Discover more from Skill Tree by 0xKepler
Skill Tree #16 - May 14
How Zelda solved the problems of open worlds, how to design web3 game economies, how web3 innovation works
Thanks fren for taking a small break from your Zelda play session to read my newsletter.
We are doing a lil giveaway celebrating Defina’s first mint on Polygon.
🎁 Win 1x SS hero NFT & 1 Tier 1 WL
🤔 How? Comment here or on this Twitter thread what your favorite thing is that you learned this week (can be from this newsletter or another source) for a chance to win
Can Joy be Financialized as a Positive-Sum Game?
“The really big idea of web3 games is not ownership of virtual goods, it’s creating a fungible virtual currency. Fungibility of virtual goods and currencies with real-world value (fiat convertibility) enables the affinity that gamers feel for a virtual world to be instantiated in financial form. We call this joy premium.”
Financializing joy will be positive-sum as intrinsically motivated players explore, craft, produce, and exchange value. The timing of financialization should be determined based on the game’s adoption and not take place too early, as this would put too much focus on speculation. Opening up the economy can be done gradually in steps to increase the chance of success.
Step 1 One-Way Conversion from Fiat to Virtual Currency
Step 2 PvE Markets (Virtual Goods <> Virtual Currencies, NPC pricing)
Step 3 PvP Markets (Virtual Goods <> Virtual Currencies, Human pricing)
Step 4 Two-Way Conversion of Virtual Currency <> Fiat Currency
10 rules of open economies
GDP before GMV (for avoiding speculative destruction)
Multiplayer environment designed to maximize player agency and social interaction (for meaning)
Violence at the narrative core (for lore and PvP sinks). Violence also forces people to band together to survive, which creates meaningful social connections
All virtual goods are player-crafted, not sold directly by developers (for a healthy economy). Getting resources requires weighing risk and reward, winning and losing resources.
All virtual currency is player-owned, on the date of fiat convertibility (for avoiding lumpy speculation). Players want to feel like they are in control. Price volatility may then be seen more naturally and positively.
Sound monetary policy: separation of central bank vs. Treasury, balanced sinks vs. faucets, no competing fiat economy (for sustainability). The treasury taxes the player-driven economy but doesn’t participate in it, for example by selling NFTs. Skill-based gaming, zero-sum mechanics like betting, or frequent “resets“/destruction of assets make for good sinks.
Legally recognized digital co-ops (for property rights and governance structures). Also allows guilds to evolve further than before.
Alignment of player/speculator archetypes (for social cohesion)
VAT-driven monetization model (for alignment between players/devs)
Proof of humanity and anti-cheat (for economic fairness)
My thoughts: While an intriguing model, it seems to be applicable only for a subset as the business model won’t work out for most games. Building out an open economy takes a long time and is a delicate undertaking, but needed here to make revenue from taxes. To make economic sense for the studio, it requires a massive user base to turn a profit from taxes. Additionally, the model is mostly applicable to games that are PvP, high-tension, and skill-driven.
In comparison, the F2P model is more flexible to as games can directly target and monetize specific user segments, therefore monetizing different groups granuarly.
How Nintendo solved Zelda’s open world problem
How to make an open world where the player is free to explore but is also guided towards key locations that advance the story?
First idea: Sheikah towers which serve as natural gravitational points for players. Story events can placed along the roads between towers → Felt too linear & everyone who left the path got completely lost. This can be seen in the heatmap which shows little exploration besides main map points. 80% followed the linear path, 20% walked through the world randomly.
Better idea: Larger variety of landmarks (e.g. shrines, enemies). To pull players there, these areas would need:
actual benefits (e.g. powerups, weapons). This required scarcity of resources to make exploration valuable
visual cues to let players know about the locations. With many different points of interests, this input can be overwhelming for players. Solution: triangle rule. Everything is kind of shaped like a triangle which has three main advantages. a) enhances player agency (e.g. do I go up a mountain or around) b) eyes are naturally drawn to the top, giving visual hierarchy. A perfect spot for landmarks c) most landmarks get hidden behind mountains, reducing the number of visual cues. As players move towards the mountain, new places get revealed. This creates constant surprise and incentivizes players to move left and right from the main path to explore these new places, eventually getting to the key location.
