The Top-Level Game of Getting Rich: A Discussion on the New Flywheel and Governance Model of Web3 Games

Original author: AIKO

With the recent recovery of the market, some interesting projects have emerged. Practical examples following web3 game design theories such as IAT (In-app Taxation) and BLOG are also presented.

So, this article aims to accomplish two things:

1. Take Gas Hero and Lumiterra as examples to illustrate the new flywheel of web3 games in IAT’s business model, that is, the get-rich-quick game at the top.

2. Take Gas hero, Lumiterra, and Crypto Raiders as examples to analyze governance patterns in web3 games.

If you are not familiar with the concepts of “IAT” and “BLOG”, please read our previous research report (thanks to Jason and Kydo for making these cutting-edge theories possible):

• IAT - Folius Ventures
• BLOG - Kydo & Aiko

Theories and shortcomings of IAT

We’re excited to see that in-game tax collection is established as a way to commercialize. As we have described, the total value of in-game value carriers * transaction turnover is expected to greatly impact the value of the whole life cycle of the game, bringing higher value to both ecosystem participants and game companies.

In the previous IAT research report, we focused on how to transform the traditional design thinking of a closed/semi-closed economy into a tax-based business model and a way to play it, so as to increase transaction activity and tax revenue.

However, due to the limitations of web3 game practice and theory a year ago, we have not continued to describe what these “taxes” should be used for after the “tax collection”, so as to form a closed loop and more reasonably support the long-term expansion of an ecosystem.

In the past, our imagination of taxes was limited, and we saw that sufficient taxes and cash flow could support the development of the next project and the construction of the entire ecosystem (look at Axie Infinity and STEPN now), but did not envision and mention that in fact, taxes can always exist in the game as a powerful incentive layer and form a larger flywheel. **

Before we get down to business, we should also agree on one big premise – a sense of purpose for web3 games.

Maslow’s hierarchy of needs in web3 games is completely different from traditional games. Although the top level is all about gaining social recognition and being admired by tens of thousands of people, the social admiration in traditional games may come from the one-knife 999 and the gorgeous winged ride, while in the world of crypto, most of the admiration comes from the envy of the myth of getting rich.

Therefore, the right way to incentivize the ecological flywheel is to make the top players envy their desire to get rich through the huge profits generated by the organic trading behavior in the game.

Next, we’ll take a deeper look at this from the two games, Gas Hero and Lumiterra.

A new flywheel for Web3 gaming

Gas Hero

Gas Hero Game Base is an idle combat SLG game with five Gameloops, and when players play in different gameloops, they will drop various assets, representing the most important combat power system (weapons, pets, and various upgrades) for players in addition to heroes. These assets up to 100 can be combined into 1 unit of Non-fungible Token traded in the secondary market. At the same time, officials have provided auction houses in different regions to sell goods that may be scarce locally.

As a result, the first type of player - “brick moving player” appeared, that is, players who use lower-level heroes to play various gameloops, buy goods from auction houses, and sell arbitrage in the P2P market. These players’ large transaction taxes (4% of auction house taxes and 2% of P2P market taxes) become a source of funding for the IAT reward pool.

There are two phases of pursuing higher returns and power, and players are gradually divided into “official players” and “PvP players”.

For official players: In cities and below, you must use force to become a leader, while in cities and above, you must run for GMT and fight for a place in the top 15 in the world. Because the higher the donation, the greater the probability of winning the final election (probability lottery), so the game played by players is: donate more GMT to ensure that they do not fall out of the ranks of the 15th, and at the same time increase the money appropriately to win a higher winning rate, and the donation is likely to gradually rise.

For PvP players: PvP is inherently a big game point in the game, and in order to compete for the donation gold prize pool, they must arm themselves to hone their strategy, matching, and positioning. Buying and consuming a large amount of heroes, pets, and equipment promotes the trading market and activity, and also allows lower-level brick-moving players to have a continuous and stable income (APY 30% ~ 50%).

As shown in the figure, the entire flywheel is bringing abundant taxes through more and more Non-fungible Token transactions, pushing up the reward pool for official players, and further stimulating players to donate more money in the official campaign, (the higher the amount, the higher the probability of winning); and these gradually accumulating donations also attract players participating in PvP matches as PvP rewards; PvP players will become the main buyers of Non-fungible Tokens in order to arm and upgrade themselves, which is the marketplace Bring huge and solid buying, and further encourage brick movers to produce Non-fungible Tokens in the game and buy and sell from auction houses.

In the end, Gas Hero used two prize pools, a trading house, and an auction house, to successfully and accurately motivate all three types of players, and it continued to operate.

Lumiterra

The design of the Lumiterra game is very similar to the design we presented in the IAT: three gameloops for three classes, but each class must rely on the resources that other classes have obtained in the corresponding gameloop, and this interdependency is tightly progressive, and the merchandise trade is maximized. Lumiterra chose a commodity economy to represent this interdependence, with a lower barrier to understanding and farming sim games (such as Stardew Valley and Animal Crossing) being the longest-lived category.

