The Gaming Token Economy 2.0: From Single-Utility Tokens to Multi-Asset Models
Introduction
When blockchain games first emerged, they offered players a new kind of financial freedom to play the games for fun and earn something along the way. That promise disappeared very quickly. Early token economies implemented one-off, inflationary tokens that inundated the market until the in-game item was no longer worth anything, and then players lost trust and that game went from being attractive to being like a ghost town on the way to abandoning all interest.
The next generation of gaming tokens is not about driving hype; it is about making the economy smart. When the economy becomes smarter, the developer can create a more robust and sustainable economy by transitioning away from a single token opportunity to now creating a multi-asset economy and resource sinks included as part of the whole system. Moving away from speculative play-to-earn loops and closer to stable, player focused ecosystems that compensate players based upon engagement and creativity and progress rather than on speculation.
Problems with Inflationary Tokens
Most early GameFi economies operated on the same fundamentally bad conceptual basis: reward everyone, forever, in the hope that new players would continue to sustain the system. But in reality, all of these models behaved more like Ponzi loops that couldn't eventually maintain balance. With increased inflation of tokens, without sinks to mitigate the supply, the price fell off a cliff.
An excellent example of this was Axie Infinity's SLP token. Initially a utility token for breeding and rewards within the game, token inflation made it worthless very, very quickly. Something that players were making money on every day dropped to pennies. The mental expense was just as damaging as the loss of money: when your effort no longer pays off, the desire to continue goes away.
It is difficult to find enjoyment in games when inflation exists. Games are based on a feeling of progression: every completed mission is progress. The token inflation removes any sense of progress, and suddenly the game doesn't make sense. Players become fatigued from a game instead of engaged. They don't see community, they see extraction.
Stability vs. Speculation
GameFi used to see its growth on speculation. Players weren't onboard to play games; they were onboarded to make money. Leaderboards became token charts, Discords were replaced with trading rooms, and speculation created a blip in the attention of players transitioned into game worlds that resembled short-term investments based on community-generated value.
Today's stability is returning. Tokens have intrinsic utility, not just value to redeploy into the ecosystem, but intrinsic to the experience, whether through crafting, upgrades, or to participate in events. Players don't simply put money back into the ecosystem as a discount to it, they do it because it provides recurrence in the experience.
Stable token economies foster:
- Economic clarity players understand how they make and spend money in an easy to understand economic model.
- Long-term emotional engagement as players derive value over time, they stay committed to the game longer emotionally, and continue to support it (without necessarily having to cash out).
- Community retention players do not cash out as quickly, thus a relationship develops.
Stability transports the game away from the blip of a hype cycle into a real economic model.
Models with More Than One Asset
Tokens serve different functions in multi-asset token economies. This allows those in the economy to not rely on one token to serve the entire economic purpose. Governance tokens allow for voting or staking while a secondary in-game currency covers payments for crafting, trade, or maintenance in-game, and a third soft currency is used to reward players for completing game assignments and can be transformed through the mechanics of the economy into the secondary currency without having to engage it in another secondary market.
This also allows the in-game economy to function in a way similar to real-life economies that have multiple currencies that have different functions and different levels of liquidity. Using gameplay and governance to segregate, developers can change aspects of an economy without destabilizing the entire ecosystem. Multi-asset systems also allow for even greater fine-tuning of balance through inflation, selective or illusive prize items, and item price adjustments in general.
Multi-asset economies ultimately allow for transformation of tokenomics from reactive patchwork to intentional design, where every token has its purpose in maintaining balance of the variables involved over time.
Resource Sinks
No good token system could work without good sinks. Good sinks, which take tokens out of circulation, provide the basis for any sustainable economy; they slow infinite inflation since every action has a cost to it.
But a good sink doesn't feel like a sink; it feels like growth. Players are not spending their money when they spend it on gear upgrades, avatar customizations, or community goals. They're investing money into something.
Imagine a "Guild Treasury," where players spend tokens to unlock guild-wide benefits, sponsor multiple events happening in the world, or support maintenance on a shared asset like fortifications or land plots. These shared sinks encourage people to engage with the community and return to the game naturally.
There are three rules that good sink design must follow:
- Spending does not feel bad.
- The sink is larger as more people play.
- The sink is very difficult to exploit by farming or alt accounts.
Cosmetic and social sinks also work quite well. Every time players spend tokens to show status, art, or personality, they invest emotional importance into the game that no graph can measure.
Case Studies
The Axie Infinity collapse serves as the most classic cautionary tale. Axie's single-token loop led to unsupportable inflation, which proved the industry did learn one important lesson: speculative demand can never supplant sound economics.
Pixels, conversely, has been more disciplined. Pixels bifurcates their tokens not only for governance purposes, but for prizes in the game. The architecture has enabled developers to tackle supply and demand concerns without impacting player experience and the use of in-game resources planting crops, crafting items and trading all act as natural sinks. Players are using tokens to upgrade their environment, ultimately leading to a balance of tokens in and out.
The next step would be including any type of dynamic sinks that would change token-based use depending on the action taken by players or the calendar year costs decline when consumption increases, which typically occurs as engagement declines. A flexible economy of this nature, could alleviate the value based penalties while keeping player experience fresh and engaged.
Principles of Design
Building a healthy token economy in games requires insight into others and foresight. For that reason, economic mechanics must align with the will of the people rather than anything mathematical.
The concepts here are simple but can shift everything.
First: Value needs to exceed hype cycles.
- Remove tokens to enhance the experience, rotting them should be desirable not distracting.
- Make players feel like they are owning the game and not forced to play.
- All parameters are published so developers can see how this system is designed to operate.
- Engage DAOs or player councils and make updates, avoid making too many changes.
When members feel and believe that the system is fair and self-sustaining, they quit guessing and start believing. It is a shift in that feeling that drives economies to function.
Conclusion
It's not about generating new tokens for gaming economies, but about giving purpose to those that exist. The early GameFi model, with only one use case and full of inflation, has proven to be both weak and tiring. A next-generation model fills this gap, one that is based on multiple assets, equitable rewards, and sinks that dean adds pleasure to spending money.
A good economy doesn't need hype. Respective of players, it rewards skill and encourages innovation and participation to transform the game from a grind to a journey. Any new type of Gaming Token Economy, in which stability is not the opposite of excitement, will be what allows players to trust one another. The next wave of great blockchain games will be those that do not see players as investment partners, but as participants in the construction of a better world.
This article is contributed by an external writer: Jocelyn Hamoy.
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