Let’s Talk Crypto Gaming Tokenomics
Explore With Us As We Develop Our Thesis
For new crypto investors, tokenomics can be one of the most confusing and difficult categories to tackle when researching a project. This can be even more difficult when it comes to NFT gaming projects. The sector is so new that we’re still validating and determining what the best token models should even look like. There is a great deal of game theory and economics that go into creating the perfect structure.
Today, we’re going to review a few NFT games with different tokenomics that have been successful to a certain degree. It is to be noted that we will still need time to see if these games are truly able to sustain this success (many games haven’t even launched yet). However, things seem to be working for now.
It is important to express that none of the projects/tokens listed below are to be taken as financial advice. This is simply a breakdown of different tokenomics found within the NFT gaming sector in an attempt to form a case study that will assist us in determining the best practices.
Star Atlas is a virtual gaming metaverse that is based on the year 2620. It is comparable to Eve Online and Star Citizen. Since Star Atlas has released its tokens, it has been one of the best performing projects in the sector. Now, I’m not implying that the sole reason behind the price pump is the project’s tokenomics, Star Atlas has also done a great job with marketing and presenting its roadmap.
It takes more than great tokenomics for a project to be successful, but it’s a key ingredient. Star Atlas has a particularly interesting token structure.
Star Atlas will have a dual token model with ATLAS & POLIS. ATLAS will act as the in-game currency, and POLIS will act as the governance token. We’ll cover each individually.
ATLAS will be used as the native currency to purchase in-game assets and facilitate commerce. Operating expenses (personnel for mining equipment, fuel for ships, repairs for damages) incurred in the game’s metaverse will also be paid in ATLAS. The initial distribution of ATLAS occurred through a Galactic Asset Offering (GAO).
The token offering will occur in two phases until the full launch of the title. Only a limited amount will be distributed through the GAO. Once completed, ATLAS can only be earned through in-game activity or sales from other players.
The complete distribution breakdown goes as follows:
As you can see, (10%) of ATLAS tokens will be distributed in the Galactic Asset Offering. Another 10% will be distributed among supporters and seed investors. The other 80% will only be distributed through in-game activities or peer to peer distribution over a 5-year period. ATLAS will be inflationary, but it will not inflate more than 4% per year after year 6.
The undistributed balance of ATLAS at game inception (80%) will provide incentives to early adopters as a network subsidy over the course of five years. Following the subsidy period, a standard inflation rate of 4% per annum into perpetuity will be implemented as a necessity for long-term viability of gameplay incentives. - Star Atlas
Most importantly, the team will not retain any of the undistributed ATLAS token supply.
I think the subtle inflationary model is a clever way to ensure that the in-game currency won’t become unfeasible. It will be interesting to see if 4% inflation rate will be sustainable or if it will need to be adjusted in the future to be more aligned with network and player growth instead of an arbitrary inflation number. Now, let’s discuss POLIS.
POLIS will give the community full governance rights over the game. This means that holders will have rights over both in-game and real world activities.
The white paper details what the in-game rights consist of:
As previously sated, POLIS has real world utility as well:
Holders will even have the ability to snatch development rights from the team, at which point the team would become vendors.
POLIS will also be distributed in two phases: through the Galactic Asset Offering and through ATLAS staking.
Star Atlas is built on top of the Solana blockchain. The high-throughput L1 creates the perfect environment for the token utility to run smoothly.
Axie Infinity is currently the reigning champ in the NFT gaming space. At the time of writing, Axie currently has an $8.7B market cap and fully diluted market cap of $37B. Per their whitepaper, Axie is:
a Pokémon-inspired universe where anyone can earn tokens through skilled gameplay and contributions to the ecosystem. Players can battle, collect, raise, and build a land-based kingdom for their pets.” Axie White Paper
Similar to Star Atlas, Axie also has a dual token model (SLP and AXS). Needless to say, the tokens have been performing well. SLP currently has a market cap of $146M. Let’s dive into the tokenomics.
We’ll start with SLP. Smooth Love Potion (SLP) is the in-game currency that players combine with AXS to breed Axies (the Pokemon style creatures that you use to battle).
The unique thing is that Axie Infinity does not sell SLP to players directly or provide liquidity.
SLP is earned through playing the game in PVE Adventure Mode or PVP Arena mode. You are to sync the tokens to your wallet once they are earned.
This is the breakdown of the SLP costs to breed Axies:
Now that we understand how SLP works, we’ll dive into AXS. Axie is powered by Axie Infinity Shards (AXS). AXS is an ERC20 governance token used for the Axie Universe.
Players that hold AXS are able to claim rewards through:
Participating in key governance votes
One thing that you will notice in the diagram above is the Community Treasury. This is Axie Infinity’s solution to fully decentralizing the game by eventually allowing AXS stakers to govern the treasury.
