Author: Alex, IOSG Ventures

In my previous article ‘P2E is not sustainable - seeking the next Axie Infinity’, I predicted that gen 1 P2E games will likely collapse in the short term. The prediction has been validated with Axie Infinity’s revenue dropping over 95% from the peak. I believe as an industry, we are slowly entering the ‘build phase’, I’m incredibly long on crypto games in 3-5 years. After talking to more than 200 crypto game founders in the past 6 months, I'd like to share some insights. 

To quickly refresh our memory why we invest in crypto games:

1.We believe interactive entertainment will dominate attention economy in next decade

2.We believe crypto games will lead to prosperous in-game economy and creator economy due to incentive alignment

With such a thesis in mind, we make the following proposals to every P2E founder who shares the similar vision, to avoid some predecessor's pitfall.

• Iteration mechanism with token economy

• Remove NFTs from the core economy loop, design the economy around whatever token the team and investors are holding.

• Decouple play and earn. Make the game free to play, core gameplay loop should not be gatekept by a large upfront investment

• Distribute value granularly based on player’s individual performance and risk tolerance(stake level). 

• Embrace permissive IP, and build a vibrant creator economy around it

‘The Lean Startup’ by Eric Ries is a book that in a way set the internet revolution in motion. The concept of ‘Agile development’ was first introduced by Eric in 2011. Why did internet companies grow so fast in the past decades? Because they abandoned the traditional waterfall model, and started embracing techniques such as MVP and A/B testing. Instead of avoiding mistakes, internet companies welcome them. They dramatically reduced the time to discover a mistake, as a result, they were able to quickly improve their products. When I worked at Tencent, a version every week was considered normal.

When it comes to crypto games, we can safely say that the industry is nascent, the best practice has yet to emerge, and founders are bound to make mistakes in their pursuit of success. One thing crypto that poses challenges on agile methodology is the immutable nature of the token economy. The dilemma is that it is virtually impossible to get the in-game token economy right on the first attempt, yet most games only get one chance. In fact, games such as Axie Infinity and Thetan Arena are already feeling the pain. Take SLP as an example, the token was initially designed to attract initial users as an alternative user acquisition channel. After the P2E narrative took off, the SLP token economy has been proven to be no longer sustainable for a large user base. Yet, Sky Mavis needs to be extremely careful if they were to make changes, as they would be seen as messing with people’s assets.

I believe iterative development is critical, yet as founders we should also take responsibility for people’s assets. How do we resolve this conflict? I propose an alternative approach here.

In traditional games, there are different servers. For MMORPGs, each server is similar to a nation, and they have an independent economy and player dynamics. A lot of Asian games, such as MIR, are forked with many private servers where the publisher and owner of that server is completely outsourced.

As crypto game developers, what if we only issue governance tokens that represent the collective ownership of the game’s IP and management, and let publishers/guilds/whales run their own economy with their own token that complies with the rules of the master DAO? Think of the game as layer 0, publishers/guilds/whales will be the layer 1. For instance, if YGG is bullish on the game, they would be able to spin up a server and manage that server with their own MIRYGG token, the same with MC, Perion or others. The guilds are ultimately responsible for making the rules on what’s the barrier of entrance, how much money can players earn, etc.

There are two main benefits with such architecture: 1.By allowing guilds and publishers to run their own instance, we create a coopetitive dynamic between them, we also allow much faster iteration to find the best token economy. For example, if Perion’s innovative design on revenue sharing gains traction, we would expect new servers adapting to similar design to be spun up quickly by other guilds. 2.This architecture offloads a great amount of liability away from game projects. The game developer’s primary emphasis should be on creating fun and engaging experiences. If the co-founders are sweating day and night over community complaints on who earns what, their attention to game development will likely be spread thin.

-NFT is now a major part of almost every game’s core economy, and my contrarian opinion is that I see great peril with the way NFTs are being integrated nowadays. Our thesis for investing in crypto games is that they align incentive between players and developers. Ironically, in today’s landscape, the incentive is largely misaligned, considering that developers and private investors are holding primarily governance tokens while guilds and players are holding NFTs that is the result of aggressive money printing.

Solution: Games should build their economy around their core governance token. Players should be able to earn such a token just like the founders, and the amount of token rewarded should be correlated to their contribution. (Axie Infinity is moving to this direction by rewarding players AXS rather than SLP) Player’s earnings shall be subjected to vesting period. NFTs could be used more creatively in the game. Vitalik pointed out the inspiration of ‘soul-bound item’. Permadeath and Achievements are also mechanisms worth exploring with NFT design.

