A Guide To Tokenize Web3 Games

At the beginning of 2022, the “Move-to-Earn” category leader STEPN took the Web3.0 gaming space by storm with its smooth gameplay and income-generating potential. We are excited to see the game market’s transition from play-to-earn games with shorter life cycle to a GameFi 2.0 model — engaging game experience, sophisticated art style and dedicated, well-designed game economies.

Witnessing the potential of the web 3.0 game market, game studios are exploring potential tokenization of their games. Many have impressive backgrounds, outstanding achievements, and Web 3.0 pioneer advisors. However, some of the discussions and initiatives ended in vain. We would love to share our view on web 3.0 game and its tokenization models, and open up more room for discussions between game makers, investors and guild / professional league members.

Our key observations are:

1. Not all game genres are suitable for Web3.0 tokenization at the current stage — we will probably see successful tokenization cases from light to mid commitment games such as SRPG (strategy role-playing games), SLG(simulation game) and casual games first;
2. Directly introducing NFT assets, utility and governance tokens to a popular Web 2.0 game will not add icing on its cake. Rather, it will disappoint the original target customers and do damage to the existing game economy;
3. The “utility token + governance token’’ dual-token model won’t work for most web 3.0 games in the long run. Web 3.0 game economists should look at classical monetary theories and understand one can’t have free flow of capital, independent monetary policies and stable FX rate at the same time. Treat web 3.0 games economies like real economies with international political economies theories in mind, too;
4. Given such framework, web 3.0 games should introduce more than just utility token and governance token — in-game currencies with stablecoin-like design, loot boxes, NFT battle passes and tokens should be considered altogether to build robust economies;
5. Numerical engineers for games (not to be confused with game economists) in China are especially skilled at designing sustainable, inflation / deflation resistant game economies — but building a large existing user base is the prerequisite.
6. Using the right token and NFT incentives to bootstrap crypto native user base and then expand to web 2.0 gamers would be an ideal go-to-market strategy.

Get in touch with us to discuss more on game design, hiring, game economy design and bootstrapping communities.

Below are ten common questions from our recent discussions with game developers. We will also share our potential answers and solutions.

Question 1: How did GameFi 1.0 games such as Axie Infinity lose traction overtime?

Transaction & Account volume change of Axie Infinity

Source: https://dune.com/zhai/Axie-Infinity-(AXS)-onchain-analytics

The market has passed the earliest FOMO stage. Here are some of the common causes of how some GameFi 1.0 star projects have fallen in popularity:

• Lack of gameplay
• Lack of in-game asset consumption mechanism
• Fast token emission speed
• Abnormal game equipment price and production output, caused by excessive fluctuation of token price, inflation destroying the game economic system

We are looking at these games using the economy model.

The game projects that fell in succession in GameFi 1.0 are like the countries that failed in the 1997 Asian financial crisis: South Korea, Vietnam, Malaysia, Russia, and so on. These countries have all enjoyed a short-term economic boom, with huge external debt growth and an influx of foreign capital.

Source: https://www.rba.gov.au/speeches/2007/sp-gov-180707.html

Capital markets in the region were underdeveloped, so the capital inflow tended to be intermediated through the banking sector. These countries spent a lot of foreign reserves to support the exchange rate of their currencies when hot money flowed in without capital control. They are forced to suffer the consequences of currency depreciation, and asset price decline.

The gamefi 1.0 projects are experiencing this process followed by their brief glory. We believe that the biggest failure of GameFi 1.0 is the neglect of the “impossible trilemma”- a classical monetary theory.

The impossible trilemma theory simply suggests that countries cannot simultaneously maintain the below three:

1. Free flow of capital
2. Independent monetary policy
3. ​​Stable exchange rate

The original design for most GameFi 1.0 projects is to :

1. Guarantee the free flow of capital: Players can freely buy or sell SLP/AXS and NFT in the game with ETH
2. Independent monetary policy: Each game has its own rules for token circulation, which is equivalent to the country’s desire to implement an independent monetary policy.
3. Therefore, these game projects naturally give up a stable exchange rate, which causes the token price to inevitably fluctuate wildly as players and hot money move in and out. In the end, it fell into a financial crisis and ended up with nothing.

Therefore, the answer to Q1 also answers the question we threw out earlier: A successful Web 3.0 game is by no means a successful Web 2.0 game and simply replacing equipment or resources with NFTs or issuing the original points pass of the game into tokens.

