The P2E economy will become the base layer protocol for games

Player retention in games is everything.

Still, traditional game publishers optimize company profits at the expense of player value and well-being. They are able to do this because they have end-to-end ownership and control over the development, distribution and management of the game.

A good example is Electronic Arts (EA), a gaming company that has played a villain-like role in the gaming community as they put their microtransaction monetization model over the player experience.

In 2017, EA released Star Wars: Battlefront 2, and players either had to play for 40 hours to unlock single characters like Dark Vader, or pay to unlock them directly. The company’s response to the action was called “the most unpopular comment in Reddit history,” revealing the tension between publishers and gamers.

About 30% of the company’s total revenue comes from the sale of FIFA Ultimate Team (FUT) box loot items, and the company’s public filings indicate the company’s priority in capturing microtransaction activity. EA claims: ” All roads lead to FUT ” because “FUT is the cornerstone and we are doing everything we can to push players into it.”

The P2E economy will become the base layer protocol for games

EA’s Reddit Response – The Worst Reddit Comment Ever

The core vision behind Play to earn (P2E) is to address these issues by providing real player ownership of in-game assets and the world around them, ultimately creating greater stickiness and community retention.

Compared to the current global mobile game 30-day retention rate of 3%, we have seen the first remarkable P2E ecosystem: Axie Infinity has seen some initial success with a D0-D90 retention rate of 40%.

Problems with Web2.5 games

Due to the success of Axie Infinity, we are seeing a plethora of new P2E ecosystems trying to replicate its success. Still, the goal of many projects is to centrally control and coordinate the end-to-end production of games, so it is possible to replicate the same structural dislocations found in traditional games.

These Web 2.5 games are designed to take advantage of “crypto features” by enabling digital asset ownership via NFTs or financial ownership of economies via ERC-20, but at the same time aim to limit the linkage and participation of other more cryptographic properties of ownership such as governance .

Often, the teams behind Web 2.5 games want to build highly sophisticated and closed ecosystems, where the entire player experience is centrally controlled by a single organization. These projects consider themselves “game first” but are still optimized for Web 2 growth metrics and arguably share the same value extraction mentality as traditional game publishers.

Similar to CeDeFi, these games look to build closed-loop, centrally-controlled ecosystems on top of inherently open and permissionless encrypted networks.

While we do not expect all P2E ecosystems to be decentralized from the start, and we expect Axie Infinity to go through a more gradual process of decentralization, we believe that this Web 2.5 game development trend stems from the need for composability , interoperability, and the power of decentralized coordination technology.

1kx team’s perspective

We believe Web 3 games will trump Web 2 and Web 2.5 games as they leverage community ownership, real economic value and local composability to drive more player adoption and retention. We believe that the Web2.5 approach to building a P2E ecosystem is not sufficient to prevent value extraction by the community. This is because there will still be major reliance on a single coordinator with the end-to-end development and management of the economy and the ultimate participant experience.

Instead, we need to think of the P2E ecosystem as an open source public good, because here every aspect of the economy and the surrounding gaming experience is built in an open environment.

Through token incentives and community ownership, we are able to break down the role of publishers through a bottom-up set of contributors, participants and guilds that in turn drive world building, product development and Governance. By exposing these responsibilities, we no longer rely on one company to achieve the goals of the entire ecosystem, but can leverage open source contributions from anyone on the Internet.

We don’t think of P2E as standalone games or “apps,” but as P2E ecosystems as building self-sustaining virtual national economies that community members can trust, collectively operate, own, and build.

The P2E economy will become the base layer protocol for games

as an economy governed almost by the state

The P2E dynamics around games have taken on a whole new level of importance due to the current economy. These economies are not only places where community members come into play, but a world where they have financial advantages, ownership of revenue-generating businesses and valuable digital assets, and clear jobs and responsibilities.

