For over a year, I’ve been enjoying CryptoKitties. This is a game for the uninitiated, where you own and breed cats on the blockchain. You can breed 4 trillion cats based on the genetic makeup of each parent.
With the kids, you can’t do anything. It’s only for entertainment. For fun. But CryptoKitties priced over US$ 15 m (81,600 ETH). More than 1.7 million cats were bred.
I’ve’ played’ the game to make money. So I did that. I arbitrated the market, measured breeding odds, made rush deals and collapsed the market alone.
I’m not going to get into the details of how and what I’m doing. This is a LONG article that has been saved for another day (post).
But what I’m going to share is 8 interesting things I’ve learned about crypto-economics, incentives, and markets.
1) Crypto people will buy anything (including useless things)
Many people are risk-taking players in cryptography. Why would you own it otherwise? These investors want to spend their money, but at present, there aren’t many good opportunities. This means that low-quality games, which would otherwise make no money, become interesting places for investors to quickly make money.
That’s going to change. It’s a question of time. Nevertheless, given the news of blockchain games and the chance to make money, every NFT is a fascinating speculative asset instantly.
ChainFaces is a recent example. Someone bought this image for US$ 1679 (10 ETH) (which is simply a blockchain). There isn’t even a page in ChainFaces.
Crypto investors are going to spend money and love speculation. An actual fun game that uses the blockchain properly will blow off all competition.
2) Mainstream media means that you can expect an increase in demand and prices
This could look straight ahead. The PR on your game will, of course, help new players. However, it is not obvious that the only players without the mainstream press are those in the Crypto space.
Blockchain games need to hit a mainstream audience to increase demand. This was usually done via the smart press.
- Cryptokitties had big sales early on and many popular newspapers got the idea of purchasing and selling digital cats for more than $100.000.
- GodsUnchained made some smart ads and came up with the Blizzard Blitzchung fiasco. Hundreds of Hearthstone players paid much attention to a viral tweet.
.@Blizzard_Ent just banned @blitzchungHS and stripped his Hearthstone winnings because they care about money more than freedom. We will pay for ALL his lost winnings and a ticket to our $500k tournament: no player should be punished for their beliefs. #freegaming https://t.co/ONvtkG4x9G
— Gods Unchained (@GodsUnchained) October 8, 2019
Speculative demand will also be driven by speculation for mainstream visibility. When players believe that there is a mass audience, they’ll invest more.
An example of this is the notorious’ China launch’ of the CryptoKitties project, which has spent a lot but ultimately reversed itself because legal problems have stopped it from actually launching itself in China.
The mainstream press can be a major sign of short-term popularity (and hence profits) in a crypto game. A game developer’s secret is to increase the mainstream market’s sustainability.
3) Whales have a ripple effect and are the # 1 market volume indicator
When a “whale” comes into a blockchain game, they usually assign huge amounts of money with cash. Sometimes as an investment, sometimes for prestige and glory in support of the game.
Suddenly, players who have sold the assets to a’ whale’ will have a cryptocurrency flood that they can either reinvest or cash out. People tend to recycle because they believe they can’ do it again’ more often than not.
Some players will choose to reinvest through the acquisition of properties from other players, who reinvest in other players, etc. The loop will last for a short time (in my 2–3 weeks experience) before all interest was removed due to people cashing out and not reinvesting.
I’d compare this system to trickle-down economics.
Though, there’s one key point that significantly decreases this–when the game developer is the one that sells properties directly to the’ whale’ or the reinvestors. This is critical since it means that money is removed from the investment process and is often not returned by the game developers.
Short-term market trends can be defined by looking at what the big bales do and how much players sell versus business. Gaming companies should define how the reinvestment ratio is to be maximized (reinvestment volume vs Whale sales) if they want to improve market activity
4) Gaming where people only “play to earn” will depend on new players to support the economy
A lot of people are playing crypto games to make money. Even if they don’t want to do anything, they don’t want to lose either.