With the perspective that blockchain games are national economies, traditional games can basically be understood as a “closed economy” or a “planned economy”, while Web 3.0 games are naturally “open economy” due to the nature of the crypto market.

The design of NFT and Token is essentially a process of “opening up”. Issuing NFT or Token is like a closed and self-sufficient economy trying to open up industries, introduce foreign capital, bear foreign debts, price exchange rates and modify monetary policies, which is a brand-new impact on the game economic model which was originally complete in a closed state after all. Simply replacing the original currency or points in the game with token will cause the economy to be severely impacted and out of balance by freely circulating capital.

Question 2: What will GameFi 2.0 games be like ?

We believe that MMORPG games will be the mainstream type leading to GameFi 2.0 and the most suitable game to be tokenized in Web 3.0.

Let’s classify games according to cost, content depth and gameplay difficulty, we roughly categorize them into heavy commitment games, moderate commitment games and light commitment games.

Heavy commitment games (competitive) mainly include familiar AAA masterpieces, such as GTA, which are often dubbed Game Takes Ages by players. Moderate commitment games can cover most role-playing, sports competition, strategy SLG, real-time strategy RTS, card games and so on. Light commitment games are casual games such as mobile tennis, card games and blitz games.

It is too early for web 3.0 game experiences to compete with traditional AAA heavy commitment games produced by big game studios.

Light commitment games are mainly aimed at fragmented entertainment needs, which consume less time, money and attention of players, and lack the circulation of multi-layer assets in the system. It is also difficult for light games to transform Web 3.0 games at the current stage.

Moderate commitment games is the remaining category that is still suitable for Web 3.0 game innovation at the current stage. To be specific, it is the MMORPG games that are most suitable for tokenization into Web 3.0 games.

MMORPG games have a rich world outlook, strong playability, full social experience and mature game development and economic mechanisms. As mentioned above, games such as World of Warcraft and Dream Western Journey have been popular for nearly 19 years, some MMORPG games in Roblox also have lasted around 10 years. Trading is at the essence of MMORPG games, emphasizing the concepts of assets and in-game economy. We have observed a significant trading volume of virtual assets in games. This characteristic makes MMORPG games naturally meet the need of crypto native players.

MMORPG (Multiplayer Online Role-Playing Game) games can be divided into approximately moderate games and some heavy games. The birth of MMORPG type games can be traced back to the 1970s, with gameplays like time rounds, sandboxes, open world and other games. The overall gameplay of MMORPG is relatively mature, which is deeply loved by the majority of players.

Many popular world games, such as World of Warcraft, Final Fantasy 14, Star Wars Eve or Dream Westward Journey, etc., are classic and long-lasting games.

Referencing the development of traditional games, we think GameFi 2.0 is closer to the stage of MMORPG games explosion in the 21st century. The most important thing is to find a balance among input cost, attention and game experience.

P2E (Play To Earn) is not a trendy word for traditional MMORPG gamers, nor is it some kind of original creation of Web 3.0 games. Ten years ago, a large number of players of World of Warcraft or Dream Westward Journey have already started farming in games.

We were amazed by a website that shows the price chart of WoW Gold against the US dollar. Players could sell WoW gold coins they farmed in games to make real cash. However, games officially encouraged players to earn gold coins in the game, and this RMT (Real Money Trading) was severely suppressed. We will expand our discussion on this specific point in detail later in Question 3.

How to develop these closed economies of MMORPG games into open economies of Web 3.0 games is the key question we need to answer.

Question 3: How many tokens should be issued in Web 3.0 games?

After decades of development, traditional games have basically formed a classic triple-currency or quadra-currency model in closed economies:

• gold coins
• silver coins
• gems (and points)

Most importantly, the flow of different currencies was kept one-way, i.e. only a one-way exchange mechanism from fiat money to gold coins to silver coins to gem can be formed.

Fiat such as the US dollar can be added into games and swapped for gold coins first. Gold coins as the first currency in the game, is the purchasing power of fiat units, gold coins can not be reversed back to fiat.

Gold coins can be converted into silver coins at a certain ratio. Silver coin is the most important and major circulating currency in the game, which can be farmed by playing in the game, and it is also the consumption currency of the main behaviors such as upgrading, repairing and refining in the game. Silver coins bear the most important monetary medium in the economy, and silver coins cannot be exchanged for gold coins.

