The GameFi Trilemma: Playability, Profitability or Accessibility?
GameFi stems from Game and Finance.
It combines the old-fashioned thrill of winning prizes with new crypto developments in what is known as DeFi and NFTs. On the flip side, due to the additions of tokenomics and NFTs, the inter-party relationship in Web 3.0 games is a lot more complicated and the attribution of value accrued in the ecosystem becomes a big challenge. In a nutshell, we will represent the challenges of the GameFi Trilemma, in which many games struggle to attain a perfect balance.
What is the GameFi trillema?
The GameFi trilemma is made up of three components: playability, profitability and accessibility. The problem arises from the fact that you can only have two components at any given time.
Web 2.0 games give up profitability for players. Most Web 3.0 games have given up accessibility by charging a hefty price for NFTs, which are required to earn the in-game Play-to-earn (P2E) rewards or required Metamask to access the game. Others have given up playability to chase after the hot money by porting Web 2.0 games without considering the suitability of the token model and/or revamping the game economy.
What’s important to understand is that the trilemma components share a correlation with one another. For example, a game studio or project team could be generating revenue from the sale of NFTs (profitability), which derives their value from their inherent utility in the game, which means these NFTs must provide the owners an edge in the game. As a result, this deters F2P gamers from trying the game (accessibility) and dampens non-pay-to-win players’ gaming experience (playability).
Next, let’s dive in for a quick explanation of each trilemma component, their existing problems and current and potential solutions.
Playability is the ease by which the game can be played or the quantity or duration that a game can be played. It’s a common measure of gameplay quality.
Playability challenge #1: Game content quality
The first challenge is the lack of high-quality game content and innovation that fully harnesses blockchain technology beyond NFT and tokenomics. What tends to happen is that game creators are porting Web 2.0 games directly to the blockchain without considering the implications and necessary adaptations.
The solution is multifold. A good game needs to have deepness and high replayability, attributes that are absent from today’s games. Let’s take the token model design for example. It has to factor in the persona of various kinds of players – which can be broadly classified into free-to-play, value-minded (pay enough to enjoy or win), pay-to-win – and investors to ensure long-term sustainability and game balance.
Playability challenge #2: Developer blindspots
When it comes to developing games, there are certain areas in that developers are being tested for the first time. Game economies should be stress-tested to some extent. A notable tool that the industry is using is Machination which allows for easy Monte Carlo simulation.
Project teams need to adjust and correct swiftly and the provision of SDK can empower players to jointly develop the game (user-generated content) and eliminate any developer blind spots, building moats for the ecosystem. Depending on the game’s suitability, in-game wagering can also be integrated to give gamers an adrenaline rush.
Playability challenge #3: NFT overload
To substantiate the intrinsic value of NFTs, many games’ NFTs are programmed to be overpowering, enabling their owners to overwhelm other players. Paid-for NFTs have rather high opportunity costs since they enable the users to earn the P2E rewards. As a result, non-pay2win players would not have a decent gaming experience and the existing gamers are actually zombie players who do not seek to make progress in the game (spending rewards to upgrade character or equipment NFTs). How do you address that?
You try to weaken the power and presence of NFTs. Here are some examples of how to do that:
- NFTs are burned when a character dies
- Follow the Thetan Arena example which has introduced a “durability” attribute to limit the number of times the owner may use in the PvP arena
- Use Vitalik’s Soulbound token standard for NFT to remove the “value” attribute from the equation allowing tokenomics to be better balanced and managed
Accessibility refers to the ability to access game content and gaming assets. There are two main barriers to entry: cost and technology.
Accessibility challenge #1: Cost barrier-to-entry
Oftentimes, GameFi projects are substantiating the underlying value of NFTs by setting them out as the in-game requirement to be entitled to P2E rewards, instilling the idea that the in-game NFT is a yield generator. The NFT sales via Initial NFT Offering (INO) at a hefty price of US$100-500 then becomes an additional avenue for project fundraising, on top of token sale rounds.
To further substantiate the value of NFTs, GameFi projects have neglected having Free-to-Play (F2P) and freemium models whereby gamers who play more can get to enjoy the same level of game content and rewards as those who have spent money on the game.
The above two examples have led to inaccessibility to true gamers and a stagnant community. This can be tackled in a combination of ways:
- Weaken the power and presence of NFTs as described above
- Do not cap the number of NFTs that are required to play the games e.g. character or hero NFTs allow the community / DAO to dictate the supply of NFTs into the market
- Introduce F2P and freemium models as they are the only feasible pathway to mass adoption and a vibrant community. The loss of one-off fundraisings from INOs would then be offset by consistent cash flows from monetization of the gaming experience which has been proven to be more sustainable in the Web 2.0 space e.g. League of Legends, Valorant, etc.
Accessibility challenge #2: Technological barrier-to-entry
The setup and management of a compatible crypto wallet for a game can be daunting to many Web 2.0 gamers who are looking to enjoy the gameplay. Hence, many excellent blockchain-powered games were unable to attract gamers from the Web 2.0 space.
There are already remedies on the market:
- Venly, which many games are already leveraging their technological stack to manage wallets, mint NFTs and tap onto Venly’s thousands of community members
- Web3Auth, is a single-sign-on solution that allows the user to sign in with their crypto wallet. This bridges the gap between Web2 and Web3 for new users
- Ethereum sign-in, allows a user to authenticate with dapps and establish a session. When the session ends, the user’s information is saved. When they authenticate again, they can continue from where they left off.
