Encryption crash, is there a future for Web3 games? In depth discussion of 5 papers

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According to the latest dappradar and BGA Games reportsIn April, blockchain game activities reached a record high.The game DAPP has attracted more than 1.2 million new active wallets. Despite the market downturn, 2.22 million independent active wallets (uaws) were still connected to the blockchain DAPP every day in May, down 5% month on month compared with April, but still 32% higher than may 2021.

Some people believe that the recent collapse of cryptocurrency market will help eliminate unqualified market participants, which may also reduce market speculation and allow crypto users to focus on the long-term value of the project.

So how will Web3 games develop in the future? Today, let's take a look at the compilation of five papers related to Web3 games compiled by Vader research:


Thesis 1: value Web3 games developed by web2 game developers


Game making is not a simple job. It is extremely difficult to make a game from release to success. Otherwise, how can thousands of games go to death every year!For a long time, although the industry has been very popular, it has always been criticized as non expandable and difficult to make venture capital. Because of the transferability of mobile game technology, the development of proprietary technology through the design of transferable popular games has greatly changed the development of the industry.

However, the current wave of Web3 game development is not designed for traditional game players seeking fun, but for cryptocurrency and gold panning researchers seeking Ponzi scheme. From the very beginning, we expressed concern about the sustainability of axie infinity's profit model.P2e is a game pyramid plan around the economics of complex tokens. All p2e games are bound to collapse, just as every algorithmic stable currency with insufficient collateral will collapse.

Every game economy has cash inflows and outflows. In fact, for any game to be sustainable, cash inflows must exceed outflows. The inflow of a sustainable game economy should come from those players who spend money on the sinking market (cosmetics, VIP channels) to pursue entertainment without expecting financial returns.

The problem with p2e mode is that players spend money on these games, but expect to double their money within 30 days. These inflows are what we call inflation sinks.Although they provide short-term cash flow boost for the game economy, they are at the cost of larger long-term economic problems.

Therefore, the real solution is to build an interesting game with addictive core circulation mode and exquisite visual effects. Wonderful story lines and dynamic social elements to conquer traditional game players to spend money on virtual items without any expectation of financial return. As we all know, game players usually spend money to buy virtual items to meet their emotional needs.

Designing such addictive games is very challenging and usually takes years to complete.We believe that it is easier for traditional game developers to master the knowledge background of cryptocurrency with the help of experienced consultants than for the original founder of cryptocurrency to develop and design games.

Because traditional gamers do not care about NFT, decentralization or ownership. What they want is interesting games and exciting game experiences. Web3 gaming needs to attract those traditional gamers through interesting games and smooth entry experience.

Therefore, we prefer Web3 games developed by experienced web2 game developers.


Thesis 2: Game NFT will become a financial market with more than US $100billion


Due to the ownership distribution method of blockchain,Most Web3 games will have a more open economy, and in-game assets can be traded without permission in the secondary market.Traditional game virtual goods are an industry worth $50billion - this figure mainly includes primary sales, because trading secondary game goods is usually prohibited. In 2015, the total black market value of second-hand game commodities was estimated to be $5billion.

With the integration of traditional games into Web3 mode, more Web3 games have been launched,Millions of unique in-game NFTs have also emerged.To date, there are more than 12million unique axie NFTs. We believe that the growth of Web3 games will cause the cumulative scale of NFT secondary financial markets in the game to exceed that of some financial markets.

Like every other complex financial market (stocks, bonds, commodities), the game NFT financial market will also attract suppliers to solve some complex problems for the people after it reaches a certain scale,Such as asset management companies, hedge funds, activist investors, quantitative traders, passive indexes, derivatives brokers, guild brokers, structured NFT lenders, M & A consultants, etc.

We believe that the integration of traditional games into Web3 games will accelerate the growth of the whole industry, and the open economic constitution of Web3 games will attract more speculators and financial capital, which is expected to increase the game NFT market to more than 100billion US dollars.


Thesis 3: every Web3 game has a central bank governor


Every Web3 game is an independent country with open economy.Players are citizens, speculators are foreign investors, gold miners are migrant workers, and game developers are the government and the central bank.

In the real world economic system, there is a trade-off between economic growth and development sustainabilityβ€”β€”Usually, the government focuses on short-term growth to win elections, while the central bank focuses on sustainable development to achieve long-term sustainable economy. In order to achieve these two goals at the same time, economies will strive to achieve both productivity and efficiency (better technology, lower cost and higher output).

Virtual world economies have different priorities - first attracting, retaining and monetizing players, and then maximizing the long-term value of game franchises.The impact of economic sustainability on player behavior is equally important. Virtual economists do not need to solve problems such as poverty or unemployment. In other words, having a sustainable virtual economy is important to ensure long-term player retention. The inefficiency of the virtual world is a feature, not a mistake.