Silver coins can be exchanged for gems, which can be used to draw for treasure, buy the best props in a limited time in the official market of the game. Once silver coins are exchanged for gems, gems cannot be exchanged back, gems cannot be transferred out, and can only be used in shops.

Some games will have the fourth currency as points, which can be gained through daily active tasks, such as logging in and meeting certain game duration, then exchanged to gems. Points can not be converted into gold or silver coins, can not be transferred to others, and can not be sold to fiat.

RMT (Real Money Trading) mentioned in Q2 refers to the process that users swap silver coins earned in games into fiat in the real world. The reason why the game officials are strictly against RMT is to prevent hostile gold farmers from leading to inflation in the game, which not only disturbs asset prices, but also destroys the game economy.

At the same time, silver coins flow to gems in one direction, which is also to encourage the consumption of silver coins by introducing scarce high-end equipment, and to combat the deflation of output by diversified means of consumption.

In particular, points cannot be swapped for silver coins or gold coins, so as to prevent players from earning points by logging in a large number of trumpets and swapping points for silver coins, thus generating a lot of selling pressure.

Web3.0 game economy is very different from traditional games. We will share the conclusion first then explain the reasoning behind it:

All attempts to “simply” replicate the traditional game economy model in Web 3.0 games cannot last.

We can abstract a similar game economy framework for Web 3.0 games:

1. The unit of account (ETH/SOL) in Web 3.0 games will play the role of fiat. Users generally need to trade ETH or SOL for some kind of NFT to enter the game, such as hero characters or shoes. Therefore, credits such as ETH/SOL or stable coins approximately replace the role of gold coins;
2. The silver coins in the game mainly include SLP in Axie, THC in Thetan Arena and GST in STEPN, which are generally called game consumption coins. There is no total limit on the supply and bears the most important function of circulating medium in the game;
3. Gems in traditional games have been replaced with governance tokens with upper supply limit, such as AXS/THG/GMT. Governance token is an important innovation in Web 3.0 games. Compared with the role that gems are only used to buy the best time-limited props in official marketplace, governance tokens also have the functions of treasury governance, consumption of specific utility, and game revenue sharing;
4. Most of the points function in traditional games is absorbed by silver coins (SLP/THC/GST) in Web 3.0 games.

Web 3.0 games seem to be able to map or copy the token design of traditional games, but the seemingly simple mirror process is exactly the reason most easily leads to the collapse of Web 3.0 game economy.

The traditional games mentioned above strictly set the one-way circulation of funds. It is impossible to prohibit the free trading of Eth/Sol and NFT in Web 3.0 games, and it is also impossible to restrict the trading of SLP/GST. Many exchanges have launched silver coin trading pairs (although I think this is not a good thing for games), and governance tokens have been overly hyped.

As you can imagine, a large amount of hot money freely impacts the economic system of Web 3.0 games, which is equivalent to seriously destroying the law of “impossible triangle”.

If the game wants to maintain free capital flow (players cannot be prohibited from trading tokens and assets in the blockchain) and independent monetary policy (the game has its own inflation control mechanism), it can only be forced to give up the stable currency exchange rate or say stable token price. Finally, game consumption coins and governance tokens can only usher in the end of large-scale depreciation.

We can also brainstorm this: if the game changes the gold farming reward from their own tokens to USDC or Eth/Sol, so that players can earn real money, is it better for Web 3.0 games? Who is paying the bills of the real money earned by players?

Our token design for Web 3.0 games is mainly three kinds of tokens:

• a game consumption token,
• a game governance token
• and a volatility adjustment token (stable token)

The design of active points can also be added as appropriate, and the specific design will be discussed in the following issues. Welcome to discuss with us in detail.

Question 4: Are Web 3.0 game tokens doomed to depreciate?

Unfortunately, our answer is YES.

Whether it is a Web 2.0 game or a Web 3.0 game, the game consumption coin is doomed to depreciate in the long run. The only thing we can control is the rate and paths of the depreciation.

