Economics of GameFi, Token Economics 101, or Crypto Economics vs. Token Economics with Lisa JY Tan

all right hi guys welcome to this session on web3 economics and strapping we're going to have a very very fun time it's going to be very intense so be prepared today I want to talk about three key things and it's going to be for beginners I don't want to assume that everyone knows everything so we're going to start off with economic design model canvas when you're designing and economics you want it to be self-sustaining self-financing how do you create a very sustainable economics model and I'll share a canvas with you to get started then we're going to look at the role of nfts a lot of people have been talking about nfts in all these games Lan virtual assets pfps what are the pros and cons to this what are the problems that exist in web 2 web 2 games that we can learn in web 3 games because there are a lot of things that we can learn and lastly a lot of there's a lot of conversation there's a conversation moving in games where do you even need tokens anymore why do we need tokens and what is the future of tokens looking like in games because a lot of games are web 2.5 instead of completely web 3 and what does it mean in your economics so we'll get started with the economic model canvas how do you start a how do you start an economic model how do you start a healthy economy it starts in three very simple steps the first one is to understand what is the value that your economy is bringing people a lot of people migrate to the US because there's a lot of great value that the US brings so what is the value that you are producing in your economy why are people going to your economy this is very similar to any business model value or any business model canvas think from that from that angle what kind of value what kind of intrinsic value you can create from your economy that attracts people there then once we have that started we are attracting people now we need to understand how do we build a very robust system we're going to look at them in three different ways the first one is and these are all rules of the of the economy just like creating the legal Constitution these are the rules of how you should behave in the economy and we're going to look at three kind of rules the first one is how should the market behave so who are they who are the participants in this market and this Market is clearly your game the second thing we're going to look at are what are the transactional pathways when people come into your game they interact with each other or they interact with the game they interact with smart contracts so we need to understand what are the rules that all these different transactions are abiding by and lastly we're going to look at what are the rules that the assets are being governed by when you're interacting with people you're interacting in trading assets trading some sort of things that has intrinsic value and these these intrinsic value assets they have to abide by some for above rules and we can embake these rules in there that's why games are so fun because we get to Define these economics from all the different angles and lastly we're not just stopping there there's live Ops we talk about there's also treasury we need to talk about and how do we manage the funds in the economy moving forward so you probably know all of this already and this is nothing new what I want to do is how do I turn this into a model canvas just like business model canvas that we have what does this look like from an economy model canvas perspective how do we use all this information to start a very simple model to get you thinking and get you started on how do we create a very sustainable economy the self-financing and self-organizing so you see the first part we talked about value proposition so we start with value proposition and then the three different the three different rules we talk about Market design mechanism design token design how do we design the market of your system look at the economic agents locate the key transactional Pathways and the key assets that will be in place we don't have to write any rules here right now just figuring out and labeling just listing who are who are all these things in your Market what makes up your market then we look at mechanism design what makes up the transactional rules the different Pathways of trade look at governance we look at desired behaviors and undesired behaviors that's it in economics you know it's all about what kind of behaviors we want to incentivize and disincent device why do you think the FED increases or decreases the rate to incentivize our behaviors in spending of the US dollar so this is something that we need to understand and lastly tokens design understanding what kind of tokens are there in the space and what kind of rules should be embedded within the tokens whether we're talking about nfts non-fungible tokens non-train readable tokens reputation tokens so bound tokens currency form tokens these are all the different kind of questions we need to think about in this section and lastly on Treasury we look at outflows balance and inflows these are the different ways to think about of how do you manage treasury of course when you're starting up when it's completely new you don't have to think so much about treasury you don't have to have specific rules for treasury but it's good to have that at the back of your mind so as the game grows as the game develops as you have increase in user retention of your game treasury is something that you absolutely have to think about it's not going to fix itself so what does that look like and more specific questions most and each of these sections there are more questions to think about but very specific to games where we look at Key assets things like how how do Native tokens derive utility whether it's spending is the utility coming from the ability to spend the use case of spending is it from holding is it from representing underlying assets these are all everyone just thinks of them as tokens these are just assets but these assets come from very different different kind of first principles