StarryNift is the first large-scale Web3 co-creation platform that integrates gamified NFTs, NFT art collections and Metaverse creation.
This is the start of an Einstein Series with StarryNift, where we will be utilizing our “big brains” to discuss many different aspects of Crypto, Gamefi, Defi, Metaverse and more, sometimes with exciting examples and case studies, in simple terms. The intentions of launching such a series is to educate our community members in a variety of ways — so you are better equipped in making wiser decisions within the crypto space. So.. let’s get right into it!
Poor demand and supply economic projections, calculations and decisions are the main reasons that many Gamefi, Defi and other similar crypto projects have failed to create a sustainable economy, resulting in massively declining prices in the long-term. Let’s discuss more..
Do these charts look familiar?
Primary (Governance) Token of Project X
Secondary (Reward) Token of Project X
The above is an example of a real Gamefi project that had topped the Apple and Google play store for a brief period of time. This Gamefi project adopted a dual token model*. Unfortunately, this huge success was short lived as the project fell short of having a proper economic system that can ensure the sustainability of the game. Too many secondary tokens were being distributed without introducing any real use cases to these tokens.
*Dual Token Model: A project that adopts two types of tokens within its economy. The primary token is used to govern the project and for voting purposes, while the secondary token is being distributed as rewards and act as a utility token.
In fact, if I had to pinpoint one main problem of the project, it would be that the team was too greedy. They wanted to drive the prices of the primary token up by implementing use cases only for primary tokens. These tokens were required to upgrade your characters within the game.
On paper, this sounded perfect for investors and the team, which held a large number of primary tokens of the project. If there were many players who were interested in the game, prices would most certainly rise since these primary tokens have a limited circulating supply and the supply of these tokens only increase gradually each month due to the vesting** of tokens, which would eventually reach a cap.
**Token Vesting: locking up investors tokens for a specific period to maintain a stable long-term value of a particular digital asset. For example, if an investor purchase 1,000 tokens during the initial sale, it would not be issued out immediately but could be issued out over a 12-month period. Hence, he/she would only receive 83.33 tokens each month.
The team failed to understand that the secondary tokens they have issued as rewards for participating in the game would not hold its value. This is because they had no use cases within the game itself. If people did not have any use cases for these tokens, wouldn’t they just sell these tokens on the market? This resulted in a steep decline in prices of the secondary (reward) tokens as seen from the chart above.
Maybe not. The game is most certainly free-to-play but the earning mechanics are locked behind a huge paywall. There is no way you could progress in the game without spending money. That was the biggest issue. The initial hype was largely generated from players who tried out the game for free. After realizing that they cannot progress within the game, these players left.
That being said, adding a pay-to-win mechanic in the game is something that players hate the most.
And worse of all, this game was a skill-based game with player-versus-player elements. Just imagine having better skills than other players but losing because other players have fully upgraded characters with much higher stats and attributes. Are you interested in playing such a game? Not me for sure.
The team foresaw this steep decline happening and tried to reduce the selling pressure on the secondary tokens by introducing a strict criteria to withdraw such tokens from the game. After an initial steep decline on the chart, you could see that the decline became more and more gradual.
The team also offered to buyback their secondary tokens from the profits they have made from selling NFT boxes, which resulted in some “upswings” shown in the charts.
But still, none of these solutions actually resolve the root and core issue of this project, which stems down to poor economic decisions made, resulting in an imbalance within the game’s economy.
That being said, even if the team made drastic changes to the economy, there is a good chance that the project may never recover as players and investors who were disappointed would already have left the project. With so much competition within this space, it is easy to see why they would not risk returning to a project that failed to take into account such important considerations.
Why would the value of the primary (governance) token decline if people are only selling the secondary (reward) tokens that they receive from playing the game?
We can see from the charts that in the long run, if the value of the secondary token has depreciated significantly within a period of time, the primary token of the project would start losing its value as players no longer find it lucrative to participate in the game and hence, they would start selling their holdings and leave the game.
