Diving into GameFi economics, how does "Fi" manifest itself in top traditional games?

Author: YBB Capital Researcher Zeke

Introduction

Since the decline of GameFi in the P2E (Play to Earn) model, there have been numerous disagreements regarding the design of GameFi. Among them, the two most mainstream design directions are: triple-A chain games with playability as the entry point, or On Chain Games with fairness and the spirit of Autonomous World as the entry point. With the recent outbreak of the two ecosystems, the chain game sector has finally survived the long winter and ushered in the long-lost spring. As one of the hottest sectors at the moment, the discussion around the different carriers of GameFi (from game genres to on-chain and off-chain) is one of the main topics in the industry, but this article will not discuss the superiority or inferiority between the two carriers, but how the core of GameFi, "Fi" (economic system), is presented in top traditional games, and where should the two new carriers go?

Definition of GameFi

The early definition of GameFi usually refers to blockchain games that provide players with financial incentives to play and earn. Players can often earn cryptocurrency and NFT rewards by completing missions, playing against other players, and leveling ups, and in-game items are also exclusive to players.

Since the rise of Axie Infinity, the concept of GameFi and P2E has quickly gained popularity, and breeding games of the same genre (Farmer World, STEPN, etc.) have sprung up. However, due to its failed dual-token (governance token and output token) economic model + NFT (pets, farm tools, running shoes and other props that can continuously produce tokens), once no one takes over, the output of the entire game will far exceed the demand side, and quickly fall into a death spiral.

The lifespan of such games was usually as short as a few weeks or as long as a few months, and at the time, the word GameFi was almost synonymous with Pon's. Later, the mainstream direction is first to improve the 3A-level production and playability, hoping to attract Web2 players to join through high-quality game quality and realize the paid game economy.

Although the history of full-chain games can be traced back to Huntercoin 10 years ago, the experience of full-chain games has been relatively poor due to the lack of technology in the early days, so it has always been an extremely niche genre. Now, with the continuous development and improvement of infrastructure such as Rollup and full-chain game engines (MUD, DOJO), the feasibility of this concept has gradually matured, and it has begun to come out of the circle because it is sought after by some core people in the industry, but the current full-chain game is still in its early stages, and there are many design problems.

The definition of GameFi has also begun to change to Web3 games (full-chain games) and Web2.5 games (currently mainly triple-A chain games, of course, most of the chain games in the past also belong to this category), the main difference between them is the degree and method of use of blockchain technology, and the specific definitions of the two are as follows.

Full Chain Game

(Definitions are based on the ideas in Autonomous Worlds, more details can be found in our Analysis of the Core of Fully On-Chain Games: MUD Engine and World Engine):

• Data from blockchain: Blockchain is not just a secondary storage of data, nor is it just a "mirror" of data stored in a proprietary server. All meaningful data is accessible on the blockchain, not just data such as asset ownership. In this way, games can take full advantage of the benefits of programmable blockchains – transparent data storage, permissionless interoperability;
• Logic and rules are implemented through smart contracts: for example, battles in games, not just ownership, are carried out on-chain;
• The development of the game follows the principles of open ecology: both the game contract and the accessible game client are open source. Third-party developers can fully redeploy, customize, or even fork their gaming experience through plugins, third-party clients, and interoperable smart contracts. This, in turn, enables game developers to harness the creative output of the (incentivized consistent) community as a whole;
• The game is permanently stored on-chain: This is closely related to the above three points, because the litmus test for testing whether a game is a crypto-native game is: if the client provided by the core developer disappears tomorrow, will the game still be playable? The answer is often yes, if (and only if) the game data storage is permissionless, if the game logic can be executed without permission, if the community can interact with the core smart contract without relying on the interface provided by the core team;
• Games are interoperable with what we consider valuable: Blockchain provides a native API for the concept of value itself, and digital assets are interoperable by default with other assets we care about. This both reflects the depth and meaning of the game, and helps to elevate the depth and meaning of the game, and connects the game world to the "real" world;
• Supported game types: Since it is a fully chained game, full-chain games are only suitable for game types that do not require a low-latency environment, such as: turn-based RPG, puzzle-solving ACT, simulation, adventure, card, management, sandbox, and betting;