first principles utility for it to generate value so we need to distill all these different aspects down we're just creating a very big canvas and then from there listing all the different areas we need to look at we need to understand and they're figuring out what's the first principles what is the primary demand drivers or Supply driver to incentivize certain kind of behaviors not just behaviors of users but behaviors of assets as well and for the design the token design aspects we're looking at what are we incentivizing are we incentivizing user acquisition are we incentivizing user retention are we promoting certain kind of season passes or certain kind of new game launches everything we're trying to do is to affect and impact people's behaviors through incentives and we can do all these different incentive rules design in the game economy so with that in mind I hope that gives even if you're a beginner that gives a very good foundation of what to think about what are we talking about in economics economics is not just about this is len this is pfp this is sword and content economics to upgrade in level of the games there are a lot of things we need to think about from first principles perspective a game is just like a country we need to think about how do we increase birth rate of people how do we increase attraction of talents coming in how do we increase immigrations coming in how to increase entrepreneurship value creation not just exchange and second secondary Market but also primary market so with that canvas in mind we are looking at economics from its first principles and understanding how to build a very robust and sustainable economic model but you can get all this online you can get a lot of this in web 2 books so I want to focus a little bit more on web3 the first part was just to give everyone a very simple introduction now we're going to talk about nfts and the main the common mistakes in nft design for web 3 games can I have a show off and how many people created games experience in creating games involved in game development okay a lot of people now raise your hand if you're doing nft cell in your project a few of them great and is this raise your hand if it's a scarce a scarce resource that you're selling all right no it's fine that's fine don't worry there's isn't with economics it's not it's good or bad it really boils down to what are we trying to incentivize then we can identify if the thing that we're the the incentive is good or bad so I want to talk about three different common mistakes that we see there are a lot more that we can talk about but I just want to focus on just these three the first one is the virtues of scarcity the second is scarcity for user acquisition using scarcity for to drive user acquisition and lastly what is Natural Market creation so when we talk about versions of scarcity one of the main drivers that a lot of people do is to have limited nfts for sale and this NFD could be pfps it could be Lan it could be certain kind of digital assets it could be blueprints to craft certain kind of Assets in your game and that's really normal it's very common with scarcity you want to you want to limit the amount of Supply available and you want the drive price you're the drive prices and it's not it's not unreasonable to think that way because you you're more likely to sell nfts to raise fund and bootstrap your economy however one of the problems is that it creates a first mover Advantage it means that these these first movers are gate keeping the game because they are the one who have access to this ecos to this asset be it and a land be it blueprint be it certain kind of create certain kind of virtual asset that helps you to level up in the game and the problem with that is that it moves the entire conversation away from playing the game to understanding this as a speculative asset because there is a speculative value to it and that defeats the whole entire first principles of the game game needs to be fun game needs to increase user retention to play the game if people are coming in because they see that okay as a first mover I can get all the value I can extract all the future potential value coming in then you're changing the whole dynamics of the game you're changing the kind of Market that you have the kind of buyers and sellers and the kind of behaviors that they will they will provide and they will show because they are the wrong economic agents in the first place so it's not just about create eating nfts and making it limited but understanding how does that impact users Behavior how does it impact the different kind of user how do you attract the different kind of use economic agents in your space and so basically the first thing is that it moves from gameplay to nft speculation the second thing is scarcity for user acquisition in user acquisition one of the ways is to bootstrap your economy that's it right a lot of things in blockchain and web 3 is that we want to bootstrap economy we want to create our own economic models so with with nft tokens or with releasing tokens earlier we get to bootstrap our economy we get to have user acquisition at a lower cost and it becomes a very very good marketing tool and that's fantastic well what happens with that again it goes to the thing the first problem of creating first mobile Advantage the second order the second derivative of that problem is that it prices out later late join us and this is not a very good reason to is this is not very interesting and an attractive way for people to come and join your system later once everything is up and running because they will definitely lose out if I don't have all the the key assets I need to play the game I need to constantly buy and constantly pay a certain kind of utility tax um buying and renting these assets to play the game to even enjoy the game then it really price out the late joiners and and then again moves to speculation being the key aspect of the game and this this implication is that we move the the value creation the value creation of tokens from being fun and really enjoying the game to speculative and gatekeeping like rent extraction because