Economics of p2e Markets Lisa Jy Tan

hi everyone so quick question did anyone do the homework that i asked you to do like raise your hand if you did your homework okay good it's like one person two two people great so whoever that asks the best question later will get one of the book that i've written so pay attention today we're going to talk about the p2e economics and you know p2e or the metaverse is a brand new way of organizing and coordinating between different agents into space so how do we go about doing this it's not as simple as just defining your token distribution your token inflation rate and you're done now it's actually a lot more to consider at the back so that's what i want to talk to you about so for context why are we here economics is the most important aspect to get right in your economy be it a d5 economy p2e or even a country it's the backbone of the entire market but it's very very complicated to get right so we wrote a very very big research on figuring out how to even get started with this it's not a one-size-fits-all but at least this is a great starting point to define the parameters to understand what you need to consider when building your system so we're going to talk about three things today why do markets exist talking about the framework and then we're going to apply it to xc infinity giving you the context of how do you use that and so you can use it in your economy so this is a very heavy topic i'm not going to lie and the slides here are going to be a bit more simplified so if you go to eastdenver.com and you go to the schedule that is a much more in-depth with a lot more information so i can talk quite fast so better to follow the slides okay so why do markets exist markets exist for the sole reason it provides value and it provides value by reducing transaction cost but what do we mean by that firstly value is created when matching is done right so a market exists because you have different kind of economic agents coming together to trade otherwise you can just go out and do otc right so your market is very valuable when you can match the right kind of people the right kind of transactions to trade the second thing is when is value realized value is realized when you reduce the cost you reduce the transaction cost of searching this means making it more efficient in terms of time energy and effort to match with someone and so a market if a market can create that kind of environment to metric the right person and reduce the cost of searching the person to match with that creates a lot of value in terms of opportunity cost and lastly how is how is value retained this is going to be very important because a market a market allows people to interact it allows people to transact and more importantly you need to define the rules in which transaction exists in which transaction can be executed and this is very important and we see this in both the developing world and the developed world in the developed well we have a lot of regulations in place and we have a lot of contracts in place because people follow contracts in the in developing worlds that can be a little bit more difficult sometimes and if you compare these to these two economies not that it's 100 correlated but there is a bigger growth in gdp for developed worlds so let's move to the next part on understanding the framework the entire report and the youtube video also share a little bit more about how do we understand the framework how do we define the framework and how can we use the framework to be useful in the in the report or in the project that you're working on this is really a starting point to design your economy with every framework that we do we always follow three core design pillars market design mechanism design and token design in market design it is defining the parameters of your world of the different constraints the different kind of economic agents transaction pathways different kind of activities we want to create so these are constraints in the space defining the market then we go on to mechanism design mechanism design defines the different kind of rules in place where people need to follow and this these are the rules that we talk about where all users if you want to translate you want to interact you have to follow these rules and these rules can be governed in code in smart contract illegal contracts and lastly token design token design when we talk about tokens it's not about just your axs or slp or your different kind of tokens you can trade token is anything that captures value any intrinsic value extrinsic value as long as you're capturing value that can be tokenized that's a token a token is anything that represents value so here we want to understand how do we have these inflationary and deflationary pressures to to govern these assets to govern this token that represents value to maintain a very robust system we're going to dive a lot more into that later usually we typically typically think about it as monetary policy but it goes a lot more beyond that you you can look at tokens money but some of the tokens are they have more functions than just money so we did this in d5 where we talked about market design mechanism design token design in a matter of us p2e as well just that the different criterias within the framework within the pillars is quite different so in the p2e economics model and economics framework what do we look at when we look at market design we look at user generated content nfts and in-game usability and value creation in mechanism design we look at the governance model the revenue model network effects and in token design we look at monetary policy i'm going to dive deeper into value creation because i think that is very important and there's something that you would you want to get right so that everything else can come into play so when we talk about value creation we talk about three aspects of valid creation the first the valid creation cycle looks at the value cycle in general looks at value creation value distribution and value six so the best analogy that i'll use is pi so value creation is growing the pie value distribution is splitting the pie and value thinks it's consuming the pie a lot of projects follow a lot of projects focus a lot on value distribution and value creation which is very important because as i said a market exists because it creates value so you want to you want to get your users you want to get your economic agents to focus very much on value creation and then you distribute this value out that's how you have a robust growth but one of the biggest problems is that