sense of mastery/progress while recovering in-game currency.
Solution 4: Pledge game currency
This is more familiar to those who work on cryptocurrencies, but similar solutions exist in Web2 games.
Managing clutter is a mini-game in RuneScape. A player can deposit between 5 million and 7.5 million gold coins in the treasury (depending on the completion of the mission), and then withdraw 50,000 to 75,000 gold coins from the treasury every day, pay them to the "worker" who harvests the resources, and get the corresponding resources. The process is often profitable, but the resources that need to be produced are widely needed and consumed during skills training. Players deposit gold in the treasury because of their desire for achievements – because they want to progress in their skills.
This mini-game effectively locks and burns millions of in-game coins and swaps them for low-turnover items or consumables needed to progress in the game.
Summary: Convert high-turnover currencies into low-turnover items or consumables.
Solution 5: Unlock more gameplay
Instead of requiring users to purchase additional game content, memberships, and DLC (downloadable content) in fiat currency, it is better to sell it to players in a large amount of in-game currency. Content quality and player experience are key drivers of players' desire for unpredictability (curiosity) and fulfillment (finishing all games).
Buying a "bond" in RuneScape can have a 14-day membership, but it can also be purchased from other players for 4.7M GP per ticket, and the 1-month membership fee for 1 month in fiat currency is $11. In the past hour (9 p.m. EST on weekdays), 553 "bonds" have been purchased on major exchanges, totaling about 2.5 billion GPs. On a pro rata basis, this means that bonds account for about 1.2% of daily GP transactions.
If you use the highest GP/hour output rate in the game, 2.5 billion GPs require about 250 hours of gold mining.
If Jagex, which issued RuneScape, were to sell "bonds" in exchange for GPs, this would create a very healthy mechanism for currency repatriation.
Summary: Turning "pay-to-play" into "skill/game-game" can be done particularly well considering that Web3 games don't monetize by buying games from producers.
Solution 6: Donate/Event
Based on our Reddit poll and my personal experience, the most beneficial currency repatriation for the community is to donate and host events. By inducing a desire for sublime meaning or social influence, people are incentivized to give/burn gold coins for the sake of reputation, rare collectibles, or titles.
Gaia Online's 2009 relief campaign. To coincide with the makeover of NPC stores, Gaia hosted a 2009 bailout campaign in which each store allegedly owed "GRS" taxes, and players needed to donate to each store to ensure it survived the update. One criticism of the campaign is that the outcome is predetermined regardless of the total amount of contributions, and that larger donors do not receive additional benefits. In the cryptocurrency world, it's easy to automatically return funds if the goal set by the donation is not met, so it's easier for game developers to rely on donated funds for updates and community events.
The "Well of Goodwill" in RuneScape3 accepts items and gold donations. RuneScape's parent company, Jagex, converts these GP-based donations proportionally into pounds sterling, which are then donated to charity. Those who donate more than a certain amount to the Well of Goodwill receive rare titles — perhaps the rarest and most coveted item in the game.
The Well of Goodwill allows those who don't have a bank account or have difficulty sending money to donate in a way that looks like low-cost (by accepting in-game currency), fun, and consistent with the community. Those who donated more than 5 billion GPs (a staggering number for those who have never played the game) were awarded the title of "billionaire".
Despite the popularity of the Well of Goodwill, the design has been removed from the game.
Consistent with Reddit's vote, I personally really like this type of backflow mechanism. It shapes a community experience that, in conjunction with the game setting, is an update to the game in Gaia's case. In the case of RuneScape, it allows users to flaunt and brag about themselves, and brings fun and a sense of accomplishment to donations and kryptonites.
Summary: Integrate the backflow mechanism directly into the community event/setting, create interesting experiences around it, and give it to the player/guild based on the number of coins burned
Cryptocurrency-specific solutions
In the previous section, we explored the balancing solutions that traditional games have tried. However, web gaming has many other opportunities to achieve backflow and balance. This includes incubation mods, and forks of community-led backflow mechanisms. Both approaches rely on the open source, interoperability, and community-first nature of Web3 games, and are only applicable to truly, decentralized, community- and culturally first P2E games.
Solution 1:
Historically: Modified versions of games have been at the forefront of pushing games into new areas and genres. In fact, some of the most popular games of all time were inspired or created directly in mods of other games. - From Power of Players: Open Source
For example, Zombie Doom was originally a mod for Armed Assault 2. Dean Hall took the best of Raid 2 and transformed it into a zombie survival game. Soon there were spin-offs of Zombie Doom, including a mod called Zombie Doom: Battle Royale developed by the then unknown "Unknown Player". Not only did this popularize the battle royale genre, but it later evolved into PUBG Battle Royale, which became one of the most popular video games in history.
Since Web3 games can benefit from the expansion of the entire gaming ecosystem through re-sales and taxes on core infrastructure, they have a strong incentive to incubate new mods and player creations, which in turn creates organic demand for their ecosystem tokens. It's a natural counterattack to the innovator's dilemma to create games that evolve and make them more durable.
This is the strategy taken by Sandbox, Aavegotchi, and Sky Mavis: they open-sourced the Axe SDK and allowed developers to do development on Ronin. The core team has built infrastructure, deep liquidity, and an initial ownership base in all three cases. Next, they encourage the ecosystem's entrepreneurs to build mods and sub-games on their platforms, which are then charged in the form of activity taxes. That's why Axie bills itself as a "nation."
