The Importance of Innovative Token Designs in the Blockchain Space


Some Context: What’s token design? 

Token design refers to the rules of how tokens act within an ecosystem. This can include whether there’s a single versus a dual token model. The type of token distribution used in a game determines who receives tokens. If staking is an included feature of that protocol, if there’s a tax on buying and selling NFTs, and where that revenue is directed toward, etc. In short, token design looks at the rules of how tokens circulate within an ecosystem. This will help us better understand where value is being captured and where value is being created.

Key topics this article will cover:

  1. Case Studies

  2. Foreseeing the Next Five Years

  3. Ineffective Token Designs

  4. Potential Issues Encountered with Monetising One’s Time Spent in a Game

  5. Market Demand for Play-to-Earn Gaming

  6. The Future of Token Designs


Case Studies

We shortlisted some games that have unique or innovative token designs that 1. either have been released or 2. are currently in development. We highlighted qualities that make them innovative and make them stand out.

1. Edenbrawl

They sport a model that is a mix of Web2 and Web3 aspects, a token that’s getting the Web3 component rather than doing a two-token model. This brings in traditional fiat currency as the other more active gameplay-focused token in their ecosystem.

2. Block Lords, and 3. Ascenders 

We highlighted these two games for having asymmetric gameplay, or varying roles within the economy. In doing so, various participants are engaged in different types of activities and in doing so are contributing to the economy. Participants will create resources or services that are then beneficial to people in a broader role. Therefore, an interactive economy that emphasizes the need for trade between these different types of participants is created.

Block Lords is a medieval strategy game. There are different roles such as farmers producing food, defending or attacking, and higher-level characters such as kings and lords. On Ascenders, there are split Paths of Fighters, Explorers and Builders. They are all doing different things but still need to interact with each other.

4. Axie infinity

A popularized game but one which pivoted in a way that they are introducing off-chain currencies as well as their on-chain ones. These off-chain currencies are seasonal which is an interesting aspect for us and a pleasant change for them. We have seen big-time games focusing more on NFTs as their main earning mechanic which is dropped from gameplay. 

5. Thetan Arena

The game generates periodic revenue through its utility token. 

6. Forge Arena

This game has various tokens that players may acquire through various activities within the game, all of which are inputs to their NFT generator. 

7. Undead Blocks

The game sports a basic and off-chain stablecoin pegged at 10 cents per golden Z box.

These are all interesting takes on how to balance their economies. However, because these are different games with different genres of games,  it really boils down to how such game designs are implemented in their specific genre. 

Foreseeing the Next Five Years

Our thoughts on what’s over the horizon for GameFi

We expect to see a lot of up-and-coming creativity in the space. This does not necessarily mean that one particular model ends up being widely adopted. There are likely to be several different variations that apply to each project. This is because not all games are the same, and not all game economies are the same. Therefore, it is critical to have something that fits that particular version and underlying goals. 

We do not think it will be a One-Stop Shop Solution – or a blanket solution – for all games. Let’s take the analogy of comparing different countries. Each country has its own unique set of resources within its economy. There is no single solution to meeting the needs of every country. The mechanisms created to balance one economy must be dependent on the resources present, the political landscape, and every agent that is present inside the economy. This is similar to games. Game developers would have a few models on which to base their economies. However, it’s up to them what mechanisms they configure within their economy to help them balance it.

Ineffective Token Designs

We list two types of token designs in previous blockchain games that are ineffective and the implications of those failed designs

1. SLP Distributions

One of the biggest examples would be Axie. That’s what’s received the most attention. The utility token was based on participation rather than skill, in the earlier iterations of the game. That doesn’t create the most engaging experience, and it is not the most sustainable one either. 

In this scenario, developers end up with a heavy focus on financial motivation for participating in this activity. When there is an overly financial motivation for continued participation in this particular game, it would result in a user base that’s very reactive to any reduction in financial incentives. 

If end users are playing to earn tokens for the sake of earning tokens, it becomes a job. Games that use tokens as their main earning mechanism are easily exploitable. This is because community members can figure out how to game the system and earn as many tokens as possible.

Protocols that followed this similar model faced a similar headache. When mass adoption took place, it crashed their economy. The game wasn’t prepared for mass adoption to occur. With mass adoption, massive extraction also happened on the distribution side as well.

