In -depth research on the token economy: Analysis of the League of Kingdoms

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From the structure of the article: Although this article is an in-depth study of specific Gamefi projects, the logic is clear, the structure is clear, and the readability is very strong. Before delving into the project’s token economy, the article also provides readers with a brief overview of the project and why they choose to study it. In addition, while researching and analyzing the token economy of the project, the author cooperates with sufficient data to demonstrate that the article is more convincing. Even if the reader has no understanding of the project background, after reading, on the one hand, they can fully understand the project story, and on the other hand, they can learn the structure and logic of the article.

From the content of the article: This article uses the Gamefi project “Kingdom Alliance” as the material, and its background is a reform of the token economy in the early stage of the project – the project party replaced the tokens used in the game. The background of this material selection is relatively novel, and the analysis object is more valuable. In addition, the article compares the economic and ecological differences before and after the project token reform through real data demonstration, and verifies the wisdom of the project party from the perspective of data results. Finally, the content of this article contains few professional vocabulary, which is suitable for a wide range of people to read. It can not only help Gamefi experts to quickly review the project, but also help literacy and accumulation of cognition.

In -depth research on the token economy: Analysis of the League of Kingdoms

Why League of Kingdoms?

How does blockchain empower games? To answer this question, the key is to further think about another question: what kind of games can benefit the most from blockchain.

While various viewpoints exist, one of the best solutions for “crypto + gaming” is a strategy game. If you’ve played games like Civilization or Football Manager, you understand what a strategy game is. Players of strategy games need to develop resource allocation strategies and play tactical games with computers or other players. In this case, putting game assets on-chain can take the authenticity of the player experience to another level and provide players with unlimited incentives to commit to the game.

Therefore, League of Kingdoms, as one of the earliest blockchain-enabled MMO games, is a good case study. Its token economic design is one of the strongest of all cryptocurrency games, given its complex game mechanics. While countless GameFi projects died within months, League of Kingdoms has survived for over a year.

Author’s Note: A Massively Multiplayer Online Game (MMO) is an online video game with a large number of players, often in the hundreds or thousands, on the same server. MMOs often feature large, continuous, and open game worlds, although some games vary.

During the period it has been through, League of Kingdoms has been using DAI (a stablecoin under the MakerDao protocol) as its primary token. However, with the launch of its native token, LOKA, through the Binance Launchpad, now the game is moving towards token design in another direction. That said, it plans to replace DAI with LOKA as its most important gaming token. In this case, League of Kingdoms provides a great example to learn about GameFi’s token economy. Given the same settings, we can compare how these two different but both popular systems work.

In order to present a complete analysis, I will first examine the design of the token economy of League of Kingdoms from a qualitative perspective. If you don’t know much about the token economy or GameFi, this section provides a good example to explain how it works. Also, I think people tend to get into APY analysis too quickly before they really understand how the project works. In the first part, however, keep in mind that I am only analyzing theoretically. Then I’ll go over some numbers and calculations to get a clear overview of the financial aspects. The final installment will give you some perspective on how this game does in real life and what you might expect from it in the near future.

Summary

  • League of Kingdoms will switch from using DAI to using LOKA as its native token (gold standard → coin standard).
  • Previously, the $DAI system was a huge success, as game land and resource NFTs had sufficient utility.
  • The $LOKA system has many advantages – 1. It stabilizes the land reward, so the income of the council treasury does not affect it; 2. It strengthens the endogenous consumption (inner loop) of the game, making the game more sustainable in the long run Persistent.
  • However, token swaps may destabilize the land reward, resulting in instability in the value of land and $LOKA.
  • In reality, the trading record of League of Kingdoms under the $DAI standard is extremely low, and its market price is significantly higher.
  • Until more land becomes available or $LOKA prices depreciate, land will generate much higher yields than before, which could lead to further increases in land prices.

How to play League of Kingdoms?

Before diving into the game’s token economy, let me briefly explain how this game works, otherwise it’s easy to overlook understanding its complex design.

First, players have two role choices before entering the game: as a landowner or as a free player. Let’s talk about landowners first, and then the free-to-play game mechanics will naturally be understood.

Before entering the game, “aspiring” landowners need to purchase a piece of land (ERC-721 NFT token on Ethereum) through a p2p transaction on the market or through official land sales channels. Under the game’s “coordinate ownership” system, the supply of land is limited, while player access is unlimited. Buying a piece of land is equivalent to buying a coordinate. While the entire game world has only a limited number of 65,536 coordinates, its continents are indeterminate (one every two weeks on average), depending on how many new players join.

For those interested in making money, being a landowner basically offers three ways to make money: getting land (return) rewards, farming resources, and resale of land.