The value of the primary tokens signifies investor’s confidence in the project. If many of these players were to start selling their NFTs, tokens, and start leaving the project, investors would start losing confidence. These investors who no longer see potential in the project would start to offload their holdings, resulting in a spiraling decline in the prices of the primary token. Additionally, due to the monthly vesting of tokens, investors who receive these primary tokens would also sell them off, resulting in even steeper decline in prices, as the circulating supply continues to rise until it eventually reaches its maximum supply cap.
Many Gamefi projects adopts a dual-token model, whereby the primary token acts a governance token with important usage for upgrading and improving certain gameplay experiences, while the secondary token acts as a reward token which is being freely issued out to players to participate in some features within the Gamefi. These reward tokens also have their use cases in some aspects of the game.
However, finding the right balance is challenging. Many of such projects fail to calculate and limit the rewards being distributed out in terms of the secondary reward tokens, while also adding more use cases for these tokens to be consumed. This results in an imbalance in the economy, whereby the amount of secondary reward tokens being issued out is drastically more than the amount needed for consumers to purchase and utilize, resulting in not only a higher supply but also, insufficient demand to keep up with this increase in supply.
When that happens, the output value of tokens is higher than the input value of tokens. Hence, the project loses economic value as time goes by and this is reflected in the token prices.
Where output is more than input, the economy is unsustainable
Theoretically, if the project could constantly bring in new players to spend within the economy, while retaining its current players, the demand for these secondary reward tokens could exceed the supply in the short run. However, it is not possible for a project to continue to acquire new users forever, while retaining all of its current users. At some point in time, the number of users for each project would peak or maintain at a certain level, and gradually decline.
Hence, every project has to think long-term on how they can generate more value within the project so that players are willing to spend their reward tokens for better experiences within the metaverse. In fact this cycle is quite similar to the business life-cycle stage as shown below:
Source: https://www.digitalsilk.com/business-life-cycle-stages
We will not go in-depth to explain a business life-cycle, but feel free to google it up if you are interested.
It is usually the case for newer projects to issue and disburse out more rewards to attract new users during the early phase, as part of the user acquisition cost needed to acquire new players. However, to maintain the distribution of consistent rewards to players, projects would have to introduce interesting and exciting features for players to constantly spend their reward tokens, or find other sources of revenue (such as offering advertisements, promotions or partnerships). These tokens can then be collected and reintroduced as rewards to players with minimal increase in the total supply of such tokens, while demand for tokens maintains or continues to rise.
One gaming guild approached us the other day, asking if StarryNift would be introducing a dual token model. And if not, how are we going to issue rewards to our players?
My answer to that is simple. It doesn’t matter whether our project adopts a single token model or a dual token model. What matters is that whichever approach we choose to take, we conduct proper planning and due diligence in coming up with a strategy that ensures our economic sustainability for the foreseeable future.
And this means that when we finally launch our tokens, we will be introducing more areas where players and participants can spend their tokens within Starryverse to improve their experience within the space. When players spend within the economy, they help to keep the economy alive. This allows us to introduce more features and rewards on our platform. This is true even for the real-world economy, whereby individuals spend on goods and services to keep businesses alive. These businesses then pay taxes, which goes back to benefitting people in other ways such as healthcare and subsidies.
We have lots more exciting and upcoming stuffs planned for within this space. So stay tuned~
Article written by: Yang, Research Analyst & Operation Manager @ StarryNift (Twitter)
Yang is a passionate crypto investor and writer. With over 10 years of writing and blogging experiences, and 4 years of experiences following the crypto space, he intends to give back to the community by sharing insightful experiences and knowledge that he has acquired over the years.
About StarryNift
The mission of StarryNift is to empower art by technology and democratize value appreciation as DAO. The vision is to enable the whole ecosystem to share the prosperity of the creator and token economy and unlock new ways to explore the metaverse by game+art+DeFi+NFT Ark.