-Web3 is all about fair, granular and linear distribution of value that promotes network effect of healthy behavior. However, that’s currently not the case with today’s crypto games. Take Axie(origin) for instance, a user receives zero reward before they are granted a scholarship(or spend thousands of dollars on NFT). After they receive a scholarship, they get a certain amount of reward per day based on the quality of assets that’s given to them. As a scholar, the growth of earning only hikes once (when they receive scholarship) in their entire lifespan, and the growth thereafter is non-existent(maybe from 50slp to 60slp). The binary gatekeeping is disastrous for user acquisition.

Solution: crypto games should consider free-to-play and pay-to-earn. Everyone should have a fair chance to access and master the game. Their ability to earn reward should be linearly correlated to their mastery of the game and their risk tolerance. An optional ticket-based arena built on top of an intrinsically fun and fair PVP game is a good example. 

This design has several benefits:

• It engages players to meaningfully participate in the economy, as opposed to merely acting as cogs in a machine.

• It organically layers granular financial stake into the player’s game “flow”. Investing can also be part of the game.

• Having players staking into a game is far better than having speculators staking into a game. Games can build loyalty with the former, not the latter.

• Combined with ‘governance-token-centric game design’ mentioned previously, this could significantly increase buying pressure, as token investment is far more welcoming than NFT investment for most players with a small budget.

-From the game design perspective, the player's gameplay experience is largely sacrificed in crypto games because of poor coupling between economy and gameplay. Take TCG(trading card game) as an example, there are generally two major parts that constitute the core player experience:

• Loot Box opening + deck building

• Playing with the deck

However, in most crypto TCGs, the organic symbiosis is torn apart. Guilds managers took the former while players are left with the latter. Managers purchase the loot boxes, open them, and build decks(axie team) around them. Managers then distributed decks to scholars, leaving scholars with the only task to farm using the given deck. This makes the players disconnected from the core game loop, it also makes them feel hopeless when they soon reach the skill cap with such a deck. The gacha(loot box opening) mechanism is arguably the most critical cornerstone of TCG monetization. As an ex-guild-manager, I also found the process of resource management quite fun and engaging. However, it is a shame to deprive players of this experience, it also dissuades the players from investing directly into the game.

Solution: Once again, I emphasize that the player experience shall not be compromised by the financial implementation. The game should decouple the core gameplay and the economy. Traditional games actually have faced similar issues. In the early days, F2P games made their premium items overly powerful, which boosted sales yet led to poor experience for the vast majority of free players, resulting in the quick death of the ecosystem. Modern F2P games have learnt their lessons. Take Genshin Impact for example, Genshin designed the game statistics in a way both free players and high-paying players can easily beat the game, only that the free players will have to spend slightly more time grinding in the later phase.

Crypto games need to make the same transition. There is no reason to deny free players access to the (almost)full game as they bring tremendous value both in terms of CCU, free publicizing and future potential purchase. If every football cost 500 dollars, we would not have a 700 billion sports market today. 

A real world case is Sky weaver, although sky weaver hasn’t revealed their complete token design, they haven made it clear that players will be able to access every single card in the game without upfront investment.

Players feel obligated to ‘play’ upon attaining assets due to constant depreciation and opportunity cost.

Solution: Granularity of player contribution should be rewarded instead of punished. Players should have the rights to opt-in and opt-out high risk high reward competitive gameplay. This can also be achieved via removing ‘infinite yield’ from the NFT. One approach is to set durability on the NFT like Thetan Arena. Another approach is to completely discard NFT and design the game around fair and wager-based PVP.

BAYC is a great example of permissive IP working in reality. Similarly, Mihoyo also embraced an extremely tolerant policy around Genshin Impact’s IP. Mihoyo allows third party developers to leverage characters from Genshin to develop games, Mihoyo even allows them to monetize off the derivatives. As a result, Genshin quickly built an active and impactful community. For web2 companies, I respect them a great deal for the bold attempt. I believe every crypto game should think deeply about ways not only allowing people to build, but also encouraging and rewarding them to do so.