We can think of P2E economies as virtual nation states. Its citizens will want to live in the most democratic country with the best opportunities (play, work, socializing, culture). In order for these virtual economies to retain their community members, they must fairly and transparently make decisions that have serious economic impacts on their citizens, such as:

  1. Economic policy: such as in-game asset supply, balance mechanism
  2. Monetization: such as value accumulation mechanisms, transaction fees
  3. Vault: For example, what community initiatives should be funded?
  4. Intellectual property: For example, how should the intellectual property of the ecosystem be licensed?

We believe that a community-run P2E economy will optimize functional governance, the “quality of life” of community members, GDP, and economic stability, rather than pure user growth. In turn, by making decisions that are more in the interests of community members, they can retain and attract better community members not only by providing a safely managed economy (public goods and sink-themed protocols).

As we spend more and more time in virtual spaces and are able to take our identities, friends and assets with us as we move from one world to another, the virtual nation-state analogy becomes more and more real .

The P2E economy will become the base layer protocol for games

Leverage economic benefits as a community distribution platform for an open source ecosystem of builders and creators

The P2E economy will become the base layer protocol for games

Unlike Web 2 games where data is stored by a centralized database, a P2E economy can act as an open, interoperable SDK platform on which contributors can build in a permissionless manner. This allows us to view the economy as a base-layer protocol for the emergence of other community-generated games and experiences, each of which is a new user acquisition channel for the ecosystem, as well as another driver of existing community engagement.

By doing this, we are able to give developers the opportunity to build and ship their games to a vibrant community from day one.

In the Axie Infinity ecosystem, this might look like funding new mini-games to help advance some of the Axie ecosystem goals, such as: a better onboarding experience for players, where creators of mini-games will get access to their games on the console Real-time token rewards related to success rate. By avoiding reliance on a single team and building in an open environment, games are able to expand the breadth of product insights and develop products in a more scientific and engineering-based manner.

This ecosystem approach can be applied to all other areas of operation of the P2E ecosystem, from community development to world building and knowledge crafting (think community psychedelic fiction or other derivative works where monetization is often prohibited in traditional models). Grassroots capital distributions can be generated through large-scale community financing mechanisms, such as quadratic financing, or even player-owned guilds that manage certain responsibilities and tasks, such as the Axie P2E Scholarship Guild that helps drive the distribution.

The P2E economy will become the base layer protocol for games

As players have greater control and mobility in the Metaverse, we believe interoperability will be a core driver of distribution across worlds. The more open and integrated these economies, games and worlds become, the more creativity can be generated through experimentation and permissionless integration to expand the top of the funnel for the P2E ecosystem. We believe that interoperability is not just “taking your sword from one game to another”, but can exist in many forms:

  1. Appearance and Vision (VRM Avatars, Cross-World Visual Features, etc.)
  2. Player world interaction (on-chain physics engine as a shared standard for FPS games, assets that maintain integrity across worlds, such as factories that need to be watered the same way across multiple worlds)
  3. Economical (allows users to buy and sell assets using other game tokens, or get discounts for using tokens from other games/worlds)
  4. Reputation (credentials verifiable across the world)
  5. Achievements (complete bonuses in games X and Y to unlock badges)
  6. Economical sinks and faucets (destroy X and Y game assets together to make unique skins/cosmetics)
  7. IP (seeing knowledge and roles in a P2E world in another virtual world)
  8. Access (an in-game item that allows virtual access to virtual spaces in multiple worlds)

We believe that the opportunity cost of not building interoperability will mask the net cost of doing so.

The P2E economy will become the base layer protocol for games

Play the role of sinks and faucets to earn money

Economic sustainability and growth occurs when the value flowing into the system is greater than the value leaving the system. In game design, the mechanisms that affect the flow of value in an economy are sinks and faucets:

  1. The sink takes the supply of an asset away from an economy (e.g. SLP burns breeding fees through Axie; breeders are generally incentivized to build stronger teams and earn higher returns)
  2. Faucets inject asset supplies into the economy (e.g. SLP by completing missions or battles)

For the economy to be sustainable, the sink needs to take more of the token supply from the economy than the faucet that brings tokens into the system, otherwise, as supply increases, there will naturally be downward pressure on prices.

