Last time we finished off with all of the pitfalls of NFT games in which the game token minted distracts and distorts the focus and intent of the game, to the chagrin of all the real gamers. Now that we have spent enough time talking about all the things that developers shouldn't do, let's talk about how game tokens can be used effectively to increase player engagement with the game without ruining the game in the process. First off, let's briefly go over the goals which a token economy sets out to achieve in a game, along with the things that are to be avoided: Collecting tokens should enhance the game, not be the primary purpose of it The tokens should encourage player interaction and engagement by enhancing existing gameplay and mechanics and not becoming an objective in itself. Namely, the pursuit of token accumulation shouldn't become the focus of the game. Otherwise the game ceases to be a game, and becomes more of a collection competition. Even in the cases of games that were primarily collection-based, such as the famous Magic The Gathering by Wizards of the Coast (where players' primary mode of achievement was by collecting more rare cards), the main objective of the collection 'game' was to improve the individual players' chances to win against their opponents in challenges. They achieved this by balancing the game elements of skill and chance. A player with a better collection of cards only increased their chance or luck element. A player with better strategic skill at playing could still beat a player with a stronger deck. Collecting the cards without purpose had little value, so those that traded the cards were also very much engaged in playing the game itself, which has kept MTG popular even to this day. Real money transfer of in-game tokens should be controlled Real money transfer (RMT) has the largest potential to ruin a game. The reason for this is simple. If a token has more value as a vehicle for monetary speculation than as a useful game mechanic, then the game ceases to be the main focus of engagement for players and becomes secondary to its use as a financial instrument. This doesn't even go into the potential illegal aspects of RMT. Suffice it to say that if there is uncontrolled liquidity in the game token (measured in USD turnover per day), there will be nefarious factions who will seek to use the token to launder the proceeds of crime. This can be an extraordinary burden on the game company operating the game in terms of legal burden (in the form of potential C&Ds, and lawsuits when it runs afoul of FINCEN laws) and continuing compliance costs. Therefore, unless the game is primarily a collection type game of NFTs themselves (which have limited liquidity), it is essential to control the exchange of the token outside of the game economy. Games with successful in-game currencies such as Roblox and EVE employ strict controls on RMT for this reason. In the case of Roblox, the purchase of their in-game currency Robux can only be made through the company directly, where they seek to maintain control and careful KYC reporting. Roblox is one of the few games today that allow the redemption of their in-game currency for dollars, allowing many talented game creators to invest time and effort into building Roblox game experiences to make a living. This is a success story that harkens back to the old toolmakers during the frontier age of North America who was paid in (Fur Trading) company scrip for their wares and services. This is a healthy way to use an in-game currency because the game designers can manage inflation and recession of the game economy by controlling the price at which scrip can be purchased or redeemed to real-world currency. In-game currency should be more valuable in the game, than outside the game In order for the in-game currency to be effective, its primary use must be in-game. Seems pretty obvious, right? Once a game currency holds more value outside, it will soon bleed out of the game economy due to supply and demand, and in-game prices will inflate in return. Take EVE Online, which is the most extensive game economy that has ever been developed. The in-game economy is predominately player-controlled, with sources and sinks of the currency determined by player activity that the developers CCP had a full-time economist on payroll to monitor the health of the in-game universe constantly. With the exception of a small element of the economy that acted as an NPC source of ISK (namely the single-player missions), the entire in-game economy was run by the players. The game just designated where the resources were located, and players fought to control territory, extract, produce, trade, and manufacture mostly all in-game assets. It is for this reason that they strictly restricted RMT, as outside trading could severely imbalance the game and ruin the sense of fairness. To address this they simply disallowed in-game items or in-game currency to be traded for real money—but this is precisely the unlocked potential of NFTs: to allow for an outside resale value of in-game assets to incentivize players to not just succeed in the game as a player, but to benefit by being a game experience creator. How to do this successfully? This is the undiscovered country. The key is ensuring that while trading of in-game assets outside the game opens many new possibilities, the assets must be more valuable used in-game, so that most buyers are interested in them only as assets that are to be used to further