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Entropia Universe - Economic Learnings for Web3 Games
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What we’ve been noticing
As a real money game, Entropia Universe provides an interesting example of how virtual economies can take shape and provide insights for those building Web3 game economies. The game was launched in 2003 by MindArk studios, well before the creation of Bitcoin. Before NFTs entered the scene with high-value digital asset sales, they claimed the top three spots in a list of the most expensive video game item sales. These included a palace for $330,000, a nightclub for $635,000, and a planet for $6,000,000!
Key Topics this Article will Cover:
The Market Situation
Entropia's Economy Analysis
Entropia Universe boasts an unusual economic system. Its currency, PED, has a pegged exchange rate of 10:1 with the US dollar. Though most games have the ability for players to purchase currency at a fixed rate, Entropia is interesting as it allows players to redeem PED back into dollars as well. This is done by maintaining currency reserves to cover the redemption of PED.
The Market Situation
While this Sci-Fi MMORPG is technically free to play, actually playing for free is an arduous task. The few tasks available without any up-front PED costs, like collecting sweat or fruit, pay out the PED equivalent of less than a dollar per hour for very boring activities. The real gameplay methods of hunting, mining, and crafting cost PED in order to start and continue due to needing inputs like tools and ammunition.
The PED output of these activities is variable, meaning that they essentially follow a casino model. Similar to casino games, they have a negative expected return with an estimated 90-96% return to players on average (aka 4-10% house edge). Most of the players participate in these core activities, making gambling the core monetization method for the game. High-spending players are given visibility for their wins and make up a significant chunk of revenue, as high rollers do in casinos.
Though there is another interesting economic component that has actually been profitable for participants over time- investing.
MindArk has sold land, planets, and other assets within Entropia Universe, including the more expensive sales mentioned above. Landowners are able to create businesses, sell housing, and impose taxes. Rather than be the gamblers in the casino, investors are able to buy the equivalent of a blackjack table and get a cut of the revenue.
Entropia's Economy Analysis
Entropia’s Economy is important to understand for those designing Web3 games because it is a rare example of an existing game with the ability to legitimately convert game assets and currency back out into real money, a key tenet of open Web3 economies. It clearly demonstrates the default negative-sum nature of open game economies, where the developer will take a cut and if no real value is injected into the game then any player’s winnings will come from anothers’ loss. Though the game is a very strong negative sum, due to the heavy financial motivation of all participants.
Web3 games can learn from this and implement ways for participants to spend on items purely for enjoyment, like cosmetics. This injects value into the economy as the player does not expect a financial return for their spending. In turn, the economy becomes less negative sum, but note that this does not guarantee a positive return for all, or even most, participants.
Web3 games may choose to adopt a currency pegged to the dollar like Entropia Universe, either through an existing stablecoin or using the same process of backing their own pegged token by holding deposited currency reserves. In this scenario, token inflation (or more likely redistribution) must be carefully controlled as distribution past what the project is able to pay out in reserves would lead to a currency de-pegging and likely economic collapse.
But in the current market, Web3 projects are generally leaning towards unpegged currencies with fluctuating exchange rates. Despite this distinction, these projects can still take the same lesson of being careful with the token distribution.
In this case, the support for keeping a token at any given price comes from the balance between additional token supply hitting the market and demand. Any increase in token supply must be absorbed by demand from players who have no expectation of financial return for that spending, otherwise token prices are depressed (all else equal). The speculative demand component can influence prices temporarily, but not sustainably, as these buyers expect a financial return and those assets will end up back on the market.
Entropia Universe provides an interesting case study for real value game economies, but not one that should be directly emulated. The up-front input costs and direct financial output limit the potential user base and put too much emphasis on the financial component. Future Web3 games can do better with a more fundamental focus on gameplay that will drive demand from core gamers for in-game assets regardless of earning opportunity.
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