people forget about value six values things is to reduce the circulating assets in the space to increase which is the nominal asset that we call to increase the real value so in all the inflationary aspects aside what is the real value that can be accrued to the user which is eating the pie so the value creation can be represented in a lot of different mechanisms and one of the easiest mechanism that we can look at is the monetary policy we go we'll dive deeper into that monetary policy with xc as an example and just understanding how this thing works we talked about it in our report and so we're going to use xc as an example to understand how the economics work what are the various key components that you can grow the pie slice the pie and consume the pie and now let's get started with xe anyone here does not know what xe is raise your hand all right okay some people don't know x's right very good so to give you some context xe is a it's a very popular game and it's an nft game so it's people having these nfts called axis axie and so you can breed them you can trade them you can you can sell them so it was kind of like pokemon go where you have to trade with people you have to battle with people and anyone comes anyone can come in to play the game you need to buy your little axes to be able to go into battles at the same time you can do a lot of different activities in the space to earn different kind of points you've got a token called slp to on your different point you have a token called axs which is kind of like a governance function and then you have your xc which is your nft so these are the three core components and three core resources that we have so before we get started to even decide what the economy is what are the different areas in the in the economy or how do we even design the economy the first thing we need to understand is how do we even define the market and we look at when we do look at defining the market we look at who are the different participants in the space who are the different kind of personas and the five key personas we look at for any nfts or any meta metaverse games is players builders developers investors and nft collectors the important thing of figuring out these personas is not just to know that they exist we want to understand from these personas what kind of value can they create what kind of economic value can they create then what are the incentives what incentives do we need to drive them and what are the tools and resources we have within the economy to get that done at the end of the day economics is really an incentive driver so how do we understand what are the various incentives we need to think about we need to balance because for example one of the one of the personas is really at optimizing your roi another one that might be optimizing gameplay so there are a lot of these different kind of incentives based on the different personas in the space your your economic policies your economic mechanism is about balancing all these different kind of forces so taking a look at axi the first one is players players you have these people who are owning the who are scholars as they call it to play the game because these axis to go for battles are very expensive and they can't afford it sometimes because it's just really expensive so they will just they will get a scholarship to be able to rent kind of like renting these x's to play this makes up 65 percent of the user base which is quite significant which is good because when you're talking about games we're talking about these kind of games we want more players to be in the space to be using and and creating value think of the players a bit like middle class you need the middle class to be working you need the middle class to be creating value for the entire economy to grow then we've got builders typically builders we look at people who are when we talk about usgc user generated content these people are creating content to make the game more complex to make the game a bit more like a metaverse a universe that everyone can come in together contribute and grow so here they just roll out this thing called project k which is building lands in xc infinity and you have a limited supply of land you have 90 000 plots of land and the land cost 2.3 million us dollars each so clearly this is something that it's not free for all it's it creates a kind of monopolistic class of people who can own these land and we can talk about little problems with that later but this is how asset will be distributed and builders come in to buy land and build different kind of gameplay within each land that they own the third category of of the personas as the developers typically these developers are centralized leadership leadership team to keep the core team to keep this this entire gameplay making sense and this entire game played to be fun initially usually this is centralized and slowly it will start to decentralize the fourth category is investors or sponsors in xc's game so to 2.3 million people own xe and yeah and these people will land the xc out for the players which is the scholarship program to be using the xe's to play and lastly which is something that we don't really see in traditional games more in the more in this metaverse game are collectors nft collectors so these are nfd and in the xc game it's the xe collectors these are these little creatures that they create and currently the market value of this all the axes combined is 47 million dollars so given that we understand a little bit more about about the market how do we put that into context of this framework that we've created we've got market design mechanism design token design market design is understanding the various aspects the various parameters in this thing that defines what the market is in mechanism design we're figuring out the rules of the game the ways that they can interact the ways to define the transactional pathways between these different kind of personas or economic agents but what i want to focus here is on token design again people think of tokens as in the slp or axs in this entire space but if you look closely at what kind of what are the different ways that we can generate value within this system we have five different kind of different classes of tokens anything that represents value first one of course is the axis it's the nfts and here you know we can look at some understanding of what are different what the constraints and considerations when understanding the token the monetary policy of axes there needs to be a minimum 3x of the user base every individual needs to have at