In-depth analysis of DefiKingdoms game logic

Source: Chain Teahouse

Author: echo_z

DefiKingdoms is an MMORPG game built on Harmony and is also the largest DEX on Harmony. The game is presented in a pixel style, visualizing all Defi functions and allowing users to earn rewards through utility NFTs.

The project launched in August 2021, currently has a circulating market cap of about $600 million, with a total market cap of about $4.9 billion. DFK plans to launch on Avalanche in 2022, creating a logically similar but economically independent game world.

1. Gameplay

1.1 DEX

DFK's DEX follows a very typical Defi logic, using the Uniswap V2 model, allowing users to trade tokens and also act as liquidity providers. In the game map's "Gardens," providing LP can earn Jewel incentives. The LP pools mainly include pairs of Jewel with stablecoins and public chain coins, as well as pairs of Harmony token One with stablecoins and public chain coins. The annualized rate gradually decreases over time, from around 800%~1000% in October last year to about 200%~300% currently.

Additionally, in the "Bank" on the map, users can stake Jewel to earn xJewel governance tokens, currently with an annualized rate of about 20%.

The "Garden" area in the game map

1.2 Game Based on "Hero" NFTs

The game part of DFK uses "Heroes" as characters, with main gameplay including: pairing heroes to open blind boxes, sending heroes on quests for rewards, and PVP combat (not yet launched).

Pairing Heroes to Open Blind Boxes

Heroes, as the main characters, have different attributes such as lineage, profession, rarity, and ability values, corresponding to different levels of rarity and capabilities in the game. The earliest Gen0 heroes came from early project airdrops to major stakers, making them very valuable; recently, several Gen0 heroes have sold for over 3,499 Jewel, around $30,000. All subsequent heroes are generated by pairing these Gen0 heroes, similar to opening blind boxes. Additionally, users can purchase heroes in the Tavern, with prices set by sellers, and the platform charges a 3.75% fee.

Hero pairing requires users to use their own 2 heroes or 1 owned hero plus a rented hero. The purpose of pairing heroes is to produce high-value small heroes, and the valuation criteria for heroes mainly include: 1) lineage; 2) remaining summon counts, i.e., the number of times they can pair to produce small heroes; 3) identity; 4) rarity; 5) profession and ability attributes.

1) Lineage: Each time a hero is summoned, a certain summon fee must be paid to the platform. Gen0 heroes have the lowest initial summon fee, with each +1 in lineage increasing the summon fee by 10 Jewel. Moreover, only Gen0 heroes have unlimited summon counts, while other descendant heroes can only summon a limited number of times, which is why Gen0 heroes are so expensive.

2) Remaining Summon Counts: Each time a hero is summoned, the subsequent summon fee increases by 2 Jewel (the maximum summon fee for Gen0 is 30 Jewel). Additionally, the maximum summon count for small heroes is determined by the parent with the fewer remaining summon counts; for example, if a Gen0 with 4 remaining summon counts pairs with a Gen1, the resulting small hero will only have 3 summon opportunities.

Volunteer-created Summon Fee chart; the later the lineage and the fewer remaining summon counts, the higher the fee

3) Identity: Different identities belong to different classes, with higher classes having stronger growth parameters. The following diagram shows the hero gene pairing lineage; for example, pairing a Warrior and a Knight may yield a Paladin, but it could also produce a small Warrior or small Knight.

4) Rarity: Each hero has different rarity attributes ranging from common to mythical; the following diagram shows the pairing probabilities for rarity:

5) Profession and Ability Attributes: Each hero has a specific profession, including mining, gardening, foraging, and fishing, corresponding to a type of task (details below). Professions cannot be changed; additionally, heroes have 8 ability values such as STR, with up to 2 abilities having higher growth parameters upon leveling up. The combination of identity, profession, and ability attributes determines a hero's performance in specific tasks; the higher the number of advantageous combinations, the higher the probability of obtaining rare rewards and growth parameters. Therefore, when purchasing or pairing heroes, it is essential to consider whether their identity, profession, and ability attributes are a beneficial match.

