Zero-Sum Plus (ZS+) Gaming
Zero-sum games are sacred — “Heads or tails?”
And they’re already being touted across web3 gaming as a panacea for resolving the issues with 2021’s Play to Earn “ponzinomics.” But digital ownership provides more tools than just a dusty coin, and designers should look to teach that old zero-sum dog a few new tricks.
This piece is best read alongside a previous piece, “Gladiators and Lumberjacks,” which details player personas relevant for the economic framework below.
Vanilla-Flavored Zero-Sum Tastes Bland
Zero-sum games are built on the idea that one player’s gain is another player’s loss. If we both wager a coin and I win, I walk away with two coins and you’re left with a bad day. This approach holds water in ancient confined game environments with truly zero external interactions, but it’s a mistake to try to force this kind of artificial “equality” in open, social experiences with complex game loops and possibilities. Modern game designers have the latitude to be a bit more creative than ancient gamblers.
These vanilla zero-sum games in web3, those in which players effectively wager against each other in a winner-takes-all capacity (and usually with a healthy cut to the house), are a knee-jerk reaction to the implosion of Play to Earn over 2021. If we never emit more tokens than we charge players, we’re cool, right? Sort of, but that’s really boring, and this is supposed to be the fun sector. Let’s add some spice.
Zero-Sum+ (ZS+)
If every time I lost a game of League of Legends I had to watch my cash stack evaporate due to zero-sum wagers, I might actually throw my computer out the window.
But let’s imagine a better world, one where that loss was partially subsidized by sustainable revenue sources. In this new world, I’m now just a bit salty from having been stomped for the umpteenth time in a row, but I’m determined to step back into the arena for my chance at reclaiming glory. Because losses are partially subsidized, the expected value of my participation in the game over the long-run becomes greater than zero (i.e. this is no longer a zero-sum game).
In this scenario, I might shop around for new gameplay assets, watch some creator content & view ads, and drive other random economic levers while telling my friends about the experience. But I certainly wouldn’t quit. Because I have reasonable confidence that my long-run expected value is greater than zero, I’d ultimately end up right back in the game to try to win it all back and then some. That’s an organic user acquisition flywheel that doesn’t depend on hiring influencers to shill.
This model, ZS+, starts with two things:
- A fungible, fractionable, and singular value accrual vehicle¹
- Dedication to driving all ecosystem value into that vehicle²
It’s extremely important that both prongs of the ZS+ model are met for the flywheel to be successful, with likely little-to-no variation permissible.³ The second prong, which involves dedicating 100% of ecosystem value to that single vehicle, can be broadly accomplished by:
- Pricing all in-game items and gameplay costs in the token⁴
- Collecting royalties in the token from player asset trading
- Selling advertising space in exchange for the token
This ensures that value from any game-related activity ultimately ends up in the token. Assuming the game is actually playable⁵ and successful, the social fabric around the game should ultimately drive those economic activities and underscore the value of the vehicle itself, just by the weight of real user gameplay. As the game grows, so too does the vehicle’s value, thereby increasing the value of user participation, which is the alignment that all web3 ventures should strive to construct.
Show Me the Money
So, we have a strong base vehicle. Where’s the beef?
The “beef,” if you will, is that when the game’s ecosystem treasury has reached some specific developer-determined strength threshold, excess tokens above that threshold are used to subsidize player gameplay, with both winners and losers seeing some marginal benefit. Specifically, the idea is to reward winners and losers with more than you would ordinarily receive in a zero-sum game, made possible only by taking in auxiliary revenue and distributing as in-game items or currencies.⁶ This yields an expected value of greater than zero, or, in other words, zero-sum plus.⁷
Let’s revisit my League of Legends loss example from above. If I had participated in some vanilla web3 zero-sum variant of League, I’d be out a few dollars and extremely irate, and the house would probably be a few dollars richer. I’d almost certainly walk away from that game.
But let’s say that instead the designers behind this particular version of League had implemented a ZS+ model, and, whenever economic activity led to a surplus in the game’s treasury, losing players were partially subsidized on their losses, and winners won even more. There’s a chance that I’m now even more excited to get back into the arena, despite my recent psychological tumult. All because my expected value is greater than zero.
