Why Sustainable Economies are Vital for Web3 Games

This article is published on behalf of Alien Worlds.
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Web3 technology has flipped the script on gaming, making players masters of their virtual domains. For all the benefits of tokenization, though, sustainable management of in-game economies remains a key determinant of a project’s success.

Without balanced economics, sensible inflation controls, and proper reward structures, Web3 games can — and often do — collapse under the weight of their own tokens (even if the gameplay itself is strong). Indeed, one study by ChainPlay revealed a 93% failure rate among blockchain gaming projects, with an average lifespan of just four months.

With gaming tokens worth over $14 billion, and the market as a whole projected to hit $124 billion by 2032, it’s more vital than ever for developers to learn the lessons of the past and build games around sustainable economic models. Without them, they are doomed.

The Power of Tokenization

Imagine grinding for a rare sword, only to lose it when servers go dark. That’s what happened to Might & Magic X: Legacy players in 2021, when developer Ubisoft pulled the plug.

This situation isn’t exactly rare. Just two years ago, millions of Chinese World of Warcraft players despaired as their accounts and assets vanished following a server shutdown. It’s a clear and present danger with any Web2 game, where players license rather than own: when the game goes up in smoke, so does their hard-earned in-game loot. It’s a sock in the gut for anyone who’s poured money and effort into a virtual world.

In recent years blockchain has come to the rescue, ensuring assets you earn live in perpetuity on-chain. In the Alien Worlds metaverse, where players compete for scarce resources, your NFT shovel or land parcel is yours and yours alone, tradable for Trillium (TLM), other NFTs, or fiat. In this and other projects, some items can be worth thousands of dollars.

Naturally, tokenization incentivizes and empowers players, who appreciate the freedom of being able to offload a rare item for real-world value — or trade it for another they seek. It’s an ownership model that has fueled the growth of blockchain games, which collectively attracted $60 million in funding this past July. Average unique monthly active wallets, meanwhile, were just shy of five million.

Inevitably, tokenization comes with a catch: owning assets means nothing if the game’s economy is built on unstable foundations. Without strong foundations, the value of tokens plummets, rewards become worthless, and players sidestep into a rival game with a better grasp of the fundamentals. In short, tokenization is pointless unless supported by a well-designed economic model.

No Shortage of Cautionary Tales

Failed games litter the Web3 graveyard, and the risk is that those left holding the bag — one teeming with devalued tokens — leave the space for good. Reflecting this reality, one of the industry’s more successful projects, Splinterlands, has launched a $500k Crypto Gaming Recovery Fund to restore trust by helping those burned by such failures.

To which factors can we attribute the alarmingly high crash rate? To be sure, there are many: from poor gameplay and technical barriers to market dynamics and difficulties in raising/sustaining capital. Given projects often rely on the success of the tokens at their heart, though flawed economic models must account for a high percentage.

Inflation is the silent killer of Web3 economies: if token production outpaces demand, prices crash and players lose heart. Last year, Chinese researchers produced a paper entitled “Exploring the Sustainable Development of Web3 Game Token Economy.” In it, investigators stressed the importance of sustainable economies, which positively affect both token value and the number of active user players. The authors also highlighted Alien Worlds’ “unique economic design and cross-chain operations,” observing that it “creates scarcity of its digital assets through mining and resource interaction.”

Poor reward structures are another portent of doom for Web3 games. If rewards are too generous, they flood the economy; too stingy, and players feel cheated. Early P2E games leaned hard on financial incentives, turning projects into a grind for cash rather than viable long-term endeavors. When the money dried up, players scrambled for the exits — followed closely by VCs who had bootstrapped the games.

Although many players (most of whom weren’t actually gamers) bought into the play-to-earn narrative, rampant speculation caused by inflated prices, endless hype, and anxious FOMO caused many projects to implode following boom-and-bust cycles. The fact is, a sustainable economy needs balance: ample rewards to keep players engaged, but not so many that tokens flatline nosedive.

A Recipe for Longevity

With fewer than 10% of blockchain games immune to the premature death knell, it’s worth asking why exactly they’ve been able to succeed.

As with the question of what causes projects to bomb, there are many components from quality gameplay and committed investors to sensible reward structures and a high level of decentralization. Token scarcity (a sensible supply cap and mechanisms to burn excess tokens) is one of the biggest contributors, as is meaningful utility — ensuring tokens are tied to in-game actions like trading and upgrading. A native token with no in-game purpose is just a speculative trinket.

Developers uncommitted to establishing a sustainable economy at the center of their Web3 games would be better off building a Web2 game, where they can at least achieve a measure of long-term success purely through strong gameplay. In Web3, they aren’t afforded this luxury: players crave rewards and wish to interact with fellow gamers peer-to-peer; to make use of a native token that empowers them to retain control over their experience.

In the coming years, sustainability will be the acid test that separates winners from losers in the Web3 race. By blending fun gameplay with smart tokenomics, projects can build communities of loyal players, preserve the value of their token, and ensure their long-term survival. Make no mistake, strong economic models are the glue that keeps players hooked and games thriving.

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