Currently, most crypto game’s P2E relies either on the Ponzi model or the Casino model, and both are zero sum games. Unlike those, the creator economy on the other hand is a positive sum model. If we can help players transition into becoming creators in game, we can navigate to a truly sustainable economy where people can earn sustainable income off their service and creativity. MixMob is a good example of that, they are designing carefully to empower players to create meaningful game assets, which will likely become the cornerstone of their game.** **

Existing:

Alternative:

END

** **

**

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Author: Alex, IOSG Ventures

In my previous article ‘P2E is not sustainable - seeking the next Axie Infinity’, I predicted that gen 1 P2E games will likely collapse in the short term. The prediction has been validated with Axie Infinity’s revenue dropping over 95% from the peak. I believe as an industry, we are slowly entering the ‘build phase’, I’m incredibly long on crypto games in 3-5 years. After talking to more than 200 crypto game founders in the past 6 months, I'd like to share some insights. 

To quickly refresh our memory why we invest in crypto games:

1.We believe interactive entertainment will dominate attention economy in next decade

2.We believe crypto games will lead to prosperous in-game economy and creator economy due to incentive alignment

With such a thesis in mind, we make the following proposals to every P2E founder who shares the similar vision, to avoid some predecessor's pitfall.

• Iteration mechanism with token economy

• Remove NFTs from the core economy loop, design the economy around whatever token the team and investors are holding.

• Decouple play and earn. Make the game free to play, core gameplay loop should not be gatekept by a large upfront investment

• Distribute value granularly based on player’s individual performance and risk tolerance(stake level). 

• Embrace permissive IP, and build a vibrant creator economy around it

‘The Lean Startup’ by Eric Ries is a book that in a way set the internet revolution in motion. The concept of ‘Agile development’ was first introduced by Eric in 2011. Why did internet companies grow so fast in the past decades? Because they abandoned the traditional waterfall model, and started embracing techniques such as MVP and A/B testing. Instead of avoiding mistakes, internet companies welcome them. They dramatically reduced the time to discover a mistake, as a result, they were able to quickly improve their products. When I worked at Tencent, a version every week was considered normal.

When it comes to crypto games, we can safely say that the industry is nascent, the best practice has yet to emerge, and founders are bound to make mistakes in their pursuit of success. One thing crypto that poses challenges on agile methodology is the immutable nature of the token economy. The dilemma is that it is virtually impossible to get the in-game token economy right on the first attempt, yet most games only get one chance. In fact, games such as Axie Infinity and Thetan Arena are already feeling the pain. Take SLP as an example, the token was initially designed to attract initial users as an alternative user acquisition channel. After the P2E narrative took off, the SLP token economy has been proven to be no longer sustainable for a large user base. Yet, Sky Mavis needs to be extremely careful if they were to make changes, as they would be seen as messing with people’s assets.

I believe iterative development is critical, yet as founders we should also take responsibility for people’s assets. How do we resolve this conflict? I propose an alternative approach here.

In traditional games, there are different servers. For MMORPGs, each server is similar to a nation, and they have an independent economy and player dynamics. A lot of Asian games, such as MIR, are forked with many private servers where the publisher and owner of that server is completely outsourced.

As crypto game developers, what if we only issue governance tokens that represent the collective ownership of the game’s IP and management, and let publishers/guilds/whales run their own economy with their own token that complies with the rules of the master DAO? Think of the game as layer 0, publishers/guilds/whales will be the layer 1. For instance, if YGG is bullish on the game, they would be able to spin up a server and manage that server with their own MIRYGG token, the same with MC, Perion or others. The guilds are ultimately responsible for making the rules on what’s the barrier of entrance, how much money can players earn, etc.

There are two main benefits with such architecture: 1.By allowing guilds and publishers to run their own instance, we create a coopetitive dynamic between them, we also allow much faster iteration to find the best token economy. For example, if Perion’s innovative design on revenue sharing gains traction, we would expect new servers adapting to similar design to be spun up quickly by other guilds. 2.This architecture offloads a great amount of liability away from game projects. The game developer’s primary emphasis should be on creating fun and engaging experiences. If the co-founders are sweating day and night over community complaints on who earns what, their attention to game development will likely be spread thin.

-NFT is now a major part of almost every game’s core economy, and my contrarian opinion is that I see great peril with the way NFTs are being integrated nowadays. Our thesis for investing in crypto games is that they align incentive between players and developers. Ironically, in today’s landscape, the incentive is largely misaligned, considering that developers and private investors are holding primarily governance tokens while guilds and players are holding NFTs that is the result of aggressive money printing.

Solution: Games should build their economy around their core governance token. Players should be able to earn such a token just like the founders, and the amount of token rewarded should be correlated to their contribution. (Axie Infinity is moving to this direction by rewarding players AXS rather than SLP) Player’s earnings shall be subjected to vesting period. NFTs could be used more creatively in the game. Vitalik pointed out the inspiration of ‘soul-bound item’. Permadeath and Achievements are also mechanisms worth exploring with NFT design.