Triple-A Chain Game:

• Combining traditional gaming and blockchain technology: Web 2.5 gaming is a transitional form between traditional gaming (Web 2.0) and fully blockchain-based gaming (Web 3.0). They often combine the features of traditional games with certain blockchain elements;
• Partial decentralization: These games may include decentralized elements, such as the use of blockchain to manage game assets or player transactions, but other parts of the game, such as game logic and operating environment, are generally centralized;
• Higher performance and usability: Web 2.5 games may offer better performance and wider usability than full-chain games because they do not rely entirely on the underlying architecture of the blockchain;
• Balancing the traditional gaming experience with the benefits of blockchain: Web 2.5 games try to find a balance between the user experience of traditional games and the new features that blockchain brings, such as asset ownership and transparency;
• Triple-A Rating: A triple-A game in the traditional sense refers to a game with a high budget, high-quality graphics, a deep storyline, and a well-crafted game. These games are usually developed by large gaming companies and offer a top-notch gaming experience. The so-called triple-A chain games are Web 2.5 games that meet this standard;
• Game type: Since it is an asset on-chain model, all game types are theoretically supported, and the most mainstream game type is MMORPG (Massively Multiplayer Online Role-Playing Game) games, which are also the main types we will discuss below.

Token Model Overview

In addition to the above-mentioned dual-token model, there is actually a single-token model (which is also the most widely used model at present), and we will give a brief overview of the two models.

Single-coin model: This model has only one token, and the economic cycle relies entirely on this single token. For example, Crypto Zoon, Playvalkyr, Hashland, and Big Time all use a single-coin model, which is essentially similar to traditional online gold mining games, but with the introduction of a single token, four different models are derived.

There are four modes of the single-currency model:

• Mode A (Gold Standard in + Coin Standard Out): Buy NFTs with USDT, BNB, ETH, etc., and get tokens (TokenA) through the game. The entry threshold is fixed, and the income fluctuates with the currency price;
• Model B (gold standard in + gold standard out): the entry threshold is fixed, and the income is fixed for Nissan. This model maintains a stable payback cycle when the currency price rises, and the daily gold standard income obtained by players remains unchanged when the currency price falls;
• C mode (currency-based in + currency-based out): The entry threshold and income fluctuate with the currency price. This model greatly increases the income of old players when the price of the currency rises;
• D mode (coin standard in + gold standard out): This mode is currently almost not used by projects, and it is not friendly to project parties and players.

Dual-token model: It is divided into a parent coin and a sub-coin, with the parent coin usually serving as the game governance token and the sub-coin as the in-game economic token. The representative of this model is naturally Axie above, which introduced a sub-coin SLP to take over the selling pressure of the original single-token AXS. Most of the output in the game is based on the output of the child coin, supplemented by the mother coin.

Dual-token model: Most of the new dual-currency models adopt a coin-based in, coin-based model, such as BinaryX's parent coin in and sub-coin out, and Starsharks' sub-coin in and sub-coin out. Under this model, the spatial flexibility of model adjustment is strong, and there is no need to achieve the partial centralization adjustment in the gold standard mode. However, the problem of this inner loop model has been briefly described above, and the current chain games basically do not use this model.

Economics in the Game

Gaming and the economy may seem like two very different fields, but in reality there is a strong connection between the two. Economics is the study of choices under conditions of scarcity, and one of the ways to explore the motivation of games is economics. When the game is a virtual economic system, players need to maximize their own utility through microeconomic behavior, while the game itself needs macroeconomic theories to establish a stable economic system and maximize lifetime value.