And the incentive flywheel in the game can be simply summarized as:

1. Content players in the game naturally generate a large number of transactions, in which transaction taxes are paid Decentralized Finance users to provide liquidity rewards, more and more players and transactions occur in the game, and the more stable the APY income of Decentralized Finance players who provide Stable Coin and $LUA liquidity outside the game;

2. And this Decentralized Finance users also need to interact with the Decentralized Finance protocol, the protocol benefits from buying and selling friction and slippage, and uses these proceeds to pay the basic prize of the AMM lottery pool, more and more Decentralized Finance users and interactions, the AMM prize pool is getting higher and higher;

3. The high bonus will motivate gamblers to go to the game to recycle a large number of designated materials mint into lottery tickets to participate in the lottery, providing a large number of buying orders for game content players.

4. In addition, gambling users’ participation in the lottery will be the largest resource consumption point in the game, about 60% of the resources will be permanently consumed in this link, and 5% of the tax generated by the lottery AMM will also be added to the prize pool.

If we remove all the intermediate links, in essence, it is the game content players who motivate Decentralized Finance users, and Decentralized Finance users who motivate gamblers, and gamblers who are the largest buyers of Non-fungible Tokens and the largest consumers of in-game resources, so content players are motivated again. The ecological flywheel completes the closed loop.

If we assume that the APY for gamers buying and selling Non-fungible Tokens to earn the difference is around 10-30%, then Decentralized Finance users may have an APY of around 50% -150% depending on how they operate and in-game transaction volume, and finally, the APY of lottery players may reach more than 200%.

Therefore, the game is always mobilizing all ecological participants with a highly probabilistic excess return, and at the same time giving the participants the appropriate amount of returns that they deserve in the long term and smoothly with the expansion of the ecosystem.

Summary

Through the above interpretation of Gas Hero and Lumiterra, we can find some commonalities between the two games:

1. The bonus of the excess return comes from the real transactions and taxes that occur in the game, and all other designs revolve around “how to increase the frequency and friction of transactions” and “how to design the linkage relationship between various types of players”.

2. The game is always mobilizing a part of the ecological participants with a small probability of excess returns, and at the same time giving other participants a long-term and stable return with the expansion of the ecosystem.

For example: Sweepstakes players return more than 200% vs. About 30% APY for ordinary Non-fungible Token players.

3. Players who have the opportunity to get excess returns must consume the most game resources in the form of gambling, and the whole process will become the biggest sink.

For example, the Official Contribution Game and PvP Game in Gas Hero, and the Sweepstakes Game in Lumiterra. Numerically driving the process of an individual winning the game requires a myriad of underlying resources, including a large amount of player labor and permanent resource burning.

4. For other participants in the ecosystem, try to extend the long term to give them appropriate and stable income.

For example: the normal spread arbitrage of Gas Hero Non-fungible Token players and the liquidity mining of Lumiterra Decentralized Finance users are relatively stable income with cash flow guarantee.

5. Gamification mechanics for shaping a commodity economy from 0 to 1 are especially important.

For example: Gas Hero’s five gameloops and Lumitera’s three gameloops create an interdependent commodity economy that is the basis for the entire economy flywheel and governance to run.

Through these five design principles, we can see that the new design concepts conveyed from Gas Hero and Lumiterra are significantly different from traditional GameFi design. That is, probabilistic excess returns as the ultimate pursuit, supported by the provision of large-scale player arbitrage trading and gambling to provide cash flow. Moreover, players are given matching/probabilistic/slight Fluctuation long-term returns through different roles in the ecosystem, rather than buying different levels of mining rigs to obtain a one-time return on faster return and unlimited mining. **

Governance in Web3 games

Next, I’d like to talk a little bit about governance in web3 games.

• Analysis of how Crypto Raider governance combined with OHM but failed to launch due to game design flaws and flywheel disconnect.
• Analyze the difference between the “governance” structure in Gas Hero and Lumiterra.

Crypto Raiders

Crypto Raiders was the first game to set game assets to ERC-20 and utilize AMM for trading, and the first to adopt OHM for governance outside of the game.

The game first appeared on the researchers’ radar because they first used an AMM for in-game resource trading, with the aim of reducing the presence of counterparties in traditional game transactions, creating an instant trading experience, and allowing the team to earn fees from the protocol.

Crypto Raiders has also started a partnership with Olympus Pro, hoping to transfer all liquidity rewards to bonds in the coming months. To serve two purposes: 1) LP staking mainly attracts farmers. Liquidity (POL) owned by the Pivot Protocol will allow the gaming treasury to earn an additional $7, 500 per day (about $2.73 million/year) that can be used to fund game development; 2) reduce the selling pressure on REYER. But it seems that this governance model has not yet been launched, and the game is going downhill due to the decrease in the number of players.

Today, the price of $RAIDER has dropped to $0.02 with a 24-hour trading volume of around $3,000.

Liquidity is currently less than $200,000.

So, now when we review the game after watching Gas Hero and Lumiterra, apart from force majeure factors such as market cycles and speculative currency price Fluctuation, what design can be improved?

