Foresight Research: How does Tiny World build a new token economy?

Written by: Peter Li, Foresight Research

Investment Logic

1. Betting on the blockchain gaming sector: We believe that with the enhancement of playability in blockchain games and the involvement of more traditional companies and capital, the blockchain gaming sector will inevitably welcome new high growth points.
2. Choosing the team: Persistent and resilient, having traversed bull and bear markets, with over 3 years of successful experience in blockchain gaming.
3. Strong game stickiness: Lightweight game modes that cater to multi-level game users, with high scalability.
4. Complete economic system: A three-token model consisting of in-game tokens, external tokens, and stablecoins, providing a more stable token economy.

Development of Blockchain Games

The blockchain gaming market has been relatively sluggish in recent months, but there are signs of stabilization recently.

Overall market situation: Since BTC dropped from 67,000 points in July 2021, the blockchain gaming sector has been hit hard, with the leading blockchain game Axie Infinity's token ASX dropping from a high of 160 to the current 48, a decline of 70%; Illuvium's token ILV fell from a high of 1870 to the current 532, a drop of 71.55%; moreover, blockchain gaming platforms Gala and Immutable X were also affected, dropping 70% and 84% respectively. Some well-known blockchain game projects, such as BNBh, have already run away with funds, leaving the entire blockchain gaming market in a bleak state.

Recently, as BTC's price has gradually stabilized around 40,000 points, the blockchain gaming sector has also shown signs of stabilization and rebound. Meanwhile, Tiny World announced the launch of its DeFi product Tiny Farm and blockchain game Tiny Kingdom.

Introduction to Tiny World

Tiny World is currently divided into three parts: Tiny Farm, Tiny Kingdom, and Tiny Dungeons.

The Tiny Farm section is a yield aggregator where users can deposit specific liquidity LP tokens into Tiny Vault to earn yields. Depending on the LP tokens deposited, users can earn different multipliers of APR rewards, approximately around 30%. However, such high yields will inevitably increase selling pressure on tokens, so the rewards are divided into 40% released immediately and 60% locked for three months, then released linearly over six months. The locked rewards can be used to purchase summoning runes for summoning NFT game characters in Tiny World. A higher quality NFT character can, in turn, increase mining yield levels, stimulating staked users to participate in lotteries. This approach not only locks in selling pressure but also converts staked users into long-term game players.

Tiny Kingdom is an auto-battle idle game focused on trading, aiming to allow users to trade all materials and items produced in the game within the game market. Compared to various AAA games that often take an unknown amount of time to launch, Tiny Kingdom is much more compact, allowing users to casually use their phones to defeat monsters and gather materials. However, it does not feel monotonous or boring, as the game offers over 200 types of equipment across 8 categories for players to forge and upgrade, provides 14 levels for exploration, and offers 20 kingdom titles for players to conquer. In the future, it will also feature boss battles, pet raising, and PVP. We believe such light and exquisite mini-games will have strong user stickiness. Notably, users can receive a free trial hero upon entering the game, which will be destroyed after a certain number of uses. Additionally, players are only allowed to sell one material at a time, providing an opportunity for user experience while reducing exploitation by opportunistic players.

Tiny Dungeons is a dungeon game with a tower defense mechanism, set to be released later in 2022, along with an NFT land presale. It aims to elevate the experience of casual gaming, but details are not yet available as the game has not been released.

Performance of Tiny World

The governance token TINC was launched on the secondary market on March 7, and within just two weeks, Tiny World’s TVL has exceeded 90 million USD, with NFT trading volume surpassing 5 million USD, and token pool assets exceeding 4 million USD. It can be said that achieving such performance in the blockchain gaming sector in such a short time is extremely rare.

According to Dappradar statistics, since its launch, Tiny World has ranked third in weekly transaction volume, only behind Axie Infinity and DeFi Kingdoms.

Team Information

With years of experience in blockchain game operations, having traversed bull and bear markets.

Previously, Tiny World airdropped 5.95 million TINC tokens to users of the blockchain game "Crypto Three Kingdoms," and also airdropped 1,000 blind boxes to BSC blockchain game users, possibly indicating a deep connection with the "Crypto Three Kingdoms" team.

Looking at the track record of the "Crypto Three Kingdoms" team, they initially launched the game "EOS Three Kingdoms" on the EOS chain during its boom in 2019, and in 2020, they launched the Ethereum version of "Crypto Three Kingdoms." Now, in response to the wave of the blockchain gaming market, they have updated and launched Tiny World, demonstrating excellent control over market trends and timing. They have maintained the number one global game data for a considerable period.

"Crypto Three Kingdoms" has never raised funds and has operated for three years solely based on game revenue, maintaining 10,000 daily active users even during the bear market, and is still operational today. This clearly indicates that the team possesses sufficient perseverance and focus.

Competitive Analysis

Economic Comparison:

In the traditional gaming world, the economic model is that players recharge to experience, and game companies take all the profits; however, from the inception of blockchain games, the idea was proposed to allow users who recharge for experience to gain experiences while distributing income to users who play games for profit, with the project parties taking only a small portion of operational income. It seems reasonable, but the current problem is that no users are recharging for experience; everyone is here to make money. New players need to recharge to earn money, while old players need to exploit new players. Project parties need to sell NFTs to exploit old players, and players' income is always guaranteed by the recharge of latecomers. The end of the road is a highly liquid exchange for tokens, shifting the focus from players to the secondary market. In fact, blockchain games have not created additional value.

