[Feature] Tokenomics 3: Why Web3 games have an inflation problem

To say that Web3 games have a bad reputation would be quite an understatement. Over the past few years, plenty of games have promised new players that with a small investment, they could turn profits and make crypto games their day job.

Yet, to this day, few games are able to stay around for extended periods of time, and worse, many who buy into the hype are unable to recover their investments.

Worse still, there are plenty of stories of how Web3 games rug their users, closing all social media accounts and disappearing with their users' funds.

But the idea of making money off your games is not the most absurd idea in the world- after all, if you can have fun while making money, why not? As the author Mark Twain pointed out, “find a job you love and you’ll never work a day in your life”.

But how do we get there? To answer that question, it might be helpful to look at how Web3 games are trying to tackle the problems- and consider the merits and demerits of their approach.

Tokens to the moon?

A typical way that games might try to fulfil their promise is essentially by giving players a token, and telling them this token can be earned, and that it will go to the moon.

Sometimes, it works. Axie Infinity’s SLP managed to climb from less than a single cent to be worth 30 cents at the peak of its hype.

But that was as far as it went. After the hype died down, the token price crashed as well, and many who bought in during the hype lost their investment.

But why did it crash so spectacularly?

One clue is that we are looking at token price- and this is determined by demand and supply. Token price rises when people want the token and are willing to pay for it, and this is what happens when the game is popular. But as novelty wears off and people start to leave, people start to sell their tokens in order to convert them into other assets- leading to a supply glut and a fall in price.

The ‘tokens to the moon’ strategy only works when token prices are on the rise- and when confidence begins to erode, people start to sell.

Unless game designers are essentially willing to keep players invested by force, other methods of managing the supply and demand of these tokens needs to be found.

But managing an in-game economy is not exactly a new problem. Web2 game designers have also been trying to manage in-game economies for a long time- with startlingly little success.

How do you stop people printing money? You don’t

One of the core problems with managing an in-game economy is that limiting how much currency you can print is often not an option.

To understand why, we need to understand how money enters the economy in games. More often than not, money enters the economy via rewards given to the players for completing tasks, or through NPCs.

Take an MMO like Maplestory or Runescape, for example. Every monster you kill will yield some amount of in-game currency, which we can call gold. Alternatively, some monsters will yield items or loot, which can be sold to shopkeepers in exchange for gold. Crucially, shopkeepers are often also willing to buy up useless items for some amount of gold.

This gold really doesn’t come from anywhere special- its analogous to a block reward in that it simply appears out of thin air, except that there is no limit as to how much can be generated.

Now imagine hundreds of thousands of players, grinding away, killing monsters, simultaneously. Without an upper limit, this gold can quickly devalue, since there really is no real scarcity behind it.

And grinding is not something that can easily be worked around. Stopping monster spawns after a certain amount of time would certainly help stall inflation, but new players would then find themselves unable to progress because lower level monsters are now not available for grinding.

So limiting respawn numbers can help you with the inflation problem, but it can also be a quick way to kill off your game.

Instead, what developers often resort to is the creation of money sinks- places or mechanics that force players to burn gold, and thus removing it from the in-game economy.

This can take many forms: penalties for dying where you drop your inventory or a certain amount of gold, auction house fees, or even NPC services, like gear repair. Everytime a player pays the auction house fee, or repairs their armour through an NPC, that gold is simply deleted from the game, since it does not go to a player. Buying potions or ingredients from an NPC vendor has the same effect.

But while currency sinks might sound good in theory, experienced game designers will often tell you that there is no currency sink you can build that your playerbase is unwilling to grind for.

Creating new and improved items for players to buy, increasing repair costs, and increasing the auction house fee, are merely just stop-gap measures that can delay, but not solve, the problem of inflation.

So what can be done? Not a lot really, especially in terms of demand and supply management. And if it cannot be done in the Web2 space, perhaps we should give up trying the same thing in the Web3 space, unless we can promise something different with it.

Instead, what we should do is to keep players invested because they actually like the game- and this is something that games have quite some experience doing.

So how should Web3 games fulfil their promises?

Take a look at some of the collectible card games that are on the market- Duel Masters, Yugioh, and Magic the Gathering. These games are decades old, and yet, are able to draw in new players, while keeping old players interested. The Web3 world may still have something to gain by understanding why these players stay interested and how these game developers grow their playerbase.

Part of the appeal of a collectible card game (CCG) is that players put in plenty of effort in crafting, building, and using their decks, and therefore want to keep playing. On top of this, new cards are also constantly added to ensure that the game never becomes stale, and that metas can keep shifting depending on what new cards and resources are available.

In the world of blockchain technology, CCGs benefit from being able to do damage calculation, randomisation, and plenty of other functions automatically, meaning that players are able to focus more on the human aspect of building and creating and using their decks- which is ultimately what keeps them invested in the games.

And these cards can be said to have some value- after all, unless you are prepared to buy an infinite amount of booster packs or loot boxes in order to get the cards you want, you will eventually have to get cards by trading or buying from other players, who are also interested in playing the game.

This brings us to an important distinction in economics- the idea of exchange value and use value. Broadly speaking, something’s exchange value can be thought of as its market price, or how much others are willing to pay for it. On the other hand, use-value refers to what you utilise a commodity or good for.

In CCG terms, exchange value is what other collectors are willing to pay for a card, while use-value is related to how useful a card is in a game.

When CCG cards are turned into NFTs on a blockchain, players are not only interested in a simple token, but a collection of tokens whose combined value can amount to more than the sum of their parts.

This results in a fundamentally different business model as compared to the ‘tokens to the moon’ model, since users are not simply mining for what is essentially a fungible token, but buying something that can be used by themselves for a collection or be sold to others for credits.

