When the game encounters the chain game economic system thinking of the blockchain

On January 12, 2022, Beijing time, Louis, the founder of Octopus Network, was invited to give a speech at the “GameFi Chain Game Session” of the 9th Golden Tea Awards Ceremony, a grand event in the game industry, and shared his thoughts on the economic system of chain games:

Point 1: The game economy paradigm of Chain Games has changed, from a closed monopoly economy to a truly open market.

Key point 2: The tokenization of chain games assets brings changes in asset ownership, which can achieve “hot start” through financial effects.

Key point 3: 3 principles and 6 bases for the design of the chain game token economy.

Point 4: The best technology stack for chain games is an EVM-compatible application chain.

Point 5: Chain games need good infrastructure and good ecological support.

The title I shared was “When Games Meet Blockchain”: In short, I think the encounter between games and blockchain is a great opportunity for both parties, and they can achieve mutual success. Now the two circles are relatively isolated, and there are very few people who really understand both the game and the blockchain, so it is very necessary for the two circles to communicate with each other more. I’m not a heavy gamer, so what I’m talking about is from the perspective of the chain circle. There may be some things that are wrong, please correct me.

The economic paradigm of chain games

“Closed Monopoly” ➡️ “Open Market”

We believe that Chain Games is a paradigm shift in the game economy, from a closed monopoly economy to a truly open market. Before that, games were a service provided by game developers to players, namely the game experience. The gaming experience may be enhanced by the participation of other players and is a service-consumption model. Interaction between players is part of the gaming experience, but transactions between players are generally not supported because it is considered a loss of monopoly benefits.

When the game encounters the chain game economic system thinking of the blockchain

There is an important change in chain games in the Web3.0 era: the original in-game asset issuance policy, which is part of the game’s numerical system, will be stripped out and put on the public blockchain.

After the game asset issuance agreement is placed on the public blockchain, developers cannot easily change the agreement. Whether these in-game assets are interchangeable assets like gold coins or non-fungible assets like props and land, they will become standard-format tokens on the chain. Then the assets are issued on the chain and can be traded using any protocol on the chain. That is to say, all game assets become part of an open, huge, unified crypto asset market.

Games don’t necessarily need to provide transaction protocols themselves. Generally speaking, the liquidity of a game-created asset trading market cannot be comparable to that of a large market. As a game, the main business is to create a game experience. At the same time, the game experience depends on the identity and assets on the chain. For players, on the one hand, they interact with the game to consume the game experience, and on the other hand, they obtain assets by playing the game. The player’s private key directly controls the game assets on the blockchain.

Therefore, the chain game has the most important two conditions for an open market economy:

The first is this property rights system. It is very clear who the assets belong to. The player can dispose of his assets at any time and in any way he thinks is beneficial to him. For example, transfer, sale, etc., others have no right and cannot interfere.

The second one consists of the original various independent game economies, which were opened up by the blockchain, and connected into a huge, globalized and unified market with very low transaction friction. Much like the transition from the fragmented regional economy of feudal society to a capitalist globalized market economy

Tokenization of Chain Game Assets

Financial Utility & Applied Utility

We say that the salient feature of chain games is asset tokenization. Turning game assets into tokens has two main meanings:

The long-term implication is a change in ownership. Generally speaking, there will be an asset in the chain game called governance token or ownership token, which represents the ownership of the game economy. The incentive system of ChainGame should be designed around how to allocate ownership.

When the game encounters the chain game economic system thinking of the blockchain

The short-term meaning of tokenization is what we call token magic. Not only for chain games, token magic is effective for all web 3.0 economies, and can help platform-based economies complete the process of cold start. Whether it is online games, chain games or other platform-based economies, the core feature is network effects. The network effect is that the more users the platform has, the more valuable the platform service is to each user. Network effects are magical things. The innovations in the IT field over the past few decades and the emergence of Internet giants are all based on network effects. But the network effect is more difficult to start, because the number of users is small at the beginning, and the application value of the platform to users is very low. As the number of users grows, the application value grows slowly, and then grows rapidly after breaking through the key scale.

