How to Create a Sustainable Web3 Game Economic Model

Author: Lukasinho, GlobalCoinResearch research team member Lukasinho; Compiler: Yvonne, MarsBit

Finding the perfect business model for Web3 games is an unsolved daunting task. The "Play-to-Earn" model failed miserably, spawning a new contender: Play-to-Own. This model promises to seamlessly integrate Web3 technologies into games, with benefits for both players and developers. With several games already using this model, let's explore the challenges facing the Web3 game economy and see if Play-to-Own can deliver on its promise.

How is Play-to-Own designed?

P2O games usually adopt a free-to-play model, emphasizing the acquisition of in-game assets through gameplay rather than direct purchase. These assets are presented in the form of NFTs on the blockchain, giving players full ownership. If players do not want to use these assets, they can trade them in various markets.

The underlying vision of P2O is to build a game economy owned by players, transforming the transaction dynamics that mainly occur between developers and players in traditional games to directly between players. As a result, the company's revenue stream is primarily derived from trading activities and royalties rather than direct sales.

Play-to-Own vs. Play-to-Earn

! [NFT] (https://img-cdn.gateio.im/social/moments-40baef27dd-b98d2378d8-dd1a6f-7649e1)

Play-to-Own games like Skyweaver may bring a new paradigm. Source: skyweaver.net

The Play-to-Earn model provides developers with a clear and straightforward business model centered around the sale of NFT assets. In Play-to-Own games, the revenue stream is not as straightforward. Its basic theory assumes that in-game assets will be traded between players, allowing developers to generate revenue through trading activities and royalties. However, the reality is that earning enough income through this method alone can pose quite a challenge.

What problems does the Web3 game economy face?

The secondary market lacks sufficient trading volume

The secondary market has the potential to generate significant revenue, especially if trading is critical to the game's economy, as it is with FIFA Ultimate Team. In FIFA Ultimate Team, many players participate in stock market-like player transactions to accumulate more FIFA Coins and acquire better players for their teams. The YouTube channel has more than 600,000 subscribers, and the website offers stats and price history dedicated to trading players in FIFA Ultimate Team.

! [NFT] (https://img-cdn.gateio.im/social/moments-40baef27dd-d2620669df-dd1a6f-7649e1)

Kylian Mbappe's average daily price in FIFA Ultimate Team. Source: Futbin.com

Conversely, if trading is not at the core of the game, the revenue generated may be significantly lower. The latter case is usually the default assumption. For example, using a 5% fee structure, any item would need to be traded 20 times to generate revenue equal to one sale. The possibility of each asset being traded 20 times at the same rate as a single sale is unlikely in most games.

From my experience building economic models for Web3 games, it's clear that in order for most Web3 games to be economically viable, additional revenue streams beyond the fees for trading acquired assets are essential. These additional revenue streams can come from additional primary sales, thriving transactional economies that are intentionally built, or from capturing value through other means using Web3 technologies. We discuss these possibilities later in this article.

Trying to make money from the wrong users

In the Play-to-Own model, players earn NFT assets through gameplay and trade them on the secondary market, which often leads to the unintended result of trying to make money from the wrong users. In free-to-play games, a small percentage of players (usually between 1% and 5%) make in-game purchases. These players tend to put in a lot of time and rank high on the leaderboards. In contrast, most casual players are content to enjoy the game without spending money on in-game transactions. In Play-to-Own games, in-game assets are earned rather than purchased, creating a situation where loyal players who would normally spend money on in-game assets unlock most of them, so no Will buy any asset, and casual players who are not willing to spend are the ones who create the volume. This dynamic has resulted in insufficient demand for the asset in the secondary market and low trading volumes.

What are the possible solutions?

Game item personalization

One effective way to address these challenges is to sell personalized cosmetic content that cannot be unlocked through gameplay. Players who spend a lot of time in the game and have a high rank usually value their image in the game. By offering exclusive skins or cosmetic items that can only be obtained through direct purchase, game developers can target players who are usually willing to spend money. "Fortnite" and "Counter-Strike" are typical examples of this type of strategy. "Fortnite" generated an average of $5.2 billion in annual revenue between 2018 and 2022, netting $50 million for just one skin. On the secondary market, "Counter-Strike" skins cost more than $100,000, and Valve makes $54 million a month selling "Counter-Strike: Global Offensive" skins. Even though neither game has a real gameplay advantage, players spend a lot of money on skins and other cosmetic items. Both Fortnite and Counter-Strike: Global Offensive have been among the most successful games of the past decade, making it difficult for any Web2 or Web3 game to achieve comparable results. However, these games are compelling case studies of how players are willing to spend big on skins and other cosmetic items if they really enjoy playing the game.

Introducing limited-time seasonal skins to a Web3 game is a great option, as it creates a sense of urgency for sales and stimulates secondary trade as players seek out early rare skins.

! [NFT] (https://img-cdn.gateio.im/social/moments-40baef27dd-386ba421ab-dd1a6f-7649e1)

Players pay up to $150,000 for this AWP skin. Source: ggrecon.com

However, maintaining the proper balance is crucial. Developers must carefully manage the release of new content to keep players excited and drive revenue, while avoiding too much content that devalues previously released items. Finding this delicate balance can be challenging.

While Web2 games that allow players to trade in-game assets face similar issues, the key difference is that the impact of asset depreciation is limited to in-game currency, not real currency. Still, Counter-Strike has proven that when the balance is well maintained, a healthy secondary market can develop, with surprisingly high prices for rare skins.

