Predicting the rise of intentionally unsustainable Ponzi games in web 3
NFTs unlock so many possibilities in gaming. Many games today are focused on sustainable game economies.
But what about games that are intentionally unsustainable and have Ponzi-based economies? Where getting new investors is part of the game itself?
Based on the difficulty of building great games, the gambler, money-focused nature of cryptocurrency participants, and the proven willingness of people to participate in ‘greater fools’ investments, my hypothesis is that we’ll actually see more Ponzi games in web 3. At least in the short-term.
Let’s look at what would make this true…
Note: Just a fun, speculative write-up on the future. Not on the current state.
According to Google:
“Ponzi schemes are investment scams that pay existing investors with funds collected from new investors... They collapse when the promoter spends the money too quickly or the pool of investors dries up.”
This may be too harsh a definition for what I will be referring to in this article. When applying this to web3 and NFT games, a better definition might be:
“Ponzi games are games which are intentionally designed to attract new investments in order to be sustainable”
I suspect there are many creative versions of this which are hard to spot, but either way the key concept is that it is intentionally unsustainable.
There are different levels of this as well, but perhaps will go into that another time. For now, there are a few important context points which makes me think ‘Ponzi’ games are going to be prevalent in the near future.
There are three assumptions that seem to be playing out in the NFT space right now that support an environment where ‘money games’ will be the temporary, dominant form of gaming.
Building great games will take time
Most participants of web3 games today are there to make money
Investors will actively deploy capital to known Ponzi or “greater fool” projects
Diving into each of these a bit more:
Building great games will take time - the clear driver of the space right now and the mentality shared with top AAA studios and incoming indie teams is that games must be fun. This is great for the industry as it means a push away from money being the focused. However, ‘fun’ games are also challenging to get right and typically take a long time. The types of games that don’t take a long time (e.g. hyper casual, single player, etc) also happen to be the type of games that do not fit as well with NFTs, so it’s likely going to take quite a while until many good NFT gaming alternatives exist. What will take place in the absence of great games which could compete with Fortnite or Netflix for attention?
Participants of web3 games today are there to make money - When observing the participants of different NFT games today, it is evident that most people are in it for the money. Based on anecdotal evidence we can guess the following breakdown:
60-90% of accounts typically are “earners” who are playing everyday for supplemental income, or even ‘bots’ which have been deliberately created to extract value from the system.
10-15% of accounts are those who are in the “investor” category - they believe in the idea of the game but don’t have the time to necessarily be active. This group plans to focus on deploying capital and supporting the first group of ‘scholars’.
5-10% of accounts likely fall into the “player” category and are actually here to play great games. And many of these individuals are waiting for one to come out or are just experimenting, rather than actively being engaged by the non-financial aspects of the ecosystem.
Investors will actively deploy capital to risky Ponzi or “greater fool” projects - This one is interesting, it’s an assertion that some people will WILLINGLY participate in a Ponzi-like money game. Why you might ask? First is that people can be greedy. Those in the crypto space will likely greed to profit-seek even if they know they are part of something that is unsustainable. There is evidence of this - many generative avatar NFT projects are obviously not long-term or sustainable, yet we see the market flooded with ‘flippers’ and ‘traders’ etc. Secondly is the competitive gambling culture of web 3. Those with cryptocurrencies are more likely to be the high-risk gambler type. Many of these people are willing to compete and gamble for money. Even if they know most participants will be ‘losers’, they may think they can ‘outsmart’ others. Third is that it’s possible some people just don’t realise that these economies are unsustainable, thanks to their favourite influencer or the well disguised economies. Either way, it’s possible that many investors will actively deploy capital into Ponzi-like games, even if they know it’s a “greater fools” project.
Note that these are just assumptions which may not be true. If one of the three assumptions fail, it’s likely that we’ll see a shift away from unsustainable games with Ponzi economic designs.
Implications if assumptions are true
If you believe that the above is true, then you could also reasonably make the following conclusions:
There is an incentive to build unsustainable or Ponzi-like games - Games which don’t rely on gameplay are quicker to build and get to market. What’s important is the economic design, which may be a niche skill but just requires 1 person. In addition, many investors are willing to ‘fund’ them, or will invest to be early participants, meaning there is a lower barrier to entry of launching. Not to mention the willingness for the existing community to accept ‘anon’ teams means there is little backlash in failure.
Time & money investment will flow between projects in a game of musical chairs - If we see an emergence of multiple money games in the market, then earners and investors who chase ‘ROI’ will likely shift between these games. The new ‘game’ becomes one of musical chairs - can you spot a successful Ponzi game first before others do, and get in and get out at the right time before the economy collapses? We aren’t quite there yet, but with 1000s of NFT games in development it’s very possible that this could occur in the near future.
For now we’ve seen very few games actively build and promote themselves as ‘money games’. Usually they have another layer on-top to either gamify the experience, or they focus on game theory, gambling, or asymmetric information to pull attention away from the unsustainable economy.
The slow pace of traditional game development, the gambling & money-focused mindset of the crypto audience, and the vast amounts of investment that could be deployed for the chance of a return, suggests that there could be an increase in Ponzi “games” that have intentionally unsustainable economies.
I don’t believe this is the future of gaming, nor an ideal outcome, but it could be a realistic short-term reality.
Note: These are just some quick personal thoughts which may evolve over time. No mention of other projects is intentional as this is a broad futuristic view rather than commentary on current games.
This already happened in 2021 Q4. Why would the market repeat itself?