The vast majority of web3 games currently live or in public development are focused on building games that stay close to existing gameplay and monetization models, without exploring the true potential of player-owned economies. Web3 games are often compared to countries, but most lack some fundamental components for achieving that vision. However, there is another class of experience that leverages the benefits of sandbox games, virtual worlds, and web3: a virtual nation.

I predict that a virtual nation will rank within the top 50 countries by GDP, within the next 10 years.

Let's explore the future of virtual nations.

Contents

• What is a virtual nation

• What does web3 enable for virtual nations

• The present of web3 game economies

• The future of web3 game economies

• How to build a virtual nation

• Existing virtual nations

• Future virtual nations

• Conclusion

What is a Virtual Nation

A virtual nation is a single-sharded, sandbox game environment with natural resources as building blocks around which players can create their own emergent objectives.

So how is this different from the broad term of “metaverse”? While there is a similar reliance on players to create the content within the world, most projects that label themselves as metaverses are a blank canvas without a structure for emergent behavior. They have a set of physics, land, and tools for creation, but lack limited natural resources that act as the backbone of the economy that drives player behavior. Any gameplay is built on top, rather than guided to emerge from the economic structure of the world. Having resources and a process of discovering what can be built with them provides something for players to create objectives around. The scarcity of those resources provide constraints that drive trade, conflict, coordination, and other compelling social interactions.

Most existing metaverses face a difficult cold-start problem where players do not join or stay due to a lack of interesting ways to interact with other players, while the limited audience reduces the incentive to build something new.

Virtual nations inherently have a bootstrapping mechanic: the search for opportunity in a new world. The first players to find a new resource, uncover a technological innovation, or start a key business can find success that brings real financial impact. This is also a much more sustainable bootstrapping mechanic than what we see today with games using token airdrops, since virtual nations have diverse requirements of exploration, experimentation, innovation, and trade to get a valuable good. These actions can be relatively difficult to exploit through botting and thoroughly immerses players in the world before they potentially get a financial benefit.

Once bootstrapped with a sizable user base, virtual nations have the potential for gameplay and economic behavior to emerge that far surpass what may originally be imagined by the developers. For example, gameplay may evolve through initial stages that add layers like exploring the world, settling territory, pvp combat, creating infrastructure, and forming a system of government. But with enough players spending time in that world, a stronger culture can develop. With the creation of music, art, or religion it becomes not just a game, but truly a nation. Bringing all players together into a single shard aids the growth of culture as well, as players are not split into multiple experiences. Players have a shared history that ties them together.

Eve Online is the prime example of a virtual nation (more on that below), with a single-universe experience that has spawned one of the richest histories of any game. Books have been written on its history that read “like a sci-fi Game of Thrones, with iconic leaders, shocking betrayals, and devastating battles.”

What Does Web3 Enable for Virtual Nations

Building on that concept, the growth of a virtual nation could be further improved by adding property rights through blockchain-based asset ownership. This reduces the risk of losing individual and nationwide assets, experiences, and culture. Property rights are a foundational component of the growth of physical nations because they incentivize investment (of both time and money), enable access to capital, promote innovation, and support social order. The same benefits generally hold true in a virtual context.

Many future virtual nations are likely to be built as fully onchain games, or autonomous worlds, however they do not necessarily have to be. This creates a permanent world that eliminates the risk of the nation ending if something were to happen to the studio paying for the servers. So there will often be overlap between the terms autonomous worlds and virtual nations, but they are not synonymous.

I see Virtual Nations as a future category of game that actually realizes the potential that web3 technology provides.

The Present of Web3 Game Economies

Currently in most web3 games, a single entity (a central team or DAO) creates and distributes the valuable assets (items, tokens, resources, etc.). Players only take the role of the consumer, gaining assets through spending money or grinding through content. What’s missing is value creation by players themselves (I’m not forgetting about UGC of course, more on that below).