least three axis to be playing the game so that means there is there's a a bottom seal a bottom floor a price a number floor of the number of axes they exist it's three times the user base so the faster the user base grows the faster the xe grows as well breeding of these axis is inflation and for every exceed you can breed seven times you have babies seven times seven generations before the xe just can't reproduce anymore and so this helps with inflation management in the entire space the second thing is slp slp is the unkept token it's the general token cycle low point system to incentivize people to do different kind of tasks the two main tasks in this game you have the first one is just understanding game play and the second is to just get user retention and get them to be on the game more often and slp is is the incentive again economics is all about incentive is the incentive to get people to achieve these two different kind of core economic activity economic value creation the third one is axs so axs is a governance token it's fixed in supply and right now the current utility is to stake to earn more axs and also to breed axes then the fourth category we have energy and exp so energy exp is experience points for your exe little creatures and these two are these key parameters that we can tweak and change to affect the inflation rate of slp remember sl slp is the is the daily inflation based on different tasks so these tasks are not just fixed you have different parameters that we can tweak to increase or decrease the inflation rate of slp and we can do that with these two other variables called energy and exp and lastly we've got land which is project k that we talked about this is something that they just released and they're looking to improve this this land aspect as time as time goes so what does that look like how does the economy come together and how does that make sense internally actually what we want to focus on or what exe needs to focus on is to balance between user growth and inflationary asset pressures user growth is new users coming in the core base uses the bottom of the pyramid coming in to play the game to understand the game before they level up with experience points and with every user that comes in you have inflationary pressures of slp which is the the main incentive driver anyone who does any activities anyone who does you know pve so player versus environment or player versus player game you just collect slp so the more people come in there is uh an exponential effect on the the inflation of the slp asset so what xe needs to do is to figure out how do you balance both if one grows too fast without the other then you have a lot of problems so just like how the government works you need to balance between all these different these different pressures so this internally but the thing is and this is something that you know traditional games you have to think about anyway what about externally this is the key difference between traditional games and metaverse games externally you have to think about the exchange rate this is just like you know foreign exchange if you work in in the traditional finance space and externally you have to understand the exchange rate between your asset and whatever asset is in your treasury becomes a very important consideration for how people will remain sticky in your ecosystem xc is an important of eth so to buy any of these these axis and infinity and these games and be part of the games you need to pay in eath and so eat xc is an important of eth and as slp prices increase or decrease it really affects the exchange rate and this will affect people's willingness to play and stay in the game especially we talked about how 65 percent of people do not own any x's they're just regular game players they come and they borrow the xe's and they play so understanding their incentive to balance between getting them to play getting them on board getting them to be sticky in your ecosystem to continuously play you need to balance between the inflation rate of this foreign exchange which is your slp versus eth or axs versus eth so how does that look like in the value creation cycle value creation when we talk about valley creation we have we have to look at skills versus participation consideration this specifically is pve and pvp gameplay pvp is player versus player pve is player versus environment so play versus environment is just you just get the player to go and do different kind of things and you get points just like imagine just asking them to go and play wardo every single day and you get slp so that kind of concept there's it's just about part of the goal of this is to try to make things a bit sticky for people to keep coming back to the game that being said if they don't stick and you just keep you just keep giving free rewards out it's not going to be sustainable the other thing that would be a lot better is to use skills as a consideration to incentivize more activities into space which is pvp so computers don't don't are not part of this computers are just a way to allow people to transact and meet and match and this is where player versus player come back come together and combat into their skill sets when we talk about value distribution we look at the various kind of assets and understanding that the user growth affects the slp inflation as well as the xc breeding rates so again the slp inflation is dependent on users coming in and playing together and playing with the environment and increasing in supplies that one we understand what about xc breeding again every you bring two exits together and exceeds get to breed they get to breed up to seven times and this is something to something important to consider because the rate of your xc inflation is dependent on how quickly it how quickly the user base is growing how quickly the marketplace is trading how rare these assets are how people how much people want to collect and all these other considerations coming together and so at the end of the day slp inflation and xc breeding are all predominantly focused on create increasing user growth in the axis ecosystem and that means if xc stops growing in user base the system doesn't work and this is going to be one of the problems that we'll see the other aspects that we need to talk about is value sinks typically in value sync or any sink pool that we think we think about is reducing the supply here that is the concept but what is the end goal so there's a nominal increase so normal increase is the number increase in your asset the real value is where you divide by all these inflationary