This Has to be a Ponzi… Right?
Crucially, if a game’s treasury fails to collect surplus value, the subsidization taps must shut off. It’s zero-sum plus, after all, which means by default its strength must be at least zero-sum.
But I’d make the case that if a game is not driving economic volume in any capacity that would lead to ecosystem surplus, the game has fundamentally failed to capture a robust social fabric that would usually be associated with a successful product; i.e. the game was already dead, with or without a robust economic model.
The ZS+ model presents one method for aligning the utility of every stakeholder and user in a system where a rising tide lifts all boats. If the devs hold the same value accrual vehicle as the investors and the players, and everyone is equally incentivized to see an ecosystem prosper together, the model paints a utopian picture of how, once in motion, an economic flywheel could theoretically sustain exponential user acquisition.⁸
That user acquisition is directly funded by gameplay value as a result of a strong social fabric, and reinforced not by requiring the addition of new players, but by real economic activity by an existing dedicated playerbase.
Web2 Did It First
But don’t just take my word for it. This model is vaguely similar in nature to the way Dota 2 runs its annual International tournaments, which are consistently the highest-paying esports events in the world, inasmuch that Battle Pass sales and other various sponsorship and advertising dollars do not entirely go to the devs, but instead go to the players of that tournament, to support the lofty prizepools entirely composed of those revenues.
Obviously people are not yet entering wagers to play Dota 2. But the idea of taking revenue that is traditionally reserved for developer pockets and instead reinjecting it into clever user acquisition schemes (instead of paying overpriced influencers) has been around for a few years, and web3 gaming has the opportunity to turn this strategy up to eleven.
Buckle up — this next era of gaming will see new titans born as a consequence of innovative gameplay paired with utility alignment made possible only by web3 flywheels, and I’m here for it.
¹The majority of ZS+ economies will implement this strategy via a single-token strategy. This is because driving ecosystem value to multiple tokens is provably suboptimal, and it violates the first prong of the model, which is to have all value in a single vehicle.
²There are a vast number of complexities to consider when deciding between value accrual models, which I’ve outlined here, here, and here, but for the sake of this model a single-token economy is the most straightforward consideration.
³If you know a variation of the ZS+ model proposed here that accomplishes the same level of rigorous user value, please let me know.
⁴Note that this consideration is only for hard currencies, or “economically relevant” entities. Soft-currencies and other in-game items that are unable to directly convert into the hard currency are part of natural gameplay and can certainly be included.
⁵And by “playable” I mean with actually enjoyable gameplay.
⁶Readers sensitive to the regulatory environment may also flag the idea of “revenue redistribution” here as problematic. Note that this is not explicit revenue redistribution, and these are not dividends. This is more akin to rewarded video ads, which is a popular way for advertisers to encourage & effectively subsidize viewer’s time with cash or in-game currencies in exchange for participation.
⁷Astute readers will question whether this strategy is Sybil-resistant, i.e. “if an army of bots attacked the game, would it survive”? If gameplay is simple enough to be botted, then games should consider assigning higher subsidies to higher-performing players in individual matches, which will bias the EV of the exercise towards higher player earnings and remove most of the risk of bot farming (assuming that, on average, players will beat out bots). If your game is a coin-flip to start though, this may not be the model for you.
⁸Notably, as with all true flywheels, this model will have a cold-start problem. One solution is to take marketing budgets traditionally reserved for ads and influencers and instead use them to subsidize initial gameplay, kickstarting the organic wheel.
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.
The views expressed here are those of the individual personnel quoted and are not the views of Hivemind Capital Partners or its affiliates. Certain information contained may have been obtained from third-party sources, including from portfolio companies of funds managed by Hivemind Capital Partners. While taken from sources believed to be reliable, Hivemind Capital Partners have not independently verified such information and make no representations about the enduring accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Hivemind Capital Partners have not reviewed such advertisements and does not endorse any advertising content contained therein.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by Hivemind Capital Partners.