Economics was originally based on the most primitive rules of trading, and it can be said that economics originated from trading. In the same way, for the game, although it is a completely virtual world, as long as the trading market is opened and players (or between players and NPCs) are allowed to buy and sell freely, it will inevitably form an economic ecology.

In the past P2E era, there were fewer in-game elements, and its economic ecology was naturally more simple and fragile (in fact, it basically only provided the basic elements needed for mining and selling), but now with the maturity of triple-A chain games, the elements and composition of the game have become complex, and the resilience and plasticity of its economic system will be greatly improved, especially for the existing mainstream MMORPG chain games. While there is a mainstream objection that blockchain games are not playable enough at this stage to create an economic system like traditional games, I personally believe that these two points are equally important and mutually reinforcing.

Because even a highly playable game will still die due to economic collapse (Marvel MU, Legend of Blood, Diablo 3, etc.), but an early general game can continue to iterate with an excellent economic ecology, making the game a healthy "developing country", and then slowly improving the playability.

Therefore, how to build a reasonable economic ecology is still the key issue that most chain games must think about, the so-called token model is only the most basic framework in the economic model, and the macro design of game elements is the next step that needs to be improved. From the perspective of economics, there is no difference between players playing games in the game world and human beings carrying out social activities in the real world, which are essentially the economic representations and economic laws of the real world reflected in the virtual world. In the game world, when the player enters the virtual world as a game character, there will be a variety of microeconomic behaviors: choice, cooperation, games, etc. Because players need to behave around the allocation of scarce resources in the game in order to get the most utility.

On the other hand, this artificially constructed game world is also full of macroeconomic principles: resource scarcity, commodity demand supply, monetary system, and so on. Because the game itself needs to guide its policy formulation and implementation through macroeconomic phenomena and laws, and maintain a healthy economic ecology to maximize the lifetime value of the game. If the 3A-level MMO chain game wants to find a goal to learn the economic structure in the traditional game, then the Fantasy Journey to the West, which has survived stably for nearly 20 years, is definitely the most classic case.

Fantasy Journey to the West

Fantasy Journey to the West is an online game developed and operated by NetEase Inc. (released on December 18, 2003). This game is set in the classic chapter back novel "Journey to the West", and uses the character design of the Q version to create a romantic game atmosphere. The game has more than 250 million registered users and more than 400 sets of paid servers. The characters in the game are divided into three races: immortals, humans and demons, each race contains 6 character shapes, and there are 6 different sects to choose from, a total of 19 sects. Players can level up and earn rewards by completing various quests, such as challenging the 28 Nakshatras of the Heavenly Palace to win gems and other prizes, or completing Master Quests to earn double experience and monetary rewards. From the perspective of economic system design, first of all, Fantasy Journey to the West is similar to Type B in the single-token model above, and the overall core mechanism can be divided into three points: reservoir, value anchor, and reserve mechanism.

Reservoir:

Developers' macroeconomic regulation and control are mainly focused on the two major links of delivery and recycling, but because the main participants of the economic system are players, they exist as producers and consumers at the same time, so the internal operation of the economic system cannot be adjusted from these two links, so the fluctuations of the supply side and the demand side within the system bring a relative surplus.

Relative excess refers to the relative oversupply or relative overdemand caused by the imbalance between supply and demand in the short term, and the main external manifestation is the change in prices. In an MMORPG development game like Fantasy Journey to the West, the demand for game currency and props corresponding to all cultivation items is relatively fixed, and there will be no "consumption substitutes" to deal with the problem of overdemand, and the problem of ineffective circulation of intermediate products caused by oversupply is easy to bring negative experience to players, which is also a problem often encountered in chain games.

In the case of the in-game high-level weapon identification market, the production chain of high-level weapons consumes a lot of game time, low-level equipment, and various materials, resulting in a high price for each weapon.