If this theory is correct, someone will remove it from the environment when they make a profit. The reasoning is that, even if more gains are to be made, investors want to’ park’ their money.
Therefore a crypto-game that relies only on play-to-earn is not sustainable. Players are going to join the intention to make money. Those who do take it, those who don’t stop playing. It means that players can only continue to make money if new players enter the game.
Finding new players is constantly tricky. And if the benefit chance drops, all your key players who play’ to win’ will be gone.
The strictly play-to-earn (playing for money) games would fail. New money comes into a game as old money leaves.
5) Without a strong supply sink, market deflation will occur
The current trend is for crypto games to start with a pre-sale, in which products are sold to fund game development. We usually sell several tokens. Why not? Why not? The better. The better.
Nonetheless, they won’t have too many players when the game starts. Therefore, when players can use and trade items, the market is flooded. Supply will be higher than demand, and the economy will decrease.
This happened in Cryptokitties. After the pre-sale ended, a’ Gen 0 ‘ cat cost 0.5 to 1.0 ETH, but it has now deflated to about 0.15 ETH.
Unfortunately, most crypto games don’t know how to handle this.
On the other hand, you will see the price increase when a game adds a pool for objects. It allows a game to raise prices artificially by providing incentives to demand such as discounts, weapons, new releases, etc.
The majority of crypto game prices will decrease as supply exceeds demand. Lack of supply sinks can harm a game economy, as CryptoKitties demonstrates.
6) The floor price can not be sold
This is linked to the above. You can never sell at the floor price in a game where supply > demand.
Because in deflating market players don’t have to buy.
If someone sees 0.100 as the cheapest price, why would they buy it if they were to wait two weeks to purchase it for 0.050? Or wait four weeks and buy even less?
Players that plan to liquidate their properties must, therefore, sell considerably less than the floor price. You want to sell at a discount (at least 25 percent in my experience), to make it look like a lot. It’s not until people find out.
If other players finally make a profit— no problem. Ultimately, this way you end up better. I sold ~22,000 digital animals, trust me.
7) There’ll be bots. There’s going to be bot wars.
There are arbitration provisions in any marketplace. It extends to blockchain games as well.
The only difference is that all data is available on the blockchain in a blockchain game. This means that intelligent people can build bots that benefit from these arbitration opportunities.
As an example, CryptoKitties uses several bots.
- Some of them are used to breed or sell cats, making life much easier for the player.
- Some are used to benefit — for instance, to purchase items that are sold at a low price.
- There are also funny people on the’ right’ side, such as the’ Botty lost and found’ service from Alley Cat, which uses a bot to buy cheap cats and to try to return it to the owner.
Bots are going to cause grief. Bots are going to cause friction. Bots are here to stay. Bots are here.
I believe that the best game developers would create economic opportunities to combat malicious bot behavior instead of trying to eradicate it all by ‘ traditional ‘ means.
For the technically skilled, building arbitration bots to crypto games is a great way to earn. Developers must understand the consequences of bots and take action to prevent violent gameplay disruptions.
8) Developers from third parties also help to boost the core game ecosystem
One of Cryptokitties ‘ best things was to reveal their’ KittyVerse.’ It was indeed a small fund, which allowed developers from third parties to create other Cryptokitty uses.
Third-party implementations were incredibly creative which effortful and are probably one of the reasons why Cryptokitts still exists today. For example, 3rd party services are available to:
- Breed cats
- See their hidden genes
- Battle cats
- Trade ‘wrapped’ cats (an asset-based basket of cats that can be traded on a liquid market)
The reason 3rd party developers are particularly drawn to blockchain games is that blockchain is untrustworthy and transparent. The original developer can’t do anything, unlike traditional gaming models, to interact with third parties. It provides a safe space to build sustainable enterprises.
Game developers should nurture and encourage developers from third parties to build on their platform. But they can’t do it all so don’t rely too much on them (like Cryptokitties)