Thoughts on fixing broken tokenomics related to infinite selling pressure from NFT rentals

[gmdev]

My take is that rental economies (like scholarships is Axie) create infinite selling pressure due to the obvious reason that those renting play to earn NFT sell earned tokens as soon as they earned that.

It originally seemed like win-win for players who could not afford NFTs to start playing, and investors.

However over time it created virtually infinite selling pressure resulting in NFT rentals systems creating unsustainable economics for fungible tokens.

It is very visible with SLP from Axie and other games, and it is one of the main or even the main reason why p2e gaming in-game earned token rapidly loosing their value.

Note that the concept of NFT rental doen’t cause inflation in and of iteself. Sales pressure comes form the way it interact with game economy as whole.

With sample 30/70 split those play using rented NFT they need money in physical world so they need sell the token for fiat.

There are number of solution to fix it like for example to reduced inflation game could reverse the NFT revenue sharing model (to 70/30 assuming renter will accept that) or introduce token burning into economy.

Of course the best solution to avoid infinite selling pressure for fungible tokens would be eliminate the NFT rental system itself (we are leaning toward it for our World of Midgard 3D NFT MMORPG).

[ wanted to write longer post but daughter is calling me and it Friday so until next time lol ]

[nickev]

Interesting thoughts, glad you kicked this thread off! Would love to dive deeper with you here. I’m the co-founder of reNFT and we see it a bit differently. TLDR is we build plug and play rental infra for projects (and primarily games).

In our eyes, when applying rentals to games and the guild model in particular is it ultimately comes down to the underlying economy structure. What Axie proved is that it will happen regardless of if the underlying game allows it. If there is a market for it, users will exploit it. Axie never allowed it but rather just had an account structure that could be used as such, which will happen if your account/wallet structure is mainstream friendly. In fact, they never actually built anything to allow it for sake of an even more insane influx, is my guess, when it was profitable. In a way this actually gated it towards asset lenders willing to put in the sweat of managing a headache to profit. Your everyday gamers in a game that just want to play aren’t going to spin up a full-time business to manage assets.

So many ecosystems are still playing with different models of overall economy sustainability. We are working and integrating with some projects that have dedicated reward caps based on cycles, tournament based rewards with buy ins, or even utilizing our rental infra as just an accessibility “try before you buy” model (a different UAC in a way), and a whole lot more.

In our reward share product (automating what guilds do) it actually also cuts out the need for a “scholarship manager” which takes 20-30% on average. Ultimately this is democratizing the ability for anyone to trustlessly lend assets to others. From that point the rental market could turn more toward accessibility rather than purely for profit actors, IF and only if the game is truly fun/engaging ofc.

Another addon here to your point of further “sinks” in the eco is once the project integrates the solution to be automated at the protocol layer, like through reNFT, they can now control it more and thus the fee mechanism. We are seeing some projects wanting to enable that fee early on to build back toward their treasury for future rewards, directly burn, or some combination.

We are also experimenting with other models such as “subscription pools”. Imagine you lend an asset to a pool as your “buy in” (or a cost associated), others do the same, and you can utilize assets from said pool. It’s like having a shared closet with others for things like in-game skins, items, etc. A lot to dive into here but you get the gist.

A lot more to dive into, focusing just on gaming cases here but always up to jam. It’s an exciting time for exploration!

• Nick

[gmdev]

There are many ways to tackle that problem with some them mentioned by you.

As I wrote in initial post the concept of NFT rental doesn’t cause inflation in and of itself but it is implementation of it in the game economy.

Access type NFT rental, for example for tournaments with players pooling tokens and winners taking tokens minus tax is a great example where NFT rental does not create inflation, and it enables investors with money and players with skill to profit together.

My original post related to specific rental case where owners lease they NFTs to renters (workers really) who play with the goal of generating in-game tokens to sell to fiat (or stable coins). Treating game as job.

That of course vary widely by the game. Specifically in MMORPGs the in game economy must be designed first, and only then molded for web3 game.

On of the solutions for MMORPG (and somewhat also for MMORTS to the degree) is to initially model economy similar to free-to-play (F2P) games before molding/modifying it further for web3.

F2P MMORPG (World Of Midgard, game I work on now, was originally F2P) economy has heavy currency sinks system with optimally dozens or even hundreds of tokens sinks which are designed so player will buy in game currently and items using in-game cash shop.

Many of F2P MMORPG has multiple currencies where the one people really want tis purchasable with cash, plus of course there are countless items in in-game cash shop to buy as well. (this about that desired currently as tokens, and items as NFTs)

Some high desirable items are those which increase speed of leveling or “quality of live”

To make this post shorter I will give just 1 example of such item: XP booster.

XP booster allows players to level faster and can last for given amount of experience gained before expiring. It open a door to have XP booster for various amount of experience which is turns allows for periodic time limited promotions for higher XP booster packs to increase player spend.

