Written by: bigfatpenguinQ

Compiled by: JX, Deep Tide

Key Points:

1) Unlike Axie Infinity and its clone games, Thetan Arena adds more internal scenarios for consuming its native reward token $THC to hedge against inflation generated by rewards given to users.

2) Thetan Arena attracts players not only through its P2E model but also through intense gameplay that keeps users engaged within the ecosystem. The more players it attracts, the greater the value of the $THG token, as the profits of the entire ecosystem depend on the number of active users generated by its preset taxation model.

3) GameFi projects that combine high-quality game production capabilities with a deep understanding of cryptocurrency will stand out and usher in the next era of the gaming industry.

The New Star of P2E Games - Why Thetan Arena?

PlayToEarn is undoubtedly the most discussed topic brought about by this year's crypto market #AxieInfinity craze. Among millions of new P2E games, we find #Thetanarena to be a potential gem, officially launching the game on November 27 and publicly listing its in-game currency $THC on November 26.

The main purpose of this article is to use Thetan Arena as a case study to delve into the token model design of P2E games. From the analysis, we will summarize the general principles of token design, hoping to provide insights for crypto game developers and players.

Important Note: It is for research purposes only and should not be considered financial advice.

1. Introduction to Thetan Arena's Token and NFT System

Thetan Arena is a MOBA game that runs on PC, Android, and iOS systems where you can summon your friends, team up, battle others, and earn token rewards ($THC, $THG) represented as NFTs in the game.

Unlike traditional mobile games where in-game items typically lack liquidity, Thetan Arena's core assets can be freely traded on cryptocurrency markets. The virtual assets mainly consist of three types:

First are the Hero NFTs. As a MOBA game, players need to control a hero to fight in the game.

Most heroes are represented in NFT form, with three rarity levels ranging from common, epic to legendary.

To lower the entry barrier, Thetan Arena allows players to obtain up to three non-NFT free heroes, meaning they cannot be sold on the secondary market.

Heroes are also equipped with another metric for skins, which includes three rankings of common, epic, and legendary.

Generally, rarity determines the combat ability of the hero.

The second is $THG, which is a functional utility token used as a medium of exchange among participants in Thetan Arena's economic system. The total supply is 420,000,000. (Token distribution is shown in the figure below)

In the current ecosystem, the uses of $THG can include:

1: Incentives. As players in the game, completing game tasks or outperforming other players to rank high can reward players with $THG tokens.

2: Voting governance. $THG will allow holders to create on-chain governance proposals and vote on them to determine the future features and/or parameters of Thetan Arena.

3: Game currency. $THG is the only currency that can be used to obtain legendary boxes to recruit new Hero NFTs. Additionally, $THG can also be used to upgrade the levels of NFTs heroes in the game.

Finally, there is $THC, which is a pure in-game currency that can be earned infinitely by playing the game.

In the current system, the actual uses of $THC can be summarized as:

1: In-game rewards. Players earn $THC rewards by winning in the game.

2: Purchasing Thetan Hero boxes. $THC can be used to buy common boxes and epic boxes.

2. In-depth Analysis of Thetan Arena's Economic Flywheel

Now there is a question: between free-to-play games and paying upfront to earn a lot, which would you choose?

Unless you are extremely conservative about money, why not earn while playing? After all, whether you pay or not, you are playing the same game, so who can say no to free cash?

Welcome to the first loop: purchasing in-game assets.

The first visit to the game will be the Hero in NFT format. It is worth noting that heroes have a maximum combat limit for earning $THC tokens (see the chart).

Heroes will not generate any earnings once they reach the combat limit. You can think of it as a sword that will rust after years of use.

Now, our loop looks like this.

Next, $THC will have two paths.

One is to buy new heroes with $THC to continue the previous loop, and the other is to sell $THC to lock in profits.

If you choose the former path, it belongs to the buyback behavior (Second purchase). This action does not necessarily lead to $THC inflation, as $THC will be locked within the ecosystem.

If we choose the latter path, it will create selling pressure on the market and increase the inflation rate of the $THC token.

In this closed loop, it seems that the price of $THC will enter a bottomless abyss, as there will always be selling pressure.

Every game has a resource consumption system to maintain the balance and health of the in-game economic system. For Thetan Arena, so far, the consumption system is robust.

Nevertheless, in #Thetanarena, the consumption methods are not easily observable.

First, there are four game modes. We won't introduce them all here. However, there is a mode in the game called Battle Royale, where the minting rate of $THC is actually negative (the minting rates of $THC in other modes are positive), meaning that if you are playing Battle Royale, you are actually helping to compress the supply of $THC, and if you only have a 50% win rate, you will lose money.

Another deflationary situation for $THC occurs when playing team mode and facing a tie in the game. The expected model is calculated as follows.

Mathematical Expectation Model:

1: Assume you have a 50% win rate. Everyone pays $THC for the NFT.

2: Compared to the other three modes, calculate the $THC results you get in Battle Royale mode.