  • Depending on the tier of the land (LV1-LV7), the game’s council treasury rewards landowners with a steady income (previously DAI, about to become LOKA).
  • For each piece of land, landowners can collect a 5% tax on all players living on their land in the form of resources farmed by those players (ie: NFTs).
  • Additionally, as the land level increases, landowners can resell their land on the market, according to the game’s “development point” system.

In -depth research on the token economy: Analysis of the League of Kingdoms

For players who enter the game without buying land, the main way they make money is by collecting resources. After collecting a certain amount of resources, they can “mint” them into NFTs and sell them on the market to those who want to “exchange money for time”. Of course, League of Kingdoms is more than just a farming game. It has many different pvp mechanics to improve playability. But considering the subject of this article, I will not cover it here.

In -depth research on the token economy: Analysis of the League of Kingdoms

Now, with a basic understanding of how the game works, let’s discuss how League of Kingdoms works under the $DAI standard.

$ DAI standard

Since there is currently no systematic way to analyze GameFi token economics, I plan to use the “cash flow + value structure” framework in the specific analysis that follows.

Before there were no native tokens, League of Kingdoms was essentially a “land-selling” game project. Land is the most important because it is the main way p2e players make money, and its supply is capped, making it a scarce commodity. Its value is reflected by its price increase. At the time of writing, the floor price for a piece of Level 6 land on OpenSea is around 4ETH ($10,204.08). However, during its pre-sale period, the same level of land was only around $168, which represented a 60-fold jump in value.

So why is land so valuable in League of Kingdoms? The answer is that landowners can earn $DAI, which comes from a 10% redistribution of game revenue. Getting paid in stablecoins is very important because it removes the risk of getting paid in depreciable tokens. As long as the game generates revenue and pays “dividends” to landowners, the price of land may remain stable or even appreciate based on the influx of new players ( intuitively, this would be problematic) .

In -depth research on the token economy: Analysis of the League of Kingdoms

As shown in the cash flow diagram above, landowners purchase land for ETH in a land sale event or in a secondary market transaction. These ETH will eventually flow into the in-game parliamentary treasury. In return, players can get a steady payout. In addition to land, players can collect resource NFTs (food, wood, stone and gold) themselves, or buy them in the market. A certain amount of transaction fees go back to the Game Council treasury.

In -depth research on the token economy: Analysis of the League of Kingdoms

Above, I use a value structure map to highlight the key points. As mentioned earlier, the value of the land comes from the $DAI yield and the demand for P2P transactions. In addition, they also have an important reason that they can generate NFT resources such as stone, wood, food and gold, which can be traded on the secondary market.

In -depth research on the token economy: Analysis of the League of Kingdoms

According to Polygon’s February transaction data (resource NFTs are currently traded on Polygon rather than Ethereum), a tier 6 land can earn an average of $1 on top of the $DAI reward. These resources then capture value by indirectly or directly contributing to players’ land upgrades. For example, in order to upgrade a kingdom’s buildings, the player must consume a certain level of resources. In order to participate in (war) occupation of land, players need resources to train and maintain their troops. Competition at the event gives the winner the opportunity to increase the yield of their land (again, the land is the most critical element). Therefore, there is a mutual flow of value between land and resource NFTs, and although NFTs have no upper limit, burning these NFTs can achieve a lot of utility.

In conclusion, the token economy of League of Kingdoms manages to balance itself, as its most critical game assets, land and resource NFTs, have reasonable usage and value. On this basis, the reward of $DAI guarantees stable returns. The combination of land and resources is, in a way, similar to many dual-token designs: one is finite and the other is infinite, but with sufficient utility.

However, as I hinted before, the $DAI standard system relies heavily on the onboarding of new players, which is also mentioned in the Land Sale #2 document for League of Kingdoms (well worth reading). We can also see from the value structure diagram: the consumption and value exchange within the game are monotonous.

$LOKA Standard

“Rewards will no longer fluctuate on bad days as it is drawn from the $LOKA ground reward pool (5% of the total supply) instead of the game’s daily revenue.”

The following content officially enters the $LOKA token module.

As mentioned in the Land Sale #2 document, $LOKA is intended to replace $DAI, giving landowners the benefit of governance rights and potential appreciation of $LOKA. More or less, the cash flow of the new system will likely work the same way.

In -depth research on the token economy: Analysis of the League of Kingdoms

However, since $LOKA is fundamentally different from $DAI, the value structure (or utility relationship) of the game will change significantly. The DAO governance has yet to be established, so the first and most important utility I observe for $LOKA is that it promises to offer discounts to buyers during the March 14th land sale. Since the land reward (basically a dividend) will be $LOKA instead of $DAI, the land will also get its value/utility from $LOKA, so it becomes a mutual value stream between these two elements.

