Original Title: Sinks & Faucets: Lessons on Designing Effective Virtual Game Economies

Author: Terry Chung, 1kx Network

Compiled by: gm, Rhythm BlockBeats

To maintain a balanced economic ecosystem in virtual games, the core currency and items need to remain relatively stable, requiring a balance between the "issuance rate" and the "asset consumption/demand rate." The relationship between them is akin to "Faucets" and "Sinks," where one dispenses water while the other collects it, maintaining a relative balance.

To achieve this, common balancing methods include the following options:

1) Continuously increasing the growth rate of new users, allowing old players to sell assets to new players;

2) Continuously releasing updates, higher difficulty, and resource-intensive content for existing players to consume more resources;

3) Balancing the creation of currency and items (Faucets) with their effective removal from the game (Sinks).

If this balance is mismanaged, player experience and retention rates will be affected.

Fortunately, virtual game economies have existed for decades, and we can learn from the experiences of many failed games.

We hope to introduce how previous virtual economies deployed "Sinks," the differences in outcomes from different strategies used by various games, and which methods are more effective, popular, and widely accepted. Additionally, we will discuss the new tools used by current community-favored P2E model games to balance game assets.

I. Previous Asset Balancing Methods in Virtual Games

What is the most disliked "Sinks" mechanism in previous games? It is the mechanism specifically designed to consume in-game currency or items.

Original Voting Link

Public Facility Upgrades, Rare Collectibles, Gambling Mechanisms

1) Public Facility Upgrades

By charging players a fee for upgrading public facilities in the game, this stimulates players' desire for that achievement and their motivation to avoid spending unnecessary time in the game (not upgrading increases additional time costs).

For example:

The "Flight Paths" in WoW, upgrading to speed up travel (also the magic carpet journey in OSRS);

"Armor Repairs" in OSRS and The Elder Scrolls, which replicate real-life depreciation costs;

Toll fees for entering the Al Kharid gate, including instance dungeon fees;

"Salons" to change your appearance or name (Salons Durem in Gaia);

Paying to reset player stats or skill trees;

Buying and renovating houses in The Elder Scrolls and Final Fantasy.

These practical "Sinks" asset consumption mechanisms are often regarded as core content of the game, similar to a tax that players frequently pay, to the point where their negativity gradually becomes negligible. However, on the other hand, some games have started to gradually reduce the balancing mechanism of public facility upgrades, driving away many players. (Note the response to this phenomenon in the above voting.)

For instance, in the game Aion Classic, enchantment stones provide additional attribute boosts for players' weapons and armor. The ultimate competitive game characters in PvE and PvP require at least a 10+ armor and weapon upgrade, with the maximum possible enchantment being 15+. However, every time it exceeds 10+, there is a high probability of failure. Therefore, players not only have to spend hundreds of hours obtaining enchantment stones but may also frequently fail, requiring a significant amount of cash for each enchantment.

Original Video Link

Additionally, Phantasy Star Online 2 also uses the same upgrade mechanism. For the highest level (11-star or 12-star weapons), the chance of upgrading to 10+ at once is 0.0014%, and each weapon requires three 10+ upgrades to be fully upgraded.

Key Point:

Upgrading itself is not wrong; it cultivates a sense of gradual mastery and continuous improvement, but only to a certain extent. Harsh public facility upgrades can be useful asset consumption mechanisms, but frustrating upgrades can also lead to player attrition.

2) Rare Collectibles

Regularly auctioning/selling rare collectibles for in-game currency can be consistently done through luxury merchant NPCs, as part of special events, or as part of gambling mechanisms. This is driven by players' desire for social influence and ownership.

For example:

Collectibles in Neopets;

The auction house in Neverwinter's Knox;

Alchemy, sold by NPCs in Runescape, used for creating "Sinks."

According to the above voting survey, this is one of the most community-friendly "Sinks."