Some games may have players “create” an asset through gameplay, but grinding the game to craft or loot an item isn't real value creation, it's just a distribution mechanism that incentivizes grinding. The grinding didn't create the value and the studio just selling it to the end user wouldn't change the amount of value created. The studio remains the single true producer of value in the economy and the end user is still the consumer.

This also means that more people grinding a game does not directly equal more value created (secondary effects of additional users aside, which are valid benefits). Most teams found this out after Play to Earn game failures, and focused on game quality to attract spenders. This strategy focuses on bringing more users to content constrained by the limitations of the studio, without as much of a focus on how players could create value to expand content and make the offering intrinsically more attractive.

Of course, this is where UGC comes into play. Allowing players to create content enables a range of interaction with the product that is impossible to achieve with the limited resources of a studio as the sole creator. However, UGC as it currently exists usually focuses around the creation of cosmetics or separate experiences. These changes have limited ability to change the way that players interact with each other in an existing virtual world as often this takes the form of a mod, where players have to move to a new, siloed experience. These are a great start, but there is so much more that can be done if players are provided the opportunity to build a persistent world together.

The Future of Web3 Game Economies

So what could the future of UGC look like and how does that tie into game economies?

It will move past cosmetic changes and stand alone experiences, to building new collaborative experiences, services, tools, and assets that make something more fun or more efficient for other players without needing to split into a different instance of the world.

For example, a virtual nation may not provide players with a map, to promote exploration and discovery. A player with a passion for mapping the nation can create a GPS device and sell it to other players to make it easier for them to navigate. Allowing people to specialize in what they enjoy and giving as many opportunities for value creation as possible to the players opens up opportunities for trade and competitive businesses.

Or a player could build a new gameplay experience, like creating a track and hosting races. All cars would need to be crafted from resources found within the world, but otherwise the builder is free to monetize how they would like. The builder benefits through reduced user acquisition costs compared to developing a game elsewhere as there is an existing group of players, many of whom are interested in exploring ways to use the assets they already have. Players benefit from having more fun things to do in an environment they are already spending time in and the nation as a whole benefits from improved network effects.

A player could also offer a new service, such as offering the most economical way of transporting goods long distances by leveraging new technology and their logistics skills. It’s a free market, where the quality, price, location, and marketing of a business all matter in finding success.

MMOs are generally split between being a “sandbox,” where players create their own emergent gameplay goals, and a “themepark,” where they are instead carefully guided through the experience. Web3 virtual nations can take the sandbox concept a step further with a “sandbox economy.” That means giving players freedom in not only how they play within a world, but also how they provide value to other players and are compensated for it. It's the difference between an economy where you can start a business only as an artist or game designer (as is common with many monetized UGC options), vs an economy that allows players to flexibly offer a good or service wherever they see the opportunity. The most skilled fighters can be paid bodyguards, explorers can guide others through new territory, politicians can govern, logistics specialists can improve the way things are transported, etc. This is not meaningless play-to-earn grinding, but providing something of real value that is worth as much as another player is willing to pay in a competitive market. Sandbox gameplay allows a nation to form and a sandbox economy embraces the real value trades instead of pushing them into black markets.

How to Build a Virtual Nation

So what should studios do who want to build a virtual nation?

Create inefficiency to allow for fun and opportunity. You can make everything easy and simple, but that removes activities that (if enabled well) a player could benefit from doing instead. For example, while you could let players teleport with assets from one place to another, by forcing them to move objects between locations at constrained speeds it opens up opportunities for players to do interesting things like create new settlements, research new technology, or arbitrage prices between different locations.

Create hidden information for players to find and leverage, like discoverable technology and hidden resource deposits. This motivates exploration and experimentation, and once discovered, information can breed espionage, conflict, trade, sabotage, or other exciting activities.

Give players building blocks to create something unexpected. Give the players space for emergent gameplay that could be economic or non-economic.