To give $LOKA more utility, the game also designates it as a fee for future breeding (Drago: a brand new item embedded in the game) and NFT upgrade features. Additionally, token holders can also place bets. Essentially, as we can see from the chart below, the value of in-game assets will depend more on themselves than outside or new players.

In -depth research on the token economy: Analysis of the League of Kingdoms

If all goes well, I expect the game will successfully transform its token economy and make it more sustainable. Since land buyers will naturally choose $LOKA over ETH, $LOKA is tied to Land, providing a powerful utility. If the value of $LOKA remains stable and appreciates, the demand for Land will surge, further increasing the value of $LOKA. From this perspective, the combination of $LOKA+Lands provides a great example of building an in-game consumption loop.

While it’s hard to predict whether the new system will last, it does have the potential to go in the other direction. First, a fair amount of $LOKA utility will come from the new Dargo project. “The first collection of the LOKGoods NFT series”. However, we’ve yet to see player reactions to it, so it’s uncertain if there will be enough demand for Dargo.

Second, as I analyzed earlier, land is the most important element of the game, and its utility previously came from stablecoin yields. While using native tokens will stabilize the yield per land, replacing $DAI dollars with $LOKA is a double-edged sword. Could a drop in the price of $LOKA lead to a drop in the price of Land and an infinite loop?

The key to avoiding this is to ensure that $LOKA has sufficient utility. Currently, leveling up the land depends on the development point system, and players can only earn development points by collecting resources, completing quests, or conquering temples. Is it appropriate and sensible to somehow count $LOKA into the development point system? For example: each time a player upgrades a land level, a certain amount of $LOKA must be paid, which is then redistributed through the council treasury.

Aside from utilities, another “less obvious” determinant of the GameFi project’s success is whether players find it fun. Come to think of it, if $LOKA does depreciate, the ROI on land becomes low enough. In this case, speculator demand will drop, so the price of $LOKA will also drop. However, if a sizable user base sticks to the project, $LOKA and land will not be completely useless. In fact, in this case, as the player base gets smaller, players are more likely to increase their lands and yields. Then $LOKA and Lands will appreciate accordingly.

Data, Computing and Financial Perspectives

Finally, let’s examine how these models work in reality.

First, let’s calculate the actual return under the current $DAI system. Since the game encourages play2earn, it uses a “winner is king” formula to distribute its rewards.

In -depth research on the token economy: Analysis of the League of Kingdoms

Using NFTBank’s data, I first calculated how much of the distribution of returns is at each level across all lands. For example, from March data, the current supply of Lv1 land is 386, and the threshold of development points to become Lv1 is 41506 points. Therefore, in general, the total number of development points for Lv1 land is 386*41506=16021316. Therefore, I have calculated the distribution ratio of the land for each level. Then based on the average daily reward for all lands ($3169.48 as of Feb 14-March 13), I found that the average daily return of $DAI per Lv1 land was $0.06.

In -depth research on the token economy: Analysis of the League of Kingdoms

According to NFTBank, while cumulative yields are increasing (and faster than before), the payback period for investors is too long, so there is a risk if someone decides to buy “high-priced” land from the secondary market. I think this is the main reason for the poor market trading data for League of Kingdoms. According to OpenSea data, the average trading volume over the past 90 days is just 11.88 ETH (as of this writing).

In -depth research on the token economy: Analysis of the League of Kingdoms

An interesting market observation is that buyers like to significantly overprice their lands , as shown in the graph below (I removed outliers for lv6 and lv7 lands). The purpose is to make metadata (like the piece I use) assert that there is a large market and attract potential buyers. At the sight of the overpriced comparison, one might think that sellers don’t want to sell their land. However, this may not be the case here. In the highly volatile market we just discussed, the current return on investment is very low. Even if it’s a blockchain “real estate” business, I don’t see why anyone wouldn’t sell it. So, the reason for the low exchange rate is simply because not many buyers exist.

In -depth research on the token economy: Analysis of the League of Kingdoms

Here, we can take a break and think from the standpoint of the game side. If the current system works as smoothly as it describes, why switch to a completely different model? Although they call it an “experiment”, that’s not the case at all. If there are no more buyers coming in, how will the game redistribute enough rewards through 10% of its revenue?

Next, let’s see what the yield will look like under the new $LOKA standard. As stated in the document, 5% of the total $LOKA supply will be used for land rewards, which means that 25,000,000 $LOKA will be redistributed to landowners over the next five years. The development points system will still exist. However, in order to reduce the gap between the different land tiers, the game also decided to issue a “universal income” (20% of the reward) to all land tiers. Below is the result of my calculations. If the price of $LOKA is $1.86 (price at the time of writing), the payback period for Lv1 land is almost 10 times shorter, and the payback period for Lv5 land is 5 times shorter. From here, we can see that the design of “universal income” does achieve its purpose.