By leveraging the appeal of premium/exclusive in-game items, Play-to-Own games can create an incentive for players to spend money, driving revenue and fostering a thriving secondary market.

Let NFT capture the value generated by spending time in the game

In games with progression systems such as World of Warcraft, players spend a lot of time upgrading their characters. Top-level characters with powerful gear have enormous value, as can trading World of Warcraft characters on platforms like eBay, despite Blizzard's policy against such practices. This is because some players are unable or unwilling to invest a significant amount of time and prefer to buy pre-leveled characters to save time.

! [NFT] (https://img-cdn.gateio.im/social/moments-40baef27dd-2fd90f534f-dd1a6f-7649e1)

Coveted items like the "scarab lord" make accounts extremely valuable; source: opwowaccount.com

With the emergence of Web3 technology, developers can take advantage of player behavior through the "player versus player" economic model, and players can provide quests as a service to others. Because the highest tier characters cost extra compared to tier 1 characters, the turnover of the in-game assets mentioned above will be greatly reduced. For example, in a Web3 game, each base character might sell for $10, but when the maximum number of characters is reached, the transaction price might be $100. Instead of 20 transactions, just 2 transactions can earn the equivalent of a single sale through transaction fees. If the character is traded a third time, the developer's earnings increase significantly. This win-win situation benefits developers, sellers, and buyers. Sellers can make money through their efforts, and buyers can save time because they can get a high-level character without tedious grinding tasks.

In addition, Web3 technologies provide opportunities for value creation through special skins obtained by achieving specific milestones. For example, in a card game, a card that wins 200 games can get a golden skin, and after winning 400 games, it can turn into a diamond version. While the card's functionality remains the same, its new and unique look increases the card's value on the secondary market.

These examples highlight the potential of Web3 technologies to create value and incentivize player stickiness by providing alternative paths to progression and customization. By adopting a player-to-player economic model and introducing unique rewards tied to achievements, game developers can enhance the gaming experience, increase revenue, and provide players with more flexibility and choice in the game experience.

UGC Tokenization

Cultivating user-generated content is a big opportunity for Web3 gaming. Games such as "Minecraft" allow players to freely build their own virtual worlds, from elaborate structures and landscapes to complex installations. Taking this creativity to the next level, a vibrant mod community has emerged, developing modifications (mods) that introduce fresh gameplay features, visual enhancements, and custom content. This trend is not limited to "Minecraft", games such as "Skyrim", "Civilization 5" and "XCOM2" also have thriving mod communities. Also, in games like Need for Speed or Forza, players spend a lot of time tweaking the appearance of their cars, making unique skins to personalize their cars. Using Web3 technologies, both developers and gamers can benefit from facilitating and monetizing collaborative content creation.

1. NFT marketplace for UGC: Game developers can create an NFT marketplace where players can sell their UGC as NFTs. This can include in-game items, skins, art, music, or even custom levels or quests. Players can retain ownership of their creations and earn royalties when selling or trading NFTs. Developers can earn commissions from each transaction, forming a symbiotic relationship where both players and companies can benefit from the UGC market.

2. Royalties on UGC contributions: Game developers can implement mechanisms that allow players to contribute UGC directly to the game, and creators will receive ongoing royalties as long as other players use or access their content. This applies to in-game assets, character designs, or any other form of UGC. NFTs can serve as the basic mechanism for tracking ownership and automatically distributing royalties to creators.

3. Collaborative NFT projects: Companies can engage participants in collaborative NFT projects, where multiple participants contribute to the creation of unique and valuable NFTs. This could involve co-design, game modifications, or story initiatives. The resulting NFTs can be sold or auctioned off, and proceeds can be shared among contributing players and companies.

! [NFT] (https://img-cdn.gateio.im/social/moments-40baef27dd-747c6295a2-dd1a6f-7649e1)

Minecraft is known for its modding community. Source: Nintendo

Overall, the combination of NFT technology and UGC monetization has the potential to reshape the relationship between players and gaming companies, foster a more collaborative and inclusive gaming ecosystem, and create additional revenue streams. It can enable players to actively participate in the game economy and content creation process, improve the overall satisfaction of players and extend the life cycle of the game. By harnessing the power of UGC and Web3 technologies, developers can build a thriving community, increase revenue, and blur the lines between players and creators.

Adhere to the Web2 business model

While this may not fit the vision of Web3 enthusiasts, it's important for game studios to really question whether their games would actually benefit from Web3 technology. In the case of utilizing Web3 technology to provide limited benefits for developers and players, the traditional Web2 game business model may be more suitable. When evaluating the feasibility and suitability of implementing Web3 in games, it is critical to objectively recognize that it may not be the best solution for every game.

in conclusion

**The emergence of the Play-to-Own economy undoubtedly enhances the game experience of players and brings the Web3 game industry closer to the game community. **However, this also poses a huge challenge for game developers. **The ability of players to earn and trade in-game assets directly impacts a developer's sales and revenue. To meet these challenges, games must find ways to naturally stimulate transaction volume, ensure long-term value accretion of NFTs, or leverage the power of user-generated content. **We must admit that not all games can effectively adopt these methods, and some games may have more success by sticking to established Web2 business models. Still, an exciting new frontier awaits us for games that can exploit these possibilities for players and developers in an organic and mutually beneficial way. Web3 technology has great potential for the development of the game industry.