Economy design lessons for web3 games, featuring Mighty Bear Games
What is economic sustainability?
Not relying on a constant influx of new players. Consumption by existing players is needed for that. For that work long-term, ther need to be other motivators in place than financial ROI
Types of sinks
Net-positive: spending money with the expectation to make more money in the future. Basically kicks inflation down the road. Example: Axie breeding
Small note: Machinations defines these as converters, which helps to understand the difference to actual sinks
Net-negative: tokens/NFTs get actually out of circulation
→ It’s key to understand the motivations why players use a sink. Create faucets and sinks for different player personas. Some personas can be net value extractors, as long as personas in total are balanced and extractors don’t make up the majority. A big challenge is timing: When to implement sinks? Faucets are likely heavier at the start to bootstrap the game, with faucets coming in later to balance the economy.
Experiences of web2 and web3 players & their role in the economy
Difference in mindset
Web3: Co-creation, investing, ownership (meta experience)
Web2: Focus on the game experience. Willing to spend for consumption
How should development changes be made
Gameplay changes can affect the meta and therefore the prices of NFTs
Approach at My Crypto Heroes: Don’t change stats because it’s user property → Economy and game became stale. Whales hoarded the best heroes, making it harder for new players to enter
LoL makes slight adjustments each season with regards to maps, heroes, weapons → Encourages experimentation and trading (revenue for game studio)
Question is how big the changes will be and to communicate it early on so it can be priced in by the market. For example, a game can set a win rate corridor for heroes. If the hero is above or below, it will be nerfed/buffed.
Decentralizing gameplay decisions to the community is difficult because of hidden agendas and may not understand long-term impacts of decisions.
Battle pass NFT
Player receives off-chain and on-chain rewards. On-chain rewards come in at later levels to prevent over supply
Can also incoporate rewards for passive user personas, for example asset whales
Help with meta-progression and retention
The legal side (not legal advice)
What to consider: Gambling laws, security laws, custodian laws
Gambling: e.g. randomization of rewards
Custodian: e.g. staking systems. How Mighty Bear addressed this is by not having NFTs sent to a staking contract but leaving them in players’ wallet and blocking the transfer from function.
Tips for studios: Start early to build the legal foundation even as a small team because when you grow you’ll have your hands full of other topics
Web3 toolkits: A user innovation theory of crypto development
Scientific paper that applies toolkits theory to web3 innovation to uncover role of knowledge, institutions, and entrepreneurship in crypto development.
User-friendly design tools that allows users to develop new product innovations themselves. Used for co-creation between companies and lead users (
have a need before the mass market and often have the knowledge to solve it).
This way, businesses can combine in-house expert knowledge (how to solve a need) with local user knowledge (what the need is). That allows to create locally adapted solutions for target groups with heterogeneous demands, at lower costs - mass customization of innovation.
Web3 as a toolkit
Based on the characteristics of toolkits, we can see that they all apply to web3 in one or multiple ways. Web3 is like a nested environment of toolkits: L1s are toolkits, which L2s, another toolkit, deploy on, which users create new toolkits on, like the ERC-721 token standard, which other users then utilize to create products (e.g. gaming assets). By doing so, blockchains enable emergent innovation and drive composability.
“The toolkit characteristics of bitcoin have become clearer through the development of Ordinals (essentially non-fungible tokens) on the bitcoin blockchain – a kind of accidental toolkit enabled by the Taproot upgrade.”
“The outputs of the toolkit entrepreneurial process are an input into the design space for product developers.”