3: Pure Battle Royale $THC yield - $THC cost to purchase NFT = negative. That is, $THC shrinks.

Pure other three modes $THC yield - $THC cost to purchase NFT = positive. That is, $THC inflates.

4: "Tie" deflation can be calculated similarly: just compare the pure tie minting $THC rate (negative indicates deflation) and the pure win and loss minting $THC rate. (Positive indicates inflation)

There is also a soft deflationary mechanism in the game. The fact is that many players, if not full-time cryptocurrency enthusiasts, are likely to abandon the NFT heroes they purchased after losing interest. This will also accelerate the pace of deflation, as the potential minting of $THC will not actually occur.

Another soft deflationary system in the game is the withdrawal lock for $THC.

There are two restrictions: one is that newly registered users must wait at least 12 days to withdraw their earned $THC tokens. The other is that at least 750 $THC and no more than 1500 $THC can be withdrawn at one time.

Each withdrawal request requires a 2-day cooldown.

In summary, the locking mechanism extends the inflation cycle of the $THC token to maintain the economic balance of the game ecosystem.

So far, the $THC loop is self-sufficient and running well.

We will complete the final step of the loop by providing derivations at the end of the article section.

But what about the trading of $THG? What is the relationship between $THC and $THG?

In short, the $THG token is the true value container of Thetan Arena.

1: Trading on the NFT market, withdrawing $THC & $THC incurs transaction fees, which need to be deposited in $THG in the game, and withdrawing $THG incurs taxes.

There are also three rarity levels for each hero's skins: common < rare < mythic.

Therefore, as the user base grows, the demand for $THG will increase. Additionally, staking/depositing $THG in the game will also reduce the supply in the secondary market.

2: $THG can be consumed to upgrade hero NFTs, which also reduces the supply of $THG in the market.

We can assume that if the author and you fight in the game, we would choose the same hero and be at the same level, earning the same $THC tokens, as we both have a 50% win rate. We cannot determine who is stronger because we both have the same skills and statistics. But one day, the author decides to use a little trick to upgrade his hero.

You start to notice that as his hero becomes stronger, winning becomes increasingly difficult, and as his hero NFT level increases, the win rate goes from 50% to 55% or 60%.

So you decide to use this trick too and upgrade your hero.

In the end, you and the author reach the same level, and the win rate goes back to 50%.

But $THG slips away from our wallets.

This is a very typical action in many games, but it continues to work well; after all, who doesn't like prestige in games? As more players enter Thetan Arena, there must be more people upgrading their heroes, thereby increasing the value of $THG, as it is the only material that can facilitate upgrades.

Therefore, if the user growth rate remains positive over the long term, the price of THG in dollars will undoubtedly rise.

And don't forget, $THG has a maximum supply cap.

In summary, $THG captures the intrinsic value of the game by reflecting the growth of the user base.

3. Comparison of Token Models with Axie Infinity

So far, we have absorbed the overall vision of basic token economics in #ThetanArena, which utilizes a dual-token model to maintain game profitability while ensuring the stable development of the ecosystem.

As a blue-chip crypto game, Axie Infinity also employs a dual-token model ($AXS, $SLP). How does it look when compared?

To make a comparison, we also need to understand the basic tokenomics of Axie Infinity. This is from JX specialized research.

Let's summarize some key features of Axie Infinity:

1: The main character you play in Axie Infinity will be your 3 Axies NFTs (like the Hero NFTs in Thetan).

2: Axies can battle and earn $SLP.

3: The utility of SLP will be consumed to breed new Axies.

There are various types of crypto games on the market, such as card games like Axie Infinity, DEFI-type games like Mobox, and MOBA games like Thetan Arena.

All crypto games rely on NFT and fungible token systems to operate their economic systems, regardless of type.

In Axie Infinity, NFTs are Axies that can generate $SLP. And $SLP will be burned to breed new Axies. In Thetan, the NFTs are Heroes that can generate $THC, which users use to purchase Heroes.

The difference lies in the lifecycle production limits of NFTs. As long as you play Axie NFTs, they can generate $SLP indefinitely in the game, whereas in Thetan, if a hero reaches the combat limit, it can no longer generate $THC.

We can think of it as a simple analogy.

Thetan Arena is like a casino, where the chips are your Hero NFTs, and everyone here is taking risks to win $THC. The winning conditions depend not only on luck but also on whether you are a truly skilled player to outplay your opponents. If you don't play well, you are likely to lose money.

Axie Infinity is like a utopia; once you pay the cost of purchasing 3 Axies, you actually don't care whether you can recoup your investment. Because as long as you continue to play the adventure mode in the game, you can easily earn at least $50 of SLP every day. Then it suddenly becomes a question of "when" rather than "if." Aside from the initial cost, you bear no risk, and one day you will eventually recoup your initial investment.

It is not difficult to conclude that Axie's economic system largely relies on the growth rate of new players.

