Global Coin Research: How to create a sustainable Web3 game economy model
Creating a sustainable Web3 game economy model - Global Coin Research
Author: Lukasinho, member of the GlobalCoinResearch research team; Translation: Yvonne, MarsBit
Finding the perfect business model for Web3 games is a daunting task that has yet to be solved. The failure of the “Play-to-Earn” model has given rise to a new competitor: Play-to-Own. This model promises to seamlessly integrate Web3 technology into games while providing benefits to both players and developers. Several games have already adopted this model, so let’s explore the challenges facing the Web3 game economy and see if Play-to-Own can live up to its promises.
How is Play-to-Own currently designed?
P2O games typically adopt a free-to-play model, emphasizing the acquisition of in-game assets through gameplay rather than direct purchase. These assets are presented in the form of NFTs on the blockchain, giving players complete ownership. If players do not wish to use these assets, they can be traded on various markets.
The potential vision of P2O is to establish a game economy owned by players, transforming the transaction dynamics that mainly occur between developers and players in traditional games into transactions that occur directly between players. Therefore, the company’s revenue mainly comes from transaction activity and licensing fees, rather than direct sales.
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Play-to-Own vs. Play-to-Earn
Play-to-Own games like Skyweaver bring a new paradigm. Source: skyweaver.net
The Play-to-Earn model provides developers with a clear and direct business model centered around the sale of NFT assets. In Play-to-Own games, revenue streams are not as direct. Its basic theory assumes that players will trade in-game assets, allowing developers to generate revenue through transaction activity and royalties. However, the reality is that generating enough revenue through this method alone could pose significant challenges.
What problems does the Web3 game economy face?
Lack of sufficient trading volume in the secondary market
The secondary market can generate significant revenue, especially if trading is crucial to the game economy, as in FIFA Ultimate Team. In FIFA Ultimate Team, many players participate in a stock market-like player trading system to accumulate more FIFA coins and acquire better players for their team. YouTube channels with over 600,000 subscribers and websites providing statistics and price histories are specifically dedicated to trading players in FIFA Ultimate Team.
The daily average price of Kylian Mbappe in FIFA Ultimate Team. Source: Futbin.com
On the other hand, if trading is not core to the game, the generated revenue may be significantly reduced. The latter case is often the default assumption. For example, using a 5% fee structure, any item needs to be traded 20 times to generate the same amount of revenue as a single sale. In most games, it is unlikely that each asset will be traded at the same rate as a single sale.
Based on my experience building economic models for Web3 games, it is clear that additional revenue sources are essential to make most Web3 games economically viable, in addition to the fees charged on traded assets. These additional revenue sources can come from additional primary sales, a thriving trading economy intentionally built, or from value obtained through other means using Web3 technology. We will discuss these possibilities later in this article.
Trying to make money from the wrong users
In the Play-to-Own model, players earn NFT assets through gameplay and trade them on secondary markets, which often leads to the unexpected result of trying to make money from the wrong users. In free games, a small percentage of players (usually between 1% and 5%) make in-game purchases. These players tend to spend a lot of time and rank high on leaderboards. In contrast, most casual players enjoy the game without spending money on in-game transactions. In Play-to-Own games, in-game assets are earned rather than purchased, which creates a situation where loyal players who usually spend money buying in-game assets unlock most of the assets and therefore do not buy any assets, while casual players who are not willing to spend money are the ones creating trading volume. This dynamic leads to low demand for assets on the secondary market and low trading volume.
What are the viable solutions?
Personalization of game props
One effective way to address these challenges is to sell personalized cosmetic content that cannot be unlocked through gameplay. Players who spend a lot of time in the game and have high rankings typically value their appearance in the game. By offering exclusive skins or decorative props that can only be obtained through direct purchase, game developers can target players who are usually willing to spend money. “Fortnite” and “Counter-Strike” are typical examples of this strategy. “Fortnite” generated an average of $5.2 billion in revenue per year from 2018 to 2022, with a single skin netting $50 million. On the secondary market, “Counter-Strike” skins are priced at over $100,000, and Valve earns $54 million a month from selling “Counter-Strike: Global Offensive” skins. Although neither of these games has a real gameplay advantage, players still spend a lot of money on skins and other decorative props. “Fortnite” and “Counter-Strike: Global Offensive” are both among the most successful games of the past decade, making it difficult for any Web2 or Web3 game to achieve comparable results. However, these games are noteworthy case studies that demonstrate that if players really enjoy playing a game, they are willing to spend a lot of money on skins and other decorative props.
