The Dilemma of Encrypted Games and the Road to Breakthrough

For the past year, I have been immersed in the world of crypto games. This is where I am most interested in the field and where I feel most qualified to speak.

Fortunately, I have seen crypto games from more angles than most people. I'm a big fan of games like Runescape, World of Warcraft, Diablo 3, and DOT A 2, all of which showcased early experiments in what we now call crypto gaming. These experiments include the gray market for in-game currency in World of Warcraft, "NFTs" for rare items in Runescape and DOTA 2, and a brief attempt at a real-money auction house in Diablo 3.

I've experimented fairly extensively with past, present, and upcoming crypto games, spending at least $100,000 on imaginary lands, sneakers, characters, and tokens. Over the past few months, I've started writing more crypto game-related analysis on this site.

I also helped build a crypto game economy. I am an advisor to Crypto Raiders and I assist with game economics and token economics. By building a crypto game economy myself, and seeing it work online, I've tested a few different theories. Over the course of the last few months, I've also been exposed to these ideas more in practice through economic collaborations with other games.

The crypto game is brand new and almost no one has more than a year or two of experience in it. So while I'm still very new to all of this, I still feel qualified to present some of the problems I'm seeing in the field right now, and some of the ways we might improve them.

I am very bullish on crypto games. It's something I've wanted for over a decade, even though I didn't learn its name until recently. I believe gaming will eventually grow into a trillion dollar industry in cryptocurrency. So while this article is currently critical of the field, don't take that to mean I don't believe in the industry. Quite the contrary, I deeply believe in its potential and want to help make it the best it can be.

Therefore, this article is not a definitive statement on all games. It's more of a list of problems, and possible solutions or experiments. I share my views on crypto games as much as possible within the limited content, and hope that more crypto game teams can actually practice some of the ideas in this article, iterate on them, and hopefully make this field stronger .

Without further ado, let's analyze it in depth. If you have any thoughts after reading this post, I'd love to hear your feedback on Twitter.

Problems in the current crypto game

There are some common problems in crypto games right now, which I will analyze in no particular order:

- NFTs set a bad precedent for gaming

- DeFi sets a bad precedent for gaming

- Earnings in most crypto games are not sustainable

- The cost of playing the game is too high for the lifetime of the game

- a lot of content is bullshit

- People with money (capital) are much more powerful than people with leisure (time)

- "Play to Earn (P2E)" sets false expectations for players

NFTs set a bad precedent for gaming

The NFT wave kicked off in early 2021. It started with art, then moved to profile pictures, and started creeping into games.

What I need to emphasize here is that the popularity of NFT started from artworks and collectibles with rarity and fixed supply. The strategy for investing in these collectibles is really to simply buy and hold them. If you pick the right ones, the price of the NFTs in your hand will go up, making you money once you sell them to the next buyer.

This standard of NFT investing sets a bad precedent for gaming. Creating NFT characters in the game that players can speculate on will move the game in the same direction, which is to wait for the price of NFT to increase. At the same time, the idea that you can buy a basic account of a game, hold on to it and expect it to become more valuable is absurd.

Nevertheless, in the NFT game, people pay great attention to the "floor price", that is, the cheapest purchase price of NFT. A game whose floor price keeps falling is seen as dying, even if it means that the barrier to entry for new players is getting lower and lower.

It is very difficult to build an economically sound game with a happy community when crypto games start with 10,000 NFTs worth thousands of dollars. You need to lower the price of the NFT significantly so that a larger number of players can enter the game. And if the game starts with high-value assets, it will attract more speculators than players, which is very different from the people the game party hopes to appear in the early game community.

DeFi sets a bad precedent for gaming

The first wave of crypto games was essentially a combination of NFT and DeFi. These games take the Ponzi scheme that exists in DeFi (buy in-game tokens, trade them for more tokens, sell the tokens you earn, and hope you get a return on your investment before everything crashes!), just adding additional steps. The breeding cycle that exists in many NFT games is essentially the same as DeFi mining, except that the way in the game is to attach colorful characters to it.