At the same time, due to the existence of random attributes and the recycling system with a high discount ratio, if "garbage" is identified, it will be lost. As a result, the consumers in this market are mainly whale users (commonly known as bosses). Due to the characteristics of long production chain and high product value, the relative surplus of this market is also born. There is an obvious contradiction between the continuous output of the "laborer" and the temporary, large demand of the boss, and if the redistribution link is not increased, it will lead to the dilemma that either the player's output has nowhere to go, or the boss's demand cannot be met.

To sum up, in order to cope with such a situation, the game needs a "reservoir" to carry these temporary excess. Interestingly, the two major "cisterns" in the game come from the development team's system design and the natural evolution of the economic system itself, i.e., the reservoir of in-game currency is a special bank, and the reservoir of props is a merchant. The special bank system is easy to understand, that is, it is used to absorb and store when the supply of game currency is excessive, and it is supplied and exchanged when the market needs the supply of game currency, and at the same time, this system can also play a stabilizing role in the economic system by limiting the total amount of game currency that can be exchanged within a specific time frame.

Businessmen are also a type of player that is bound to exist in games that adopt the "free-market economic model", and it can be said that it is a profession that will inevitably arise when it is profitable. In the economic system of Fantasy Journey to the West, all the profits of the merchants are essentially grabbed from the development team, and the reason why they are allowed to obtain these profits is that they assume the function of prop "reservoir" and resource redistribution, and become an indispensable part of the operation of the economic system.

Theoretically, merchants who take on more inventory are also allowed to have higher gross margins due to their rising inventory costs. When we find some categories of businessmen who seem to be very profitable, we must consider their inventory costs for a comprehensive analysis, and it can often be seen that their "excess profits" are still within a reasonable range.

Value Anchors:

The second big loophole is the risk of monopoly caused by the limited output of the short-term system, that is, the cost and difficulty of monopolizing a certain module in the game are low, and a large number of monopolistic behaviors will lead to a very unhealthy economic ecology, which will affect the game experience and game revenue.

The solution is also very simple, that is, to provide an official value anchor. Since the value of the in-game item is actually equivalent to the average number of points consumed to produce the item, it can be seen that even though the situation of different servers is different, the pricing fluctuation range of most items is relatively consistent.

In other words, if there is an official store that sells items at the average expected price, as long as the frequency and total amount of output are controlled, it can increase income and stabilize the economic system by preventing monopolies. Such an attempt was made at the time of the birth of Fantasy Journey to the West, and the simplest example is 100/piece of buns, 3000 pieces/40 physical strength of the bookstore, 500 pieces of flying charms, etc., through which most of the resources including physical strength/vitality have official pricing to follow, so as to avoid the risk of business monopoly.

The final form of the anchor point may be the Fantasy Westward Journey Pocket Edition, in which you can obtain most of the intermediate products of the production process by consuming point cards, and we can also see that these goods have a very stable official pricing, such a system has become an important cornerstone of the economic and ecological stability of the Fantasy Westward Journey.

Reserve Mechanism:

Fantasy Journey to the West is still a development game in the end, and when the surplus value of all labor can enter the market circulation, it violates the essence of the game, and at the same time, it will also bring the risk of being taken away by the studio. As a result, the reserve mechanism came into being, precipitating part of the player's labor value into the cultivation of character attributes, and when the player's game output is converted into reserves, the developer's income can be regarded as safe.

At the same time, even though a part of the game's revenue comes from transaction taxes, it still controls the circulation frequency in general, and various types of time locks and high-value item transaction restrictions are not only to protect the player's property, but also to control the circulation frequency. The merits of the Three Realms are a synthesis system under this idea, which has created a good foundation for the prosperity of Fantasy Journey to the West in recent years.

There are a lot of "professional/semi-professional players" in Fantasy Journey to the West, and they can earn some income through the game, which has also become the main motivation for their games. As a developer, it is difficult to distinguish which are acceptable normal players and which are large-scale cancer studios in the first place, and it is even more undesirable to block all exits to get cash across the board, so there is the Three Realms merit system.

