In a dual-token economy, soft currency should be used as an incentive mechanism and participate in rewards in a more balanced way.
In a recent study of the P2E economic model, we analyzed the cumulative value per capita as a key indicator. During our analysis, we discovered some interesting data about Axie’s economic model, which gave us the following takeaways:
- A new perspective on soft currency rewards in the GameFi economic system
- New metrics that can be tracked across projects (requires data disclosure from teams)
- Belief in sustainability and the need to develop new economic models
Editor’s Note: Soft currencies generally refer to currencies that are unstable, weak and less liquid than hard currencies.
Three key figures in the Axie economic model are the main objects of analysis, starting with the treasury consisting of ETH representing market fees and the native token AXS, followed by the net SLP minting rate, and finally daily active users (DAU). Sky Mavis discloses the weekly accrued value of the treasury as well as data on daily active users in a spreadsheet. We run a Ronin node to view the history of SLP transactions. The weekly average price of ETH, AXS and SLP is calculated by the daily average price for a given week. (Data from CoinGecko, collated data file here).
Specifically, we compare the dollar-denominated value of inflows to the treasury and net SLP (note: net output including SLP burning) minting, assuming different percentages of net SLP are sold immediately. We are able to track the accumulation of value in the treasury and the amount of rewards paid to players, or the dollar amount withdrawn from economic activity by guilds or players. Additionally we looked at the player’s net balance (cumulative value – withdrawn value) and the ratio of accumulated value to withdrawn value.
Assume that 75% of all SLP net output is sold. As can be seen from the figure: from late September 2021 to today (except for the third week of November), the value withdrawn from the economic system exceeds the cumulative value of the treasury.
Assuming that 50% of the SLP’s net output is sold, the treasury deficit would worsen in mid-December, and in the 75% case, the treasury deficit would start to worsen in late September. We assume that between 50% and 75% of SLPs are sold, and it is possible that this number exceeds 75%.
In a scenario where 50% of the SLP’s net output is sold, we can get the following chart. Negative values indicate weekly net SLP consumption, and any value between 0 and 1 indicates weekly net minted SLP is lower than the value of ETH and AXS flowing into the treasury. It can be seen that the ratio has never approached 1 since mid-December. The negative value in early January was accidental, as Axie disclosed negative growth in its treasury assets.
We can also see each player’s net balance from the DAU data provided by Sky Mavis. In our analysis of cumulative value per capita, we focus specifically on this metric as a monetization metric. Considering the different ways in which participants extract value from the economy, we arrive at a different picture. Despite the various measures taken by Sky Mavis, from the end of September to the beginning of October, we have seen the economy turn into recession.
First, we treat SLP spending as an incentive, not a permanent “play and earn mechanism”. How do SLP incentives compare to DeFi incentives?
In DeFi, incentives are often paid in the form of governance tokens, leading to inflation and selling pressure. Whether it’s liquidity or TVL, capital is like a mercenary, and once the token incentives are over, they flow out.
SLP rewards are inflationary tokens of limited use and unrelated to governance, they do not create inflation or sell pressure on AXS, and can be minted at will by the protocol. You might think that the goal of SLP incentives is to attract daily active users, and more specifically to attract economic activity, i.e. market transactions and reproduction.
From May 31, 2021 to June 6, 2022, the Axie treasury accumulated around $1.36 billion in ETH and AXS from economic activity. Assuming 75% of the net SLP is sold, they need to pay players $1.64 billion in SLP rewards. If 50% of the net SLP is sold, participants will receive approximately $1.1 billion in SLP rewards. Axie has had great success by effectively swapping $1.1 billion to $1.64 billion in SLP for $1.3 billion in ETH and AXS, while still retaining nearly 600,000 DAU.
What can we learn from this?
- Viewing soft currencies as an incentive can stimulate liquidity for both the treasury and participants. But this incentive is subject to the team owning its market share and other value-adding mechanisms, and it doesn’t make sense to incentivize the market with a soft currency or even a governance token if the team wants to control the treasury.
- The team should maintain a balance between the cumulative value of the treasury and the overall withdrawal value of players. When an imbalance occurs, it may indicate that incentives need to be re-examined or other measures considered to bring it back into balance.
- The team should pay attention to the value contribution and value extraction of each participant, which may be used to discover new incentive mechanisms or economic models.
- Teams should prepare for situations in which over-withdrawal by participants creates a significant financial burden, including implementing player restrictions and value stabilization mechanisms.
- In a dual-token economy, soft currency should be used as an incentive mechanism and should participate in rewards in a more balanced way. It does not make sense to use a large portion of governance tokens (usually 30%) to reward gamers, this allocation should be used to incentivize contributions to the ecosystem and optimization of gameplay.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/take-axie-as-an-example-to-explore-the-design-goal-of-the-game-incentive-mechanism-of-play-and-earn/
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