The platform-based economies of Web 2.0 are also facing the problem of cold start, or the chicken-and-egg problem. Then the solution is to raise funds through venture capital, and then spend money on the market to subsidize users to activate network utility. In the era of Web 3.0, there is a new method and new tool, which is the token. When you look at the white paper of the Web3.0 project, the most important contents are actually three points:

  • What kind of decentralized platform economy to build

  • How to launch the platform by distributing tokens

  • How Tokens Capture Platform Economic Value

If these three points are convincing, investors will recognize the value of this token in the future. In the financial market, assets that are valuable in the future are valuable now, and can be converted through risk-return ratios. So investors will go to get the token. Investors in a broad sense do not necessarily spend money to buy, but can also invest time and energy in exchange for tokens.

So the token has a financial effect from the beginning. Although the application utility of the platform is relatively low, platform participants can earn tokens by using them. With more and more users, the application effect of the platform increases. If application utility does not rise, but only financial utility, it is a Ponzi scheme.

As economies grow larger, new users take less and less risk, and their marginal contribution to network utility projects continues to decline. So the financial benefits of new users should be lower and lower, but they get better and better application utility. In this way, the Web 3.0 economy can be leveraged faster. The explosion of Axie Infinity is a classic example.

Chain Game Token Economic Design

3 principles and 6 foundations

Regarding the token economic design of ChainGame, there are three basic assumptions first, which are the basis for subsequent discussions:

  1. ChainGame is a virtual economy with network effect player to player.
  2. Chain game assets must pass the standard certificate issued on the chain.
  3. The blockchain economy is part of an open crypto asset market.

When the game encounters the chain game economic system thinking of the blockchain

So, how to design a chain game economy? Here are 3 design principles and 6 motivational basis for your reference.

The core of the chain game economy is the governance certificate or ownership certificate , which represents the ownership of the chain game economy. It means both benefits and rights. The interest is to transform the scale growth of the economy into the growth of the intrinsic value of the token through mechanism design, also known as value capture. There are multiple approaches to value capture, which cannot be described in detail here.

Ownership tokens are distributed to a variety of participants , including developers, investors, players, etc., that contribute to the growth of the economy’s network effects . In addition, the ownership certificate should have governance rights and be able to participate in determining the future direction of the chain game agreement , mainly the game asset issuance agreement. Protocols can be refined and evolved through on-chain governance.

In the vast majority of game economies, game developers will still be at the heart of it. In a game economy that is complex and requires continuous evolution, the distribution share of developers cannot be too low. Don’t give 100% of the tokens to the community against Fair Launch as soon as you come up, it is very irresponsible. If it is just a fork of the existing protocol, then all the contributions actually come from the community. In this case, it is fair and reasonable to give 100% of the coins to the community.

The good and bad design of the mechanism need not be a moral consideration. The less the developer gets, the more fair it is? not like this. The goal of the mechanism design is long-term incentives and Incentive Compatible. Let everyone have the motivation to do things that are good for the development of the economy in the long run. In addition, whether an investor buys in the primary market or the secondary market, if he provides funds, he should get the token.

The key is how to reward players. The core contribution of players to the chain game economy is to enhance the gaming experience of other players. If someone buys a prop NFT and then sells it, he is an investor and not a player. Players have to participate in the game to improve the game experience of other players, and only then can they make their due contributions. This kind of contribution needs to be verified and quantified by the on-chain protocol, and then given the corresponding token reward, which is the core of the design of the chain game economic system.

The incentive basis for rewarding player contributions depends on several factors:

The first is identity and props . Who is he? He has attributes. In fact, it also includes all the players’ past investment in the economy.

Second, consider the time invested, all rewards must be time-related, otherwise the game will fast-forward. The third is randomness , and randomness itself is part of the fun of the game.