Additionally, DeFi yield and staking set players’ expectations of what tokens should do. People expect that they can buy a game token and get passive income from it without playing the game. Therefore, introducing this passive gain ends up destroying the in-game economy.

Crypto games need to move away from the expectations of NFT and DeFi. Copying these paradigms helped a new game get off the ground in ways that are now hurting it in very obvious ways.

Earnings in most crypto games are not sustainable

If all nascent resources in a game increase the income of game players, the game's economy must eventually collapse. You can't keep increasing everyone's earning potential without massively inflating the reward currency, which would eventually cause the value of the reward currency to collapse.

An easy way to test this question is to ask what the main tokens are and what impact they have on the economy when they are used. The game is not sustainable if all major nascent resources increase people's earning power. The game may have a sustainable economy if major nascent resources don't increase revenue. It is necessary, but not sufficient.

This is my main criticism of STEPN. While the game is fun and has a better economic design than most games out there right now, most of the new resources in the game right now increase the player's earnings, so unless they can alleviate that, it's going to have to end up in some way Way to crash.

The game cost is too high for the game life cycle

How long does a good game last? two years? five years? Very few games last more than 10 years. Therefore, we must take into account the short lifespan of most games when assessing the value of game assets.

There are currently basically three ways to judge the value of an item:

- Intrinsic non-monetary value (status, happiness, etc.)

- Cash flow (it makes money for you)

- appreciation (guess you can sell it for a higher price)

The Boring Ape Yacht Club (BAYC) metaverse Otherside has 100,000 lands. The current floor price of these lands is 6,000 US dollars, and it will become more and more expensive in the future.

Assuming that the average price of all 100,000 lots in the future is $10,000 per lot, the market value of Otherside is about $1 billion. If we assume very optimistically that the BAYC metaverse will be popular for 10 years, assuming you're not happy to spend $10,000 just to play with no promise of something in return, then you have to ask if you can achieve it at least in your land during that time break even.

The only way you'll get a return is if you can sell your land to someone else for a higher price, or you can generate good cash flow from the land. But selling it to others for more profit is traditional Ponzi economics that we are used to and want to get rid of.

Maybe you can quickly see the problem here. Assuming you want your BAYC land to generate at least 10% annual cash flow, the entire ecosystem needs to pay the landowner $100 million a year. Assuming BAYC can match the popularity of Fortnite, which generates about $5 billion a year in revenue. The question is can BAYC give 2% of its income to landowners?

It's not impossible, but we have to weigh whether BAYC can build a game as popular as Fortnite and then maintain that popularity for a decade.

is it possible? Yes, but that's not the direction I'm willing to bet on. I think we have to admit that most of the value of these assets is that people expect it to appreciate. People hold the asset with the expectation that its value will go up, and when that fantasy is defeated, they get very sad. Yes, it must end eventually, no game lasts forever.

Many "play" jobs are bullshit

In an ideal play-and-earn version, you'll be able to cash in some of the value you've accumulated from playing a fun game. Alternatively, you could get paid for making some meaningful financial contribution to the game, such as designing a popular skin for other players to buy.

The "earning" of most crypto games now is not like this. Most crypto games earn money by doing some form of pointless work, usually a series of button clicks. To be fair, this is a very common situation in games, especially online games: mining copper in Runescape is kind of boring. But if your income comes from logging into the game every few hours, clicking a few buttons, not experiencing the gameplay but just doing basic operations, then you're just creating a weird job.

Some farming cycle and land management games are common examples of this. To be blunt, I'm not saying that's necessarily a bad thing, but if the majority of your game's revenue comes from logging in every few hours and clicking something, you haven't really built a game that's fun and that people make money from. Unless you can complicate land management to the level of SimCity, or compete in some way. I do think it would be interesting to create a Web3 sim game where you could create trade agreements to share resources between different cities.

Those who own capital have instant power

Right now, most of the power in the P&E game is immediately available to those with a lot of capital. They can buy large amounts of resources, run the economic cycle faster, and gain significant control of the market quickly.

This is a blow to real players, who may have more time than capital. The highest earning potential should go to those who put the most time and effort into the game, and the extent to which some players can approach this by deploying large amounts of capital should be limited.

