Play to Earn or GameFi has taken the cryptocurrency world by storm this year, combining DeFi and entertainment to create a new genre of gaming allowing people to make money by playing. It’s no secret that in some developing economies some are making a living1 by playing these games. How is it possible that playing a video game provides so much economic value that these mini economies sustain themselves and grow into the hundreds of millions in TVL? Behind it all is a carefully designed token economics system with incentives balancing NFTs which usually represent some sort of in-game property and a utility token that represents a sort of internal currency. Players use these NFTs to earn the utility token, which has a value on the market and can be exchanged with ordinary DeFi infrastructure2 into other currencies. While owning the NFTs of some of the more popular games like Axie Infinity are reserved for whales with high entry points3, new games are popping up every week where anyone can get a small stake in the game economy and start playing to earn. Some games go further than that, implementing passive income schemes like owning digital land4 or other assets. By no means are these games reserved for children, they aim to become the new way we interact with the economy and spend our free time.
When designing any economy, be it P2E or non-blockchain based, it is important to first consider the types of economic agents in the space. These economic agents can be split into 5 personas – players, builders, developers, investors and NFT collectors.
We see these agents in traditional, non-blockchain based games too, although NFT collectors are the first of its kind. There are investors in non-blockchain games which are also a new dimension as the investor model has shifted. Because we see a new addition to the economic agents involved, the economics of P2E can change drastically, depending on the incentives to them.
For all economic agents, we look at them from the perspective of the existing economics design framework: Market Design, Mechanism Design and Token Design. The market design is the economy’s parameters, typically defined by the game developer, and by extension, game designer (aesthetic and economy design). Mechanism design is the rules for economic participation in the game’s world. These determine both the gameplay and rules of how these agents interact with each other. Token design is the value creation when users interact in the game world.
The reason for having these personas is that they help to scope out the right economic policies in each unique game economy. As the underlying game is different, the economic policies can also differ greatly.
Players are the core value creator in the game universe. The way the market can be created will affect the players entering. For instance, a Free to Play vs Pay to Play model. That can greatly affect the number of players, thus the thickness of the market.
The development for the game is also important as players do not just take on a single role. They can also take on the role of builders, and the open vs closed-source development can impact how market thickness is bootstrapped.
Depending on the level of ideal decentralisation, the players can also take on leadership and governance roles. Having such a plan in the roadmap can help in the ideation of the native governance token’s monetary policy.
If decentralisation is the goal, the interactions between agent types will be something to think about when designing the economic policies and token economics. After all, the token model emphasises the policies for these agents.
Understanding the player types help to have a better sense of the player behaviours. For instance, certain promotions might encourage adverse selection of bots and players, as opposed to real players, focusing on game play and value creation. That can definitely affect the effectiveness of increasing market size of the game.
In the context of mechanism design, traditional gameplay is of essence to players. The various incentive loops, pay to win and game scope enhance how fun the game is played, which helps in value creation by the players.
Lastly, in a Play to Earn model that we see in blockchain, tokens play a new and important role in the economy. Considerations like potential earnings in dollars, inflation rates, tradeoffs for late entrants and revenue share are important considerations of the player in any game.
Builders are a specific type of player in the game. Whilst they are not core infrastructure developers, they help to build the world, which then facilitates the game world for players. It is possible for one to be both a player and builder.
When building the game universe, assets and infrastructure, the builder considers the market at large. Such as the demographic reach, the in-game vs off-game activity, white-label vs license model and connectivity to off-game blocks and use-cases. This increases the utility of infrastructure built, which increases the value creation multiplier to the builder.