The structural limitations would be easily overcome as the blockchain industry advances and creates solutions that would only resolve the underlying problems but can also be implemented seamlessly at low costs.
Profitability is the ability of all stakeholders - including the project teams, investors and gamers - to profit from a game. Notably, profitability in a Web 3.0 game is way harder to achieve in comparison to Web 2.0, whereby only game developers and game studios’ investors are entitled to the gains. Gamers also demand profitability and both the project team and investors are holding in-game assets such as the native token.
Profitability challenge #1: Scaling
The present P2E model is not scale-effective for a GameFi project with a down-trending native token’s value. For example, Axie Infinity’s income stream for its gamers has fallen >95% from its peak. Axie Infinity’s average player’s daily income has fallen below the Philippines’ minimum wage of US$10 whose players have made up ~40% of the player’s base during its peak. As a result, the number of active players in the last 30 days has declined from its ATH 2.8 million to 1.65 million.
The way to address this is by putting game content and quality first. The evolution of the gaming model to Play-and-earn from Play2Earn. It must be a balance between fun and rewards. Rewards could be based on a player’s skills and progression by rewarding those on the leaderboard. The design of the token model and game economy should be based on its native token.
Profitability challenge #2: Aligning investor and team interests
The project team and investors do not hold in-game NFTs and secondary tokens hence they are not incentivized to improve their asset value i.e. the interests of gamers and the project team and investors are not aligned.
The solution to this challenge is to firstly, as discussed earlier, weaken the importance of NFTs in the game. Moreover, an interesting idea is increasing incentives to spend these assets in-game in order to progress and evolve. Since only the top leaderboard players will get rewards, they will be incentivized to spend these assets to keep being at the top and compete with others (e.g. upgrading of weapons).
Profitability challenge #3: Native token tokenomics
In most GameFi tokenomics, the native token that serves as the unit of account in the game and is not viable in the long run due to its deflationary model and poor flexibility.
Historically, two key features have characterized successful currencies: price stability and a sufficiently large network of users. Among the three functions of money, being a good store of value appears to be a necessary condition for the other two (unit of account and medium of exchange).
In other words, unless the value of money is relatively stable over time, it will not be widely used, either as an accounting device or a medium of exchange. Stability in the value of the currency, in turn, requires that supply follows demand in a way that avoids both high inflation (rapid loss of value) and deflation (rapid gain in value). In practice, the former requires that the supply of the currency is somehow constrained, whereas the latter requires a supply that can be sufficiently elastic in order to keep up with demand.
The solution is found in the design of the token model - the game economy should be around its native token. In this article, we would like to present a bold idea - an inflationary token model - utilizing a bonding mechanism from OlympusDAO. It revolves around three key ideas:
1) Attaching the token value to its treasury value
2) Accruing value in the treasury (similar to accruing equity in traditional equity) via selling its native tokens at a discount to the market value for other blue-chip cryptocurrencies. This is similar to Web 2.0 games whereby in-game currencies/items are purchased with fiat.
3) Manage demand and supply dynamics depending on the market condition to avoid a credit crunch situation as described in the left column.
Next, we can improvise new revenue streams to further accrue treasury and incentivize token holders to ensure scalability in both up-and-down cycles and long-term sustainability:
1) External revenue streams such as esports, ads and esports betting.
2) Retain the economical value within the ecosystem through charging a withholding tax, inculcate the idea of their store of value for its in-game assets, and enhance capital efficiency of an underlying asset via DeFi such as lending out to money market protocols (Folius Ventures, 2022).
3) Open-sourced IP like BAYC and Genshin Impact. An example is to allow third parties to build on the game. A game studio / main GameFi project may open-source the IP of their game and allow other communities such as gaming guilds to host a server of the game i.e. a sub-GameFi project with a token model and game economy that best suits its community. For example, the private server may set a higher EXP and loot rate than other servers. The private server hoster would then pay the IP rights with its tokenomics. With such a practice and multi-server test-out simulations, this is going to expedite the industry’s search for a viable token and Web 3.0 game economy. (idea comes from Alex from IOSG).
Recap: GameFi is on the right track
Here at Polkastarter, we believe that there are no perfect tokenomics and the solution to creating a viable economy for GameFi lies therein in the GameFi Trilemma, as we defined above.
Evidently, after the market euphoria, the underlying issues of existing GameFi models have started to surface. Historically, every Web 2.0 game in the past struggled in maintaining its economy fair and functional. Web 2.0 game development took about a decade and has improvised a few revenue models (from the sale of game copy or cd-key to a subscription model and presently, the popularized free-to-play model) to ensure equitability of every stakeholder in each game economy.
Similar to Web 2.0’s game development, the search for the solution will be a close-ended feedback loop process for Web 3.0’s. As mentioned above, we are in a much more difficult situation than Web 2.0 since we have to ensure equitability for more stakeholders in the ecosystem but we believe that it should take a much shorter time frame for us to find the solution, considering the proliferation of blockchain.
The feedback loop process is going to be expedited through:
- Rapid industry growth and adoption
- Adaptation and improvement of new models of DeFi protocols to improve the feedback loop process
- Active community involvement since there are better communication channels today
- Open-sourced R&D
When a what-we-believe-to-be better solution is presented, it is bound to undergo rigorous testing and rounds of refinements till it’s proven viable or not viable and each solution is going to serve as a precedent for the next until one that is stress-tested to be feasible and widely adopted by most games.
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