Assuming that those who have a lot of money to invest in the game are doing it to extract revenue, not to play it, they will plan the game accordingly. If the game can be mined, then these people will mine all the value to the greatest extent, and the losers will be those who are actually playing the game.

Play to Earn Sets False Expectations

For a game to continue to grow, players cannot immediately start earning a good ROI on their investment in the game. And the easier the math of how to achieve ROI, the easier it is for the game to be exploited by people with a lot of money.

This is where the term "play and earn" gets quite lovable. The gameplay of most crypto games should not be a meaningless job of pretending, it should have actual gameplay. And the benefits of the game should be difficult to calculate, especially for new players.

Finally, the income of the game should be irregular, and there should be large bonuses in the game instead of a steady income. The less predictable the game's steady revenue is for players, the more you can build your game around the actual gameplay of the game rather than the DeFi loop.

Alright, so that's about most of what I think is wrong with crypto games. Now let's see how we can solve these problems.

How can we fix what's wrong with current crypto games?

As I said in the introduction, I have written this article not as a comprehensive analysis, but as a list of ideas and things that I think crypto games should try. This field is still in a very early stage and we are all experimenting and feeling our way.

- Significantly lower cost of entry

- Form limits on the power of new capital

- Prioritize bonus games over clicks

- Unstake

- Build a fun game first

- Separate external and internal economies as much as possible

- Mask ROI

- Recalibrating expectations for P&E

- Unlimited games

Significantly lower cost of entry

Paying $10,000 to play a game is stupid. Now almost everyone knows that if you don’t have spare cash, don’t touch crypto games. The only reason people are acknowledging crypto games right now is because we're all excited about NFTs and copying those patterns.

But the idea of a game creating an account that costs $10,000 to start a game is ridiculous, and it turns away a huge number of players who might be eager to try out your game, but don't have the means to invest in a decent used car.

This also puts a lot of pressure on the in-game economy, as the game's revenue has to justify this huge start-up cost. If you want to try to break even within 3 months, you need to make $3333 per month from your startup account. So either someone else needs to put $3333 a month into the ecosystem for you to make money from it, or you have to benefit from the Ponzi, which is almost certainly the latter.

It should be free for people to join a crypto game, or cost as much as a regular game (less than $60). I'm partial to a free-to-play mode, and some teams are doing interesting experiments in this direction (eg Genopets and Sunflower Land).

This will drastically reduce the amount of money people can make from the game at first, but that's a good thing, there will be less pressure on you to try and keep the token price high so people can make crazy money from the game. And that means expectations are much lower. They won't be jumping for a $10,000 investment, they can actually enjoy the game.

What do you do if you've launched a game with a hefty $10,000 threshold? We tried to deliberately lower the price of characters in Crypto Raiders, but this didn't get very good feedback. People are biased against NFT, mainly because people are too concerned about the floor price of NFT. So while we're making progress on our goal of lowering the cost of access to the game, many people are very upset that they hold an NFT and then can't be bought by someone else at a high price.

But I support doing something like that. I think if you can turn 1 $10k character over time into 10 $1000 characters, or even 100 $100 characters, then you've dramatically lowered the number of people getting into the game threshold without destroying any value for the original buyer. This may be your best bet.

Some would say that loans and scholarships are a solution here, but I don't like them. The point of crypto games is to own your own game assets, borrow from others or apply for scholarships, which is almost meaningless.

The economies of Runescape and WoW work well with people constantly creating new Level 1 accounts. Access should be free or very cheap, and income should be earned through enough work.

limit the power of capital

Someone with a lot of money shouldn't be able to swoop in and dominate the game or the game economy.

One way this is happening now is through reproduction. A person or guild with a lot of money can buy up many assets, start a breeding business, and have a huge impact on the market without actually playing the game.

Another area we might see is the game item market. If someone can come in and buy the rarest item in the game, they can immediately start winning games or generating the best rewards without putting in a lot of effort.