Many reasons will lead to the final depreciation of game consumption coins, for example:

1. No matter how subtle the economic model is, it can’t rule out some self-owned defects, such as imbalance between the gold farming ways（supply） and consumption utility of coins（demand）；or there are multiple currencies in the game that can replace each other, resulting in long-term oversupply of game consumption coins and falling prices;
2. The long-term operation of the game is insufficient, the gameplay is weakened, and a large number of players leave the pit, resulting in the depreciation of gold coins and various game assets;
3. Too many professional gold farmer guilds enter the game, resulting in an excessive short-term output of game consumption coins, etc. In crypto, we see a rising trend of dilemma on co-operation with guilds

Just like there is a macro-economic cycle, the more games people play the more high-level players are promoted, and the disparity widens. Productivity then slows down, and soaring prices and currency depreciation may be inevitable.

Of course, we also see many MMORPG games that have lasted for more than ten years and are still economically stable; this will not happen without the precise calculation and control during the process of game development. We believe that Web 3.0 games can also explore a token economic model with a long life cycle.

Question 5: How do Web 3.0 game tokens circulate?

​​There are three kinds of token utilities in Web 3.0 games:

• Consumption tokens (SLP/GST…)
• Governance token (AXS/GMT…)
• and volatility adjustment token

among which game consumption tokens are the most important circulating medium in the whole economic system.

The circulation of game consumption tokens is mainly realized through supply and consumption:

• The supply of the game consumption token is mainly determined by the gameplay. The common gameplay mainly includes the growth system (upgrade) and social system (marriage, sworn or gang formation);
• The consumption (demand) of game consumption tokens mainly comes from the cultivation of players, and the main cultivation methods include the cost of upgrading grades, equipment, and skills. A healthy game economy system needs to achieve a relative balance between the supply and demand of game consumption tokens.
• The supply and consumption of games need to be calculated by numerical planning. However, the biggest challenge of Web 3.0 game design is to shift from “closed economy” to “open economy” and introduce many exogenous variables. We believe that the healthiest Web 3.0 games should pursue the following core goals.

We suggest game studios and investors that are interested in Web 3.0 games should consider below as their main target when designing the tokens:

1. The value of all assets in the game is determined by the player’s “Socially Necessary Labor Time”. Instead of relying solely on players’ online time, the most important economic mechanism is to have a variety of asset classes (time, money, resources, etc), and then maximize players’ game consumption. A depreciation mechanism for in-game assets is also helpful;
2. Game consumption token, the most important circulation medium in the game, should adopt a certain mechanism to ensure the stability of the token price. A large fluctuation of consumption currency can harm a game deeply. It would be best to maintain the token price with a slight deflation or relatively healthy inflation level.
3. Follow the rule of impossible triangles. Foreign exchange control policies are mandatory and necessary in the game. Try to increase the transaction friction like timelock or high trading fees when the tokens are exchanged for Eth/Sol and flow out of the system, to achieve the goal of “all the money earned by the game is spent in the game”;
4. Governance tokens should be empowered with natural utilities, and enlarge the leverage effect of governance tokens for gamers.
5. The team must have continuous operation capability, strong project management, and delivery capability to oversee the in-game economic conditions.

Question 6: How to achieve the goals above, and how to stabilize the game consumption token price?

According to the impossible triangles theory in economics, a country can’t achieve three goals at the same time: stable exchange rate, independent monetary policy, and free circulation of capital.

As it came to the Web 3.0 games tokenomics, the main goal should be to ensure the stability of consumption token prices and implement an independent monetary policy.

First of all, games need to strictly control the capital, set limits on the capital flow in and out of the game, and create friction costs. For example, lock up withdrawal periods of the player’s farmed consumption token, increase the transaction fee of NFT assets, or limit the upper amount of maximum tokens players can hold in their bags.

Secondly, games need to control the supply and consumption of games. Set output constraints, such as setting a new user invitation code in STEPN, decreasing marginal output of running shoes, wear and tear of running shoes, etc., which are typical ways to control the output of game consumption tokens.

The essential means to maintaining game consumption token price is to improve the consumption level of gameplay.

For example, the wear repair, upgrades, and new shoe synthesis of running shoes in STEPN can effectively increase the consumption of game consumption currency. If the game itself is entertaining and addictive enough, it may make players spend more than output, which is more conducive to a virtuous circle.

On this basis, games need to set some special consumption mechanisms for higher-level players. For example, many create new instances like dungeons, PVP battles, and cross-server arenas for higher-level players.

These designs are set to continuously strengthen the consumption of tokens by high-end players and slow down inflation in the game economy. On the one hand, they can improve the game experience, on the other hand, they can maintain the ecological balance of players.

