Just a quick one to get through some of my thoughts on trends in crypto :)
This week I was lucky enough to speak at Pocket Gamer Connects Seattle on a Web3 panel. The subject was the exciting world of tokens and how they empower communities and users. Ok, maybe exciting to some, but we were less hype based on our approach than your normal crypto degen. Less Gary Vee and more meat and potatoes as we went into use cases of each token and how the end user benefits.
Since it was a short panel, I thought it would be perfect to sum up the three layers of tokens - Governance, Utility, and Non-Fungible tokens. So without further adue.
Governance tokens
Let's start with what I think are the most interesting from a consumer (maybe investment😅) standpoint and, as of right now, the most substantial incentive for an end user. These tokens can be incredibly powerful and are already seen as the backbone of Decentralized Autonomous Organizations (DAOs).
Governance tokens are cryptocurrencies that represent voting rights on a blockchain. This is done by distributing the power of making major platform decisions from a centralized structure to an entire community.
The concept is simple - if I own this type of token from a company or project, I get to have a real opinion on the direction and execution. Depending on how many tokens I get a louder voice. This leans heavily on tribal checks and balances and can bring in new mechanisms that can change how voting in organizations happens. For example, rather than having every vote equal to one vote, you can make any additional ownership of votes by a single holder have a diminishing returns. This being a mechnaism to block hostile takeovers and the dreaded centralization. This would incentivize ownership from an investment standpoint but stops individuals from taking over a business.
Of course, value and direction of your opinion are important, but communication is key in rallying others to get behind it. This comes as a double edge sword since you stand a chance to derail or torpedo the project by alienating other contributors with differing views. This is likely why you see so much movement within the Web3 industry. Individuals with deep skills and understanding of the space hopping from one project to another looking to find others with similar visions and direction.
Verdict
I will have to come clean. I love the idea as a token consumer but not an issuer, especially in gaming. Making successful high-quality games is unbelievably difficult and has a low hit rate for those who have done it for their careers.
Game development is highly contextual, with solid teams needing to be on the same page. So I get a little iffy on allowing external voices dictate direction without this context. Also, I would like to think that those with great ideas and feedback are a part of the game development process - either on the team or talking to them. So ultimately, adding governance tokens to your project allows a money component that grants access and certain rights.
If these don't sound exciting they should! It's your chance to actually get into the ground floor of the next set of billion dollar (or more) tech companies... But that comes with a HUGE risk. These tokens have the highest probability for regulations to change their legal standing, which is currently not a financial instrument... but damn, they sure sound like one. So, for now, I would steer clear on issuing them.
Utility tokens
Next are your "basic" utility tokens, which, can have many different purposes but fundamentally help regulate a specific economy. They are the digital currencies of web3 - imagine them being the new digitized fiat currencies of the world with different platform solutions being the "countries."
In f2p games, these would be the traditional currencies you earn or purchase in-game, with an emphasis on hard currencies.
Theoretically, this helps keep the economic ecosystem decentralized and become a healthy user-driven economy. I say theoretically because the early attempts in web3 gaming token economies thus far have been less than ideal, with many relying on ponzinomics. Meaning token prices stabilize or grow when new players enter the ecosystem and drive demand. Without that demand, prices begin to falter. Then people start to sell as they are afraid of lost value inflating supply.
While these are not designed to be investment vehicles, the above demonstrates why many speculators expect a token's price to rise with the demand for it and use it as an investment. This should definitely be considered when designing for a web3 economy as products will encounter many motivations and behaviors in approaching user-driven economies.
Verdict
These are much less iffy than governance tokens, mainly from a regulation standpoint. However, it's not hard to imagine that most web3 games will have their own token economies in a few years, and many new studios will be founded with the help of token sales.
But... I would hold off adding it to my own game. I would like to see a project succeed at creating a viable long-term user-driven economy before jumping into something with such high risk.
From an economic standpoint, doing this with your product will require deep economic knowledge. Gone will be the days of the "numbers person tweaking supply/demand events in your game. Instead, you will need proper econ knowledge to tame these systems.