3) Gambling Mechanisms

Gambling mechanisms are designed to have a negative expected value for currency, but many players are incentivized to play, as it is the only way to obtain rare items and a simple, fun method. See Gacha games, where players must pay native tokens each time they participate. Because the expected expenditure is negative, this is a "Sink," driven by players' desire for ownership.

For example:

Wealth Screams/Treasure Hunter in RS3;

Lottery houses in Kingdom of Loathing.

According to the voting survey, gambling mechanisms are the most hated "Sinks" so far, which we speculate may be because many gambling mechanisms create shortcuts for paid wins.

Key Point:

Do not create shortcuts for paid wins through gambling mechanisms; embed rare collectibles into the game's lore and make them memes, as people love to show off their wealth.

Taxes, Land, and Trading

Taxing auction houses, markets, P2P trading, and owned land/houses (Georgia land value tax) requires game creators to control the market.

For example:

Auction house fees in MMO-style games (WoW, Diablo, Runescape).

Notably, the auction house fee in Runescape (2% Grand Exchange trade tax) is used to repurchase items in the GE, which can be algorithmically adjusted to target items experiencing additional supply surges. Therefore, taxes will actively encourage interaction among players, increasing the social depth of the game.

Additionally, idle resources can also be taxed. Lars Doucet elaborated on Henry George's land value tax on Eve Online Factory and how it successfully addressed rampant factory speculation, while the blockchain game Star Atlas will also adopt this approach.

Moreover, Axie Infinity charges a 4.25% transaction tax on its market. Over the past two years, transaction taxes have been one of the largest currency consumption mechanisms. In the later stages of the game, trading becomes a major part of gameplay, and most MMO games fall into this category, effectively extracting currency from the coffers of the oldest and wealthiest players through high transaction taxes, while retaining the asset coffers of new players entering the game.

Axie Infinity specifically applies this mechanism as follows:

Key Point:

In the survey of the most disliked "Sinks" mechanisms, taxes unfortunately ranked third. However, they are very effective; taxing the market, including trading and idle resources, and using tax revenue for additional destruction or community activities. Perhaps new tax models can be extracted from a variety of tax mechanisms to find a more effective tax model.

Crafting

Crafting can serve both as a game item and as a currency consumption mechanism. Players create higher-level items or consumables by using lower-level items, which consume in-game currency. This is driven by players' desire for mastery of the game, curiosity about discovering new items and interesting experiences, and creativity in finding new gameplay.

For example:

Guild Wars 2 has a crafting mechanism that acts as a "Sink," absorbing both low-level and high-level materials like a black hole;

Another example is the construction skill in Runescape. Upgrading buildings requires repeatedly building and then destroying furniture, thus destroying the materials consumed to create it. Each plank needed to build furniture must be paid for, and nails and other components must also be crafted or purchased. In the presence of a taxable market, planks are among the most traded items in the exchange, forming a powerful item consumption mechanism.

Furthermore, crafting item "Sinks" are only effective when crafted items cannot be widely used in the market or through other means. If items can be obtained through methods that take less time and money than crafting, or if players can easily purchase raw materials and then sell crafted products for profit, this system may ultimately generate more currency within the system.

Key Point:

When used properly, crafting can enhance the gaming experience and deepen social interactions while providing a sense of mastery and progress.

Staking/Locking Currency

This is more familiar to those in the crypto space, but similar solutions also exist in web2 games.

"Managing Miscellania" is a mini-game in Runescape. Players can deposit up to 5-7.5 million gold coins in the treasury (depending on task completion). Each day, they can withdraw up to 50-75K from the treasury and pay workers for harvesting resources, after which players can claim these resources. The rewards are often profitable, but they are widely needed and consumed when players master skills, as players deposit gold into the treasury (staking) because they desire to improve their skills.

Key Point:

It can effectively lock and burn millions of coins, exchanging them for low-speed items or consumables needed during gameplay.

Unlocking More Game Content

Instead of requiring the use of fiat currency to purchase additional game content, memberships, or DLC (downloadable content), it is better to sell it to players for a large amount of in-game currency. The quality of the content and player experience will be key drivers influencing players' desires for unpredictability (curiosity) and a sense of achievement (completing all game content), guiding them to use in-game currency to purchase additional content.

