The economies of web3 games are very different from web2. Web3 games run economies, i.e. people play these games to earn money, in turn, creating an economic ecosystem. Along with the many opportunities that blockchain games introduced, a range of challenges also inevitably arose for game designers, and the most critical one is the control and governance of their economies.
Web2 VS Web3 Game Economy
In traditional Web2 gaming, economies are self-contained and easily controlled. Game designers can assign a set of rules, limits, and prices within each game, and all economic activity is conducted in in-game stores and marketplaces. However, there are also gray markets outside the game, this is where players can trade rare items to earn real money. But this is a gray area where the designer’s don’t really have any control or real responsibility, so buyers and sellers are doing business at their own risk.
Within Web2 games, designers can easily make changes and updates as needed, and tweak the game’s parameters without the fear of crashing the game economy. But how? By having centralized power and the necessary tools, designers can control both supply and demand, and manage the economy effectively. The only stakes are how much money the game makes if real money is involved, or how enjoyable and balanced the game is when it’s just in-game currency – these factors are all manageable and can be addressed efficiently when there’s a central governance.
The difference with Web3 is that central control or governance simply doesn’t exist – the power is in the hands of the game’s community.
Think about it like this, decentralized Web3 economies run on principles that are similar to the real-life economy. People who are designing web3 game economies, or game designers have to deal with real market problems, such as supply, demand, inflation rates, world disasters, changing currency and price stability to name just a few. When all of this has to be considered to grow a game economy, it makes it increasingly challenging to believe in the future of the web3 economy.
Web3 game economies almost need to act as the Federal reserve – they need to be a safe, yet flexible place to provide financial stability both for its users and those behind the scenes. And while governance in this sense is still a way off, game designers need to change how they look at their game economies and instead, treat them as real economies at scale.
The Economy Opportunity
Axie Infinity – an Ethereum-based NFT game that gives players partial ownership and control over the game’s assets – has a market cap of over $1 billion. Alien Worlds – an NFT metaverse game on Ethereum, WAX, and BNB Smart Chain – has a market cap in the amount of $42.13 million, and Sandbox – a Metaverse built on the Ethereum blockchain, where players can build, own, and monetize their gaming experience – has a market cap over $1 billion.
These multimillion-dollar game economies already demonstrate that Web3 gaming is a huge monetization opportunity, and will continue to grow and attract more users in the future. In my previous article, I described how gaming communities will push these processes and boundaries. But in order to build or grow a healthy economy – and deal with the challenges that come with that – certain fundamental strategies should be adopted.
Building a Healthy Web3 Economy
Among the most common strategies for building economies for web3 games is to bring in new players via marketing tactics, or grant staking rewards to the community. For example, Axie Infiniti used successful (albeit short-lived) marketing strategies to grow the platform’s gaming economy, which unfortunately experienced a severe crash at the start of 2022. The problem with this was that this wasn’t a sustainable strategy, nor is the rewarding system. The first strategy can be compared to a Ponzi scheme: early players are promised benefits from game designers when new players join the platform. The second one is a more common practice – the players stake their currencies into smart contracts, and the token generates a passive income for them. However, it’s also not particularly effective.
So what can designers do to encourage and build gaming economies?
Well, web3 game economies are very similar to real-world economies where taxes and production (GDP) are extremely important. Designers should approach the management of their game economy with the same tools and mindset as governments approach the regulation of the real economy.
As mentioned above, the methods that web3 games designers currently use to maintain the health of their economy are not sustainable. However, production (producing items inside the game that players can exchange and use within it) and player taxes, can effectively help to regulate web3 game economy and maintain its overall health.
Photo by charlesdeluvio on Unsplash
Taxes and Production
Production is a key enabler for growing an economy. GDP (Growth Domestic Product) is incredibly important for economists as it’s a clear indicator to how an economy is doing, i.e. growth rate, performance and size. It also highlights what is driving or hindering an economy, which is an essential component in this instance. In the web3 world, users who participate in a game economy should be able to play a role in the game’s production. One way to do this is to create production on-chain: for example, designers can use on-chain games in addition to their main game. Those games can be anything from staking NFT characters for in-universe exploration to ‘Choose Your Own Adventure’ and ‘Autobattler’ mini-games.
Another strategy that can also lead to smooth economic growth is taxes – they give a currency its value, which in turn creates a demand for that currency. For each economy to run well, this circle is crucial. And I don’t mean per-transaction taxes, for instance, they can be fees to participate in the economy and get benefits. Participation is optional, players can choose to enter on-chain minigames and other activities and pay in the game’s native currency to get rewarded for their participation at the end.
In the Web3 game economy, players can produce in two ways: economy and lore. Players can contribute to the game’s lore through on-chain mechanics – they can play a part in how the game effectively plays out, what actions a user can or cannot perform and the overall storyline and history of the game. In terms of economy, players can create, sell and buy assets or NFTs, stake tokens, and more.
Taxes and participation in production can significantly impact the economic growth of each game. Entirely on-chain side games can help create economic incentives for players while creating taxes for participation in those games can create token demand and combat inflation.
But, as it’s customary for me to remind you, no matter what, if you want players to actively contribute to a game’s economy – it should always be fun. Entertainment value is still crucial to the web3 gaming economy, and shouldn’t be left behind or traded off in favor of economic health, else new problems emerge, such as poor user experience and unsatisfied gamers. Don’t forget, non-web3 game designers only optimize for entertainment. However, of course it should not be the sole focus – web3 game designers need to strike the balance between entertainment value and economic health to truly drive and deliver community-based economies.