In -depth research on the token economy: Analysis of the League of Kingdoms

These yields differ from the game’s estimates (see part 1), and I think the difference comes from their calculations for all lands, including those that haven’t been sold (after land sale #2, the circulating supply will be is 10197/65536). In the future, this yield will be diluted when more land is sold while $LOKA emissions remain the same .

In -depth research on the token economy: Analysis of the League of Kingdoms

With all the information out there, it will be interesting to make some predictions for the #2 land sale and the price of the land in the near term. Lately, GameFi projects are witnessing explosive growth — 2,934% more than last year, according to a Binance article. This latest wave of FOMO could have a ripple effect, driving the price of Lands as well as the LOKA token (as it has done in the past).

Also, the return on investment for the land will still be relatively low, but still a big improvement over the previous version. I think it’s quite possible that more buyers will be attracted by this higher rate of return. As analyzed in the first part of this article, as the price of land increases, so does the price of $LOKA to push the price of land even higher. As the utility of $LOKA such as staking (20% of total supply vs. 5% land reward) is implemented more, land may have more value and transactions will be more frequent. Therefore, I would expect a knock-on effect, raising the prices of both assets in the short term.

However, this is only my personal opinion and should not be considered financial advice. Many risks do exist, as mentioned in the theoretical part of the article.

06

in conclusion

With all that said, it’s worth watching what the new $LOKA design ends up being, and it’s very different from what it used to be. Whether it succeeds or not, we can all learn from this attempt. More broadly, I think League of Kingdoms’ new system will reveal to us what the token will ultimately be used for in-game. Are stablecoins enough to support a GameFi project in the long run? If not, how much utility should a token have to offset its volatile nature?

Furthermore, theory and practice are intertwined, but sometimes, the former can be misleading in the real world. It’s important to us that we have to double-check a project’s declaration. Ultimately, how you interpret the data determines how you balance your risk tolerance and return expectations, two factors that will always be important in making judgments in this unpredictable market.

PS: If you have any questions or are curious about the calculation method, feel free to contact me via Twitter: modeo.eth.

Translator’s Notes:

After reading this research report, I can’t help thinking about the relationship between games and the token economy. In other words, the difference between traditional games and blockchain games, and in the word Gamefi, is the attribute of Game more important, or the attribute of Finance more important?

In the traditional game field, there seems to be little discussion about the game token economy. For example, if Tencent’s shooting game “Cross Fire” announced that the purchase method of in-game assets was changed from CF points (recharged) to Q coin payment, it would not attract much attention. Because its nature remains the same, players still need to spend fiat tokens to “buy” (and actually “rent”) game assets. In most traditional games, there is only Play, and there are few opportunities to Earn (not considering the behavior of a few players such as boosting, live broadcast, etc.). Therefore, most of the players or participants of traditional games are very “existent” players.

In the field of chain games, most games can be Play2Earn. Therefore, the participants of chain games are no longer just players who want to play “exclusively”, but also some borrowers who have the demand for Earn (borrowing the game ecology economic gain). Take the author’s research object “Kingdom League” as an example (although I haven’t played it myself, but through the author’s detailed description and explanation, I can roughly understand the game’s attributes in terms of Play and Earn.), the author aims at whether the game player owns land. , to make a classification for the player; I can make a classification for the player from the purpose of choosing to enter the game. That is, player A wants to use the ecology of “Kingdom League” to seek economic benefits, then A may recognize the token economy of the game and choose to enter; player B really thinks the game is fun, and builds himself in the virtual world by buying land to upgrade. territory, you can reap a full sense of achievement. A and B actually represent two large groups, but when these two groups interact in the game for a certain period of time, it is possible that A will become less “speculative” because of the high playability of the game, and B also Possibly less “pure” because of the economics that benefit the game. In short, the “Game+Finance” attribute of Gamefi makes the game itself have dual attributes.

After clarifying the above logic, I think that the choice of token transformation for “Kingdom Alliance” is essentially to balance the two attributes of the project. After the reform and upgrade of the financial attributes of the game, if the (A-type) players approve it, the balance will not be tilted for the time being. Reversely, if a GameFi project has a good balance of Game and Finance attributes, and the level of both attributes is still high, then it must be a good GameFi project, because this type of project will not let “borrowers” “Stay away, and it won’t let the “pure player” lose the fun.

Personal opinion summary :

  • One of the core differences between traditional games and blockchain games is that blockchain games have stronger financial attributes.
  • The GameFi project can attract more users than traditional games due to its dual attributes.
  • A good GameFi project must take into account and balance the financial and game attributes in order to develop into a prosperous ecology and avoid short-lived.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/in-depth-research-on-the-token-economy-analysis-of-the-league-of-kingdoms/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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