It’s also about looking at how inflation is controlled. Another model that has been explored a great deal is the early Axie model, which is a step in understanding how inflation is regulated. They were generally constrained at the level of each player, such that each player had a certain amount of energy or capability to mine tokens. Nevertheless, developers were not controlling it at the overall economic level, so it doesn’t translate to a very granular control over the inflation rate of specific assets. It was at the player level. 

Game developers have to keep in mind that once they adjust a certain aspect of their game, the economy will react. And something that happened within the Axie ecosystem was when they tightened the SLP faucet – those who were benefiting from that system reacted negatively. This was reflected in price SOPs, as well as in trust in the protocol and the developers. 

Essentially, if a game developer tweaked something midway, they should almost always expect a reaction from the economy. It is essential for developers to understand who are the key players in the economy, and what their motivations are. This is to check if it lines up with the target audience that the team is trying to cater to. In a sense, it was a useful way “to remove weeds” and to make sure that those that stayed in the economy were the ones to be targeted. 

2. Botting

One of the issues we’ve seen in the blockchain gaming space is botting. A recent study has shown that approximately 40 per cent of participants in games and these blockchain games are bots. That makes sense from an economic perspective. If we look at the incentives of these blockchain games and when they only prioritize earning, developers are liable to have consequences in the long term.

This ties back to the idea of distributing these financial rewards based on participation versus skill. There will be varying levels of commitment that botters put into having these bots perform well in the game depending on the game itself, but the more skill-based the game is, the more challenging it gets for botters to build up this large portion of the user base and try to extract in that way. As much as possible, we also recommend setting up incentives. This will make it less attractive for bots to extract value.

Ultimately, there will always be some presence of botters when these kinds of financial aspects are present. But in certain scenarios, it would just simply be the developer’s goal to make their game less attractive to bots than some of their competitors.

As the industry is just in its infancy, everything is a bit muddled at the moment. We’re still trying to figure out the best practices for the industry, and of course, there will be some people who would take advantage of it. Once everything settles down, and more games try to create mechanisms that are not easily portable and more skill-based, it will be more difficult for these botters to create codes that mimic real players. Eventually, we expect to see that number go down.

Potential Issues Encountered with Monetising One’s Time Spent in a Game

Is there a potential issue of putting a dollar amount on a person’s time spent grinding in-game? The community has encountered this before, and we know that this is present in Web2 games, but we’re about to take it to another level through the innovation of blockchain gaming.

In short, we find no issue with that. We are just redefining work, and in this particular instance work, it is playing a game. To be able to get value from the ecosystem, we first have to enter it and grow it for it to be sustainable.

As an example, Pilots are a concept observed in the Philippines. Someone would be paid to play and grind accounts for users who are at school or work. So that’s nothing novel, just institutionalized to a certain level or a certain extent because of blockchain technology. 

As far as putting a dollar figure on a person’s time, this is okay, but we want to emphasize that it’s only in a very specific context. And that’s when there is demand for that activity that they are doing in return for that specific kind of financial reward. 

What we’ve seen in a lot of games so far is that they’re not placing a constraint on what activity is rewarded. There wasn’t a limit to how many people did this activity. It’s not being tied back to someone’s actual demand for whatever it is that they’re doing.

To make it a bit more concrete, think about an economy where there are resources that have to be collected. These resources are needed to create some end assets. If someone wants a weapon in the game because they’re interested in just heading out and fighting, I do that as quickly as possible. However, the player would not want to hunt and mine all the base resources needed and do the whole crafting process to put it together. Therefore, it becomes useful to have someone come in. 

This natural market is created where someone has money but not much time; someone has time but not much money and they can interact in a way that benefits both parties. But this doesn’t mean that there can be an unlimited number of participants all setting out and collecting resources and expecting there to be someone to buy them. This does not mean that they have unlimited financial rewards. It’s very specifically constrained by the demand from these real players. Miners can expect financial rewards only from a relatively small portion of the player base. This expectation needs to be tied to the real demand from these very game-focused players who are willing to spend money on that particular activity.

It boils down to the concept of opportunity cost at the end of the day. This is about having the resources but not the time to gather the inputs needed to create the weapon that you want that creates a market. As a result, a market is a place where the demand for one activity is just limited to a certain group of players, not the whole ecosystem. Therefore, it’s really about how the game is designed, and then targeting a specific player base or a specific player type that people have to pay attention to.