This is the start of an Einstein Series with StarryNift, where we will be utilizing our “big brains” to discuss many different aspects of Crypto, Gamefi, Defi, Metaverse and more, sometimes with exciting examples and case studies, in simple terms. The intentions of launching such a series is to educate our community members in a variety of ways — so you are better equipped in making wiser decisions within the crypto space. So.. let’s get right into it!
Poor demand and supply economic projections, calculations and decisions are the main reasons that many Gamefi, Defi and other similar crypto projects have failed to create a sustainable economy, resulting in massively declining prices in the long-term. Let’s discuss more..
Do these charts look familiar?
Primary (Governance) Token of Project X
Secondary (Reward) Token of Project X
The above is an example of a real Gamefi project that had topped the Apple and Google play store for a brief period of time. This Gamefi project adopted a dual token model*. Unfortunately, this huge success was short lived as the project fell short of having a proper economic system that can ensure the sustainability of the game. Too many secondary tokens were being distributed without introducing any real use cases to these tokens.
*Dual Token Model: A project that adopts two types of tokens within its economy. The primary token is used to govern the project and for voting purposes, while the secondary token is being distributed as rewards and act as a utility token.
In fact, if I had to pinpoint one main problem of the project, it would be that the team was too greedy. They wanted to drive the prices of the primary token up by implementing use cases only for primary tokens. These tokens were required to upgrade your characters within the game.
On paper, this sounded perfect for investors and the team, which held a large number of primary tokens of the project. If there were many players who were interested in the game, prices would most certainly rise since these primary tokens have a limited circulating supply and the supply of these tokens only increase gradually each month due to the vesting** of tokens, which would eventually reach a cap.
**Token Vesting: locking up investors tokens for a specific period to maintain a stable long-term value of a particular digital asset. For example, if an investor purchase 1,000 tokens during the initial sale, it would not be issued out immediately but could be issued out over a 12-month period. Hence, he/she would only receive 83.33 tokens each month.
The team failed to understand that the secondary tokens they have issued as rewards for participating in the game would not hold its value. This is because they had no use cases within the game itself. If people did not have any use cases for these tokens, wouldn’t they just sell these tokens on the market? This resulted in a steep decline in prices of the secondary (reward) tokens as seen from the chart above.
Maybe not. The game is most certainly free-to-play but the earning mechanics are locked behind a huge paywall. There is no way you could progress in the game without spending money. That was the biggest issue. The initial hype was largely generated from players who tried out the game for free. After realizing that they cannot progress within the game, these players left.
That being said, adding a pay-to-win mechanic in the game is something that players hate the most.
And worse of all, this game was a skill-based game with player-versus-player elements. Just imagine having better skills than other players but losing because other players have fully upgraded characters with much higher stats and attributes. Are you interested in playing such a game? Not me for sure.
The team foresaw this steep decline happening and tried to reduce the selling pressure on the secondary tokens by introducing a strict criteria to withdraw such tokens from the game. After an initial steep decline on the chart, you could see that the decline became more and more gradual.
The team also offered to buyback their secondary tokens from the profits they have made from selling NFT boxes, which resulted in some “upswings” shown in the charts.
But still, none of these solutions actually resolve the root and core issue of this project, which stems down to poor economic decisions made, resulting in an imbalance within the game’s economy.
That being said, even if the team made drastic changes to the economy, there is a good chance that the project may never recover as players and investors who were disappointed would already have left the project. With so much competition within this space, it is easy to see why they would not risk returning to a project that failed to take into account such important considerations.
Why would the value of the primary (governance) token decline if people are only selling the secondary (reward) tokens that they receive from playing the game?
We can see from the charts that in the long run, if the value of the secondary token has depreciated significantly within a period of time, the primary token of the project would start losing its value as players no longer find it lucrative to participate in the game and hence, they would start selling their holdings and leave the game.