-Web3 is all about fair, granular and linear distribution of value that promotes network effect of healthy behavior. However, that’s currently not the case with today’s crypto games. Take Axie(origin) for instance, a user receives zero reward before they are granted a scholarship(or spend thousands of dollars on NFT). After they receive a scholarship, they get a certain amount of reward per day based on the quality of assets that’s given to them. As a scholar, the growth of earning only hikes once (when they receive scholarship) in their entire lifespan, and the growth thereafter is non-existent(maybe from 50slp to 60slp). The binary gatekeeping is disastrous for user acquisition.

Solution: crypto games should consider free-to-play and pay-to-earn. Everyone should have a fair chance to access and master the game. Their ability to earn reward should be linearly correlated to their mastery of the game and their risk tolerance. An optional ticket-based arena built on top of an intrinsically fun and fair PVP game is a good example. 

This design has several benefits:

• It engages players to meaningfully participate in the economy, as opposed to merely acting as cogs in a machine.

• It organically layers granular financial stake into the player’s game “flow”. Investing can also be part of the game.

• Having players staking into a game is far better than having speculators staking into a game. Games can build loyalty with the former, not the latter.

• Combined with ‘governance-token-centric game design’ mentioned previously, this could significantly increase buying pressure, as token investment is far more welcoming than NFT investment for most players with a small budget.

-From the game design perspective, the player's gameplay experience is largely sacrificed in crypto games because of poor coupling between economy and gameplay. Take TCG(trading card game) as an example, there are generally two major parts that constitute the core player experience:

• Loot Box opening + deck building

• Playing with the deck

However, in most crypto TCGs, the organic symbiosis is torn apart. Guilds managers took the former while players are left with the latter. Managers purchase the loot boxes, open them, and build decks(axie team) around them. Managers then distributed decks to scholars, leaving scholars with the only task to farm using the given deck. This makes the players disconnected from the core game loop, it also makes them feel hopeless when they soon reach the skill cap with such a deck. The gacha(loot box opening) mechanism is arguably the most critical cornerstone of TCG monetization. As an ex-guild-manager, I also found the process of resource management quite fun and engaging. However, it is a shame to deprive players of this experience, it also dissuades the players from investing directly into the game.

Solution: Once again, I emphasize that the player experience shall not be compromised by the financial implementation. The game should decouple the core gameplay and the economy. Traditional games actually have faced similar issues. In the early days, F2P games made their premium items overly powerful, which boosted sales yet led to poor experience for the vast majority of free players, resulting in the quick death of the ecosystem. Modern F2P games have learnt their lessons. Take Genshin Impact for example, Genshin designed the game statistics in a way both free players and high-paying players can easily beat the game, only that the free players will have to spend slightly more time grinding in the later phase.

Crypto games need to make the same transition. There is no reason to deny free players access to the (almost)full game as they bring tremendous value both in terms of CCU, free publicizing and future potential purchase. If every football cost 500 dollars, we would not have a 700 billion sports market today. 

A real world case is Sky weaver, although sky weaver hasn’t revealed their complete token design, they haven made it clear that players will be able to access every single card in the game without upfront investment.

Players feel obligated to ‘play’ upon attaining assets due to constant depreciation and opportunity cost.

Solution: Granularity of player contribution should be rewarded instead of punished. Players should have the rights to opt-in and opt-out high risk high reward competitive gameplay. This can also be achieved via removing ‘infinite yield’ from the NFT. One approach is to set durability on the NFT like Thetan Arena. Another approach is to completely discard NFT and design the game around fair and wager-based PVP.

BAYC is a great example of permissive IP working in reality. Similarly, Mihoyo also embraced an extremely tolerant policy around Genshin Impact’s IP. Mihoyo allows third party developers to leverage characters from Genshin to develop games, Mihoyo even allows them to monetize off the derivatives. As a result, Genshin quickly built an active and impactful community. For web2 companies, I respect them a great deal for the bold attempt. I believe every crypto game should think deeply about ways not only allowing people to build, but also encouraging and rewarding them to do so.

Currently, most crypto game’s P2E relies either on the Ponzi model or the Casino model, and both are zero sum games. Unlike those, the creator economy on the other hand is a positive sum model. If we can help players transition into becoming creators in game, we can navigate to a truly sustainable economy where people can earn sustainable income off their service and creativity. MixMob is a good example of that, they are designing carefully to empower players to create meaningful game assets, which will likely become the cornerstone of their game.** **

Existing:

Alternative:

END

** **

**

**