ERC721-C: A New Standard for Enforceable On-Chain Programmable Royalties
Limit Break released version 1.1 of their royalty solution, which turns the staking system from 1.0 into a token standard with transfer policy. Depending on how strict the creator sets the security measures, wrapping as a way to circumvent policies won’t be possible.
Transferable royalties (meaning the rights of royalties can be transferred to another wallet than the one holding the NFT)
My thoughts: Royalties are one revenue source for game studios and therefore a key part of web3 gaming. Being against royalties might be a short-sighted stance. Royalties add to the design space of viable businesses and can lead to innovation. Also, for games focusing on UGC, royalties are important for community creators as well.
Of course, this all has to be balanced with the ownership rights of NFT holders. I hope most game studios can find a solution that isn’t too restrictive. For this to work, we need to support royalties in other ways, for instance with soft incentives, like additional utility, or running in-game marketplaces where users are willing to pay for convenience. Liquidity plays an important role here as well, since lower slippage can quickly offset royalty fees for larger buys if non-royalty marketplaces have only a fraction of the liquidity.
UA in web3 gaming
Goal of UA: Optimizing LTV vs CAC
payback window of LTV is important
Web3 specific challenges
Wallet attribution: To correctly calculate LTV, game studios have to identify players. A player however can have multiple wallets, making LTV calculation difficult. Worse attribution also leads to errors in user segmentation (e.g. user is labelled as a mid spender, because of missing wallet associations, even though they are a high-spender), resulting in worse ad targeting
Restrictive platform policies towards crypto and NFTs pushed games towards the browser, making the measurement CPI as the main metric for CAC impossible, as no downloads are needed. The question is: When does a user count as acquired?
Build an early community and leverage them as evangelists and co-creators. This includes content creators which directly help in reaching new audiences. Balance monetary and other incentives for better alignment.
Develop partnerships with games. guilds, infrastructure tools, etc. Use wallet data to identify the best opportunities for collaboration.
Web3-native growth: Targeted airdrops to keep existing players engaged and aquire new users. Evaluate performance of airdrops based on LTV vs CAC.
Vampire attacks as a special case of airdrops to siphon users from another game
On CAC measurement: CAC is mostly a challenge here related to the existing usage of the word in web2. You can still measure the costs, you just don’t have this established user event called “installs” to use as the denominator to create CPI as your metric. But that was always just an arbitrary event in the marketing funnel, which can be replaced (as long as your ads are not billed on pay-per-install, which they aren’t for browser-based games).
On co-creation: To better understand how co-creation changes the processes of a company, what the opportunities and challenges are, and which tasks make sense to co-create with users, academic literature on service dominant logic and crowdsourcing can provide valuable insights.
On airdrops: Airdrops and token emissions aimed at user retention and acquisition should imo be more of a focus once a game is playable, or at least close to launch. Before that, games have to keep in mind that acquired users are likely to churn before the game is live, especially if it’s far out. One way to account for that is discounting the expected LTV to price in that risk, similar to a DCF calculation. This ensures you’re not overpaying for “users”.
On vampire attacks: Vampire attacks go against the partnership mindset. I expect collaborations to be the primary way of acquiring users from other projects. Vampire attacks will get some use but as they’re difficult to do secretly, they might trigger backlash. I see vampire attacks mostly work on games with a dissolving community. I expect two types of vampire attacks:
“Classic“ vampire attacks for making a large community switch over at once. Extreme, negative events (e.g. delay of new content, controversial character nerf) represent great opportunities to steal a player base.
Steady vampiring of churning players. Using on-chain data as a proxy to understand retention curves and content pacing of other games (together with off-chain data) helps to identify the best time to address their players. Players coming from a peak feeling of fun, down to a period with less entertaining content to play are easier to persuade.
Also listen to this Twitter Space with Timo from Paradise Tycoon for more insights on the topic of UA.
Discussion about bonding curves for NFTs
NFT conversion rates for Digidaigaku
Genesis holders show strong engagement with the processes while the broader audience (Masked villains & dragon eggs) seem less involved.