An example of a future token sink is the introduction of vertically integrated upgrades for Axie body parts purchased with the SLP, be it cosmetic upgrades or rarity related upgrades. Currently, the only SLP sink in the game is overly reliant on lateral asset production, where Axies can come together and breed new Axies, but the quality and general appearance of each Axie remains the same.

The P2E economy will become the base layer protocol for games

Vertically integrated token sink

We can expect to see such tweaks in other emerging P2E games as they work on economic sustainability. We can expect the community to crowdsource the game and other player experiences to plug into the player economy as a new sink or faucet for stability.

We may even see other federated virtual nations integrating another economy’s sink or faucet into their own native experience to help another P2E ecosystem facing economic instability.

The P2E economy will become the base layer protocol for games

The Rise of Minimum Viable Games

We believe that the largest P2E ecosystem in the future may initially look small and rudimentary.

By considering the P2E economy as the economic and social base layer of the entire game ecosystem, we argue that building a P2E ecosystem is not about game development, but about the world building, culture, and incentive design of the underlying economy.

While we agree that a well-designed game will attract and retain the largest player base in the long run, we don’t think you need a highly polished game from the start to be successful, but one that’s good enough to complete the economy Minimum Viable Game (MVG) for Value Accumulation Cycles.

One of the advantages of Crypto is the ability to start the token economy immediately from day 0 and start building the minimum viable economic value accumulation mechanism long before the fully-fledged end-player experience. This contrasts with the waterfall development approach that traditional game studios have adopted from the start.

The path to launch a minimum viable game might look like this:

  1. Create a world that others want to belong to (design game concepts, design lore, aesthetics/visuals, create stories, design in-game assets)
  2. Assign ownership of the world to the community (to tokenize future in-game assets as NFTs and distribute them to early potential community members and players)
  3. Community launches tokens to guide ecosystem development
  4. Community raises funds into a shared vault
  5. The community has launched a minimum viable game and token exchange
  6. MVP removes tokens from supply (this needs to be driven by in-game player-world interactions that players have an incentive to exploit, e.g. players should believe that burning tokens is worthwhile)
  7. The economy gains more value when tokens are removed from the circulating supply
  8. Value is reinvested into the game
  9. Create better games and token sinks
  10. Repeat steps 7 to 9

The P2E economy will become the base layer protocol for games

We believe that by building a complete cycle of economic value accumulation early on, the P2E ecosystem can build games in a more streamlined and iterative manner with lower up-front startup costs.

Axie Infinity perfectly embodies the concept of a minimum viable game, as its first major boost came before the release of the breeding and combat components:

December 2017: Concept and development started

February 2018: 900 ETH Origin Axie fundraising (~$720,000)

May 2018: Breeding Game released (faucet introduced)

October 2018: Idle battle game released (introducing the sink)

January 2019: 3200 ETH initial land sale (~$400,000)

December 2019: Card fighting game released

May 2020: 4600+ETH completed the first quarter land sale (~$1,000,000)

November 2020: AXS Token Strategic Sale ($860,000)

April 2021: Ronin Chain Migration

September 2021: AXS token pledge

Although the game has more than 2.5 million daily active users, Axie Infinity’s roadmap is far from complete. Axie Infinity’s focus on community building and its iterative development approach demonstrates how MVG can be used to bootstrap a large-scale virtual economy.

The P2E economy will become the base layer protocol for games

Building a P2E Ecosystem with a Community-First Approach

Driven by our hands-on experience building token networks, we believe that the most successful and dynamic P2E ecosystems will prioritize community and culture over gaming.

We believe that the right world-building, culture and incentive design are key tasks in building a thriving P2E economy.

Worldbuilding: “Let’s build a world together.”