At this point, one may realize that “X-To-Earn” is not the reason for STEPN’s success.

If we explore STEPN’s token economy, the token consumption in various gameplay scenarios and the steadily rising effect of GST is the secret to its success. You will find that although Stepn is a healthy lifestyle APP, its essence does not seem to be very different from MMORPG games like World of Warcraft.

Question 7: Key components for Web 3.0 games?

In order to facilitate the in-game token circulation, we believe that each Web 3.0 game should have sophisticated in-game capital markets with at least key infrastructures as set forth below: .

NFT Marketplace

First of all, Web 3.0 games need to have a built-in NFT Market Place.

The idea is mainly to provide services for players to trade in-game NFT assets, and the marketplace should have two features：

• One is a p2p trading place for players that can only be traded with game consumption tokens, which can be understood as eBay.
• The other is an official marketplace that serves the initial launch of rare assets. The main purpose is to trade scarce game assets such as limited edition equipment, pets, and props in a limited time. Trades can be settled in the volatility adjustment token.

For the in-game assets, we also think that there is no need to make every asset in the game (such as stars and fragments) into NFT standard. For those low-end resources which are not scarce at all. It is even better to make them as normal in-game wearables / tools to lower the entry barrier of players or put them into fungible tokens that could be fit into the existing AMM liquidity framework to facilitate frequent trade.

Volatility adjustment token (Stable token)

We suggest that the volatility adjustment token should be designed as a stablecoin-like token similar to Dai or sUSD mode.

First, a user must stake a certain amount of governance tokens for a certain time to pledge loyalty, then users could mint the volatility adjustment token: the “stablecoin”, through excess collateral of game consumption token. The excess collateral ratio can be dynamically adjusted.

This stablecoin should have strict outflow restrictions and as an intermediate to absorb volatility of the game consumption token. It is mainly used to support the transaction, and can also be used to support certain limited use cases that have no numerical influence on the game such as buying some achievements or medallions. In addition, users should be encouraged to purchase stable coins directly with external currencies (Eth/Sol) or other stable currencies, but they cannot sell them in reverse, and the game studio should encourage players to use the stablecoin within the game (with access to special edition NFTs or with discounts) .

Scenario 1: over supply

Too much supply of game consumption tokens will result in price depreciation, the official marketplace can introduce more advanced equipment, encourage users to burn their consumption tokens and mint stablecoins, and provide more purchasing power and less liquidity for circulating consumption tokens. Or we could directly switch the token reward farmed by players from full consumption tokens to partial control tokens to ease the selling pressure.

Senario 2: excessive demand

Excessive spending on game consumption tokens leads to an appreciation in a short time, then the system could lower the collateral ratio or increase minting cost, encourage the users to hold more consumption tokens, and increase the supply of consumption tokens. Or we can launch a limited-time welfare campaign to encourage everyone to spend in some gameplay use cases to obtain the income bonus of consumer tokens.

In the future, loans in the official marketplace can even be provided to cushion the movement of the token price.

The volatility adjustment token (the stablecoins), should have a non-linear reward curve for each player, making marginal revenue for each player going at a decreasing rate, to keep encouraging user consumption and to keep easing inflation in the game economy.

The total supply of volatility adjustment tokens (the stablecoins) should also anchor a certain multiple of the GDP of the game. When the leverage ratio in the system accumulated to a certain level, token minting should be shut down to prevent potential impact on the game economy. It is just like every government should put a limit on its total budget deficit.

Game Governance Token

At present, the ve-model is a relatively popular token economy design, but we believe that the token holders’ rights and interests need to be more closely aligned with the total wellbeing of the game economy.

The Game Industry requires high investments, long term development and also results in a higher possibility of failure. A significant portion of the total investment will be spent on customer acquisition costs. Today, traditional games must spend nearly 30–50 us dollars to acquire a new customer.

Governance token is a unique innovation of Web 3.0 games to replace CAC. Game studios could use governance tokens for user acquisition, activation, retention, and referrals. Some games even collect a part of the total cost in advance by land NFTs presale. The business model of the game industry is shifting.

We believe that the utility of governance tokens should be more aligned with the game economy, in addition to simply revenue sharing, repurchase, and lock-up incentives.

For example, if high-level players who meet the requirements want to open a store in the official marketplace, they must pay governance tokens as store maintenance fees and promotion fees, which will consume a considerable amount of governance tokens. Governance token holders could also be rewarded with certain titles or enhanced attributes.