these holders of nfts these holders of assets that's mandatory to play the game you need you need a blueprint or you need this lens to participate and play the game now these people who own the SS are Gatekeepers and you don't have a very robust and healthy economy that way and that becomes a big danger and lastly it's Market creation so it's Market creation here I'm talking a little bit more about secondary Market creation and you know whether you like it or not the markets just are being created naturally that's just how the economic of markets work and this is laissez-faire the freehand economics where when there's a supply and demand when there's a mismatch in gap in the market the market will kind of try to resolve the problem themselves so markets will be created especially when we have scarce resource scars assets and it happens a lot in the secondary market and we see a big shift in their understanding a lot of developers a lot of protocol creators and game creators they understand that and what do they do they take secondary market so yeah I want new markets to exist I'll take secondary market and I'll keep getting returns and you know what for better for worse it has been about one and a half years experiment and you see that all the secondary Market taxation is now zero the royalties is now zero because that becomes a that doesn't really help to to create a very robust and healthy economy it might be a short-term gain for the game developer because I get a new way of Revenue but it's a long-term loss because I don't get user retention anymore because to play the game to even enjoy the game I have to spend so much money to even get started and that becomes a huge disincentive for late joiners to come in and so even if this is not the intention of the game developers just by having a very speculative asset and the asset that is a key ingredient to playing the game then you're creating a kind of natural natural secondary market and this can result in price Bubbles and we see that in a lot of games just look around with all the games over here you've seen that they have all experienced price asset bubble and but you have to realize that it's not not just because you're an nft you get a bubble pfps versus Len they're quite different with land assets with blueprints with assets required to play the game and to level up in the game you see a higher likely likelihood of asset bubble as opposed to pfp and that's because you don't need pfp to play the game pfp is an extension of one's identity and the intrinsic value of that has a very different first principles economic value as opposed to our land and all the other virtual assets so then the main question comes in we talked about nfts already now what about the other kind of tokens all the problems in nfts we can always resolve them this is all these are all about creating new rules to design a more efficient system that's why economics is beautiful because we get to design brand new kind of systems once we understand the limitations out there but it's nfts what about tokens what about fungible tokens we have hot currencies and soft currencies out there we have a lot of other stablecoin mechanisms out there but when you're creating a game do we still need tokens what is the use of tokens in web 3 games now and how should we think about tokens if we want tokens not nfcs but fungible tokens how should we think about them when creating very sustainable economic design models and the key question which I do see a big shift in the economy these days initially a lot of tokens were started as a way for user acquisition which means to attract more people in the space to increase the market to have more buyers and sellers to increase the probability of transaction the conversation I want to move to right now is how do we start thinking of using tokens as user retention which means you already have a very existing huge pool of players and these players really love your game these players enjoy playing your game how do we move the conversation to using these tokens as an incentive to keep them in the game to retain them and to allow them to have to create long-term value creation and that's very important because in in value creation we talk about in all these economic models there's long-term value creation and short-term value creation launcher value creation is the best thing we all get to share we grow the pie and we get to slice the pie shots on value creation can be very extractive can be a zero-sum game I win at a cost of you and that's the fastest way to win because long-term value creation you have to think about you know discount model value your discount rate and all that kind of stuff so it's very important to balance between both we need short-term value creation to attract people to stay in the game we need long-term valuation value value creation to keep growing the pie and make sure that people are really loyal to the team and really dedicated to this game so with that in mind I just want to end this with a report that we have created a framework to create sustainable game economics model and it's a PDF that you can just download or you can go to the link there to to read and with that in mind I told you we're going to have a very intense session we cover three key topics the first one is for beginners how do you start building a very robust economic model using the economic framework the second we look at nft which is a very new asset in web3 that you don't really have in web 2. in web 2 you have the dark markets but in web 3 we have big public markets to understand nfts and how can we create rules to make sure that this generates long-term value creation and lastly we talk about tokens we need to shift the conversation from tokens as user acquisition to tokens as user retention and with that thank you very much I work I found the company economics design and redesign economics of games we design games infrastructure layer ones D5 anything that has economics to do with it so I hope you get a lot out of this and it helps you to start thinking about how to create very sustainable economic models thank you thank you so much Lisa