Solutions and challenges in building sustainable play-and-earn economies

Building sustainable web 3 game economies is a fascinating topic. This article aims to dive into some of the solutions, various challenges and nuances.

Defining Sustainable

Sustainable typically refers to a state that is able to be maintained long-term. In the context of web 3 gaming most people refer to sustainable as meaning a game is not negatively affected even when there isn’t any increase to the number of players.

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Solutions

Right now there seem to be five major ‘solutions’ that are discussed to create sustainable economies.¹ Diving into each of these at a high level:

1/ Build a fun game
Entertainment first, economy later. Idea is to make the game fun, that way people don’t mind spending in the first place and not making anything in return.

2/ Control supply & demand
The idea is to ensure demand exceeds supply regardless of the number of players, by using traditional economic controls. For example slowing down supply via delayed earning, pay-barriers, or burning mechanisms, while increasing demand via utility or monetary policy.

3/ Asymmetric gameplay
The idea is that players have different roles within the game. Some roles are designed purely for fun (and requires players to spend money). Other roles are designed to make the above roles even more fun, and will allow players to earn money.

4/ Compete-to-earn
The idea is to embrace the monetary aspect of the game by making earning part of the game. Players are happy to play and compete for prizes to try to earn, knowing that not everyone can earn. Poker is a great example, built around luck, skill and earning.

5/ External value add
The idea is that financial flows needs to come from outside of the ecosystem to maintain sustainability of the economy. The traditional example for this is ads - advertisers pay for the eyeballs of players within the game.

All of these are valid. However, things aren’t so simple. There are a few challenges that add nuance and complexities to these solutions.

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Challenges

There are many challenges to designing for sustainability, but I will highlight the three main ones which I don’t see discussed as much.

1/ Fun games attract more bad actors

One of the most common arguments to creating a sustainable economy is to make the game entertaining and fun, which will attract players who don’t mind spending. The logic is that this group of ‘fun-seekers’ will be large enough to subsidise the earning of other players.

However, just because a game is built for and targets fun-seekers does not mean that there would be the right balance of players and earners such that it is sustainable.

This is because if a blockchain game with earning is able to attract many players who are willing to spend, then it also attract investors, earners and exploiters who are looking to earn.

Therefore, designing a play-and-game where net-spenders are subsidising others does not by itself result in a sustainable economy, and all games should assume that bad actors will try to exploit their economy.

2/ Marketplace fees

Any asset economy which has a flat (non-changing) amount of users and volume, and which has a marketplace fee will end up being ‘leaky’. The total flow of funds in this economy will decrease over time, as fees get captured by both the developer and the marketplace platform.

Let’s take a look at OpenSea for example.

• Imagine users had $10 million to trade on the marketplace, and do this daily

• OpenSea charges 2.5% fees which gets ‘extracted’ from the ecosystem

• If there was no increase to the amount of funding from users, over the course of just 1 month, the $10 million of daily trading volume would decrease to $4.7 million of daily trading volume

• The remaining $5.3 million would go to Opensea in fees

The first lesson is that it’s good to be a platform! The second is that gaming economies will always have a leaky funnel as long as developers or 3rd parties take any transaction fee from trading.

By definition, a gaming economy that has a static number of users and ‘flow-of-funds’ is not economically sustainable.

3/ Skill-based earning is not sustainable

On paper a compete-to-earn game such a battle royale or MOBA with a buy-in fee could work. Players are happy to pay to compete without any guarantee to earn right?

In practice, this model suffers from the same paradox that you see in highly competitive games like poker, which also makes economic sustainability challenging:

• Skill level and knowledge increases over time, making it hard for new players to start and be competitive

• Less skilled players tend to quit (because they can’t win), leaving only the good players

• Both of the above means that over time, it becomes harder and harder to ‘win’ (and therefore to earn), which results in less investment & new users

Therefore, having money or ‘gambling’ as the objective of the game does not necessarily make it sustainable either.

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Designing for sustainable growth

The most common content on web 3 economies that you see online involve explaining or avoiding ‘ponzinomics’, and designing balanced economies that aren’t reliant on new players.

There is an interesting opportunity in designing a game to grow sustainably instead of just being sustainable.

This idea is aligned with one of the core principles of web 3, which is to reward and empower users who grow the network. At a high level, this means:

• Creating mechanisms and incentives where user actions in the economy (whether playing, investing or earning) result in user growth

• Creating auto-balancing systems that allow user growth to be sustainable over long periods of time

The best web 3 games will do this, and leverage economies to enhance the overall experience and success of the game.

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Personal thoughts only. I’m aiming to write some short thoughts weekly, subscribe or follow me on Twitter to get notified for more content.

1. Takes inspirations from many areas, in particular these two recent posts by Nicolas Vereeke and Space Pixel.