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The Economics of P2E Gaming Economy Ft. Star Atlas
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We recently released a report on the economics of P2E gaming economy. Based on the report and our framework we analyse Star Atlas based on 3 categories: Market Design, Mechanism Design and Token Design.
A market is where anyone comes in to transact and trade and interact with someone else so here, we look at three things UGC, NFT’s as well as how value is being created when users come together. Market design are the various parameters initially decided by the game designer and developers. This is important to limit the effectiveness of the mechanism design and token monetary policy designs moving forward. In addition, market design includes factors that build the core parameters to build a multi-sided market in the game. This involves user-generated content, NFT, and its usability and value creation by the economy.
Incentivizing the creation of User Generated Contents represents a central challenge in the design of a game’s economic system. Usually, IP rights are protected by NFT tokens representing ownership in the newly created asset. However, when the content generation process allows users to freely create new assets, scarcity cannot be achieved only with NFTs.
NFT and In-Game Usability
How does NFT create value to the game? Developing NFTs and adding them into a gameplay and game system requires some care in defining. Metadata represents the essence of the NFT and thus the certification of the same that comes from the technological point of view. Defining tradable tokens and usable in-game items is very important, such as identifying the rate of creation and inflation of them.
Value creation, sinks, distribution
In any ecosystem, be it a country, a market or a video game, the key asset of transfer is value. Value can be captured in forms of goods (i.e. barter trade of cheese for yogurt), in forms of common currency to be used in later dates (i.e. sovereign currency to be used to pay taxes) or in internal tokens, currencies (i.e. in-game currency for in-game activities) and NFTs (i.e. representation of digital assets).
Specifically, in a game, be it on-chain or off-chain, it is an art to balance between the value being transacted, and the asset that represents such value. It is not uncommon for a variety of assets to be created, namely resources, currency and unique items. That is why, for a successful gaming development, the value strategy needs to be accompanied by a so-called monetary policy that smoothens the enthusiasm or depression of upward and downward value creation cycles.
How does Star Atlas work with UGC, NFT’s as well as value creation and value distribution?
Star Atlas has an evolving road map for things like user-generated content. It's very important for them at this early stage, given the ambitious vision that they’ve laid out to really maintain and uphold the highest levels of standards on graphical fidelity and quality of assets that get introduced while maintaining consistency and uniformity across those assets that are released. Hence in the near term and this is probably a couple of years, they are not enabling the inclusion or integration of any external user-generated content across Star Atlas. There will be a future through decentralization and through the Star Atlas DAO wherein this becomes enabled but their primary concern at this stage is ensuring that they don't deliver a Frankenstein of a universe. They want to ensure that they're able to fulfill and deliver the full vision that they've outlined in the white papers and across all of the communications that they've relayed out there to the community before enabling that type of access.
Gaming is the primary application on Star Atlas at inception and they're focused on building it extensively in the early years. In the future, this idea of the metaverse wherein things like social experience and human interaction, digital work, academics, and things like e-commerce will all exist as well and those will be the experiences that these external entrepreneurs and innovators will create in the future and bring into Star Atlas. They do believe in the future wherein they're building the tools necessary to enable this type of activity from innovators all over the world.
It was critical for them to embody the ideology of decentralization and open-source technology and inclusion and as a component of that, they built their entire marketplace on Web 3 protocols. The method in which they deliver content and execute on sales today was all built on Serum decentralized exchange so you're already transacting exclusively on-chain anytime you purchase an asset. Even today users are able to take assets that they own and sell them on a peer-to-peer basis directly through Serum DEX which is the core integration into the marketplace.
Mechanism design are the rules to define the interaction between agents of the game. Here, we look at governance of the game, various revenue models, business models, winning models and network effects. Network effects and its intra-agent interaction is key to allow these rules to be followed.
In examining mechanism design, there are a lot of different components but the three primary ones that we want to touch on are looking at the revenue model that any particular game chooses to employ, their general business model and how governance gets integrated into the system.
There are a variety of ways that games could choose to allocate revenue to the NFT asset owners and the ideal method is really going to depend on the types of users and activities that you're trying to provide incentives for. One option is providing revenue directly to the NFT asset holders so providing revenue regardless of them actually doing anything with the NFT. This incentivizes passive investors but not so much of actually using that NFT. Another direction you can go is incentivizing that asset usage. Sometimes you want to combine and incentivize usage of that asset while providing a way for investors to get some revenue off of those NFT assets that they're buying and so you could have a rental system or something like a scholarship system.