their game experience, instead of solely as objects of real-world speculation. Players should feel a sense of attachment to the NFT assets, not treat them as investments I remember when I bought my first Prowler for 100m ISK, that was a lot of money. That 100m ISK represented about a month of grinding away at the game. It felt like I was making a real live car purchase. That ship served me well for years, after being narrowly destroyed on more than one occasion of reckless null space trafficking, and now that ship has history, at least to me. It's sentimental. This is the kind of attachment that an NFT should endear from its players. It must be allowed to acquire character, history, and uniqueness. This is what essentially gives collectibles their collectability and value. Conversely, once all players just see the NFTs as simply a means to increase their material wealth by buying them low and selling high, then the NFTs just become a speculative stock, a commodity, and the market will very soon become all sellers, and no one wants to just hold or use the assets. No healthy2 market exists comprising only of speculators and investors. Separate the NFTs from the money Finally, there must be a clear distinction between the use of NFTs and game money. As complicating the interplay and exchanges between these only serve to create exploitable situations which, in the end, destroy the game economy, such as was the case with Axie Infinity. NFTs are collectibles and tradable. They represent the 'collectible' goal of the game. This is an incentive mechanic that is well known and used by real-world collectible card games. These are easy to adapt on the blockchain, as a digital version of a collectible asset is simple to implement and control. Game balance is preserved by controlling the supply of these rare items. Game currency, on the other hand, has historically not been tradable outside of games until the advent of digital assets and blockchains because they freed the game developers from having to support exchange platforms and infrastructure in which trades can be reliably executed between players. Once a game currency is tradable on the outside, then its value can float and vary. This is a double-edged sword. The variance in the valuation of the in-game currency allows speculation to take place on the future value of the game currency, which is essentially a proxy for what people think the game platform itself will be worth in the future. And what reasonable game producer wants speculation of a game's success to be a primary factor of its actual success3? This is especially sticky for games that allow creators to redeem in-game currency for real money and create game experiences and player-generated assets. This legitimate positive economic function can be largely disrupted by rampant and uncontrolled speculation. While such speculation certainly could act as an extra incentive for creators to engage with the game economy, it has an equally harmful effect when the speculation pushes the price in the other direction, which can act to quickly destroy incentives for creators when the value of their previous hard work can be swiftly eroded. Do these problems sound familiar? They should, as these are precisely the kinds of issues that real-world economies face. It is the job and mandate of the central banks to manage and limit the effects of such violent fluctuations on their national economies. The best practice here is to limit all outside exchange of in-game currencies. While games assets like NFTs can benefit from being freely traded, the currency should be strictly controlled by the game platform to ensure that the internal economy is not adversely affected by external speculators. As successful as Roblox's Robux and EVE Online's ISK is for their game platforms, there has yet to be an NFT-game with in-game currency that is traded in the outside world without turning the game effectively into a thin shell for money laundering. The last best attempt represented by Axie Infinity resulted in a total failure (economically), as the majority of the players became engaged in the game solely to earn a buck (whether through grinding or speculative trading) and not to actually enjoy the playing of the game. A good game must provide a sense of achievement, entertainment, challenge, education, and gratification to its players in the end, as that is essentially what players are willing to pay for. It can't simply be another means to an end or a way to make a living. While the promise of Play-to-Earn games remains to be seen, one thing is clear, the P2E element of the game can't be its major constituent. Just like in the real world, NO economy can exist where >80% of the participants are speculators and investors. There must be producers, and consumers, for it is through them that real value is created and consumed. The key then to making an NFT-game work is to stop focusing on the former and concentrate more on the latter. Are You Ready Player? /Jerry Chan WallStreetTechnologist *** NOTES: Some fans will argue that Second Life's Lindon economy was bigger, but I would disagree, as Second Life's money was used primarily for a vanity economy. Read as 'stable' Should games be treated like IPOs of companies? Why would someone want to invest in a company? And do those same reasons apply for them investing in a game? This doesn't address the fact that this essentially acknowledges that game currency used in this way is effectively unregistered security.