XP booster was one of the top sold items in F2P MMORPG/MMORTS games I created/developed in the past, and from industry reports and conversations with other game devs it was happening across all F2P games which included leveling system.

Now translating that example XP booster into Web3 game, such XP booster could be reward for staking any combination of NFTs and/or tokens.

It would both allow to remove supply of NFTs/tokens from circulation without any inflationary emission of tokens (0% inflation for those NFT/tokens locked to earn XP).

There are other items in-game which can work similar way.

Another Web3 change for F2P games is end game.

While in F2P game intense token sinks are all the way to the end game and even part of it, at one point players can generate more in game currently like gold than player needs.

Of course natural solution would be to keep adding content, and it is, but because the speed of leveling/achievements of guilds and hardcore player is very different from causal player it cannot be solved by just adding content.

If the in-game currently would be token directly it could cause hard to control inflation.

One of solution for that would be in game currently like gold being exchanged for blockchain token earned using bonding curve.

Such bonding curve would allow to control inflation.

There other methods to enjoyable for players slowing generation of token like Engage-To-Win which is basically having large number of achievement in game and give rewards for achievement.

Think about all the achievement game like World Of Warcraft has.

For Web3 version image rewarding players for finished achievement and really huge reward to finish all of them.

There are myriad of other solutions but this reply is to long already.

Bottom line is, as always, all depends how the game economy is designed,

BTW I think reNFT is very needed because it opens up ton of abilities for developers.

It is how developers use it, what can make or break the Web3 game.

[furuknap]

I think the problem with crypto game economies is that they are not designed with a good understanding of fundamental economic principles in mind. Most games that come out now come from game developers that are used to designing closed loop systems. The type of economies we will need for open economies are vastly different and requires a very different type of economic understanding and design.

It’s relatively easy to design an economy for a game and almost trivial if it’s a single player game. You measure time, assign time values to items, and have a price.

It becomes harder when players interact financially because the time component becomes very unpredictable. As a busy professional, I may not have time to grind for 8 hours a day, but someone in a different situation may. As such, they should be rewarded for their ‘work’ with a competitive edge in the game. If that competitive edge becomes tradeable, you introduce a further level of complexity.

However, all this comes down to whether an economy is inflationary in nature. For state economies, inflation is controlled, mostly, by central banks, but we posit to hand that responsibility over to players who may control the inflation through effort. In other words, there’s a direct relationship between an hour worked and the money produced, ostensibly from nothing. More players means more money produced, meaning more inflation.

Consumption isn’t really a solution because consumption isn’t easy to enforce. In real life, people need to eat, power their blenders, and support parking meters, so money will circulate. You cannot simply stop consuming. In games, however, hang up the phone for a few months and money still gets added to the economy but nobody is there to consume it.

A different approach might be to not produce new money from players, but have new issuance be based on economic activity. Make 1 million coins, have players ‘earn’ from that pool, but once it’s gone, players need to spend for someone to earn. This creates deflation, not because money disappears but because more players may join, creating more demand for the fixed supply of money.

I’m not proposing these as solutions, only to point out that decentralized economies need to consider far more complexities than any current game does. Axie is a perfect example of how bad that will go when the designers simply tried to open up a closed-loop economy with infinite inflation. Others have done similar ideas but very few game designers understand macroeconomic principles enough to design good systems.

This is a game of patience and of learning and exploring, but one in which I think the community needs to look outside itself to better understand the complexities in what we’re trying to accomplish.

[naz]

@gmdev

My take is that rental economies (like scholarships is Axie) create infinite selling pressure due to the obvious reason that those renting play to earn NFT sell earned tokens as soon as they earned that.

• The game may decide to implement an AMM token, giving them control over the token pricing function. In conjunction with this, they may decide to carefully emit the supply based on demand metrics from previous game seasons.

• Removing rentals will not affect the token price. If there are no scholars, it would be crazy not to capitalise on your NFT holdings by “farming the game”.

• There can be no infinite selling pressure. By definition, you can only have as much selling pressure as the number of tokens you issue/reward players with. Which boils down to the design of the economy and has nothing to do with rentals.

As such, the assumption that rentals are the core problem of “broken tokenomics” is false.

[Puncar]

@furuknap

Others have done similar ideas but very few game designers understand macroeconomic principles enough to design good systems.

This is a game of patience and of learning and exploring, but one in which I think the community needs to look outside itself to better understand the complexities in what we’re trying to accomplish.

Well said, there is so much to consider when designing an economic system, and I feel that it gets sometimes very underestimated, or people won’t learn from already performed experiments. The same system that has already failed is getting reused without modification and hope for different results.

But not everything has gone wrong in those early games, some of its parts have been successful, and we can learn from that and add modifications to mitigate what has previously gone wrong.

Piggybacking on what you have said, designing a sustainable game economy is an iterative process with many variables, and it will take a lot of research, analysis and testing to design a well-working solution.