A high level introduction of the challenges games face when entering Web3
Game-Fi, a combination of gaming and decentralized finance (DeFi), has emerged as a new trend in the gaming industry. GameFi combines the reliability, decentralization, transparency and financial opportunities of blockchain with the excitement and engagement of gaming. This innovative approach enables creators to create new meta-universes and game worlds, complete with their own in-game economies. In these immersive environments, players can simultaneously enjoy the gaming experience and earn value through various in-game activities.
However, game creators face numerous challenges when integrating these open economy primitives into their games, as they need to carefully balance the game's core design, player motivations, and economic factors.
While the mechanics and economics of individual GameFi projects may differ, there are a few commonalities:
Blockchain Technology: GameFi projects run on a blockchain’s distributed ledger. This keeps track of player ownership and core game mechanics while ensuring that all transactions are transparent
Play/Pay-to-Earn Business Model: In contrast to traditional gaming, where users play to win, GameFi projects adopt a P2E model. These games incentivize players to play and progress within the game by offering rewards that have measurable value outside of the game. These usually come in the form of in-game cryptocurrencies or NFTs
Asset Ownership: In traditional gaming, in-game purchases are non-transferable investments locked within a single game. With P2E, players own their in-game tokenized assets. In most examples, they can exchange them for cryptocurrencies and, ultimately, fiat. Assets can range from a suit of armour to a plot of virtual land, which are tokenised on the blockchain.
DeFi Solutions: Many GameFi projects may also include decentralized finance (DeFi) elements, such as yield farming, liquidity mining, and staking. These provide additional avenues for players to increase their token assets
You might have heard of the Blockchain Trilemma, coined by Vitalik, which is scalability, decentralization, and security. The issue here is that it is tough to find a balance between the three. It’s the same with how it’s hard for you to manage your social life, work, and sleep.
Similarly, GameFi has a trilemma of its own. Specifically, accessibility, profitability, and gameplay. Blockchain games have a lot of expectations placed by users.
- Must be built on the Blockchain
- Must have fun & engaging gameplay
- Must be accessible
- Users can play and own assets
- Must have sustainable tokenomics
Currently, looking for sustainable blockchain games is akin to finding a needle in a haystack. To understand this deeper, we must dig through the root of GameFi’s sustainability problem — the GameFi Trilemma.
Trilemma #1 — Gameplay
For open economies to be successful, game creators need to prioritise in-game production loops (GDP / Gross Domestic Product) of their economy over the gross merchandise value (GMV) of the economy. The game must intrinsically be fun and valuable for a player to spend money on and facilitate the transition of users from consumers to co-creators - to power the GMV of open economies. Most games entering Web3, have launched speculative assets without the supporting utility and framework for those assets to increase in value sustainably.
Trilemma #2 — Accessibility
There are two main facets to this issue. These are:
- High entry cost
- Economic barrier
Web3 games have been historically challenging to enter for newcomers. The innate technological barriers on blockchain, such as ease of access and the possibility to lose assets and access to unhosted wallets has placed a strain on the adoption of the technology.
Similarly the entry costs for game creators is steep, both economically and in terms of the required technical expertise.
This leads us to the first facet of the accessibility dilemma.
1) High Entry Cost
Game creators entering Web3, typically have high entry costs in terms of product and economic development. Smart contracts require security audits and the game economy must start off with sufficient liquidity to provide users and investors the ability to kickstart the flywheel of their economy.
Assets that are denominated in tokens, especially when these token-gate certain game experiences, are unsustainable in nature, as they hinder the adoption of casual players to enter the game. These assets also do not provide a transparent rating and inherent value, which can repel newcomers from joining the game.
2) Economic Barrier
Many game developers seeking to enter Web3, face the challenges of designing sustainable economics and tokenomics models as well as transitioning to a tax based business model. Essentially game creators are required to design novel economic systems in addition to creating a fun and engaging game, which can quickly ballon balance sheets of smaller companies.
In addition to designing sustainable tokenomics, game creators must maintain and incentivise a healthy liquidity for their ecosystem and continously engage with other defi protocols and liquidity providers.
Trilemma #3 — Profitability
Creating novel open economies based on VAT (tax) powered monetisation strategies requires game creators to fundamentally rethink and redesign game loops and capitalisation opportunities. For assets in a game to appreciate in value, increasing the taxation based remuneration of game creators - game creators must first provide sufficient asset utility and liquidity. This is especially highlighted by the failure of the play-to-earn model.
A GameFi project with a native token value in a downward trend cannot scale effectively using the current P2E architecture. For instance, the revenue stream for Axie Infinity’s players has decreased by more than 95% from its peak. Axie Infinity had a peak of 2.7 million players in 2021. Currently, there are less than 500 thousand active players.
It is of utmost importance that Blockchain games find a good balance between engaging gameplay and money-making. If, at a certain point, a game’s money-making element dwindles, the game must still be a fun game to play for players to continue playing. On the other hand, if no strong community engagement is pushing for it, the NFTs themselves quickly become worthless in no time.
Acxyn helps solve the challenges of the GameFi trilemma, by abstracting the need for game developers to deploy extensive token economies by tapping into a unified currency framework and emissions engine - realigning the incentive mechanism within the economy with a creator centric design. In addition Acxyn overcomes the accessibility challenges that the gaming industry faces, by providing a singular platform for game creators, investors and players to access the world of GameFi. Finally, Acxyn provides game creators with a novel IP tokenisation and valuation toolkit, that enables creators to raise funds, access Web3 based revenue and licensing opportunities and benefitting from the network effects of their assets appreciating in value - allowing them to focus on building the best possible game and gameplay mechanics.