Gamefi's Future, Bootstrapping and Sustainability

Gaming has evolved over the years from single-player games to multiplayer games, then desktop MMOs, mobile games, and now blockchain games. Different game modes advance the game in different ways. Multiplayer games create more network effects through social interaction and player community building. Desktops and consoles have brought high-quality graphics and experiences to hardcore gamers, while mobile games have pushed games to be more accessible to the masses.

This post will touch on several topics in different sections:

1. The synergistic value of blockchain and games

2. Different fields and categories of Gamefi projects

3. Token Economics, Sustainability and Guided Growth of Play Earning

4. Token Economics Analysis of Different Projects

Blockchain and Games

Due to the digital nature of the game and the intrinsic value of the items in the game, the game and the blockchain naturally have a symbiotic relationship, each tapping the unique selling point of the other. Games create community and content, fueled by a highly technical back-end blockchain that lets players directly own their assets. Items are uniquely linked to your address, which means; if something happens to the original game development team, or the community decides to set up a spinoff of the original game, such as a private server, players will not risk losing all their items because the private The server can simply reproduce the player's items from non-fungible tokens (NFTs) in the player's self-custodial wallet.

Blockchain games allow for direct value transfer of digital assets, and easier cash/liquidity conversion between assets and digital currencies without relying on a single central authority to facilitate the transaction process. There's also the possibility that the game makes money, but whether it's just a meme, or if it lasts, is another topic for discussion.

Similar to blockchain’s scaling trade-off trilemma, trade-offs arise in games. For games, sometimes project builders and investors will need to choose between something more acceptable to the masses and something with a higher-end graphics (with very rich features and content), which may be possible on portable devices. Not so easy to use. Of course, these tradeoffs may slowly diminish as technology improves.

But for now, it will depend on where investors think they want to be involved. But of course, this is only one aspect among many. Unlike decentralized finance (DeFi), which aims to generate APR/APY% returns for users, GameFi is much more complex and has to deal with both "quality" and "quantity" to balance content Rich gameplay attracts players willing to spend time and money in the game.

Therefore, for gamefi, the project should not use a one-size-fits-all token economics template, just because Axie Infinity’s play and earn model has achieved great success, it should be directly extracted from Axie Infinity. Different types of gameplay are likely to be suitable for different types of token economic incentive models.

Gamefi Investment

Apart from the usual framework of looking at the relevant experience of the project team, if they can segment the different game domains and game categories and compare them with similar traditional non-blockchain games to understand their appeal, and the token Whether the model is suitable for the game. For example, a Metaverse could consist of many games, which would likely result in a higher valuation than a single game. A game with high-end graphics can look more visually stunning, but may not run on mobile, thus limiting access to more people. Some projects are traditional game projects that have spent years building games that already have playable demos and just need to add blockchain functionality before launch, while others are projects that are still in the conceptualization stage. Based on various information, investors should determine what risk they are willing to take, and at what valuation. Does it make sense to invest in a fully diluted project without any playable demos, with a target release date of 5 years from now, or would you rather invest in a project with a traditional gaming background, already demos, and a valuation in the tens of millions or Hundreds of millions of projects?

Industry - metaverse or game or guild

As Facebook shifted its focus to the realm of the metaverse, many projects that were raising funds began to categorize themselves as metaverses. But are they actually metaverses or games? While people have different definitions, a good point of distinction is that, in general, games are usually a subset of the metaverse, and multiple games can exist within a metaverse. (e.g. Decentraland, Somnium Space, Sandbox). It can also exist without game elements, purely as a virtual place for social events. If the metaverse is defined more narrowly, it might also involve at least 3D or VR capabilities. Generally, games have an objective, either to complete a specific task as an objective, or simply to win a competition with other players.

Generally speaking, guilds (such as YGG and others) are independent of the game itself, but they have an important role in gamefi. They have the human element of the game, act in part as the game's recruiting economy, place for education, and expose players to the game through their investment in in-game assets. Perhaps in the future, they may even have assets large enough to even change the direction of the game itself, similar to how convex holds more CRV than curve itself and can have a greater say in governance voting.

As for games, they can also be further divided into many different categories by play style and gameplay.

Types of Gameplay and Incentives

Before looking at the token model of any game, we should first define the type of game.

Play style:

• Progression-based (adventure, leveling up) -- (PVE; single player/co-op).
• Skill-based (PVP; single player/co-op).
• open world
• a mixture of the above

Gameplay:

• Massively Multiplayer Game (MMO) Open Virtual World - [Second Life]
• Role Playing Game (RPG) [World of Warcraft; Elumia]
• Trading Card Game - [Hearthstone]
• MOBA - [DOTA,LoL]
• 《Battle Royale / Last man Standing》
• - Shooting games - [ CS:GO, PUBG, Apex Legends ; Decimated ]
• Fighter/Gladiator - [Street Fighter, Tekken; One Man Hero].
• Racer - [Need for Speed, GRIP]
• or some mixture of the above

platform:

• Desktop
• cell phone
• VR

Different game modes lend themselves to different types of incentive structures. Some games use a single governance token model. While some use a dual-token model, where the primary governance token generates value, while a secondary token is distributed to players to be used primarily in-game or sold as revenue.

A way to incentivize skill-based PVP-style play, and a way for players to earn money, could be a staking structure where winners get a share of winnings. Or the project could reward the top players on the leaderboard with governance tokens or a portion of funds earned through in-game transactions.

