Even most successful crypto-games have sooner than later the problem that the prices of the in game tokens, which have priorly been sold at lofty highs, tank and crush the token holders.
This usually correlates with the maturation of the game and a slowing down or reversal of (new) player numbers or "investors". And of course the similarity to devilish ponzi schemes are obvious: As soon as the inflow of new money stops, the game is over.
This article wants to explain why this is and how to create tokenomics that use math and money management formulas to circumvent this problem and help to stabilize the tokenomics and game economy.
1.) A game is a game is a games is a game.
This means the game design should attract players and token buyers and not speculators looking for lambo within a few weeks. Sounds reasonable? So why then are most gaming tokens designed to pay back the first token buyers 100% or 200% return within a few weeks? Such returns in a very short time span will never be sustainable and will only reshuffle money from the late buyers to the early buyers. There is never any benefit of that to the game itself. If you now say: We would have never been able to get any financing from the community if we would not have promised to pay back 100% or 200% profit within a few weeks! I would counter: Then probably your game / game design was bad in first place. You do not want to attract speculators, you want to attract loyal customers, aka game players who want to go all the way with you. And yes.. if they provide the funds to build the game, for sure they should be able to profit financially. But what's a fair return?2.) Fair return and time span.
Buying in game assets or in game tokens at a early point of time should never be called, assumed or estimated to be an "investment". This is not only due to restrictions of the financial watchdogs but also in regards to the high risk nature of such venture projects. But to get any hint about a "fair return" of an early backing of such a project it might make sense to look at venture capital returns. VC portfolio returns are assumed to be around 20% to 35% p.a. As most companies in such portfolios fail, the mayor pillar of the return can be traced back to a handful of super successful investments while most of the investments return zero. So hitting a 10x or higher return is pretty normal if an investment really lifts off. This will however usually be achieved within a multi year time span and not within a few weeks or months.3.) How to create sustainable game tokenomics.
There are three important rules:
a.) its a game and it will only be successful if it makes joy playing it
b.) all stakeholders should know its a game and not a bank or a ponzi but a game
c.) if the game is a big success, every stakeholder should benefit
So yes, if the game is successful, early buyers should either benefit by getting in-game assets / tokens required for a good game experience at a huge discount to later prices or even make a decent return by selling those in game assets or tokens at a later point of time. But the paramount success is still the release and subsequent development of a great and joyful game.
And while a great game is the basis of any success, a failed token economy with crashing prices can still kill it. So we have to take care about this, too.4.) Share the cashflow
Most important tools for healthy token-economics are of course token sinks. They have to be an integral part of any game design to balance inflation of new tokens. But as this is general knowledge and all games have implemented all sorts of token sinks we have to dig deeper.
To align all stakeholder interests, early token / asset buyers and players should profit from the economic success of the game. This means that a fixed and predefined portion of any cash-flow / revenue has to be given back to the community. This revenues can come from token sales, pack sales, in game asset sales, hive posts or even advertising and promo from brands.
While of course the team and the servers have to be paid, 25% share to the community seems to be a good number. So now we take the cut of 25% put it in a pool and just buy back the tokens? NO - there is a much better way for the whole community to do this.5.) How to stabilize your token price and give back to your community
While traders love volatility, any other person will hate the big price swings that you often see in crypto. So if a huge flock hears about that new game and buys the tokens, the price can explode. Unfortunately the game itself does not profit if a newbie buys expensive tokens form an early buyer and just to the contrary: while the early backer sold her tokens, the newbie is now locked in at a high price... frustration will set in as soon as the price goes down again. So if you are in a early funding phase for the game, try to set reasonable price points for the sale of your tokens. Do not make the steps between the tranches too big and if there is a lot of demand just satisfy that demand. If you do your token sale for example on hive engine just make sure there is enough supply already in the order book. So on the one hand buyers directly pay into the project and on the other hand speculators are driven away as they see that there is no room for arbitrage returns. So once we established a decent sell-wall that everybody can enter our game community we have to take care about the buy-wall as well. Having established this ever-growing cash-flow pool, the questions is now how to do the buy backs. This should be answered by math: We have now a fixed (but ever growing) pool containing 25% of all cash-flow revenue. Those are the total funds available for the buy back. The other number is the amount of tokens we want to buy back - and now it gets interesting. We sum up all currently outstanding tokens and divide them by two. So our buy-wall consists out of a single buy order which number of tokens is half of the outstanding tokens divided by two and the price of that buy order is simply all that buyback pool money divided by that token amount of the buy order. As new tokens likely will be sold or airdropped constantly and as there will be constant cash inflow and a the same time token sinks absorbing tokens, both numbers will change frequently. Hence after each week or month the numbers should be calculated again, the old buy order canceled, the new buy order set.6.) Scenarios
In normal circumstances that buy wall will never be hit. So at that point of time it gives all token holders assurance that they can dump their tokens whenever they want.. also at a low price, but they can sell if they want. However if someone needs to dump his holdings or we are in a bear market, the buy wall could be hit. The tokens are absorbed, the outstanding liquid number of tokens goes down while the buy order is consumed to some extend. So as the numbers are calculated new and the order is refreshed, it will be at a smaller size (as some tokens have been bought from the total outstanding amount) and at the same time some pool funds have been used, so the price for the new order will also likely go down by a bit. In that case its pretty similar to a liquidity pool.
As the tokens are bought back at a cheap price the community will even profit by a persons fire sale. So tokens can now be burned or put into the sell wall again at double the buying price. Returns going back to the community.7.) Token inflation and token sinks
Token inflation, token sinks, player numbers and new cash-inflow should be connected by another formula, too. While the above stabilizer formula supports long term survival of the game tokenomics (macro),the "day to day" business (micro) is defined by a healthy inflation. Especially in game token earning possibilities should be balanced to players growth numbers and use of tokens sinks. At the same time new tokens issued to total outstanding tokens should also be watched carefully. A good rule of thumb could be to keep the number of circulating tokens constant to the number of players during the growth phase of the game. (new player growth)
Just never forget: In first place the players are here to play a great game - while they will not complain making some money while having fun!
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