The value of the primary tokens signifies investor’s confidence in the project. If many of these players were to start selling their NFTs, tokens, and start leaving the project, investors would start losing confidence. These investors who no longer see potential in the project would start to offload their holdings, resulting in a spiraling decline in the prices of the primary token. Additionally, due to the monthly vesting of tokens, investors who receive these primary tokens would also sell them off, resulting in even steeper decline in prices, as the circulating supply continues to rise until it eventually reaches its maximum supply cap.
Many Gamefi projects adopts a dual-token model, whereby the primary token acts a governance token with important usage for upgrading and improving certain gameplay experiences, while the secondary token acts as a reward token which is being freely issued out to players to participate in some features within the Gamefi. These reward tokens also have their use cases in some aspects of the game.
However, finding the right balance is challenging. Many of such projects fail to calculate and limit the rewards being distributed out in terms of the secondary reward tokens, while also adding more use cases for these tokens to be consumed. This results in an imbalance in the economy, whereby the amount of secondary reward tokens being issued out is drastically more than the amount needed for consumers to purchase and utilize, resulting in not only a higher supply but also, insufficient demand to keep up with this increase in supply.
When that happens, the output value of tokens is higher than the input value of tokens. Hence, the project loses economic value as time goes by and this is reflected in the token prices.
Where output is more than input, the economy is unsustainable
Theoretically, if the project could constantly bring in new players to spend within the economy, while retaining its current players, the demand for these secondary reward tokens could exceed the supply in the short run. However, it is not possible for a project to continue to acquire new users forever, while retaining all of its current users. At some point in time, the number of users for each project would peak or maintain at a certain level, and gradually decline.
Hence, every project has to think long-term on how they can generate more value within the project so that players are willing to spend their reward tokens for better experiences within the metaverse. In fact this cycle is quite similar to the business life-cycle stage as shown below:
Source: https://www.digitalsilk.com/business-life-cycle-stages
We will not go in-depth to explain a business life-cycle, but feel free to google it up if you are interested.
It is usually the case for newer projects to issue and disburse out more rewards to attract new users during the early phase, as part of the user acquisition cost needed to acquire new players. However, to maintain the distribution of consistent rewards to players, projects would have to introduce interesting and exciting features for players to constantly spend their reward tokens, or find other sources of revenue (such as offering advertisements, promotions or partnerships). These tokens can then be collected and reintroduced as rewards to players with minimal increase in the total supply of such tokens, while demand for tokens maintains or continues to rise.
One gaming guild approached us the other day, asking if StarryNift would be introducing a dual token model. And if not, how are we going to issue rewards to our players?
My answer to that is simple. It doesn’t matter whether our project adopts a single token model or a dual token model. What matters is that whichever approach we choose to take, we conduct proper planning and due diligence in coming up with a strategy that ensures our economic sustainability for the foreseeable future.
And this means that when we finally launch our tokens, we will be introducing more areas where players and participants can spend their tokens within Starryverse to improve their experience within the space. When players spend within the economy, they help to keep the economy alive. This allows us to introduce more features and rewards on our platform. This is true even for the real-world economy, whereby individuals spend on goods and services to keep businesses alive. These businesses then pay taxes, which goes back to benefitting people in other ways such as healthcare and subsidies.
We have lots more exciting and upcoming stuffs planned for within this space. So stay tuned~
Article written by: Yang, Research Analyst & Operation Manager @ StarryNift (Twitter)
Yang is a passionate crypto investor and writer. With over 10 years of writing and blogging experiences, and 4 years of experiences following the crypto space, he intends to give back to the community by sharing insightful experiences and knowledge that he has acquired over the years.
About StarryNift
The mission of StarryNift is to empower art by technology and democratize value appreciation as DAO. The vision is to enable the whole ecosystem to share the prosperity of the creator and token economy and unlock new ways to explore the metaverse by game+art+DeFi+NFT Ark.
StarryNift is the first large-scale Web3 co-creation platform that integrates gamified NFTs, NFT art collections and Metaverse creation.
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