The fourth is strategy, or skill . Because there are few real-time chain games, it is also correct to call skill strategy. A strategy is a method of participating in the game. Strategies can be individual or collective, and collective strategies require cooperation, and society is created by rewarding all kinds of cooperation. Also, there should not start to be an absolute optimal policy. The outcome of the strategy should depend on the strategies of other players or other teams during the same period. Only in this way can a complex system be formed and can self-organize and evolve. Once there is an absolutely rational optimal strategy, both the player and the player team will eventually lose their free will and become the slave of the algorithm, and the meaning of the game will disappear.

The last two points are content creation and expanding the game experience. Advanced games need to support players to contribute content and expand the game experience. On the one hand, it needs the support of the game technology platform, and on the other hand, it contributes content or new game experience, and the contribution is not easy to assess. So I put an asterisk, it’s advanced stuff.

The last big principle is that it is necessary to reasonably set up the value capture mechanism and additional issuance unlocking mechanism of the ownership of the certificate, so that the long-term growth rate of the total value of the ownership certificate is slightly higher than the speed of additional issuance of the certificate. The implication is that the intrinsic value of the unit ownership token should grow in the long run. In the crypto asset market, if the token loses its utility as a store of value, the person who gets it will throw it out as soon as possible. If no one is willing to hold the token, all token economic designs cannot be established. So why not set the increase rate as low as possible? Because the low issuance rate means that it is too beneficial to early participants, it will increase the cost of participants who come in later.

The ceiling of the chain game economy

Public chain transaction processing capacity

In the second half we discuss blockchain game infrastructure.

When the game encounters the chain game economic system thinking of the blockchain

In the second half we discuss blockchain game infrastructure.

The above picture is very simple, it is the daily trading volume of BSC in the past year. It can be seen that the average is on the order of several million per day, and when it is high, it can exceed 10 million. This is probably the number of transactions that the industry-recognized fast public chain can support. At the end of last year, it was particularly congested, mainly because of chain games. When the transaction volume reaches more than 10 million per day, the congestion has become more serious. The biggest ceiling of the chain game economy is probably the capacity of the blockchain. We call it an anti-network effect, that is, the more users there are, the less value to a single user because it is too blocked.

How to do it? The only way to run a large-scale chain game is to use the application chain, one chain for one game. At the level of Axie, there can be 1 million active users, and the daily transaction volume is millions or even tens of millions. A game of this magnitude can exhaust the capacity of the entire BSC public chain, and it is unsustainable to run chain games on the public chain.

Don’t just look at the current gas fee. The gas fee of the blockchain does not increase linearly . When Ethereum processes hundreds of thousands of transactions per day, the gas fee is not high at all. But when there are 700,000 to 800,000 transactions per day, when the capacity is close to saturation, the gas fee has not increased several times, but has increased dozens of times. This is like a traffic jam. When there are few cars, everyone is very happy to drive. After a certain critical point, the average driving speed will drop significantly, and everyone will not be able to drive.

EVM Compatible Lisk

The most suitable technology stack for chain games

When the game encounters the chain game economic system thinking of the blockchain

We believe that the most suitable technology stack for chain games is the EVM-compatible application chain. Why EVM Compatibility? Because there are many kinds of blockchain development technologies, but EVM is the absolute mainstream. The most direct problem is that the development of chain games requires smart contract developers. The ones you may find are basically Solidity programmers, and very few people know other technology stacks. Moreover, after seven years of development, EVM has been stepped on all the pits, and it is the most mature and reliable.

Lisk is one application per chain. Although it is developed with smart contracts, it can still enjoy the benefits of one application per chain. The first is the exclusive use of a chain of processing capabilities. Due to the small number of nodes, the application chain has better performance than ordinary public chains. It can process tens of millions of transactions a day, and supports chain games with millions of daily activities.