There is a massive selling pressure of $SLP entering the market every day, and when the market is fully saturated, new players will not need to use $SLP to breed Axies.

However, in Thetan, if you are in a deflationary game mode or below the average win rate, you may find yourself losing money.

The inflation of the entire economy will be internally offset, independent of the inflow of new participants.

The sustainability of Axie Infinity depends on the expansion speed of the Axie Metaverse and whether new players maintain confidence in participating.

The sustainability of Thetan Arena depends on whether people genuinely enjoy the game and remain active in it.

The ways to achieve sustainability vary.

Therefore, for the Axie team, they began deploying new utilities for the $SLP token to maintain the price of $SLP, such as using $SLP to mine the new native token $RON on the Ronin chain.

From the chart, it can be seen that SLP has been declining until the yield farming on $RON was announced.

And it is expected that additional practical uses for $SLP will be deployed in the Axie Infinity Metaverse in the future.

4. Scenario Analysis of Thetan Arena's Token Economy

Based on our analysis, the price of $THG is closely related to the robustness and vitality of the Thetan ecosystem.

When the closed loop of consumption and inflation forms, the target price of $THC is to maintain relative stability.

However, since its launch, the price of $THC seems to have performed poorly. Will there be a day for $THC?

1: Let's take another look at our $THC loop and focus on the places we haven't highlighted yet.

There is a time lag between purchasing Hero NFTs and the actual $THC token earnings generated by the Hero. The time players spend buying Hero NFTs with $THC (Pump) will become the precedent for $THC minting.

Under this assumption, we can consider that the price of $THC will rise.

However, if we now look at the chart, the price of THC in dollars is falling uncontrollably and has not shown signs of rising.

This reflects the sentiment of traders not appreciating and believing in the price of $THC; if they are uncertain about when the price of $THC will drop to a certain level, they do not want to enter the game, which will lead to the prices of Hero NFT boxes being cheap enough to attract appealing users to purchase.

In speculative thinking, discounted box sales lead to dumping. As the discounted box sales approach their end, the price of $THC is around 0.4. By default, 1 common box requires 1000 $THC (400 dollars). However, with the discount, it will only fetch 150 dollars to do so.

This is a gesture to attract new players at the expense of old players. If the price of 150 dollars is set as the regular price for Thetan Box, then the price of $THC can reasonably settle at 0.15 dollars, as new players can arbitrage $THC between the price gaps with less money.

The more discounted boxes they buy, the price will fall back from 0.15 to 0.4.

It also reflects that the project team believes that 150 dollars ($THC 0.15) is a profitable price for early players to join the game. Given that all revenue from this discounted sale will be used to burn $THC, it may cause a surge in the future.

As Thetan Arena is a new game in the field, once the horror of the junkyard fades, it will naturally have some price premium. Therefore, we predict that a price of around 0.3 dollars for THC will be a reasonable price and will increase to the target in the short term.

Conclusion from Old Fashion Research Partners

Recently, Eva Wu from Mechanism Cap categorized crypto games into three parts:

1) Earn-First Games: Centered around making money rather than gameplay; easy to bootstrap but not long-term sustainable. (Current stage)

2) Play-First Games: Fun games with crypto incentive systems. It will be difficult to rebuild current high-quality games using crypto technology. (Mid-term stage)

3) Financialized Fun Games: Native games with built-in crypto assets and token economies; users can achieve self-fulfillment while maintaining asset ownership and financial returns. (Future ideal stage)

The analysis of Thetan Arena aims to exemplify how to rebuild traditional mobile games into enjoyable crypto blockchain games. Thetan Arena is transformed from a popular MOBA game "Hero Strikes", which has a rating of 4.4 (out of 5) in the Google Play Store. The producers of both games, Wolffun, prove to be a great team with a rich knowledge base in both crypto and gaming, capable of delivering quality games while bringing financing fun.

Nevertheless, we need to point out that the game is not without flaws: key metrics in the game, such as battle rewards and the listing price of Thetan Boxes, are still controlled in a centralized manner by the team. Certain users, who are essentially ecosystem builders, may be affected by adjustments to key attributes or metrics without notice, such as the discounted sales of the new Thetan Box we mentioned above.

In addition to the analysis itself, we also want to describe the ideal crypto game we are looking for, which also represents OFR's investment thesis in the gaming field:

1) P2E games with long-term sustainable models that can withstand at least one bear market cycle.

2) Traditional game teams with a good track record in building large games and a deep understanding of crypto or a humble learning attitude towards crypto.

Most of the traditional mobile game teams we encounter still ignore the invasion of cryptocurrency and are unaware of what is happening.

3) Native blockchain games: Initially built by DAOs; gameplay centered around cryptocurrency or rooted in blockchain technology. For example, Dark Forest, Web3, etc.

Some metaverse projects like Sandbox and CryptoVoxel are not within the scope of the above discussion, as we prefer to classify them as metaverse or virtual spaces rather than crypto games.