The design idea of this system is to intervene a new kind of resource in the flow of resources during the player's game, and to encourage normal players to play normally in their daily lives by controlling the way this new resource is generated and consumed, while limiting the studio's abnormal game behavior. To put it simply, in the player's chain of "buying point cards - playing games - producing items - exchanging cash", the behavior close to the right will consume the merits of the Three Realms, and the actions close to the left will obtain the merits of the Three Realms, and at the same time, a small amount of the merits of the Three Realms (such as reserve funds to catch ghosts and divisions) will be placed on the daily gameplay of normal players who are encouraged, of course, such deliveries are also limited every day.

Summary:

Although the economic system is not the whole story of a game, the fantasy combined with the content in the game has designed a near-perfect answer. How to cleverly design the mechanism to maintain the vitality of the account, ensure the order of transactions, and regulate the balance between supply and demand, so that every participating character in the game world (including the project party itself) can take what they need is worth learning. So after talking about the representatives of traditional games, let's take a look at the current status of chain games.

3A Chain Game

Judging from the existing triple-A chain games, Big Time is actually a game that is constantly improving and moving closer to a sustainable economic ecosystem, although everything seems rough in the early versions of the game. But in response to the above sentence: "Even a highly playable chain game will still die due to economic collapse, but a game with average playability can continue to iterate with an excellent economic ecology." "Big Time has revitalized the entire economic model through strict centralized regulation, although there is no sink of skin economics yet, but the current profit method of the game is actually very similar to traditional games, Big Time's current income method has three points: transaction fees, almost every month there are blind boxes for sale, and the sale of consumable props (crystals). Coupled with the adjustment of various data, the output token can keep the inflation increase low, and achieve a delicate balance between the project side and the gold player. In the case of ensuring the revenue of the game, the project party can naturally continue to optimize and adjust and add new content to improve the playability, and introduce more players with different roles, perhaps this way of similar to traditional online games will be the right way out for Web2.5 games.

Full Chain Game

In past articles, we have discussed the significance of the development of full-chain gaming technology for blockchain from a technical perspective. In fact, there are basically no tokens or in-game output tokens for the current full-chain games, and there are two main reasons for this, one is that the full-chain games are still in the early stage of development, and they have not even determined what type of games they are suitable for. Second, due to the nature of the full-chain game on the chain, it is difficult for centralization to intervene in the regulation, and once there is a loophole in the economic model, the entire game will collapse instantly and irretrievably.

In fact, although I don't have a very sure answer, I personally think that full-chain games can try NFT-led economics. For example, the ANOME protocol uses the gold standard staking to mint NFT issuance model, and decouples Game and DeFi in the form of Stake to Mint NFT, so that the project party can obtain funds to generate continuous income through DeFi, and players can get NFT for free to receive dividends, which may become a new economic model.

Conclusion

In fact, the author himself is a deep console gamer, and has always believed that the best way out for chain games is to empower games with chain games or light applications like Friend Tech. When I first heard the concept of the so-called triple-A chain game, my instinctive reaction was quite resistant. Because gamers who are familiar with triple-A games should understand that the production cost (600 million-4.2 billion) and cycle (about 3-5 years) of top triple-A games and their exaggerations are projects that can bring a leading game company to the brink of bankruptcy if it fails once.

Doing this kind of project in a bottom-up industry sounded like a fantasy to me at the time. However, the tenacity of Big Time and Illuvium under the bear market to the recent headwind reversal made me start to reflect on this model, maybe triple-A chain games can find some balance through the economic model to achieve long-term survival, and finally iterate some games that can open the door to Web2. At this stage, full-chain games are also as questionable as the past triple-A chain games. But as the famous saying goes, "Those who never win rarely fail, and those who never climb rarely fall", and it is the norm for a new paradigm to emerge with doubts and failures.

Source: TechFlow