For example, in Runescape, bonds grant 14 days of membership but can also be purchased from other players for 4.7 million GP each. The cost to purchase one month with fiat currency is $11.

Key Point:

Considering that web3 games do not profit by selling games from producers, this may be particularly effective.

Donations/Events

According to our Reddit voting survey and my personal experience, the most community-friendly game asset consumption mechanism is donations/events. By guiding players' desire for social influence, they are incentivized to donate/burn currency and other assets in the form of goodwill or rare collectibles and titles.

For example:

In Gaia online, to coincide with the renovation of NPC shops, Gaia held a rescue event in 2009. It was said that each shop owed "GRS" taxes, and players needed to donate to each shop to ensure its survival after the update. However, one criticism of this event was that regardless of the total amount donated, the outcome was predetermined, and larger donors did not receive additional benefits.

However, in the crypto community, where thresholds are often not met, funds can easily be automatically returned, making it easier for game developers to create funding-related updates as community events.

Additionally, the goodwill well in RS3 is often used to accept donations of items and currency. Subsequently, Runescape's parent company Jagex matches GP donations proportionally with pounds and donates to charity.

Those who donate more than a certain amount to the goodwill well receive a particularly rare title, which may be one of the most coveted items in the game.

This well allows those without bank accounts or who cannot remit funds to donate in a low-cost (by accepting in-game currency), fun, and community-consistent manner. Those who donate over 5B GP (an astonishing amount for those who have never played the game) are awarded the title of "Billionaire." However, despite its popularity, this well will not return to the game.

According to the Reddit voting survey, I personally really like this type of "Sinks," as it fosters a community experience intertwined with lore and updates the game in Gaia. For Runescape, it also adds fun and a sense of achievement to donating and consuming currency.

Key Point:

Directly integrating gold coins into community activities creates interesting experiences around "Sinks" and provides visible authority to individuals/guilds based on the amount of currency consumed.

II. Crypto-Specific Solutions

In the previous section, we explored asset balancing solutions that traditional games have tried and tested. However, Web3 games bring various additional opportunities to generate new balancing mechanisms, including community-driven meta-models and forks. They rely on the open-source, interoperable, and community-first nature of web3 games and are only applicable to truly decentralized communities and priority P2E games.

Meta-Game Models and Forks as Token Receivers

Historically, modified versions of games have been at the forefront of pushing gameplay into new realms and new types. In fact, some of the most popular games of all time have been inspired by or directly created in mods of other games.

For example:

Day Z was originally a meta-game model of Arma 2. Dean Hall transformed the best aspects of Arma 2 into a zombie survival game, leading to the rapid emergence of DayZ derivatives, including a then-unknown series called Day Z: Battle Royale. This not only popularized the battle royale genre but later evolved into PUBG, becoming one of the most popular video game genres in history.

Since Web3 games can monetize through secondary sales and taxes on their core infrastructure, benefiting from the expansion of the entire game ecosystem, they have a strong incentive to create new game models and player creations, which in turn creates more demand for their ecosystem tokens. This is a natural driving force for the innovator's dilemma, capable of creating continuously evolving and more sustainable games.

This is also the strategy that Sandbox, Aavegotchi, and Sky Mavis are taking, as the core teams of these three have established robust infrastructures, deep liquidity, and an initial ownership base. Next, they begin to encourage ecosystem players to build game models and sub-games on their platforms, collecting revenue in the form of activity taxes.

This is also why Axie Infinity positions itself as a "nation," where players can view Axie Infinity as a country with a real economy. Holders of the AXS token are the government that receives taxes. Currently, the game's inventors/builders, Sky Mavis, hold about 20% of the AXS tokens.