You can think of Axie as a country with a real economy. The holder of AXS tokens is the government that receives the tax. The inventor/builder of the game, Sky Mavis, holds ~20% of all AXS tokens. ——From Axie's white paper.
Aavegotchi Mini Games are community-developed games that can only be played by those who own Aavegotchi. Because every game is different, Aavegotchis with different qualities is suitable for different games. In many cases, Aavegotchi with a low rarity score in some mini-games performed better than Aavegotchi with a higher rarity score, which also brought about the demand for the Aavegotchis white variety. Playing mini-games can also earn you XP for a short period of time, giving you a greater chance of winning the GHST Award on the leaderboards. According to Aavegotchi:
Each mini-game will use a different Aavegotchi feature so that various features can participate fairly in the game. For example, a super-strong Aavegotchi may perform well in the Aavegotchi Fighting Club, but may not be suitable for the cake-baking mini-game.
But in order to use the above strategy, the game must be decentralized while incentivizing talent building on the platform (see Roblox's DevEx plan). They must also allow modifiers and ecosystem developers to take a cut from the economic output they create (through royalties and contribution-related incentives) while operating as a DAO.
Summary: Allows community developers and game designers to create game experiences that drive endogenous demand for your tokens and infrastructure.
Solution 2: Community-based combustion mechanism
Jonathan Huang from Sea Capital estimates that about 98 percent of Axie's daily active users are Axel Scholars. Considering that Axie's DAU is 2 million and YGG as the largest guild has 10,000 scholars, we can estimate that the number of scholars in the guild may not exceed 5-10%. If this number increases, or if we also take into account the role of the manager, then the introduction of the combustion mechanism at the "guild-scholar" level becomes very important.
An example of such a mechanism is the fair conversion of scholar-held SLPs (assumed to be high-turnover) into guild-held SLPs. This can be achieved through guild-level games, where scholars can pledge/trade SLPs for a chance to get better cards or items, although it's hard to say whether this strategy will make the guild profitable. In addition, Axie's Treasury can assign AXS rewards to guilds that implement community support programs, which may include community-led burning mechanisms.
An example of an existing community burning mechanism is the YGG's commitment to stake its SLP holdings to RON, or previously used its SLP entirely to nurture new Axes.
Summary: Incubating and supporting communities with a long-term culture of socialism.
Solution 3: Build and own critical infrastructure and charge a fee to achieve currency repatriation
This is an extension of the tax in Part I.
P2E games can be built, governed, and profitable by owning core infrastructure and taxing the use of core infrastructure. Sky Mavis owns its own chain, marketplace and DEX (Katana) and charges a gas fee (RON) and a marketplace fee (4.25% of ETH) for the usage protocol. These agreements all incur fees, which can then be repurchased and burned, or tax revenues can be burned directly.
Arguably, it's much easier for a P2E game studio to develop a protocol infrastructure than to try to inorganically bootstrap an ecosystem of games (Strategy 2). If P2E economies are agreements, the greater the scope and coverage of the agreements they can cover, the more value accumulation can occur.
But in an open source project, high conversion rates may not be sustainable in the long run. Only when P2E games provide the highest quality core infrastructure, incentivizing the best operators to contribute to their infrastructure (rather than building their own), can they prove that critical infrastructure is a good monetary backflow mechanism, or as a huge source of revenue for their 'treasury' operations.
Summary: Create the best critical infrastructure and charge a fee to reflow the game currency, or use the agreement revenue for buyback and burn.
conclusion
The balance of faucets and sinks is necessary in order to guarantee a healthy balance of prices in the virtual economy. However, the existence of a "sink", i.e. a reflux mechanism, can never guarantee that the tokens of any gaming economy system can return to price highs. In fact, "sinks" only work when people use them.
Web2 games benefit from the fact that they are closed economic systems that are difficult to leave once money comes in (there is no simple, transparent, legal exchange for users to trade dollars and game currency). This means that these games also benefit from the decoupling of game currency from fiat currency in the minds of players.
This means that players have no choice but to spend money on the platform/game, are less likely to calculate the payoff and reward precisely when engaging in any activity, and are therefore more likely to spend money on something random or entertaining
A P2E game does not enjoy these benefits. In order to encourage players to participate in the system's money recovery mechanism in an environment where both inputs and outputs are highly clearly monetized, it either has to provide additional money for burning (which further increases the supply), or provide users with other forms of additional revenue.
Therefore, in an open economy, the "sink" will only work if the following formula holds. The formula is:
Motivation + the additional utility of using the "sink" > the cost of using the "sink" (as shown in the figure below)
What determines the efficacy of the "sink" is whether people use it or not, and people only use it when they see value.
"Ultimately, people need to consume conveniently and flexibly for fun, status, so that economics can work permanently."
—Jihoz, co-founder of Axie Infinity
Contributors to this article include: @dberenzon, @pet3rpan_, @nichanank helped write this article, and spoke to @AxieSando, @CharlieSandor, and @StingRayL0 about P2E games. At the same time, I also learned a lot from @Jihoz_Axie, @0xRyze, @Tocelot, @RyanWatkins_, @fareastwitcher, @yukaichou.