pressures to get the real value in usd so what we want to do is to make sure that there is this balance so that the real value of every player increases right now we see that slp just keeps inflating because new players are coming in and all these different things they've talked about and that's great you have more sops to play around with but if slp is actually devaluing because of the foreign exchange rate we talked about the each slp is worth less then you can increase the number of slps as you want but the total monetary value actually decreases so the way we do this is to enforce a little bit more deflationary pressures this could be increasing utility this could be burning these tokens and try to balance between these inflationary and deflationary pressures to really increase real value to users and why do we need to do that why is that important if you take if you abstract that out we look at this value we this is a this is a triangle and we want to figure out how do we get x to the middle that's where your ecosystem is robust your ecosystem is is sustainable to continuously do value creation value value growth but right now the the x is quite skewed towards your short term growth which is the value distribution so in value distribution here this is what xc has been doing for for a very very long time and very well the first one is to increase your dau so they have a lot of people playing and cnn did a big report about it there was a huge growth in the user base they also moved to ronin which is the side chain on ethereum and it's a lot cheaper so it makes it's a lot easier for people to come in and play so there's an increase in dau which is great and this is something that's important when you're starting your ecosystem you just need more people coming in the second thing is they're trying to manage your your daily slp minting and initially it was increa crazy amount a lot and now and with every you know community call every month they do a report saying they're trying to manage your slp minting you don't want to meet you don't need to mint so fast you don't want to increase your slp so much because it creates a lot of different kind of inflationary pressures and lastly they have been doing quite a good job in reducing bolting botting and loopholes so this is this is great this helps with managing your value distribution in the short run however xc is also now moving towards a long-run growth exe is now moving to another stage in its economy where it needs to focus on long-run growth focus on value creation and here we need to they need to start looking at increasing the usability of slp they need to otherwise it will just be you know selling pressure and it will just it would just be people selling the way of using srp right now is mainly to breed axis when you breed axes then you need to burn your slp and this is the deflationary pressures but there are like three different factors of increasing slp and one factor to decrease slp also we talked about breeding just now breeding is condition contingent on user base growth the user base growth has slowed down quite a bit so it reduces the probability of someone wanting to breed which reduces the probability of slps being used and being and being yeah being used in the system so there's a lot of pressures in this space and let's talk a little bit about value things because this is very important in terms of getting the actual users to come in and play this is like the middle class we need to balance all these different forces to make sure that the middle class continues to grow and make game a bit more fun so in general the problem sounds like this is a ponzi scam because we just need more and more people coming in and it's a bit unsustainable the good news is that this is a natural part of your entire cycle anyway so you want to focus now that they have a good amount of people how do you move to how do you move towards long-term value creation and what are the various things what are the various tools that they have today that focus on retention of users and growth of the ecosystem so there's some there's some parameters to tune i just want to conclude with that the first one is slp they can tune slp they can tune xc and they can tune axs so for slp these are different parameters that you can just think of it as you're driving you're flying a plane and these are the different buttons to press the first one is affecting energy for slp affecting exp for for xe and also for the daily quest of slp it's focusing a lot more on skills incentive than participation incentive so just give you a general amount of chart that the slp growth is is growing exponentially fast the rate of burn versus slp supply inflation is just not balanced and you have a huge supply growth which typically is fine you know it's it's fine of that growth because that's just normal however you want to balance it with the amount of active daily players and active user growth and the active user growth is not the active user growth needs to be quite a line needs to be balanced and these are the parameters you need to tweak so that it's it's aligned and the good thing about blockchain is that we have a lot more information to figure out what are the proxies to understand whether our our measures in place is safe or not the other thing is xc so we can affect the breeding rate the xc supply and the mmr matching which is remember we talked about how markets exist because it matches people so getting better at all these matching mechanisms and lastly axs usage so with axs usage is to increase usage of axs tldr so trdr there's no equilibrium there is you we economics is about this internal regulation mechanism we need to balance between resources and value creation you need to grow them proportionately where one grows too fast you need to slow that growth down and you grow the other part together that's how you can grow the pie split the pie and consume the pie and quick quick conclusion this is what we do at economics design we design and measure economic policies for d5 and metaverse and i run this company and it's been wonderful with all the brilliant people that i have the ultimate goal is to define gross protocol value market cap tvl fdv these are not good enough because these do not capture this is not capture the value that protocols can bring and the long term goal is to figure out how do we define gpv and also figuring out how can we design new mechanisms in non-euclidean spaces i talk a lot about the report very often scan a qr code you can get a report it's about 70 page report happy reading thank you [Applause]