Tiny World differs by acquiring external revenue and having a basic cash flow. Most project parties will use a dual pool method to lock selling pressure, but locking merely delays more intense selling. In Tiny World, the Tiny Farm section allows players to use LP tokens to earn the platform token TINC. Of this staking income, only 40% can be withdrawn immediately, while 60% will be locked for a long time, but users can use the locked tokens to purchase game assets. In turn, the profits generated from LP tokens are used to buy back and destroy tokens, effectively making the income part a foundational value support for the tokens. With just a little assistance between locked users, tokens, and players, a positive cycle can be formed.

Time Comparison:

Compared to currently available blockchain games, "Crypto Three Kingdoms" has been operating for nearly three years. Concurrent products have either perished in the bear market or, like Axie, achieved great success through tokenization. We believe that Tiny World, with its game mechanisms and models tested in practice, will be more stable and enduring. Unlike project parties that frantically exploited users to ride the wave, we believe that models that withstand the test of time can help Tiny World weather the winter of the sector and welcome the moment of explosion.

Compared to traditional game giants that are still in preparation, although their projects often have sky-high valuations, I believe Tiny World is already ahead of them. I believe that future blockchain games will certainly be interesting and fun, but the world of blockchain is not just about being interesting and fun. Whether traditional giants can change their thinking and design economic models that fit the blockchain industry will still take time. Moreover, the development cycle of GameFi itself far exceeds that of DeFi, especially for traditional game masterpieces: "GTA5" took 5 years to develop; "Red Dead Redemption" took 8 years; and "Star Citizen" has been crowdfunding for 9 years and is still unknown when it will be released. Therefore, I believe that in the short term, Tiny World does not pose a threat.

Token Economics

In Tiny Kingdom, earnings are divided into two parts: NFT mining and game gold farming. Each NFT card has a corresponding level range of random computing power, but mining has a time limit, and once the time is exceeded, mining cannot continue to prevent infinite selling pressure. Game gold farming and mining cannot be conducted simultaneously.

Users can use 100 TINC to purchase blind boxes. Based on past experience, the phased release and quantity limits of NFT characters will restrict the activity of blockchain games. Often, unlimited releases of NFT characters can quickly attract a group of users willing to reinvest, while the easier it is to purchase NFTs, the more likely it is to trigger impulsive consumption among users.

The in-game token is crystal, which cannot be traded on the secondary market. The main sources of acquisition come from battle outputs and the recycling of dropped materials. The main consumption scenarios are the durability loss of equipment worn during battles and the significant consumption for weapon upgrades. For average players, the earnings are insufficient to cover the consumption, and the higher the level of the player, the better the equipment worn, leading to greater losses.

The governance token for the game is TINC, traded on the secondary market, with the main acquisition scenarios being leaderboard high combat power rewards, suitable for high-end players. Consumption scenarios include receiving blind boxes and replenishing in-game crystals at a ratio of one to one hundred when crystals are insufficient.

Stablecoin BUSD can be used by players to purchase materials and equipment in the in-game trading market. The hard demand is to buy materials when crystals are insufficient and then recycle the materials into crystals. The output of materials is also the main way for beginner players to earn income.

The project party is very clear that it will not focus on pleasing a specific type of user but rather allow players at every level to find their place in the game, obtaining income while enriching the entire economic system.

Token Model Explanation

Depositing TINC is necessary to generate game outputs, which will be settled in BUSD.

For beginner players, low-investment players face cities that drop low-level materials, while slightly higher-investment players face cities that drop materials of medium value. Even if beginner players do not wear equipment, the lack of crystals will not restrict them. The materials produced can only be sold one at a time, and the large presence of beginner players will inevitably lead to an oversupply of low-level materials, causing a vicious price drop. However, the project party has set a minimum price limit for the initial prices of materials at each level, which means that the time for beginner players to sell materials depends on their ranking order, ensuring basic earnings while the daily surplus is recycled into crystals, which is meaningless.

For advanced players, the output benefits are divided into two parts: one part is high-level materials or equipment produced from battles, which will be sold in BUSD; the other part is TINC rewards for leaderboard or trading rankings. However, it always requires consuming the in-game token crystals, which leads to the need to use TINC to recharge crystals or use BUSD to purchase low-level materials to recycle into crystals, giving TINC intrinsic basic value. This generates a formula:

Taking the low-level material with the highest recycling value of 4 crystals as an example, with a minimum selling price of 0.1 BUSD, knowing that one TINC can recharge 100 crystals: 100/4*0.1=2.5 BUSD. This means that when the price of TINC is below 2.5 USD, recharging TINC is more cost-effective, and the core key is the minimum selling price.

The token economy of Tiny World is a combination of DeFi and GameFi, encompassing a complex economy of external game tokens, internal game tokens, and stablecoins, which is truly remarkable.

Conclusion

At the current time point, the blockchain gaming sector is in a transitional phase, with most blockchain games under pressure from market conditions and nearing their end, as they are accompanied by a large number of exploitative opportunists. During a bull market, they are naturally fearless, but during a bear market, they will inevitably fall into a death spiral. Even if the market gradually improves, it will be difficult to make up for the decline.

Therefore, we believe that the next bull market in the blockchain gaming sector may require the emergence of products that can truly change the landscape of blockchain gaming. Current blockchain gaming products that have already experienced a bear market no longer possess this capability. GameFi 2.0 is certainly not just a game of capital. Thus, the timing of product launches is crucial. We believe Tiny World will possess considerable dominance for a long time and, benefiting from its superior economic model, is likely to shine brightly during GameFi 2.0.