In terms of breeding and economic cycles, there should be some limit to how quickly someone can deploy capital. STEPN has an interesting hurdle built into the hierarchy of sneakers. Since sneakers have to be level 5 to be minted, and you can only forge one pair of sneakers at a time, and since breeding has a 48 hour cooldown, you'll really only be able to mint them once every 36 hours or so, no matter how much money you have. This is very different from breeding in other games, where you could theoretically buy 100 characters and breed 100 from them. And in STEPN's sneaker collection, there's no way to achieve that kind of multiplier.

Another way you can build control over this is through soul items. The best gear in the game should be picked up in bundles, so it can't be sold. It can be used to win games and generate low-tier sellable gear, but it cannot be sold itself. This ensures that the highest earning and competitive potential is in the hands of those actively playing the game and cannot be bought out by newcomers. Get people to buy max 80-90% gear instead of the best gear.

Finally, you can make certain ROI-increasing activities non-transferable, such as investing in time-limited land upgrades.

One small criticism I have of Crypto Unicorns is that land upgrades are still transferable through sales, and new players can buy them outright. So you can buy a piece of land on OpenSea , put some money down, and instantly compete financially with people who have been playing the game for a month. I don't think this is ideal. There should be some perks to a game you've been playing for a while.

Prioritize Rewarding Games Over CTR

To make the game fun and income-driven, the income should come from activities that are closer to "playing" rather than repeated clicks.

That doesn't mean breeding games are bad, just that they should have a decent layer of strategy and tactics attached to them. The game should have trade-offs, it should be hard for the player to make a spreadsheet and figure out the best way to play. And buying resources to click "reproduction" and selling new NFTs should definitely not be the main profit mechanism.

If breeding is the main monetization mechanism, it means that people are not paying to play the game, they are paying to play the breeding Ponzi scheme. A game is successful when people pay for premium gear, or extra land moves, or cosmetics. These are things that allow them to play the game more, or allow them to flex in the social context of the game.

Limiting the best rewards to PvP, end-game content, challenges, leaderboards, and other more competitive activities will help ensure this.

A metaphor I often refer to is that someone who signs up for a brand new Runescape account cannot expect to make an immediate impact on the big exchanges. Nor should a person who purchased an NFT character or signed up to your game receive an immediate financial reward.

cancel pledge

Staking tends to be implemented in one of two ways, neither of which makes sense.

First, you use the governance token as a pledge to get more governance tokens. This is stupid because you are now rewarding rich DeFi miners instead of real gamers. And, aside from slowing down token sales, which is fine, it doesn't improve the game.

Alternatively, you stake your Governance Token for a revenue share in the game. It's also kind of stupid, because now you have to make the in-game economy even more loss-making, making it impossible for most players to actually earn anything in the game because you're paying rewards to speculators instead of real players. You can take a portion of the fee from the in-game marketplace, but then you're compromising your ability to generate revenue yourself.

I think it makes more sense to treat governance tokens as the most valuable limited resource in the game and use them for the most impactful upgrades to characters or accounts. This allows the role to accumulate value over time, as these upgrades are necessarily limited, and gives the token a reason to exist and be held. Rather than locking up supply by letting people stake it in a staking contract, lock up supply by letting people stake it in a game.

Build a fun game first

It seems like a revolutionary idea, but I think for crypto gaming to work, it first needs to be a really fun game.

If no one wants to play your game, when players aren't making money from it, they'll get off and sell everything the first time something goes wrong in the market. If the game's internal economy cannot function without the influence of external token activity, then the game is in an unstable state to begin with, and it will be difficult to establish later.

This may seem like a silly thing to do, but few people do it. Probably because launching tokens is an incredible way to raise funds, and games are expensive to produce. So you do have some challenges here. How do you wait to incorporate your token into your game until you build a fun game, and how do you build a fun game without using tokens as a fundraising mechanism?

Well, you can of course raise money the normal way. But I also think community members can be more patient than we assume. Illuvium is doing a good job of this right now. They have a token that has been out for a while, and they are now bringing people into the beta phase of their game, but there is no way to make money in the game yet. That is a future matter. They're focused on building a really fun game first, and then introducing money-making elements as it matures.

Separate internal and external economies

It's tempting to try to balance in-game costs around a token's external value, but this becomes a distraction and leads to a frustrating gaming experience for players.

