What makes Web3 Economies Different? Part #1 — Evolution of Economic systems

Game economy design is a fundamental element of game design. It encompasses the building of core game loops, significantly impacts the game balance, and plays a vital role in creating a positive user experience.

Game economy designing and balancing has become a profession of its own, and due to their significance, it can be the determining factor of a successful game. The significance of game economy design has not diminished with the progress in the gaming industry; on the contrary, its importance has shot up in the most contemporary style of games, aka Web3 games. In part 1 of this 2-part article, we will explore the distinctions between Web2 and Web3 game economies.

NFTs — a refresher

Known as NFTs, Non-fungible tokens are digital assets held on the blockchain, a decentralised distributed database shared between a massive network of computers. Each token or NFT is unique and has a distinct identifying code on the blockchain. All NFTs can be traded or sold for cryptocurrencies, meaning they hold real-life value and give people actual ownership of their digital assets. Once created on the blockchain, NFTs are theoretically permanent. When saying theoretically, smart contracts are permanently embedded in the blockchain; however, the digital asset itself can be lost. NFTs can be virtually any digital asset, including videos, art, etc. NFTs are also a rapidly developing sphere in the gaming industry, making up the essence of Web3 games, going as far as altering the core game economy principles.

The evolution of economic systems

As previously mentioned, game economy design plays a forefront role in determining the game’s success. Through mindful balancing and designing the core gameplay loops, developers can ensure high player retention and satisfaction. Let’s take a quick look at the gameplay loops used in traditional games, their change with the introduction of the multiplayer aspect, and the current final evolution with the inclusion of NFTs.

Single-player games

Let’s start with traditional single-player games. The need for a complex economic system is usually not a priority, and the core gameplay can be broken down into a single-core loop.

“Source: Machinations Webinar by Matthew Morris.”

The basic principle is for the player to complete specific actions, receive an appropriate reward (experience, resources, gold), and progress through the game by reinvesting the said rewards back into the game. The reinvestment can take several forms, the primary ones being levelling up, upgrading gear, purchasing consumables, or any other desired item. The game economy at this level does not need to be overly complicated; however, it should offer the player a sense of progression and spark a desire or motivation to reach a particular milestone. However, with enough time, any player will undoubtedly get to a point in the game where the in-game currency loses its value. Take “The Elder Scrolls 5, Skyrim” as an example. When first starting, players aim to collect and resell any item worth even a little gold (the in-game currency) to make ends meet, be that for buying potions, spells, or upgrade materials. Fast forward a mere 5 to 10 hours of gameplay, and the game practically showers the player with gold, spawning high-value items everywhere in the world. This quickly reaches a point where there are not enough gold sinks to restabilise the economy. While the game itself is delightful, the economic system quickly loses its purpose and eventually stops affecting decision-making entirely.

Multiplayer games

Things got considerably more complex when MMOs started gaining popularity. Developers were challenged to simulate economies that supported player retention and kept them invested in the game, as unlike more traditional, single-player games, the primary source of revenue for these companies was earned by sustaining the game for as long as possible. The core gameplay loop may have stayed more or less the same, but the number of those loops, aka players, increased thousand fold. Furthermore, all of these loops would be connected via a marketplace to sustain the possibility of trade between players.

Early results of creating sustainable game economies were, to say the least, mixed. “Diablo 2” was a massively successful game back in the early 2000s. With excellent gameplay mechanics and (at the time) impressive visuals, it gained the attention of many. The economy, on the other hand, crumbled. In part because of exploits and partially because the game lacked any inflation-limiting systems, the value of the in-game currency crumbled. It got to the point when players abandoned it completely, opting to use items like “Stone of Jordan” as currency in trading. When the expansion Lord of Destruction was released, a new de facto currency, ‘High Runes,’ which could be consumed via crafting end-game items, became a de facto in-game currency. Eventually, however, they did this at the expense of trivialising in-game gear, leading to power creep and eventual saturation by a declining user base.

Diablo 3 experimented with the Auction House, and many excellent articles have been written on this subject — for example. Needless to say, the issue with the Auction House was that the designers underestimated the game-breaking impact that free trading would have on the game’s content progression systems. In response to this, many MMOs eventually settled on restricting trading, with desirable resources and equipment becoming either bound on pick-up or bound on equipment.

Web3 games

Web3 games added an entirely new layer to the core game loop. By giving the players the option to sell their in-game assets, the loop had to be “extended.” A simplified version of the first diagram changed to something like this.

“Source: Machinations Webinar by Matthew Morris.”

Players now have the choice of not reinvesting their assets. While this gives players unprecedented freedom in controlling their assets, the success of NFT games relies more than any other game on keeping players invested. The core difference from earlier attempts is that the game’s design needs to fundamentally factor in free trading as a core design pillar within the game’s progression systems. Besides all these loops connecting via the marketplace, they also depend on the general cryptocurrency market. Balancing all these factors and simultaneously providing your players with complete financial freedom turns into an incredibly complex problem.

Stay tuned for part two, where Guild of Guardians Economy Designer Howie Zhang delves deeper into the challenges and the higher details of Web3 economies.

References

(2022, February 3). Game Design for Sustainable Web 3.0 Economies [Video]. YouTube. Retrieved October 13, 2022, from https://www.youtube.com/watch?v=qVat8NgotA8

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Guild Of Guardians

Guild Of Guardians is a blockchain mobile RPG published by Immutable, and developed by Stepico. Turn your passion for gaming into Assets!