GameFi Tokenomics Design Principles

Since GameFi and other crypto-related industries have begun to develop over the past two years, tokenomics has undergone significant change. 

GameFi tokenomics usually have multiple users, NFTs and levels. While these various factors make a game fun, they also make economics extremely complex. Our BrightNode experts help to simplify the process for founders through careful benchmarking, planning and modeling. What’s more, we do this right from the first NFT mint, through to the launch of the game and token.

The complete economic environment of a token is referred to as the tokenomics design. Therefore, tokenomics is involved in many GameFi elements. These include the risk factors, LTV ratio and distribution of AAVE tokens’ interest rates. Other examples are the AXS shards, administration and economic cycle of Axie Infinity. Tokenomics is also responsible for how The Sandbox distributes SAND, sells land and mints assets.

The economics section is an important part of the white paper for any cryptocurrency project. Of course, this is alongside other elements such as use case documents and marketing proposals.

Defining GameFi success

The key to ensuring the viability of your GameFi project is, arguably, getting the tokenomics correct before launch. Good, terrible or unexpected tokenomics design is the deciding factor in whether protocols succeed or fail. The development of a web interface for a smart contract is not very challenging. Security is, but we will address this in another BrightNode blog. It is challenging to compete with other protocols that have increasingly innovative incentive schemes. This is necessary, however, to prevent the ecosystem’s whales from driving your token’s market cap through the roof.

GameFi decentralization

Another thing to keep in mind is GameFi decentralization. We’re talking about assets based on the blockchain and so it is only your asset if you have the keys. Assets cannot be seized by a judge, a central bank or the Treasury Department without the owner providing their keys. Indeed, users can use their tokens in any way they see fit. They cannot have them locked without their consent, unless this happens as a result of fraudulent design. After creating a digital and free economic model, it is your responsibility to provide incentives guaranteeing participation in your ecosystem.

GameFi sustainability

The GameFi ecosystem won’t flourish if gamers play blockchain games via unsustainable tokenomics rather than engaging gameplay. Players won’t know that they are utilizing NFTs created on a blockchain in the first blockchain game attracting traditional gamers. Consequently, developers must create a transparent front-end that easily integrates NFTs as well as providing exciting gameplay.

Games on the blockchain should combine play-to-earn, free-to-play, fun-to-play and non-pay-to-win modes. How is that even feasible, one might wonder? In other words, since there are no GameFi adverts to monetize their attention, gamers do not create value. They just play to win, and their original investment is their only contribution. Understandably, the in-game economy will implode if most participants cash out their winnings or if growth slows. This is the same with any Ponzi scheme. Of course, there is one clear solution to this. Creators must design a game that is entertaining and engaging enough for players to spend more money than they make. This is also the case in more traditional games.

True decentralization is the final part of constructing a cohesive, healthy and growing GameFi environment. To complete this task, three aspects must be considered.

• First, blockchains should be used to build games with fair consensus processes. These should avoid ceding a sizable portion of the network to one or more central entities. Ronin actually secured Axie Infinity via the Proof-of-Authority consensus technique and, thus, is a prime counterexample.
• Second, GameFi developers should respect ownership by preventing users from accessing the network’s smart contracts or claiming intellectual property ownership.
• Finally, participants must control the game. The future of the game should be left up to the players as it develops. In other words, developers should create a decentralized governance system.

Economics design

You can look at the economics design framework through the eyes of a player, builder, developer, investor or NFT collector. When building any economy (P2E or non-blockchain based), the design framework incorporates market design, mechanism design and token design. Typically, the GameFi developer and the game designer establish the market design as the economic parameters (aesthetic and economy design). The game world’s economic involvement regulations (which set ground rules for the gameplay) are determined by mechanism design. When players engage in the game world, they create value through token design.

GameFi token models

GameFi token models are necessary because they help to identify the proper economic policies for each distinct gaming economy. Economic policies can vary substantially, depending upon the nature of the underlying game.

A one-token or two-token GameFi approach can be used to divide the functionality of tokens, thereby facilitating token economics. A multi-token ecosystem most frequently involves a two-token model. A two-token paradigm offers two distinct tokens simultaneously. Furthermore, we can identify tailored use cases for each token, distinguishing between an “ecosystem” token and a “purpose-solving” token.

There is often a utility token and a governance token in two-token arrangements. The utility token provides functionality across most of the network to complete a specific job (i.e., allowing for in-game transactions). On the other hand, by enabling voting on proposals, the governance token assists in determining a GameFi project’s direction. For an enjoyable game, a single token model may also be adequate because it reduces the dilution of in-game utilities. A single token model effectively concentrates market demand too.