Hero rental fees vary based on the above conditions, with each rental fee ranging from a few to hundreds of Jewel. Adding the summon fee paid to the platform, the total cost for a single summon is at least 50 Jewel, approximately $400. If the resulting small hero has poor attributes, it may only sell for a floor price of around 40 Jewel; however, if luck strikes and a well-bred hero is produced, it could sell for several hundred Jewel.

Example of hero summoning, with a total summon fee of 52 Jewel, excluding rental fees

Completing Tasks for Incentives

Corresponding to the four professions of heroes, the game has also set up four types of tasks. This is the most interesting part and best reflects DFK's unique gameplay that combines Gaming and Defi.

Currently, all four task types are online: Foraging, Fishing, Gardening, and Mining. The first two are available on the mainnet, while all are available on the beta network (of course, veteran players have already moved to the beta network…). By completing tasks, heroes can earn corresponding rewards, and their STR and other ability values and levels will also increase.

Foraging and Fishing are the simplest; completing one takes only a few seconds to two minutes, after which users have different probabilities of receiving in-game item rewards. These rewards can be directly exchanged for U or used as raw materials to craft potions. Due to the randomness of each reward, this part of the income is relatively difficult to calculate.

Taking a hero worth around 1,000 U as an example, if rewards are sold directly for money, it could earn about 1 U per day, with an annualized return of less than 40%; however, if raw materials are accumulated to craft potions, items worth around 7 U can be used to create potions worth around 50 U, resulting in a 7-fold annualized return. If luck strikes and a rare Grey Egg is found, it can be exchanged for 300 U.

Probability of item rewards for Level 0 heroes completing Foraging tasks

Gardening and Mining are more akin to fixed-income investments and are the parts most closely integrated with Defi. If heroes have sufficient stamina, each task can take over 4 hours. Gardening allows users to earn additional Jewel rewards in their LP pools, while Mining is divided into two types: one directly mines Gold, a type of in-game currency that can be used to purchase other in-game items or directly exchanged for digital currency outside the game.

The other type is mining Locked Jewel, which helps users unlock Jewel in advance. For example, with Gold Mining, a hero worth around 1,000 U can mine approximately 2 U of Gold per day, yielding an annualized return of about 73%. Additionally, Gardening and Mining tasks also have a chance to obtain other rare items.

In summary, the current game part focuses on heroes, with main gameplay including opening blind boxes and completing tasks. Opening blind boxes relies on luck plus some strategy, requiring players to fully understand the valuation methods of heroes for investment; completing tasks allows users to earn interest through hero NFTs, interest is interestingly very random, akin to buying a bank card, where the back of the card is a hero card, determining daily interest based on each card round.

1.3 Future Roadmap: Land, Buildings, Equipment, and PvP

In the future, DFK will also develop gameplay involving land, buildings, equipment, and PvP. Users can build structures on land, which can help heroes enhance task efficiency, and build equipment to assist heroes. PvP is planned for a later stage, allowing users to form teams of three to compete for Jewel rewards. Although few details have been disclosed, it is already imaginable that there will be a rich economic system and combat system in the future, similar to an on-chain version of "Fantasy Westward Journey."

At the beginning of this year, DFK airdropped 51 plots of land to major stakers, and land sales have already begun, with available land priced at least 34,500 Jewel, approximately $300,000.

2. Operational Status

2.1 User and Capital Scale

DFK launched in August 2021, and currently, both the mainnet and beta network are running simultaneously, with the beta network offering richer features, and all transactions are synchronized.

Currently, DFK has 24,000 daily active users, ranking 10th in the gaming category on DappRadar, with 120,000 monthly active users. Aside from a sudden spike around December 9 (possibly due to the announcement on December 7 about launching on AVAX), the overall daily active growth has been relatively steady. Correspondingly, the Discord community is thriving, with the project team frequently announcing random airdrop events and project progress almost daily, with community members reaching 80,000.

Data Source: DappRadar

Current TVL is approximately $600 million, peaking at nearly $900 million, recently declining with the market.

Data Source: Defillama

2.2 Cross-Chain Expansion

DFK was initially released on Harmony and announced on December 7 last year that it would launch on AVAX. DFK will build related but independent worlds on both chains, with the world on Harmony called Serendale and the one on AVAX called Crystalvale.