The Community Treasury receives revenues that are generated (4.25% of all marketplace transactions and the AXS portion of the breeding fee), and a portion of the staking rewards. Other streams will be added as well from tournament entry fees, licensing, etc.
Now that we’ve covered the utility, let’s talk about token allocation and unlock schedules
The schedules are as follows:
The whitepaper also details the unlock schedule for:
There’s a lot that we can learn from Axie’s tokenomics. This is mainly because we’ve been able to see the utility play out with a finished product.
Now, let’s look at a smaller project with compelling tokenomics, Aavegotchi. Here is a short explainer of this interesting blockchain gaming and metaverse project:
Aavegotchi is a DeFi-enabled crypto collectibles game developed by Singapore-based Pixelcraft Studios that allows players to stake Non-fungible tokens (NFTs) avatars with interest-generating tokens and interact with the Aavegotchi metaverse. It is a unique combination of Decentralized Finance (DeFi) and NFTs. - Aavegotchi
Aavegotchi hasn’t caught the attention of the crypto community at large yet (which is starting to change with the likes of Yield Guild Games entering the “Gotchiverse”) but the project has been continuously making strides in the last months and is set to launch its metaverse in December.
Now, let’s have a look at the project’s tokenomics. Aavegotchi has three different types of assets within its ecosystem: The native GHST-token, in-game NFT assets – primarily the Aavegotchi avatars and wearables – as well as land in the form of different-sized parcels.
The GHST token is designed in a unique way that differentiates itself quite a bit from most blockchain gaming projects out there. Here are some key properties:
The GHST token is used as the base ecosystem currency for the purchase of all Aavegotchi assets. Beyond this, GHST has several other functions, such as staking and enabling players to vote in the DAO.
Aavegotchi players have to buy GHST and spend it in the process of “summoning” and training their Aavegotchis. A portion of this spent GHST is transferred directly back to the DAO to continue funding the development of the ecosystem. At the same time, part of the value is distributed as rewards for wise governance in the DAO, and as rewards for engaging in different games within the “Realm”, Aavegotchi’s metaverse.
40% of all GHST spent by Aavegotchi players (on the NFT marketplace or at land auctions) will be distributed back to players via player rewards. 5% of all GHST earned via portal and item sales will be burned forever. - Aavegotchi
While a portion of the GHST supply was distributed to private and presale investors, most of the tokens are being issued through a bonding curve, which smoothes out the token’s volatility and ensures it’s aligned with overall user and network growth.
There is no limit on the supply of GHST that can be purchased directly from the bonding curve, and no time limit. The price opened at 0.2 DAI/GHST, and fluctuates along the curve. There is no lockup in this round either – tokens can be claimed straight away from the curve.”
GHST is a token with a dynamic supply. Its supply increases with demand, meaning that the burn rate does not entail the rapid deflation of the token. That's a problem for tokens with a fixed supply. Burning GHST is a deflationary counterbalance to the downward pressure on GHST's price, as potentially caused by giving out GHST gaming rewards in the form of GHST.
“Sending GHST directly to the burn address also locks DAI within the bonding curve, creating a rising price floor for GHST. This is a net positive for all parties as it enables better liquidity for buyers and sellers on the curve (aka less slippage), lowers the circulating supply, and provides stability. - Aavegotchi
GHST can also be staked by players to earn “FRENS”, unique in-game points which CANNOT be purchased or transferred. FRENS can be redeemed for Raffle or Drop Tickets, which in turn allow winning valuable wearables or REALM parcels.
There is far more to unpack when it comes to Aavegotchi’s tokenomics. Overall, Aavegotchi has managed to create a seemingly successful and sustainable token model that smooths out a lot of the notorious crypto volatility, while providing both stability and upside to token holders and players.
The various feedback loops and incentive mechanisms lead to a strong structuration and catalyzing effect of GHST within Aavegotchi’s ecosystem. GHST is distributed in a balanced way to both reward players and support development of the project.
When it comes to crypto gaming tokenomics, there are many similarities, and many differences. As I stated before, it remains to be seen how well these tokenomics will hold up in the future. The great thing is that tokenomics can always be adjusted for the greater good of the project. This can also be risky. Depending on how drastic
Ultimately, learning what the standard for NFT gaming tokenomics should look like, will be an ongoing process. Very few games are alike, and projects will find creative ways to add the utility that will fit the game’s use case and narrative. The best we can do right now is look at what is currently working, and use it as a reference point.
As the industry evolves, our knowledge base will evolve as well. To keep up with this sector (or any other), we must pride ourselves on being students of the game *pun intended*.