The two economies should operate independently. The game should function the same whether 1 gold coin in the game is worth $0.001 or $1. There will be periods of surges in interest in the game, where people will flock to the game and drive up the token price, and there will be low tides where the token price will drop. During these times, the player's experience playing the game should remain consistent. Otherwise, you'll be constantly changing the economy of the game to chase token prices, which will make the whole thing rather confusing.

An example of this not being done well, at least in my opinion, is STEPN's recent decision to base minting costs on the relative price of its tokens.

This makes one of the game's core loops extremely unpredictable on a day-to-day basis, and makes coin minting an annoying mathematical operation. Maybe that's the point, it makes minting less fun for players and more of it a transactional experience. The main benefit of this approach is that it helps increase the price of their governance token, while potentially making the game more affordable in the short term by driving down the price of GST.

Regardless, people shouldn't be looking at Coingecko just to decide or know what to do in your game.

Mask ROI

Again assuming that any economic cycle that is easy to map will be exploited, we should make the ROI of a game difficult to calculate.

Measuring ROI is important for many games today because of their high startup costs. You don't want to spend $10,000 on a character or a piece of land if you're not sure how to earn that money back. However, if the game has a low startup fee (which I think they should be), then this problem becomes less of a problem.

Still, it's worth pondering here, though, how you can blur the cost-benefit analysis of in-game activities. One way is through rewards with high variability.

Maybe the expected value of running a land in the game is $0.2. But 90% of the time, you only make $0.10, and 10% of the time you make $1.10. This is a very simplified version, but you should be able to get my point across. You can know that a player should have some rough ROI over months or years of play, and they can't be easily calculated in-game due to the variability of outcomes.

This is already a common design standard in games with loot boxes, rare items, and other mechanics, but it's strange that we haven't seen so much in "play and earn", probably because a lot of earning is based on "work ” instead of “games.”

Reframe expectations around P&E

This will be the hardest, but also the most important. As an industry, we need to move expectations from the P&E game being something you can dig a quick profit to a really fun game where you happen to cash in some of your work.

Currently, "DOTA2" is a very good model. You wouldn't think of it as a P&E game, as there's no cryptocurrency involved, and no "job"-like activities that allow you to earn any value. But in-game assets do have value in the game market, so if you get something you don't want from a loot box, you can sell it to someone else.

The vast majority of players end up spending more money than they earn on a game. Actually, I'm not sure anyone is netting money in this market, unless you have some very early very rare items. But it's a great example of how a game can have a market without it ruining the fun.

If a game takes a significant amount of playtime before it makes money, and once it does, it's hard for people to calculate the ROI, and it doesn't affect the game's durability, then you may have a more sustainable game economy.

unlimited games

The last change I want us to make is to create P&E games that don't need to limit the player's ability to enjoy the game.

Energy, recharge, and other time-based limits are a great way to limit inflation in the game. But they do limit how much people can enjoy your game, and if you build a good game, you end up disappointing people who want to play it.

Instead, our goal should be to make a lot of content in the game free to play without restrictions, and only let the activities of capital generation have restrictions. Other games with developed economies in the past had very small restrictions on in-game economic activity. In Runescape or WoW, you can basically mine all the copper you want, and they turn out pretty well. But we can still limit activities that are extremely valuable, like ending game lands or harvesting the rarest resources, which may also tie into the concept of building a fun game in the first place. If the game provides a broad range of fun for the player, and later adds money-making content, then the player will have a lot of things to do that are not tied to making money, and this may finally solve some problems.

write at the end

This post is somewhat of a brain teaser, but I hope it's helpful to any team trying to build a "play and earn" game.

We all have an incredible opportunity to be the first to solve this problem. Build a game on the scale of World of Warcraft or Runescape this generation, but with a real-world economy.

I am very bullish on this area. This is the area of cryptocurrencies that interests me the most. So if you want to share work you're working on or other thoughts on similar topics, be sure to reach out to me on Twitter.

Original title: "Crypto Gaming is Broken. How Do We Fix It?"

Author: Nat Eliason

Original compilation: Captain Hiro