1. Lack of commodity economy, the entire economic chassis is unstable.

The material produced by GameLoops for all players in the game is very monolithic, and there is no explicit/intentional dependency between supply and demand. At the same time, the game content is insufficient and the update speed is slow, resulting in the utility token AURUM that is too fast to produce because there is no long-term circulation cycle and consumption scenario, and most players sell it.

2. Incentive misalignment.

The beneficiaries of RAIDER are the LP staker, the team, and the investors, but the gamers actually get AURUM, which shows that the game does not unify the interests of the LP staker and the gamers. In other words, the increase in time/money spent by the player base in the game does not provide any direct benefit to the governance Token holders; in turn, the increase in governance Token holders and liquidity does not give any strong correlation to the in-game players.

It can be seen that in Crypto Raider, there is no good cooperation and dependency between liquidity providers and players, and even if the governance layer is increased or the external liquidity provision scheme is improved, it still cannot bring a positive flywheel to the ecological expansion.

3. The ecological volume is not enough to support the long-term operation of a complete governance system.

Because Dune Kanban data is invalid, only approximate data can be recalled. Five or six thousand active Wallet at the peak, maintained at around two thousand on a daily basis. Such a magnitude is not only difficult to support a game with AMM trading as the core commercialization, but also difficult to become the foundation of Decentralized Finance and governance.

Gas Hero & Lumiterra

Although both gas hero and lumiterra have elements of “governance”, the governance between the two is not the same. The former adopts an in-game governance structure, that is, governance is part of the in-game flywheel, launched with the game, and is effective for game participants (governance contributions can further incentivize in-game pvp players); while Lumiterra adopts an out-of-game governance structure, that is, governance is not part of the in-game flywheel, and it will not be launched with the game in the early days, but the future playground of LUAG holders, and when the time is right, they will start voting in the CRV ecosystem and their own game ecology.

The governance of Gas Hero is more like the income distribution of the official class, and entering the official class requires donating a large amount of GMT as a prize pool for pvp, so the in-game governance can play a role in boosting the enthusiasm of the entire game. When regional officials want to encourage more players to actively participate in the game and trade, it will trigger more “meta-governance”/“meta-economic interaction” processes, such as unified management in private domain group chats (setting announcements and alarm clocks to participate in auctions), and even sending red envelopes/monthly salaries in the land coast, which will ultimately bring better performance and rich returns to the guild and the region.

The “governance” in Lumiterra is closer to the governance logic of Decentralized Finance, guessing that it will be similar to the Lock-up Position’s ve token/Lock-up Position time to Auto-Invest determine the weight of votes, and the voting results are related to the return rate of all participants in the vote. Such external governance relies more on the natural operation of the protocol than on the social and governance relationship between people, so it may lead to a lack of good communication channels between upstream and downstream, such as a player who provides liquidity does not understand the governance structure such as guilds in the game, and it is difficult to produce organic mutual promotion and boost economic enthusiasm. In addition, in the distribution of rewards in the crv governance framework, the risk is that the ultimate beneficiary may be different from the in-game players, and the benefits of governance cannot be returned to the players at the bottom of the society, but are still controlled by the Decentralized Finance Large Investors, and the lack of effective communication between the participants in each link causes conflicts, and the risk points are similar to the external protocol governance with Crypto Raiders.

Although Gas Hero has just been launched and Lumiterra is still in beta, the above conclusions are based on conjecture, and various return values are also estimates, and the real practical effect will still need to be observed for a long time, but we still need to note that subtle design differences may also have different ecological development and change impacts during the later operation of the two games. In addition, although games with an internal economic flywheel are different from the previous Ponzi model that needs to continuously attract new users, it still has high requirements for the number of users, and the more players participate, the more it can play a role in stabilizing the ecosystem, and both sides should try their best to expand the user base to support the continuous operation of the flywheel.

Postscript

This paper focuses on the analysis of the design of the top-level get-rich-quick game and ecological flywheel mechanism represented by Gas Hero and Lumiterra, and emphasizes the significance of aligning the interests of all parties in web3 game design and finally expanding the ecology through the flywheel.

However, this article is also flawed, because of the lack of various data (Dune data panel failure), the lack of research theory (only the IAT and BLOG design we wrote about before), and the absence of the parties (the crypto raider team has already done a third project, the loss of gamers), it is difficult to write an article with detailed data to sort out the theoretical and practical development of the economic model of web3 games. Therefore, this article only plays the role of recording and summarizing the development of the industry, hoping to help entrepreneurs who are still designing and exploring economic models to find new paradigms and quickly apply them, rather than a serious documentary research report.

In addition, in addition to serving as a testing ground for new mechanics, web3 games are still essentially playable/interactive investment targets. Therefore, in addition to its own mechanism design, external traffic operation, community consensus construction, brand endorsement, asset management, etc. are also very important, in the words of our last research report, a generalist team is still needed. Finally, the development of a web3 game with a long life cycle and a large traffic circle breaking effect requires the joint efforts of all colleagues.

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