So are CCGs immune to the inflation problem?

Unfortunately, it’s not that simple. But CCGs do have a significant edge when it comes to reining in inflation.

Let’s take a look at one example from the Web3 world- CrowdControl. This game is a CCG DAO, where players can create, own, and use cards to play games against each other.

Similar to MMOs, CCGs might find that inflation is an inevitable part of the in-game economy. But hyperinflation on the scale that MMOs can be avoided. And a large part of that is because there is not really a process analogous to ‘grinding’ in CCGs.

Instead, most players are likely to spend time either building decks, which is a currency-neutral activity, or playing against others, which might create some new currency, but can be counterbalanced with currency penalties for losing.

In addition, since in a CCG you cannot really sell away large numbers of useless or unpopular cards for gold, there is a far weaker tendency for inflation in CCGs. In contrast, every piece of loot in an MMO is useful at least for its resale value to the NPC shopkeeper.

That being said, building a CCG might come with its own problems- such as when new players join. Giving them a free deck, for example, might be seen as inflationary because it introduces extra sets of cards into the game.

But then again, as CrowdControl’s design specialist suggests, “ If a person is able to find buyers for cards that everyone has anyway, we should all crown them a sales genius and learn from them. “

Yet, designing a CCG by itself comes with a host of problems, and putting players in charge of designing and approving new cards is quite the task.

But given how much trouble inflation can cause in in-game economies, this may well be worth the cost.

Build a good game- and the in-game economy can take care of itself

In general, CCGs have one key problem to deal with- power creep, and how to balance it.

From a game company’s standpoint, they often need to continue selling booster packs in order to continue making revenue, and sometimes, this is achieved by increasing the power level of new cards. Unfortunately, this can lead to many of the older cards becoming irrelevant, and

Traditionally, CCGs have done so with different methods- creating banlists or limiting certain cards.And community members have taken their own initiative to rank cards, and create these ban lists themselves.

There are some ways, of course, to avoid power creep issues, and this is often done through the creation of incomparables.

Let’s compare, for example, a card that allows you to remove a monster card from play, against a card that forces your opponent to discard a card. Both card effects are what are known in design as incomparables- because there is not an objectively better one.

Which card is better will fundamentally depend on personal preferences of playstyle, deck building choices, and much more.

“Power creep exists mainly because game publishers use it to increase revenue from new content... Creating incomparables is not a problem for us. We can have all kinds of removals like Kill, Bounce, Exile, Put into Library, all of those are no problem for us and those are incomparables.

Because cards can have multiple effects, and you can combine them, you can create an insane amount of incomparables. You can combine a Kill spell with Discard a card from your hand, or Sacrifice an Entity, or Mill cards, and so on. The possibilities are endless with our current game design, and the design space is bigger than Hearthstone.”

Since cards on a blockchain are effectively tokens, an individual token’s value might differ from time to time depending on meta strategies, playstyles, and many other factors, resulting in a far more dynamic economy than would otherwise be possible under the ‘tokens to the moon’ model. After all, what one player prefers might be radically different than what other players prefer, and there are often several different viable deck types and builds within these deck types.

Looking at forums of CCGs, it is not uncommon to see debates raging over controversial cards or proposing interesting new ideas on how to balance unhealthy aspects of the games or certain cards.

But unlike in the Web3 world, once cards are released, there is nothing that can be done to change the card itself- and players are reduced to simply creating rules around the card’s usage.

A DAO like CrowdControl capitalises on this by allowing players to create and approve new cards, as well as change cards to make them more balanced. After all, players and their love for the game are an asset that can be invested in.

Indeed, this passion by gamers was in part what inspired the team at CrowdControl to create a CCG DAO- Anna believes that “there is a future where these super-fan creations can and should be part of the official game content, made possible by decentralising the design process steps in game development.”

The ability to edit cards even after release, however, means that balance changes will be even more effective- whereas other CCGs need to either release cards specifically to counter overpowered cards in previous expansions, CrowdControl’s community is able to mark cards as underpowered or overpowered, and send them for review, to have their power level increased or decreased directly.

“CrowdControl's flagship game is a TCG, so trading your cards with others is an integral part of the game experience. As with any type of TCG, there will be popular and unpopular cards - when you have light, you also have shadow. Magic the Gathering is awesome because you can search through 15k cards and find new interactions and build decks that none of your friends have seen before.But CrowdControl takes this to a new level- because you can create new cards at any time, which can lead to the constant revival and reuse of cards that were useless just a moment ago. Digging up treasures from the past is fun.”

Overall, these features have the potential to create an in-game economy radically different from the ‘tokens to the moon’ strategy.

Firstly, the in-game economy of cards and gold is not likely to experience hyperinflation because it does not rely on mining as a strategy for users to get what they want.

Secondly, tokens created and traded are likely to retain some of their value, because they are not used purely for exchange, but as parts of a game, meaning that there is some use-value instead of only exchange-value.

Thirdly, old cards or tokens are not easily devalued because of the possibility of rebalancing cards even post-release.

Together, these changes can result in a far more healthy in-game economy designed for long term development- players are incentivised to create, balance, and manage the cards in the game, and each token is unique and does not confer an unfair advantage to those who started playing earlier.

This may represent a new model upon which new Web3 games may be created- one that does not rely on expanding the playerbase to pump token prices.

As Einstein stated, “insanity is doing the same thing over and over and expecting different results. Perhaps it is time to stop trying to create Web3 MMOs with the promise that mining will get you rich.

The potential of blockchain games does not lie in creating a cash cow. The potential of blockchain games lies in optimising in-game economies, verifying transactions, and making practical what was impossible with only human calculations.

And it is time that blockchain games played to these strengths, rather than try to turn it into something that it is not.