How to create a sustainable NFT game economy and why it matters

This article was contributed by Derek Lau, game director for Guild of Guardians.

Play-to-earn gaming has flipped the traditional gaming paradigm upside down. Where Web2 publishers and developers often deploy pay-to-win dynamics that skew the playing field in favor of the wealthiest (evidenced by the much-maligned loot box phenomena), nonfungible tokens (NFTs) and blockchain games stand to offer more equitable in-game economies where players can earn tangible rewards for their endeavors. 

However, while NFTs and play-to-earn mechanics lay the foundation for a fairer and more lucrative gaming experience for users, these alone are not enough to guarantee a successful and sustainable game economy. Instead, every element of how assets are created, distributed and managed needs to be considered to prevent these virtual economies from collapsing into cash grabs. 

Why NFTs?

Why bother using NFTs in the construction of a game economy at all? Many mainstream games have implemented built-in economies in recent years using methods that have nothing to do with the blockchain. However, while this may bolster the bottom line of game developers, it does very little to serve the end-user. 

The implementation of NFTs, meanwhile, has the potential to deliver certain desirable features that non-blockchain games simply can’t muster, such as verifiable, immutable digital ownership. An in-game asset represented by an NFT gives the player a hard-coded assurance that the item belongs to them — allowing them the right to sell, trade, or swap it as they see fit. 

Likewise, the immutable nature of NFTs offers game developers the chance to provide their audience with real, verifiable scarcity. Rather than take the word of the creators that an in-game item is suitably rare, players of blockchain games can rest assured that their NFTs are unique simply by checking the number of issuances on the blockchain’s ledger.

This stands to emphasize a real sense of ownership, not to mention permits players to retain the value they put into a game. With NFTs, when a gamer moves on to a different game, they will have the option to either sell items they created, earned, or purchased on the previous platform or even bring those items with them into the new environment. Either way, the effort or money they spent to get those assets won’t simply be lost to the ether.

Gameplay must build on the promise of NFTs 

The fact that blockchain opens the door to profitable gameplay is, without a doubt, an attractive prospect. But it also tends to attract opportunists and profiteers instead of a passionate and loyal fanbase.

There are already multiple titles that promote blockchain integration and NFTs, but far too many pander to those in it to work the system for a monetary reward. Not to say there are no worthwhile projects out there, but many put the notion of earning money in front of the other elements of gameplay, which simply isn’t as attractive to gamers as it is to profiteers.

A glance at the top blockchain games by user base reveals projects that have already been overrun by an army of bots programmed solely to manipulate the system and extract value from it. 

This is why NFTs must be leveraged in a way that doesn’t defeat the purpose of the game itself and promotes a system where earning and gameplay complement each other. Users should be attracted to a title for its core mechanics first and only then become enchanted by the possibilities of true asset ownership or revenue generation. Anything other than this will always result in a largely money-minded audience, and it is unlikely such a user base will remain sustainable.

Smart token distribution

The distribution of tokens also has a significant role in the long-term viability of an in-game economy. Although we’ve observed that monetary incentives are not enough to establish vibrant gaming communities, the unfair distribution of tokens and NFT items could make gaming communities a non-starter. 

When developers distribute the majority of their tokens in private sales, it leaves the game’s players with fewer rewards to win through active gameplay. Early financial investors — who may have no intention of interacting with the game directly — collect profits if the game turns out to be a success and the game’s economy becomes unbalanced in the process. 

Developers should avoid selling too many game assets in private sales and devise a way to achieve their fund-raising objectives without taking away from the end product. To this end, creators may consider selling only limited edition items in early sales rounds, which would work to incentivize investors while keeping the bulk of in-game assets for players to discover themselves during active gameplay.

It’s also essential to ensure that the majority of blockchain items still demand dedicated gameplay from players who want to acquire them. On top of this, other limitations such as occasional resets to players’ progression (implemented seasonally, for example) stand to go some way to maintaining a more level playing field over time and would reduce the focus on simply farming for profit. 

Token utility 

Even if NFTs form the foundation of a game’s economy, their in-game functionality will provide the basis for real market stability. Assets should largely avoid becoming speculative in nature, and how they benefit gamers beyond their monetary value should determine their viability.

One example of this could be the use of a utility token that is required by gamers to mint in-game NFTs. Then, whenever such tokens are spent, they could be automatically sent to a collective rewards pool and subsequently redistributed in-game via a staking mechanism. This would encourage active gameplay on the part of the player by incentivizing engagement while at the same time bestowing value and demand on the utility token from day one of the title’s launch.

By attaching the creation of new NFTs to a native utility token, the problem of NFT distribution is also addressed: the game world is naturally regulated and protected from saturation by a sudden flood of in-game items.

Vesting periods

Then there’s the importance of appropriate vesting periods, a subject already familiar to many cryptocurrency users. Vesting periods are often vital in enticing investors to buy into a particular project’s token sale. Gaming economies also need to be conscious of the vesting periods native to a given GameFi project. A sudden sell-off of tokens will typically result in a crashing token price. This may leave the remaining players mired in a failing game ecosystem while holding tokens that simply bleed away their value.

Game developers also need to be careful when fine-tuning their vesting periods. Asking early supporters to lock up their tokens for too long could repel would-be investors from the very start, meaning developers have fewer resources with which to bring their game worlds to fruition. On the other hand, shorter vesting periods might please seed and private investors but could bring about the aforementioned devaluation of the game’s economic base. 

Conclusion

In the past decade, gaming has risen to become the primary mode of entertainment, overtaking the music and film industries in the process. With the global gaming industry expected to be worth $250 billion by 2025, the rewards for successful GameFi implementations promise to be immense — but getting there won’t be easy.

There needs to be a careful consideration of many of the fundamental elements of a game’s native economy. There is likely no single model that will work for all games, but rather an array of possibilities that will prove more or less effective. Still, developers who take these variables into careful consideration stand to create platforms with long-term staying power and loyal players. Those who do not may get lucky but likely won’t be able to retain interested gamers and instead run the risk of becoming little more than a glorified gambling platform. 

Derek Lau is the game director for Guild of Guardians.