Market Demand for Play-to-Earn Gaming

One of the common criticisms we hear is that there’s no real demand for blockchain games and that there isn’t a need to make the gaming space more financial than it already is. Does it make sense for play and earn games to exist in the first place? Is there a demand for gamers to be able to generate some money as they play a game? Additionally, is this a result of the hype around play-to-earn gaming?

We would say there is some market demand. There’s demand as seen in Web2 markets – there are all kinds of black markets that have sprung up for kind of facilitating these demands. 

But on the supply side, as well as in terms of people being willing to do these activities, this is an interesting mix of people attracted to it. Gaming enthusiasts are willing to do this and view it as a bonus. But it does also bring in – as seen with Axie – people who are coming in purely on the financial side. 

Hence it is going to be critical for games to set up specifications on who they will allow being the suppliers or the earners in these economies. There is not an endless demand here, so the target audience is not infinite. Therefore, there can only be a limit on how many people might supply these markets. It’ll just be a race to the bottom in terms of competing on price to whatever minimum wage in whatever country can get access to.

With these limitations on who can come in and participate in these markets and then games, game developers could then target certain groups. Right now, we think developers lean towards real players that do enjoy playing the game. In addition to enjoying the games, they can earn financial incentives.

Historically, market demand for P2E games has existed since the 1990s, predating popular games like Dota or Counter-Strike. The demand comes from people’s opportunity cost of participating in the game. 

Let’s say person A earns five dollars an hour and person B earns 50 dollars from their normal jobs. But earnings from playing a game are set at 20 dollars. If you’re person A, you would rather play the game because you would earn more money from playing it. However, if you’re person B, you would rather work your usual job because that pays more. That’s the rational thing to do.

However, if you’re a person B and you want to play with your friends who are like person A, who grinds the game and has high-level accounts, of course, you would prefer to play with your friends. You want to have the money to pay for these accounts and play with your friends or compete for the content that only high-level accounts have access to. 

That’s where the demand is coming from and it’s been happening through like these black and grey market platforms which Web2 games do not fancy their players engaging with.

Web3 has made that transaction much more simple by taking out third-party platforms and introducing ownership through blockchain technology. Hence in the case of Web3, people will spend time on the game if they’re 1. earning more by playing it, or 2. if it’s a fun game. 

The Future of Token Designs

What will token designs look like five years from now in the blockchain gaming space?

In the future, as technology advances, there’s more exploration around what can be done with blockchain and gaming. We expect to see more on-chain, interoperable games, which will then be connected to the Token. This will be interesting to monitor because game developers would need to set up tokens that can capture more than just the value generated by the game originally intended. They would need to be able to capture the value that is created from objects that are iteratively built on top of base infrastructures.

It is also imperative to look at the regulatory side of things as well, especially in situations where tokens take on a more equity-like aspect in their designs. That area might be constrained to some extent by ongoing regulatory changes. This depends on regional economies and how they would define tokens, cryptocurrency, and blockchain games in general.

We expect token designs to focus more on NFTs as a way to earn similar to how it’s done in Web2 in terms of cosmetics. But people now own these assets so their narrative is similar in the industry. Right now the preference is slowly changing from play-to-earn to play-and-own and we think it will continue to do so within the next five years.

It would be interesting also if more games used off-chain utility currencies since not everything needs to be on-chain, especially when these currencies may be viewed as inflationary. Some projects are doing just that. If those said projects bear any fruit in terms of balancing the economy, we would expect more games to follow in their footsteps. We would just continue to iterate on existing models as we are still in the early stages of the industry, and everything is basically trial and error.

Lastly, we’re going to see a lot of combined Web2 and Web3 aspects where you’ll have a mix of tokens and off-chain currencies, and also a mix of NFTs and off-chain items. Game developers do not have to opt for All or Nothing in terms of these implementations. Having a mix is often crucial to balancing this kind of asset distribution. Not everything has to be tradable, but it’s up to the developers to identify which tokens or assets inside their economy should be tradable. That is where the market would function and create value or demand for a particular item.

Got a question for our authors regarding their article? Contact them at:

Kiefer Zhang | Associate Consultant
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Lorenzo Martin | Junior Associate
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Ps: Check out our Academy if you’re interested to read more about the GameFi space!

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