Open vs Closed Economies in Web3 Games
In this episode of Naavik, host Niko is joined by Kiefer Zang and Vader Research to talk about game economies in Web3.
Read our notes below to learn more
Kiefer’s background
Works on economics design.
Works on game economy design and consulting.
Closed Economy
An economy where one is not allowed to trade items or currency that are within a game economy for any kind of item or currency outside of that particular game.
At one level, there are situations where there’s no player to player trading or no actual peer-to-peer economic interaction.
On another level, there is a player-to-player trade but only for items and currencies that are locked within that particular economy.
It has a low amount of risk fundamentally when a game has a high level of control over their economy.
Open Economy
It is enabled for two-way money transfer both from player to game and game developer to player.
Some or all in-game items, tokens and assets could be tradeable in exchange for real money.
The game developer has the power to print and distribute its own monetary assets to the players which is a very powerful tool and that’s what makes an open economy much more complex.
What makes a game fun is the reward distribution mechanism.
Open Economies offer better developer tools to engage and monetize their users but it’s a double-edged sword.
Thoughts on Diablo auction house
It is an implementation issue and not something fundamentally wrong with trying to go for an open economy.
Balancing the prevention of a bunch of people coming in and inflating the price of game assets vs. players who don’t want to interact with the market.
Games can have an open economy but it doesn’t mean they have to go all or nothing on implementing NFTs in a Web3 context.
Open Economy is going through a route where tradable assets have utility which is a risky strategy vs. just a tradable cosmetic route and this brings in the pay-to-win component and how to do this without undermining the core loop of the game.
Thoughts on implementation
If there’s architectural mistakes early on, there’s either no way of changing those decisions or it’s going to be very painful.
Thoughts on Axie Infinity
In Axie, The outflows are more than the inflows.
The design of SLP was like a ponzi and the growth just made it worse.
The earning model is unsustainable.
It’s not the fault of the token economy, it’s the fault of the design.
Making open economy more sustainable
One component is making sure that you have proper control over the inflation of all assets that you want to have value in your economy.
It’s important to consider where the value is injected into the economy.
Making sure that there is a strong core loop that is not reliant on these financial incentives.
Understanding that different sinks are going to be applicable to different types of players.
Player motivations on spending
Players would spend on experience if they enjoy the game.
A sense of competition.
There is a need to tap on the irrational part of the player’s brain to nudge them to make these investments and spending decisions.
There are players who are just rich in general that derive pleasure and entertainment value from being an owner class in this ecosystem.
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Player personas
The real value out of Web3 is it’s creating this new type of building block that’s enabling the monetization of the time vs. money trade-off.
On the business owner side, it’s more so the point where they are really running a competitive business and they’re trying to add value by having an important role in the economy.
On the complex worker side, people are putting actual time and being paid based on this time vs. money trade-off and it’s acquiring actual skill.
Balancing the game economy
The developers have to model out if they are having net outflows and they need to make assumptions.
A game in the initial months could have some net outflows so the outflows can be more than the inflows and it’s like subsidizing user growth.
Main monetization or business model is important.
There are new player types that specialize in specific areas.
Kiefer on Role of a lead economist
At the early stage, it’s about doing a good job of setting up the fundamental incentives to get people to act in a way they want for each specific asset.
Determining what is the goal for the assets.
Settings the faucets and skins for an asset to make it net inflationary or deflationary and fixed supply vs. variable supply.
On an ongoing basis, it’s very important to focus on a currency type of asset because if price stability fails, people’s sentiments change and it will be problematic for the economy.
Using some tools like reserves, inflation or price ceilings.
For the value accrual or equity type assets, it’s slightly less important but still beneficial.
Don’t combine the medium of exchange and value accrual type of attributes in the same asset.
Vader’s thoughts on attributes of tokens
Value accrual is a very strong utility.
Value accrual sometimes happens among token, equity or NFT but basically reflects that look if this underlying business is going to be successful in the future, the token or NFT attached to the business is going to go up in price.
Medium of exchange feature utility makes sense for real world economies and currencies.
NFTs should have some value utility so that no matter what happens to $BTC or the game tokens, those NFTs should trade on a specific range.
How much does an average gamer care?
It depends on how dire the situation is.
It depends on the game genre.
The complexity of the economy should also be based on the average gamer of a specific genre.
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TODAY’S EDITION IS BROUGHT TO YOU BY LEDGER STAX WALLET
Using a hardware wallet on the go is difficult and cumbersome - until now.
Ledger’s latest innovation, the Ledger Stax, is a credit card-sized hardware wallet complete with touchscreen and Bluetooth capabilities. Did we mention it’s designed by Tony Fadell, the creator of Apple’s original iPod?
Act now, click the link below and preorder the Ledger Stax.