Introducing limited-time seasonal skins in Web3 games is a great choice because it creates a sense of urgency for sales and stimulates secondary transactions as players seek early rare skins.
Players paid up to $150,000 for this AWP skin. Source: ggrecon.com
However, maintaining proper balance is crucial. Developers must carefully manage the release of new content to maintain player excitement and drive revenue while avoiding too much content leading to the devaluation of previously released props. Finding this subtle balance is quite challenging.
Although Web2 games that allow players to trade in-game assets face similar problems, the key difference is that the impact of asset depreciation is limited to in-game currency, not real currency. Nevertheless, “Counter-Strike” has proven that a healthy secondary market can develop when balance is well maintained, with rare skins fetching astonishing prices.
By leveraging the appeal of advanced/exclusive game props, Play-to-Own games can create incentives for players to spend money, driving revenue and cultivating a thriving secondary market.
Let NFTs capture the value of time spent in the game
In games with progression systems like “World of Warcraft,” players invest a lot of time in leveling up their characters. The highest level characters with powerful equipment have enormous value, just like “World of Warcraft” characters traded on platforms like eBay, despite Blizzard’s policy prohibiting such behavior. This is because some players cannot or do not want to invest a lot of time and would rather buy pre-leveled characters to save time.
“Scarab Lord” items like this make an account very valuable; Source: opwowaccount.com
With the emergence of Web3 technology, developers can leverage player behavior through a “player-versus-player” economic model, where players can offer questing as a service to others. Because high-level characters require additional payment compared to level 1 characters, the turnover rate of in-game assets mentioned above will be significantly reduced. For example, in a Web3 game, the base price for each basic character might be $10, but when the number of characters reaches the maximum, the transaction price might be $100. Instead of 20 transactions, only 2 transactions can generate income equivalent to a single sale through transaction fees. This win-win situation benefits developers, sellers, and buyers, with sellers earning money through hard work and buyers saving time as they do not have to do the tedious task of questing to obtain a high-level character.
In addition, Web3 technology provides opportunities for value creation through the implementation of specific milestones in order to obtain special skins. For example, in a card game, a card that wins 200 games can earn a Blocking skin, and after winning 400 games, it can become a Diamond version. Although the card’s functionality remains unchanged, its novel and unique appearance increases its value on the secondary market.
These examples highlight the potential of Web3 technology in creating value and incentivizing player stickiness by providing alternative paths to progress and customization through the introduction of unique rewards related to achievements. By adopting a player-to-player economic model and introducing unique rewards related to achievements, game developers can improve the gaming experience, increase revenue, and provide players with more flexible gaming experiences and choices.
Tokenization of UGC
Cultivating user-generated content is a major opportunity for Web3 games. Games like “Minecraft” allow players to freely build their own virtual worlds, from exquisite structures and landscapes to complex devices. Taking this creativity to a new level, vibrant mod communities have emerged that develop modifications (mods), introducing fresh game features, visual enhancements, and custom content. This trend is not limited to “Minecraft”, games like “Skyrim”, “Civilization 5” and “XCOM2” also have thriving mod communities. Moreover, in games like “Need for Speed” or “Forza Motorsport”, players invest a lot of time in customizing the appearance of their cars, creating unique skins to make their cars more personalized. With Web3 technology, both developers and players can profit from promoting collaborative content creation.
1. NFT market for UGC: Game developers can create an NFT market where players can sell their UGC as NFTs. This can include in-game props, skins, art, music, and even custom levels or missions. Players can retain ownership of their work and receive royalties when selling or trading NFTs. Developers can earn commission from each transaction, creating a symbiotic relationship where both players and companies can benefit from the UGC market.
2. Royalties for UGC contributions: Game developers can implement a mechanism that allows players to contribute UGC directly to the game, and creators receive ongoing royalties as long as other players use or access their content. This applies to in-game assets, character designs, or any other form of UGC. NFTs can serve as the basic mechanism for tracking ownership and automatically allocating royalties to creators.