Aavegotchi is a community-developed mini-game that can only be played by those who own Aavegotchi. Since each game is different, Aavegotchis with different traits benefit various games. In many cases, Aavegotchis with lower base rarity perform better in certain mini-games than those with higher rarity, creating demand for various Aavegotchis. Playing mini-games within a specified time frame also earns XP, giving players a higher chance to win leaderboard GHST prizes.

According to the Aavegotchi wiki, each mini-game will use different Aavegotchi traits to provide fair gameplay for various trait distributions. For example, a super aggressive Aavegotchi may perform well in Aavegotchi Fight Club but may not be suitable for the baking mini-game.

However, to use the above strategies, games must be decentralized while incentivizing talent building on the platform (see Roblox DevEx program). They must also allow meta-game creators and ecosystem developers to share in the economic output they create (through royalties and contribution-related rewards).

Key Point:

Allow community developers and game designers to create experiences that drive continuous demand for the game's tokens and infrastructure.

Community-Based Destruction Mechanisms

It is estimated that about 98% of Axie Infinity's daily active users are scholars. Considering Axie Infinity has 2M DAU, and YGG, as the largest guild, has 10K scholars, we can estimate that the number of scholars in the guild may not exceed 5-10%. If this number increases, or if we consider small managers, introducing destruction mechanisms at the guild scholar level becomes very important.

One example of this mechanism is fairly rotating SLP held by scholars to SLP held by the guild or protocol, achievable through guild-level games. In such games, scholars can stake or exchange old SLP for a chance to obtain better cards or items, although this strategy's profitability for the guild is uncertain. Alternatively, the Axie Infinity treasury could allocate AXS rewards to guilds executing community support programs, which may include community-driven destruction mechanisms.

Original Video Link

An existing community destruction mechanism example is YGG's commitment to use its SLP funds for RON or to fully use its SLP to nurture new Axies.

Key Point:

Spread and support the community through a culture that supports the long-term sustainability of the game.

Building and Owning Key Infrastructure and Charging Fees

This is also an extension of the tax section in Part 1, where P2E games can build, manage, and monetize by owning core infrastructure and taxing it. Sky Mavis owns its own chain, market, and DEX (Katana), charging gas fees (in RON) and market fees (4.25% in ETH) for using these protocols. These protocols generate fees that can then be repurchased and destroyed or directly used for tax destruction.

It can be argued that developing protocol infrastructure for P2E game studios is much easier than trying to guide the game ecosystem. The broader the range and coverage of protocols that P2E economies can encompass, the more value-added will emerge.

However, in an open-source project, a high acquisition rate may be unsustainable in the long run. Only when P2E games provide the highest quality core infrastructure and incentivize the best operators to contribute to their infrastructure (rather than building their own) can they justify key infrastructure as a token receiver or as a significant revenue source for their funding business.

Key Point:

Create the best key infrastructure and charge fees as a token receiver or use protocol revenue for repurchase and destruction operations.

III. Conclusion

Maintaining a healthy asset balance in virtual game economies requires a balance between "Faucets" and "Sinks." However, "Sinks" can never guarantee that all game economy tokens will achieve their ATH. In fact, "Sinks" are only effective when people use them.

Web2 games benefit from their closed economies, making it difficult for funds to leave once they enter (the exchange of in-game currency for dollars is not simple, transparent, or legal). This means they also benefit from a greater separation in players' minds between their currency and fiat currency.

This also means that players can only spend money within the platform/game; when engaging in any activity, they are less likely to perform highly mathematical calculations on returns, making them more likely to spend currency on random things or entertainment.

P2E games do not enjoy these advantages. To encourage games to maintain balance in inputs and outputs, they must provide additional currency for destruction or some other form of additional utility. Therefore, in an open economy, "Sinks" will only be effective when the following holds:

Motivation to use "Sinks" + Additional Utility > Cost of using "Sinks"

What determines the effectiveness of "Sinks" is whether people use them, and people will only use them when they see value in doing so.

"In the end, people need to spend money to have fun, status, convenience, and strive to work for the economy permanently."
------ Jihoz (Co-founder of Axie Infinity)