Under the minimum viable game model, the shared world construction in the early P2E community became an important driver of participation. Therefore, we expect more and more P2E ecosystems to adopt a content-first approach (e.g. Loot, Treasure, CryptoManga). We can expect that early user acquisition in the P2E ecosystem will be more like a skilled dungeon master working with the community to create a D&D world, especially when no games are ready or even being built at the time.

An example of this is Loot. Desiring for the fair distribution and innovative potential of text-based NFTs, dozens of developers see the potential of a new digital economy they can build together. Over the next few months, 86 community projects emerged to expand Loot’s possibilities, including new spinoffs, tools, and guilds around items, maps, lore, and visuals.

While we currently lack player-driven world building tools, we expect innovation in the coming years. We suspect that generative AI technologies will play a key role as humans transition from the role of content creators to curators. We view world building as a collaborative process, nurturing a community of potential players and other contributors before the game even begins.

The P2E economy will become the base layer protocol for games

Cultural construction: “Come for culture, stay for ownership.”

People enter the community because they resonate with the community culture, and stay in the community because they become the masters of the community. Culture is strengthened by demonstrating integrity around a set of values ​​and principles that inspire others to emulate. It’s co-created within a community, so it’s important to manage part of the early community.

While traditional metrics emphasize “how many players your game has,” we believe the P2E ecosystem needs to focus on “who are the players and contributors.” Therefore, we highly encourage the P2E ecosystem to carefully curate its early community members and participants. This can be achieved through manual whitelisting and other measures, such as limiting participation through pledges of allegiance or contributions.

“In the early days, one thing was important – many of our community members were “all in” and needed Axie to succeed. Now, NFT community members are also vulnerable to the “VC effect” where they have too many eggs on Too many baskets, not caring too much about one item. There was no diversification at the time. Also, the huge demand created a need for lottery and other sybil defenses that kept people from getting the distribution they wanted.” -Jiho (Axie Infinity)

The right culture will allow teams to take full advantage of the fact that P2E gaming increases reach as a community where players with aligned values ​​can make an impact in the economies they belong to and allow them to accumulate in the world they help create ownership.

The P2E economy will become the base layer protocol for games

Axie Infinity Discord

Incentive Design: “Reward Valuable Contributors”

While the culture may initially attract members and contributors to the community, they will only stick around if their work is fairly rewarded and an ownership mindset develops.

The P2E economy will become the base layer protocol for games

Diagram from “The Conundrum of Communities”

When designing the distribution of in-game assets and shared economic benefits, game studios should ensure that the most valuable community members and contributors are rewarded for their relevant work and commitment. When this contributor feedback loop repeats, trust, loyalty, and fanaticism develop.

We believe that token incentives are a scarce resource that should be allocated carefully and elitistly to the most valuable community members. We would like to see more experimentation with token ownership and in-game asset distribution models. For example:

  1. Only guilds with a certain size or collective “XP” can purchase exclusive assets such as virtual land
  2. Certain in-game cosmetic items can only be obtained by completing a rigorous knowledge test to gain in-depth knowledge of the game
  3. Completing quests (in-game or other community bounties) is a way for players to whitelist their own exclusive items, which act as “badges” that signify the reputation they’ve earned

We believe that P2E games should be cautious when designing incentive structures based solely on gameplay. By doing so, they run the risk of tilting their membership towards mercenaries who are more likely to jump from one game to another in search of higher returns (similar to how in DeFi protocols, productive farmers move from a farm to another farm). We believe that P2E economies should design their incentives to be more focused on retaining loyal community members rather than being used to drive pure user acquisition.

in conclusion

We believe that the most successful P2E games will start by building a great culture, community and vibrant economy, not fancy graphics and a lot of money.

We’re just beginning to understand how to build in an open environment. Our mission at 1kx is to be the most helpful investor for builders looking to build the next big project to win the ecosystem.

If you build something new in this space, we’d love to chat~

“If you want to go fast, go alone. If you want to go further, go together.”

Posted by:CoinYuppie,Reprinted with attribution to:
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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