Have levers to adjust the economy from the start as they may be difficult to add in later. Hilmar Veigar Petursson, CEO of the team behind EVE Online, noted that the main way their team intervenes is through changing the supply of natural resources, rather than monetary policy. Changes to resource availability or technology could be used to nudge users towards more interesting behavior like starting conflict over scarce resources.

Currency stability is important if you want people to use it. If the purchasing power of the currency drops significantly people will not want to accept it for agreements (especially those with delayed payment) and if people expect the currency to appreciate it may reduce their willingness to spend it. Virtual nations can benefit from having their own currency if they implement it well, as it allows for a fair distribution of wealth relative to participation in that economy. 0xheimdall, from the game Citadel, wrote an excellent paper on designing one. However, not all virtual nations need their own variable-price currency and using a wrapped and redenominated stablecoin could work as well.

Reward specialization in economic roles by making players more efficient in specific things through experience, but requiring them to need things outside of their optimized skillset. This pushes them to trade with others.

Use the promise of rare resources to bootstrap adoption. A “goldrush” or equivalent concept presents opportunity to players, but then generates a much larger opportunity for others to come build and sell the picks and shovels. Once everyone is there, other experiences can develop to serve the user base.

An Existing Virtual Nation

As previously mentioned, EVE Online is the clearest live representation of how I envision virtual nations. It does not have a web3 component, however the team is in the process of building a web3 game that may meet that vision.

EVE Online is a single-sharded space MMO with an economy where essentially everything is created by players. The game has developed a strong community with shared lore and deep relationships between participants. A faction and political system emerged that has created drama and conflict, with wars setting multiple Guinness world records. One of these was “the most costly video game battle,” with $378,012 worth of assets destroyed.

Future Virtual Nations

Eureka is an upcoming multiplayer game that takes place at the discovery of a new continent in 1850, where players can explore and build the entirety of a new nation on it together. The game takes intentional inefficiency to the extreme by setting the game in a full scale continent, creating difficulty and risk in traveling to jump start the creation of semi-self-reliant local economies.

Eureka is set to leverage the “goldrush” bootstrapping method well with the game built around a literal gold rush, but with a long-term vision for evolving a nation from that starting point. Eureka provides opportunity and NFT ownership makes the opportunity real.

Citadel is building a novel 3D space MMO, hosted fully onchain. It will be an entirely player-owned world that allows for a high degree of emergent behavior. They’re taking a radically decentralized approach with a majority of revenue going to a DAO and the core team operating as a contributor. The team has a strong understanding of how to create an engaging open game economy with a vision that could set them up for creating a thriving virtual nation.

Conclusion

Building a virtual nation is a different beast than building other types of games, particularly when it comes to managing the economy. I write this piece not to say that every web3 game should take steps to become a virtual nation (most should not!), but for more developers to consider the opportunity. Virtual nations unlock the true potential of blockchain and virtual economies, moving past the skeuomorphic realm of just the same experiences + ownership.

I truly believe that some virtual nations will rival the population, range of experiences, and economic complexity of physical nations in the not-so-distant future. As more time and money are spent within virtual worlds, it is natural for these elements to emerge, not from blank metaverse canvases, but from new worlds of opportunity and discovery where everyone can forge their own path and the stakes are real.

If you still think my prediction around virtual nations surpassing the GDP of sizable physical nations is unrealistic, consider estimates that put the Everquest MMO as the 77th largest country by GNP in 2001 and the Second Life virtual world at a $650 million GDP as of 2022.

I’ll leave you with a quote from a book that set the stage in my mind for the future of virtual nations.

"Millions of people, rich and poor, men and women, boys and girls, all over the world. They spend crores and crores of rupees, and thousands of hours. It's a game, yes, but it's also as complicated as life in some ways. …Eight of the 20 largest economies in the world are not countries, they're games, issuing their own currency, running their own fiscal policies, and setting their own labor laws." -Cory Doctorow, For the Win

Reading For the Win ten years ago inspired me to become a game economy designer and virtual nations are the best representations of what I’ve been dreaming of since then. If you’re considering building a virtual nation, feel free to reach out.