These two worlds will share the main game logic but will have their own independent economic systems: Crystalvale will have its own circulating token, Crystal, equivalent to Jewel in Serendale; it will also have a batch of independent Gen0 heroes, with genes differing from those in Serendale.

The project team has also reserved rights for users of Serendale in the new world, with various ways for Serendale users to obtain airdropped Crystal and Gen0 heroes, including: holding xJewel, upgrading heroes, summoning heroes, holding Jewel LP, and bridging Jewel to AVAX. DFK will airdrop 1.09% of Crystal and 13% of Gen0 heroes.

Cross-chain expansion is somewhat similar to the logic of MMORPG game partitions; a new area represents a new market and can attract a wave of players. However, the difference in game cross-chain compared to Web2 game partitions is that the economic systems on different chains have opportunities for interaction, unlike typical game partitions that isolate all data; the interaction methods of on-chain game economies may have some imaginative space.

Additionally, game cross-chain may also be a short-term solution to address user diversion and reduce game load. Cross-chain expansion will be one of DFK's most important tasks in the first quarter of 2022, generating another wave of user anticipation.

2.3 Derivative Organizations: Communities and Guilds

Around DFK, community and guild organizations have begun to emerge spontaneously.

In terms of community contributions, due to the diverse attributes of DFK heroes and the complexity of their valuation, as well as the established economic system around various tasks, many volunteers have created tools, including dfktavern for analyzing the hero ecosystem and tracking hero prices; dfktracer to help users track earnings from various modules; and dfkwatch for tracking project progress, among others.

In terms of guilds, closed guilds like DFK DAO have emerged, with members including prominent supporters of DFK like Ansem. DFK DAO states that its members are heavily invested in DFK and will share their gaming strategies on Twitter. Once the PvP feature is launched in the future, requiring teams of 3 heroes to battle, it is expected that more guild organizations will emerge.

3. Token Economic Model

3.1 Platform Token Distribution

Jewel is the main circulating token of Serendale, used for purchasing in-game characters and items, and for staking mining, with a cap of 500 million. Regarding the token Crystal for Crystalvale, the official only disclosed a cap of 125 million, with about ~1% of the tokens allocated for airdrops; this section mainly focuses on Jewel.

Unlike typical Web3 projects that clearly define token distribution from the start, DFK has not fixed its token distribution plan but has a permanent LP incentive model. The LP incentive model has clear rules, and the distributed incentives have accounted for over 50% of the total Jewel. The team has not fixed the distribution, possibly because Jewel, as the basic circulating token of the game, will have many diverse circulation methods based on changes in game design, allowing for flexible future use.

The LP incentive rules are as follows: based on an average block time of 2 seconds on Harmony, it is expected to produce 302,400 blocks in a week, using 302,400 blocks as one Epoch to distinguish the output speed and unlocking ratio of Jewel rewards.

The earlier the Epoch, the more Jewel produced, and the lower the immediate unlocking ratio; the locked portion will begin to unlock from the 51st Epoch (expected in Q3 2022), fully unlocking within one year. Specific values are as follows, with values remaining unchanged from the 36th Epoch:

Combining the LP incentive rules and Docs information, the author has compiled the current Jewel distribution: approximately 67% of Jewel has been minted in the contract address, with 55% of Jewel used for LP incentive distribution to users (including the unlocked portion), 2% for the team's initial startup funds, and the remaining 10% intended for exchanging in-game items.

DFK has been online for about 7 months, and has already distributed over 50% of the total Jewel, with about 80% of this portion remaining locked, which is also a reason for DFK's initial popularity and the continuous rise in token price.

There is still approximately 33% of Jewel that has not been minted, which is expected to be used for ongoing LP incentive distribution and in-game item exchanges in the future. In an extreme scenario where all of this is used for LP incentives, it is estimated that around 122 more Epochs can be distributed, equating to about 2.5 years. Of course, the game will set various means to generate income from players (see section 4.2), and this estimate is based on the worst-case scenario for distribution duration.

