Web3 Games Will Fail — Unless They Audit Their Economies
The past year and a half in web3 gaming has seen devs throwing all basic knowledge around sources, sinks, and general economic balance out the window. Decades of knowledge around carefully navigating closed-loop player ecosystems has been summarily disregarded in favor of hyperbolic stock exchange simulators with everyone crowing for pink sheets to “go to the moon.”
Time to take a breath and learn from the math.
This topic was further discussed with Matthew Morris of Machinations.io in the context of sustainable game economies and economic modeling — watch here.
Sources & Sinks & Bears, Oh My
A source is anything that emits an asset. A sink is anything that absorbs (or deletes) an asset. These set the limits on supply and demand, and, in game economies, the game dev is judge, jury, and executioner of frothy markets.
But balancing emissions and making a fun, engaging, and ever-growing game is remarkably difficult. Studios hire systems designers, economists, and mechanism design theorists and still often fail to protect their playerbases against themselves. Because, at the end of the day, a good portion of your playerbase will always “min-max” your game, i.e. perform whatever semi-exploitative function gets them marginally ahead of other players, even at the cost of their own fun. And you can’t blame them. They’re just playing the game.
But you can take steps to predict, analyze, and plan for that eventuality. Web3 games have, to-date, employed haphazard economic models, primarily driven by the early success of major titles that relied on certain two-token models, infinite emission schemes, and a lack of gameplay-related asset sinks.
But, thanks to the bear market we find ourselves in, there’s a fantastic opportunity to revisit the real lessons of the past, pull in actual modeling, and build something substantially more sustainable.
Audits Aren’t Just for Taxes
Auditing is on the tip of every builder’s tongue in web3. Your taxes will hopefully not be audited after you flipped 888 NFTs .Your smart contracts should be audited to avoid getting “rekt.” And, now, the idea of auditing your game economy is slowly catching on. And it can’t be a moment too soon.
Realistically, game developers have a responsibility to the players (& tokenholders) to audit their economies extensively prior to pushing a game live. Same as smart contract developers. They’ve learned the hard way over the past few years that there’s just no two ways about it, you’ve got to sit down, submit your code for an audit, and take the feedback to heart.
I’m personally fond of the Machinations.io platform. I very rarely recommend actual products on this blog. This post isn’t sponsored, and I’m not an investor. They just have a genuinely good platform that I actively encourage all games to experiment with before they push live a set of half-baked back-of-the-napkin assumptions.¹
The ability to Monte Carlo out thousands of iterations across a Factorio-style model of your game economy is immensely satisfying and educational. Even a simple model of some of the major two-token games reveals very serious structural flaws in their assumptions that could have been prevented back at launch. Game economy audits should be mandatory, not optional. Just like smart contract audits.
The Elephant(s) in the Room
Recall the “min-maxing players” I referenced above, those who would chase edge cases for some modicum of personal value gain, even at the expense of fun? With the financial incentives of blockchain-bound digital bearer assets, those players are now a lot bigger, and we call them guilds.
Guilds band together to pursue high-revenue opportunities across games, and, in the past year and a half, have largely been derided for their “extraction-based” approaches to games. Value flows out of games, into guilds, and subsequently gets dumped unceremoniously on the open market. The game value crashes, and the guild moves on. Sucks.
But this is not the way the relationship should be. Guilds are huge masses of players, dedicated communities, and talented creators. They aren’t intentionally tanking the games they dedicate their time to. Why would anyone want to do that?² Guilds tanking a game is just a side effect of truly irresponsible economic design. The relationship between guilds and games should not have come to this, and a better future is possible.
As the web3 gaming ecosystem evolves and games mature into strong theoretical models for gameplay and economic structuring, guilds will be seen as synergistic with games. Just like esports teams today in web2 games. We love Valorant and League of Legends and Overwatch partially because we get to cheer on our favorite underdogs or multi-title champions as they smash the competition. It’s an important part of any sports industry.
Towards a Future of Audits
Net, let’s take some more responsibility as web3 game developers and participants, and subject ourselves to rigorous and humbling auditing, just as the rest of the DeFi and web3 have learned to do.
Don’t blame gaming communities for your own failure to consider the math.
¹Mostly just the new quick-money web3-only game devs doing this.
²Ignoring some very aggressive short sellers & the havoc they could wreak on game economies.
Sam is the CEO of Playground Labs, a web3 protocol dev organization, and Partner & Head of Interactive at Hivemind Capital, a crypto-focused multi-strategy fund. Follow him on Twitter.
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