Most importantly, holders should participate in governing and voting to set parameters in the game.

A successful Web 3.0 game with abundant users could be characterized as a giant crypto exchange just like Binance or Coinbase. They have rights like listing, collecting trading fees, or some rent-seeking powers. Normally users cannot be involved in running the crypto exchange business, not to mention making decisions for the exchange policies. But in the game, with the help of governance tokens, users are going to share the joy of rent-seeking on their decision-making powers with their governance tokens.

The governance token is the most innovative tool to tokenize all the rent-seeking rights into crypto assets, holders who possess the governance token could vote to benefit themselves selfishly and thus magically maintain a sustainable game economy through game theory.

All game studios should think carefully to maximize the leverage effect of governance tokens.

Question 8: What are the innovative ways to reform Web 3.0 games besides DeFi?

Here are some mind-blowing problems, we don’t have the right answers but are happy to conduct a dry run.

In the previous questions, we actively discussed the monetary policy of the game. There is another important pillar of the game economy, is fiscal policy.

In the national economy, fiscal policy is an important way to intervene. There will be fiscal revenues, such as tax, land sales incomes, governance expenditures, or policies of transfer payments.

The concept of trading and assets is the core of MMORPG games.

There will be a large number of token transactions, NFT sales, resource production, and capital circulation, which will bring great financial revenue to the games, such as property tax, transaction fees, withdrawal fees and other tax revenues, and asset sales revenue.

The fees and revenues will be a huge fiscal income for the game, and its profitability and margins may be even higher than a mediocre crypto exchange.

These huge economic benefits are seized by game studios in traditional games. In Web 3.0, the income should be included in the treasury DAO, governed by the community, and shared with the holders of governance tokens.

In addition, the game studio can also reallocate the fiscal revenues to balance the game ecosystem, adjust the gap between the rich and the poor, and provide financial support to some highly active small players or guilds.

In addition, we also observed that many MMORPG games have local servers. The economic model and inflation level of each server can be different. We think the game studios should allow whale players to build a new continent in the ecosystem. Whales could buy a big land in the game, find their states, and self-define various monetary policies and output parameters differentiated from the original game. This will bring more fun and unique experience to the game.

At the same time, all the new continents founded by whale players need to pay taxes on part of their income settled with governance tokens. It’s a concept similar to a federation.

Game studios should also pay more attention to the need for customization.

For example, players should be allowed to customize character NFTs. The game should provide powerful mods, and encourage users to create UGC content or customize exclusive props. All customization processes should consume governance tokens. Now that UGC props are NFTs bearing royalties, we believe UGC would inspire the game’s creativity.

Question 9: What is the best user profile and population structure for Web 3.0 games？

A healthy user population structure is generally a pyramid structure in the traditional game business.

The high-ranked players who are rare at the top only spend money but not time (they have scholars to grind for them), the mid-tier players spend both money and time, and the bottom players only spend time but not money. These games rely heavily on the purchase and consumption activities from the high-ranked players as a major source of income.

However, for the Play-to-earn model that has generated tons of hype and debate in the past 2 years, one contrasting fact is that everyone is playing to earn. A curious gamer should ask this question — who is really paying for the money I made in these Web 3.0 games?

In GameFi 1.0, there is only one group of people who actually paid the bill. They were the traders and speculators that bought the tokens on the secondary market.

In the transition process from GameFi 1.0 to GameFi 2.0, we envision more users will play the game because of its engaging story, quality production and exciting gameplay. More experienced and sophisticated game studios will combine NFT and token-driven incentives with the traditional game model in their production, and gradually create a healthy pyramid structure as we have previously mentioned. We also think that in the next 3–5 years, the Free-to-play and Skill-to-earn model will take the main stage when it comes to blockchain games.

We also envision that there will be three groups of game participants paying for the “earn” part of the Play-to-earn model for GameFi 2.0.

The first group will of course still be the open market trades by speculators and traders. The second group will be the players paying for advanced gameplay, experience and status (skins, for example). The last group will be third-party participants paying for exposures such as advertisers, esports event agencies and mainstream media platforms.

However, as we talk about this user profile idea with other game studios, there are two inevitable problems that trouble both operators and investors.

First, what are your targeted player groups and go-to-market strategies?