There is a challenging problem in Web3 game economy that we have not fully faced before, that is, the open virtual economy with multiple user groups (gamers, speculators, Jinnong) in the unlicensed secondary market will have many problems due to the lack of supervision.Web2 MMOs such as Runescape, Eve and worldofwarcraft also face similar challenges to some extent, but so far, there is no secondary market that can realize the problem of no license and no friction and conflict.

While maintaining the sustainable and balanced growth of the open game economy, retention and monetization will be the continuous challenges faced by Web3 game virtual economists,Because free market arbitrageurs will continue to look for inefficient substitutes. Game economic management is also an important channel for users to obtain incentives through token/nft.

Therefore, every Web3 game will have an internal or external central bank governor.


Thesis 4: Ponzi scheme will slow down the development of Web3 games


Projects such as stepn, Luna, thetan arena, DFI kings and pegaxy use complex token economics to mask their Ponzi economics nature,Compared with web2 games, this will make Web3 games lag several years in acquiring real gamers.

The influencers and venture capitalists of these projects conduct marketing in the form of security or non Ponzi schemes, but at the expense of the credit value of cryptocurrencies.Although some users are aware of the Ponzi scheme and enjoy the pleasure of gambling, most users are unwitting retail investors, and most of them eventually lose their savings.

The negative publicity and public praise surrounding the collapse of these projects usually lead traditional game players and game developers to believe that Web3 games and NFT are just unregulated Ponzi schemes.However, the development of Web3 games needs traditional game players. Their participation makes Web3 games developed by experienced game developers more interesting and valuable.

Fun games don't need a 5000% apy Ponzi scheme to build and develop a player base. These incentives attract hired investors or gold prospectors, who will be lost as soon as another similar project provides a more attractive return. Early games dominated by mercenary users may prevent traditional gamers from participating. These projects constantly need new funds to maintain the sustainable development of the economy, and will eventually face the inevitable death spiral.

If we use Ponzi economics reasonably, as long as it is not abused, it can become a very effective tool to cold start and expand the network effect.The rule of thumb for understanding whether the game has unsustainable Ponzi economics is to check ROI (return on investment).If your payback period is less than 120 days, it is a typical Ponzi scheme - the faster the payback period, the less sustainable the economy will be.

We have built detailed financial models for axie infinity, pegaxy, thetan arena, crabada and many other Web3 games to predict the economic outlook by applying various simulations and stress tests. We also issued a warning on the economic unsustainability of axie infinity in August 2021.

Ponzi scheme will slow the adoption of Web3 games. Therefore, we will only work with teams that want to establish long-term game franchises, and will not provide any advice on designing unsustainable Ponzi economics.

"Shipbuilding is best left to those who are not involved in the intentional design and marketing of the Titanic"


Thesis 5: Web3 games will employ more than 100million players by 2030


Axie infinity helps more than 3million players earn revenue by playing video games. Even if its economy is unsustainable - the idea that game developers share profits with players and hope that this can attract more whales to consume is a win-win case.As we see more sustainable Web3 games, we believe that researchers / community scholars will grow to more than 100million by 2030.

The open economy of Web3 game economy will enable players to exchange their time for money in games, in which big money players / giant whales are willing to pay for other people's specific operations.As long as the people who don't spend money make the people who spend money feel good, the people who spend money will continue to spend money, and the game economy will be sustainable.The main inspiration for this paper comes from Castronova'sPlayers For HireWhite paper, which is a must read for those who want to know more about the subject.

"The existence of other people is very valuable to big money consumers for several reasons: richer and more powerful pleasure than others, and the simple pleasure of company. No matter what the reason, big money consumers will be willing to pay more to companies that are able to open their doors to anyone." (Castronova)

Automation of low skilled jobs will cause more low skilled workers to lose their jobs and lead to wider income inequality. This may lead the rich to spend more time on entertainment, because boredom will become their biggest problem. Therefore, they may spend more time and money on the game.

On the other hand, it will be difficult for the poor to find jobs in low skilled jobs. For the poor, games will be a good sideline choice, because they do not necessarily need to have strong employment competitiveness. The salary alone may not be enough to cover all the living expenses, but the game will become a meaningful sideline income. Competitive players may be able to make a living by playing video games, but non competitive players may not be able to fully cover their living expenses and treat video game revenue as a kind of by-product revenue.

β€œPsychologically and socially, first class only exists when there is a second class。 Therefore, the comparative roles of all free agents are only the second category.Their job is to sit in the second-class cabin accurately, so that the first-class passengers can get on the bus first, eat better food and have more space。” (Castronova)
"In the hiring game, everyone is still a hero. But some of them will pay a lot of real money to become a really great hero, while others will get a very small amount of real money to become a pretty good hero." (Castronova)

In the dystopian Web3, government and private advertising will exchange their daily income for specific labor, which will gradually become the basic income of the public. Therefore, we believe that Web3 games will employ more than 100million researchers by 2030.

Original title: 5 theses on Web3 gaming
Original link: https://defivader.medium.com/5-theses-on-web3-gaming-b0ea86b8f613
By Vader research
Compilation: Huohuo


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