And you don’t have to worry about competing with other apps. If you are on a large public chain, it is possible that you have just done a good market activity, other applications start airdrops, and you find that all users cannot get in. This sort of thing happens on both Ethereum and EOS from time to time. Compared with DeFi, Chain Games has higher interaction density and lower unit value of transactions. Therefore, once the public chain is congested, the first person to be injured is the chain tour. Because most chain game users are price sensitive.

The second advantage is that Lisk is designed to serve an application. It can be fully customized to achieve the best user experience. Everyone knows that the Axie Infinity outbreak was in March and April last year. The most important opportunity is the launch of the dedicated sidechain Ronin. After Ronin went online, Axie’s transaction cost was basically reduced to zero, which triggered a big outbreak. Axie has been doing it since 2018, and the whole technology research and development has been very twists and turns. In the end, it can be said that Ronin was developed by himself.

The word Ronin means ronin, that is, a samurai without a head. Axie named this sidechain Ronin, with the intention of mastering the infrastructure by himself and not being controlled by others. The entire chain serves an application, and you can upgrade it. On any public chain, it is impossible for an application to require the public chain to be upgraded.

Octopus Network

One-stop infrastructure service

When the game encounters the chain game economic system thinking of the blockchain

Our Octopus Network belongs to the NEAR ecosystem. NEAR is a great public chain. The end of 2021 is the best performing crypto project. The ranking has rushed into the top 20 from more than 40, and the market value has reached 11 billion US dollars. It can be regarded as a long-term accumulation. The NEAR core team is a very strong technical team. NEAR-led sharding is the most complex blockchain technology with the greatest scalability potential.

The NEAR ecosystem also has an iron triangle for development. In addition to NEAR’s native smart contract development, it also supports AURORA’s EVM development. The main purpose is that the DeFi protocol of Ethereum can be easily ported. The third corner is the OCTOPUS Octopus Network, which is an application multi-chain network built around NEAR. Each application chain is an independent chain with dozens of nodes. The application chain has a seamless cross-chain with the NEAR main chain, and can have a two-way asset cross-chain with Ethereum.

The success of Lisk requires four pillars. The first is security, so that users can safely store assets on the chain, or transfer them across chains. Octopus Network provides rental security LPoS, which is on-demand rental security. The cost is controllable, and the security level increases with the expansion of the economic scale of the application chain. The second is cross-chain, the natural cross-chain between Octopus Application Chain and NEAR, and cross-chain with Ethereum through Rainbow Bridge. We develop Substrate IBC, through which Octopus Lisk connects to Cosmos. The third is infrastructure, a complete set of infrastructure services provided by Octopus Network. The application chain team only needs to do the application and front-end, and other things, including nodes, blockchain browsers, RPC clusters, Indexer, etc., are all provided by Octopus Network for free.

When the game encounters the chain game economic system thinking of the blockchain

Various Web 3.0 applications, including Chain Games, most importantly develop their own communities. Now when you are doing a chain game project, you must choose to join a good ecology, get ecological support, and get the attention of the community, otherwise no one will pay attention to what you do. Octopus Network can be seen as a de-neutralization incubator. After the team has done a good job of development and registered to the Octopus Network, after we have done a technical review, there will be an open voting mechanism, which is to win support in the Octopus Network community. We will help promote the game in the community. Every once in a while, the Lisk with the most support will launch the mainnet. 

At present, Octopus Network has launched two application chains, and it will be launched at a rate of one every two or three weeks. Octopus Application Chain and NEAR are naturally cross-chain. Native token can be cross-chained to NEAR as ID0. Octopus Network is the first 10 application chains to join, providing 20w OCT airdrops for its investors at ID0, helping the application chain to increase the fund raising of about 1 million US dollars. Then trade on Ref.finance, because it is a standard token, it can be combined with all NEAR DeFi protocols.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/when-the-game-encounters-the-chain-game-economic-system-thinking-of-the-blockchain/
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