A story-based game with a PVE structure that rewards players for playing within the game would be more complex. Starting from the most basic example, a 100% pure progress PVE stand-alone game, players can only complete the tasks in the game by themselves. From a project standpoint, they need to generate revenue. However, how do they pay players so that they can earn money in the game? The project could first sell NFT characters (or items) to players, earn revenue, and then create a separate secondary fungible token (FT) that is distributed to players as they progress through missions. As the player progresses, the FT earned and accumulated over time is sold on the market in hopes of exceeding the cost of purchasing NFT characters for a profit.

However, as more and more players join, will the project allocate so much FT to players that there is an oversupply of FT? Will selling FT tokens as players realize gains depress the price of FT so much that selling these FT is no longer a viable way to make money? What gives these FTs their value in the first place so that they can be sold in the market at a certain price?

Cash flow is a zero sum game. If the value of FT does not come from the revenue and profits of the project, why is there a price of FT for participants to sell and realize their benefits? For any market to have value, there needs to be supply and demand.

The question is: where is all the demand for secondary FT tokens coming from and who is buying it?

The answer is: the demand comes from the available functionality of the FT token, and the people who buy it may be people who speculate on the perceived value of this particular functionality.

In some cases, such as Axie Infinity, FT tokens (Smooth love pot - SLP) need to be "burned" and used to "breed" (create) new NFTs for use in games, so the value of FT tokens comes from "Reproductive" needs. And if the circulation of FT is greater than the demand, the price will drop. For users, it may not be possible to continue playing and make no money. That is, the value of FT is not necessarily fixed or based on "breeding". It can also be based on the project's treasury if the token economy is structured differently.

Guided Growth or Sustainable Game Revenue

A more sustainable way for players to earn money is not through "progression completion" to continuously distribute tokens, but to allow players to be skilled enough to compete in PvP games and compete through large-scale competitions such as leaderboards or Small game rounds earn their victories. Perhaps, another way is to do it manually. Things like in-game gear that can be sold on the secondary market, or lockboxes with random high-quality airdrops.

The point of difference between a skill-based competitive model of the game and a progression-based competitive model of the game is to guide the growth of initial users. In a skill-based PVP mode, (leaving aside the early incentive rewards), assuming both players place bets to play, and the winner gets most of the bets, there will be players who leave as winners and players who take leave with loss. This will directly maintain the balance of the zero-sum game system and maintain sustainability, but the word-of-mouth communication of the earning game will only be spread according to the percentage of winners. So this won't have as much of an initial growth impact compared to the play-to-earn progression model, where each user initially earns a secondary token as they progress and play. And as the secondary token price increases, all players playing the game will initially earn money together as a start. Then everyone playing at that point in time will credit it as a gain at the same time, and word of mouth will spread faster, creating a contagion and compounding effect on demand, until at one point, the supply of secondary tokens exceeds demand, and token prices drop It is no longer feasible to play and earn money.

The problem with fixed daily progress-based rewards per player is that when your player count grows exponentially, the tokens issued will vary based on the number of players. Add to that the fact that it will be released daily. This would result in a massive inflation of the issued token (if it were minted). Additionally, it will further add to the ongoing downward selling pressure when tokens are being minted with the intention of selling them for profit/profitability. Some game projects have mechanisms to support demand for sale, by creating value and demand for secondary tokens, such as the process of burning tokens to "breed" new NFTs. But if the desire to sell and profit is higher than the demand for a particular feature, the price of the tokens will be depressed and players will no longer be able to sell those tokens at the price to play and make money.

A few possible solutions to this problem are: 1) Instead of issuing a separate 2nd token that has constant inflation and is pegged to a separate demand, the project could issue the actual base governance token, Oversee the treasury that players can hold, while governance tokens accumulate value over time. This aligns players with gaming companies. Players can also sell it at any time if they want to realize a profit. But while holding tokens, they own a portion of the game's revenue, which will grow as the game continues to operate. 2) Continue to find new additional ways to increase demand and reduce supply of secondary tokens.

A gamefi company can be sustainable, but that's a separate question from whether players can continue to play and earn.

A sustainable gamefi project earns income by providing services such as: 1) trading activities, they get a cut of fees; 2) earning game fees; 3) breeding or other derivative functions. And the onus is on the team to build a game that is in high enough demand to provide players with the entertainment they seek while playing the game to continue to improve themselves and engage in in-game activities. Obviously, money is a zero-sum game, and a game, as a job that players can play and earn, must have its source. Either from other players, secondary tokens that are in short supply, or rewards from the project itself.

The way forward will be to learn from past experiments and combine the best of both worlds. It is necessary to guide the gamefi, and at the same time give the players enough motivation to play the game happily and benefit from the development of the game in the process. Nonetheless, Axie has done a fantastic job leading the gamefi space over the years, creating traction and showing us what can be achieved.

All in all, we believe that blockchain games have a bright future where social engagement, game narrative and PVP aspects of the game are important. A possible hybrid model, bootstrapped growth and sustainable game revenue, could go something like this: initial bootstrapped growth through early governance token distributions, slowly diminishing over time. Early users will be incentivized by staking in the game, which will receive a fee from the treasury, but will also be able to cash out at any time to realize their profits. But over time, the "play and earn" narrative from the start-up phase may have to transition to a zero-sum play and earn narrative based on PVP skills.