According to the team's estimates, the design of LP incentives will cause the distribution of unlocked Jewel to grow linearly, thus preventing sudden price drops due to the release at any specific point in time.

3.2 Game Economic System

To ensure the perpetual distribution of LP incentives and to sustain revenue for the game, DFK has various means to generate income from players. The author has summarized the current main circulation situation as follows, with related numbers explained in the text below:

Hero summon fees and purchase/rental transaction fees will be used for farmer incentives, team development, founder incentives, etc. This part has been systematically outlined in the official Medium. Farmer incentives refer to the Jewel rewards obtained from completing Gardening tasks, which are unrelated to LP incentives.

A simple estimate of this part can yield a rough net inflow for the platform: as of February 9, over the past 7 days, an average of 1,136 new heroes were added daily, assuming the minimum summon fee is 50 Jewel.

Thus, the platform earns at least 56,800 Jewel daily; over the past 72 hours, an average of 824 heroes were sold daily, with each priced at 109.81 Jewel, resulting in a platform fee of approximately 3,400 Jewel. The total of both amounts to about 60,200 Jewel, roughly $540,000 (rental fee data is currently unavailable, but the volume should not be significant).

Of this, 30% goes to farmer incentives, and the recent total number of farmer incentive pools has been slightly increasing, indicating that net inflow is slightly greater than net outflow, suggesting healthy circulation; 17% goes to the founders, meaning that during this period, the four founders earn about $90,000 daily.

Data Source: DFK Tavern

However, the income from summon fees and transaction fees is still significantly smaller compared to the perpetual distribution of LP incentives. Currently, it is in Epoch 22, with each block producing 8 Jewel, generating about 350,000 Jewel daily; after entering Epoch 36, it will produce about 170,000 Jewel daily, while summon fees and transaction fees amount to about 60,000 Jewel daily, with outflow being about 3 times the inflow, and this inflow would also have other channels.

To balance the overall inflow and outflow of the game, other income avenues must be established. Currently, the in-game avenues mainly include: 1) Hero upgrades, each requiring 10~20 U worth of items, with low-level heroes upgrading about once a month, resulting in minimal consumption; 2) Trading in-game items, including various potions and equipment; currently, PvP has not yet launched, and the trading ecosystem is not flourishing, but there is significant potential for the future; 3) Land auctions.

There are currently 100 plots of land in the game, with 51 already airdropped to major stakers. The price of available land is quite high, at least several hundred thousand dollars; if the platform auctions land, it would also generate significant income.

The initial success of DFK largely relied on the influx of new players and the distribution of substantial LP incentives. For it to become a sustainable game rather than just a FOMO game in the future, the core lies in whether the entire gameplay of item purchases, hero upgrades, and battle rewards can attract enough paying players. If the game itself is engaging enough, there will always be various revenue channels such as transaction taxes and auctions of rare items, ensuring that the in-game economic system can operate healthily.

4. Team and Financing

The team remains anonymous, with all members using Twitter accounts registered after the project was made public. The official website states that some members may disclose their identities in the future. DFK has not disclosed any public financing.

5. Advantages and Risks

As DFK has developed, several clear advantages have emerged. Firstly, the combination of gaming and Defi is quite interesting, with various ways to leverage hero NFTs, including completing tasks for in-game items and unlocking LP rewards in advance; the randomness in design is commendable, providing genuine gameplay.

Secondly, DFK's cross-chain expansion is also a novel approach, with exciting possibilities for interaction between different chains. Thirdly, community operations are very attentive, with high-frequency updates and airdrop incentives, and several volunteer-created derivative projects have emerged, forming a certain community moat.

However, through the analysis of DFK's economic system, it is evident that the initial user growth and token price increase relied heavily on substantial LP incentives and the entry of new players/retail investors. Whether a healthy economic system can be maintained in the future will depend on the attractiveness of PvP and the entire trading system to paying players.

From the currently launched parts, there is not a particularly strong need for game strategy; the strategic aspects mainly lie in hero valuation and pairing choices. However, the current game already reflects the care put into DFK's design, and the future PvP is highly anticipated.