Employment or Scholarship Model
Star Atlas has a gamer-centric approach first. People can take different roles and career paths within Star Atlas like being a data runner where you're flying around space and discovering new territories or maybe policing areas of space with a fighter ship and serving as a security for maybe a freighter who's trying to move materials from one coordinate to another across the universe. Those can all naturally be managed by individual players or by a collective of players on a single ship. These are just some of the career paths that people can take while participating in Star Atlas gameplay. The metaverse component could also translate to somebody becoming an employee in an e-commerce storefront that exists inside the metaverse wherein real-world products are being sold. We're seeing major brands move into metaverse in general and it's very likely that there will need to be employees that are serving in positions in these digital storefronts necessary to help facilitate some sales. Maybe not required but there could be a benefit there in increasing sales.
Star Atlas is not necessarily focused on say the scholarship model because their intention across Star Atlas is to ensure that asset pricing may remain reasonable and inclusive so regardless of an individual's financial position they can still access the game. They do that with a wide range of pricing of assets starting anywhere from $15 going all the way up to the hundreds of thousands to potentially millions of dollars range. The idea though is that over time players across Star Atlas at least have an immediate low friction entry point to get into the game. They can start to accrue wealth and compound wealth and then continuously upgrade and improve equipment and assets that they own and this provides greater earnings potential for them going into the future. They're not necessarily looking at the scholarship model but there is enormous potential for people that are looking for a passive income and while that's not a mechanic that they're directly enabling, the ability to lend is where this will be emerging. They're focused on gamer-action driven income and somebody's going to have to operate that equipment but if it's not the person that owns it then there should be a facility that is executed through some lending protocol wherein someone can borrow that and then there is a revenue split that can all be negotiated directly through whatever lending platform that ultimately gets integrated.
Token design is important as it translates the value created, through the market and rules of the economy, into real value earned by users. Hence, the “Earn” part of “Play to Earn”. The most important part of token design is to balance its monetary policy of NFT assets, currencies and other tokens, to increase in real value earned by players.
This is one of the more sophisticated aspects of what they're building in Star Atlas. One of the reasons why they selected unreal engine to build this hyper-realistic cinematic quality world is because it will enable them to build a very entertaining, engaging, and immersive experience for the gamer.
In the cornerstone of what they're doing is the deep economic analysis and creating a circular, robust and sustainable economy in the long term. One of the major pitfalls of things like play to earn gaming is this like purely extractive economy wherein there's inflation created through the distribution of tokens that facilitates the play to earn but there's no further utilization of the token so if you're creating an ecosystem where cash or value consistently flows out then that simply isn't sustainable and so one of the things that they're very focused on is how to retain value inside Star Atlas.
Utility and Token Mechanics
In terms of utility and token mechanics, there are a lot of different things that we can do. They do have a dual token system where $ATLAS token is the medium of exchange. This is the transactional currency and is the primary financial incentive structure. One of the immediate steps that they take is not having inflation being unidirectional. In fact, operating across Star Atlas requires players to consistently reinvest back into themselves through the purchase of various resources to maintain their assets, to continue producing income, etc so almost all activities in the gameplay loop are treated as kind of individual businesses of sorts with their own operating costs and expenses which creates an interesting dynamic for the alternative token $POLIS which is the Star Atlas DAO.
Generally speaking, DAO’s are governance structures that give rights to those governors to be able to direct things like development, design, feature requests, and the future evolution of Star Atlas in our case but they also have kind of a financial incentive to participate in that governance because they earn in $POLIS. In our case, they segregate revenues that are generated through all of those operating costs within the economy inside the metaverse and the DAO has rights to treasury management of those assets. Now it could be distributed out directly to holders, burned or utilized to pay themselves or maybe in the future some alternative studio to build out a specific feature. Alternatively, they could even be invested into the community to continue the growth of user base by attracting new people into the economy which further compounds the growth of GDP and then subsequently further increases the notional value of income that flows into the DAO to the extent that the economy continues growing and greater value accrues to the DAO.
Gaming is the primary application on Star Atlas at inception and they're focused on building it extensively in the early years. In the future, this idea of the metaverse wherein things like social experience and human interaction, digital work, academics, and things like e-commerce will all exist as well.