The main concerns expressed in this question is that the users of the so-called Web 3.0 games in the current market stage are mainly speculators and scholars.

A game that considers itself to be of excellent quality and immersive gameplay experience may not be what the native Web 3.0 users want. High quality gameplay, complicated worldview and lore may be exactly the reasons why play-to-earn gamers don’t want to participate in such quality blockchain AAA games.

The same backlashes hold true for traditional gamers too. Ubisoft and other leading game studios have also introduced NFTs in their games, but they have faced heavy resistance by existing players. These gamers hate the emergence of NFT ideologically and think that NFT will lead to unsustainable hype and price inflation of in-game assets.

MIR4 DRACO / HYDRA Price Chart

We think that launching a Web 3.0 game with AAA quality gameplay without carefully considering the nuance in preferences of both existing Web 2.0 players and scholars / speculators will result in drastic failure. This will not satisfy users on either side.

At this particular stage of GameFi 2.0, the entire Web 3.0 game user group don’t have much consumption power for in-game purchases, but they have considerable strength and potential for bootstrapping initial traction and funding for the game.

In the early go-to-market stage, the game should use PFP (profile picture NFTs), land NFT, battle pass NFTs and other means to attract pre-alpha stage users, building solid communities, vibes and some hypes for the game.

After the pre-alpha test and bootstrapping of the game is done, governance tokens should be distributed to early community members as rewards. As mentioned above, user acquisition and activation should be more easier leveraging governance token designs.

However, the real player groups should still be the mass, traditional gamers. The positioning of the game itself should be helping traditional game users enter the Web 3.0 world more smoothly, so the central idea for blockchain games go-to-market strategy should be “building core community in Web 3.0 first, and then going mainstream and monetizing in Web 2.0”.

The level of activity and effectiveness of the professional player community of Web 2.0 games are even far better than many Web 3.0 guilds.

The second question is, how do you collaborate with Web 3.0 game guilds?

Intuitively, the necessity of cooperation between Web 3.0 games and guilds is relatively low.

In traditional games, we need to make some distinctions between guilds. For professional player guilds, the game studio will give official support, while for gold farming workshops, severe restrictions will be taken such as account bans, play time restrictions etc.

Currently, almost all the guilds in the GameFi market are essentially gold farming workshops, which is not healthy to the overall game economies across games. Guilds prefer to buy NFT at high discount, quickly farm loot and dump tokens instead of consuming tokens in the game. It is easy to see that guilds are not necessarily good for game economies.

Not only that, the game also needs to have a certain anti-whale player mechanism, so as to avoid the excessive wealth gap between players that hurt the game experience, and also prevent whale players from hoarding more means of production to accelerate the output of game consumption tokens.

GameFi 2.0 games should still follow the principle of restricting gold farming workshops and encouraging professional player guilds and professional trading guilds.

The living space for the gold farming workshops will be more and more narrow.

Those guilds that have the ability to invest, participate in governance, provide operational assistance, carry out user education or data-driven ones that combine the in-game achievement data with digital marketing skills and help expand the game community will still have value in the early bootstrapping stage for the game.

These guilds can also receive official financial or in-game policy support from the game companies. For MMORPG games, if a guild can cultivate more players who are good at running business and operations, the partnership may be far more tight-knit. Guilds that can build their own in-game sub-economies that are separate yet connected to the main servers are also what we have envisioned in the near future.

Question 10: Open questions?

The beauty of Web 3.0 games is that they cannot be defined, and even cannot be imagined in their entirety. We still have many questions to answer, such as:

• Game-making is a highly complex, interdisciplinary business and the skill set of game practitioners is completely different from that of blockchain project entrepreneurs. Will web 3.0 games eventually be born out of spin-offs from traditional game giants?
• Or will Web 3.0 native communities grow native game companies?
• Across different levels of interoperability for NFT loots and characters, what are the various cases of on-chain vs. off-chain balance trade-offs?
• Will there be a myriad of game-native stablecoins taking over the mainstage in the next bull cycle? If so, what are the missing mechanics?
• What are some of the brand new game genres that web 3.0, NFT and token-driven communities will build?

If you want to make a Web3 game, please contact us at contact@incuba.capital to discuss.

Special thanks and credit to

Alex (@looksrare_eth), our Web2 friend F, Sarah from Impossible Finance and MixmarvelDAO Venture for the input and feedback.