Another reason you may want to pump your brakes is you will expose yourself and your community to seriously volatile market risk. The crypto markets are headed into a frosty winter, but you could argue that doesn't necessarily mean a specific game should be hit as dramatically as the market. Welp, too bad, and in all likelihood, you will lose more value than the rest of the market. Not the best feeling when trying to build a lasting product, and the value of the entire project halves in a few weeks.
Since we are on the topic of the speculative value of a token, we have to take a look at how you aim to use your token, so you don't pass the Howey Test. A yes to either of the questions below and you're considered a security.
1. Does the token offer its holders an opportunity to contribute to the startup’s capital and to have a share in its profits? 2. Does the fundraising procedure of the ICOs involve investment in a project whose profits are solely generated from the efforts of individuals other than the creators or founders of the project?
Lastly, this is strictly on a company focus. Your company's valuation moving forward is directly impacted by the valuation of your token(s). This exposure can be hazardous for early-stage companies that will likely be raising future rounds. In addition, you will have to consider your token's valuation when fundraising, an additional variable that takes on added market risk.
NonFungible Token
This is where things can become very interesting, but highly conceptual.
Non-fungible tokens, or NFTs, are digital assets that are provably unique. Additionally, they can be used to represent both tangible and intangible items.
To give a real-world example, I'll use sports cards. There are only so many printed each year, with some specific cards being printed less like a limited run of signed cards 1/100. This scarcity and novelty tend to drive the higher valuation of these unique cards. Additionally, better players are in more demand; therefore, their cards can be sold on a secondary market for higher prices.
What drives this is the non-fungibility of the cards themselves. That means you may have the same card with the same year, maker, and player, but each card could have a varying value. This is why grading in the card market now exists because not all things are made the same.
Also, over the years, the survivability of said cards is low. Just look at this Honus Wager card designed and issued by the American Tobacco Company (ATC) from 1909 to 1911. This was part of its T206 series. Only a total of only 50 to 200 cards were ever distributed to the public because Wagner refused to allow production of his baseball card to continue. Back in those days these cards came in packs of cigarettes and he didn't want children to buy cigarette packs to get his card.
Because of this scarcity coupled with one of the greatest players in baseball history, this card has sold for over $6.6m. Not bad for a flimsy card from 1910's. Well, as of now, you really can't do that with digital assets. That is until now. You can copy the traditional card system if you like, or try your hand at digital art with true limited prints. Want to add scarcity you could have some amount of randomly generated "decay" of the image, or out right destroy it in a given time frame.
NFT's are much like cards, but much more. Rather than specifically tied to physical collection you can grant legal rights of ownership of digital property. This may not sound big but the applications are expansive. Especially as we move our personal representation priorities towards our virtual presence over our physical. These tokens will become a paradigm-shifting technology.
Verdict
I see NFTs as the initial intro for most people to experience blockchain technologies, specifically through crypto games. BUT... not all games. You need to have depth to your meta that makes sense for the technology. Does your game have heavy diversity in items and characters? Does it have a crafting system? How about a breeding system? These make sense in leveraging the tech to deliver great UX, allowing the ownership and trade of these things. Not extra lives in a match 3.
Creating real-life analogs to digital systems can now happen. Tying the fantasy of gameplay with actual uniqueness. From a ledger standpoint, there are some cool things players can do since the history of the token can now be a part of the game's design.
This has the potential to be the most widely used medium of commerce in the world. Again, as the changing trend of digital > physical presence continues to grow, NFTs will become more important in expressing who you are and what you've done. You may not be an earlier adopter, and that's fine, but you should understand who is and why. As Mellenials and Gen Z begin to carry much of the
Look no further than a recent survey on US high school graduate's employment intentions. It might or might not surprise you, but the average Gen Zer said that becoming a creator is roughly 3x more preferred than a "typical" career path. Again, maybe not your preferred employment path, but this is the future.
Anyway, this was supposed to be a quick one, and here I am a few hours into typing. I hope you enjoyed it. As always, let me know if you have any questions or comments.