LD Capital: Is the GameFi+SocialFi star xPET worth participating in?

Author: LD Capital

I. Fundamental Analysis

1. Basic Information

xPET is a pet-raising game based on an extended program embedded in Twitter, where pets can engage in activities such as Twitter companionship, farming, adventures, and PVE, ultimately generating token rewards. By consuming tokens to upgrade pets, users can expand their related earnings.

Source: xPET Official Website

The xPET game adopts a dual-token model, consisting of XPET and BPET. Since the addition of liquidity, the maximum increase in value for the two tokens has exceeded 30 times and 10 times, respectively, in just one month, continuing the speculative enthusiasm from the end of 2023.

Source: Dexscreener-XPET

2. Core Mechanism - Farm

After acquiring their own pets, the core mechanism of the project is to utilize pets for farming. All level 7 pets will automatically participate in the farm to produce berries (the higher the pet's level, the faster the berry generation). When a pet reaches level 10, a factory can be opened, which will convert berries into BPET (the higher the factory level, the faster the berry-to-BPET conversion). BPET from the farm can be claimed to the wallet every 10 minutes. If all previously invested BPET is reclaimed and the pet is at a new level, one cycle ends.

If the newly claimed BPET is used to further upgrade the pet, a new cycle will begin, and the aforementioned repetitive cycle of farming will operate like a flywheel.

Source: xPET Official

Since the pet's level is positively correlated with berry output, and the factory level is positively correlated with berry-to-BPET efficiency, users will upgrade their pets and factories to achieve higher farming rewards.

3. New Gameplay Launch - PVE

When pets reach level 10 or above, they can participate in adventures, which are divided into three levels:

• Adventure Level 1: Pets between levels 10 and 29 are eligible to participate.
• Adventure Level 2: Pets above level 30 are eligible to participate.
• Adventure Level 3: Open only during special events (may be open to everyone or limited to those meeting specific criteria, depending on each event).

The rewards for adventures include BPET, food, and probabilistic drops of xEGG fragments (fragments can be combined to create NFTs ranging from 1 to 5 stars). The amount of BPET rewarded comes from 10% of the total revenue generated from purchases in the game store, pet upgrades, and factory upgrades from the previous day. This 10% of BPET will be distributed evenly among the adventure levels based on the proportion of players at each level.

As pets' levels increase, the BPET rewards obtained from adventures also increase, encouraging players to upgrade their pets for additional rewards beyond farming.

Source: xPET

4. Other Mechanisms

In addition to the main mechanisms, there are other components to enrich the gameplay, such as obtaining and consuming tokens. For example, players can maintain their pets' health by commenting "xpet" on Twitter to receive food; a referral mechanism using invitation codes can yield more berries; and the market allows direct purchases of higher-level and differently styled pets.

II. Token Economics

The game employs a dual-token mechanism, allowing both tokens to be consumed for in-game upgrades at the game's launch. Currently, upgrades can only be made using BPET, while the specific use of XPET remains unclear. The overall design of the token economics is still in its early stages, with version 2.0 being updated, and changes and adjustments (including parameters for in-game output) may occur in the future.

1. BPET - Game Token

Observations suggest that BPET is issued infinitely based on the output data of users within the game. The consumption of BPET is divided into four parts: 10% for adventure rewards; 1% for the project team; 5% for XPET staking rewards; and 84% for burning. Depending on users' daily output and consumption, BPET will dynamically trend towards inflation or deflation.

BPET tokens can be obtained through purchases on DEX or by waiting for farm output in the game.

2. XPET - Utility Token

The total supply of XPET is 300 million, allocated as follows: 40% for the ecological fund; 15% for marketing; 30% for the community; 5% for liquidity; 5% for the team; and 5% reserved. It is intended for social use in the future, but detailed use cases have yet to be disclosed.

Source: xPET Official

XPET tokens can be obtained through purchases on DEX, conversion from BPET, or staking ETH to receive XPET worth 90% of its market value. Note that the method of staking to obtain XPET may face liquidation risks as the price of XPET rises (this could also motivate the project team to pump the price).

After consuming XPET tokens, 5% is allocated to the project team, 50% for marketing, and 45% for BPET-XPET conversion payouts.

3. Suppressing Token Sell-offs

The game design of xPET includes several hidden mechanisms to control token sell-offs, helping the project team stabilize the token price and allowing time for updates. For example:

1. BPET to XPET conversion requires a waiting period: each user can only execute 100 BPET exchange orders at a time. They must wait for the previous withdrawal order to complete before initiating the next conversion order. Each user placing a conversion order is considered to be in a queue. The larger the queue, the longer the days required to receive BPET tokens.

2. BPET can continuously be farmed, but the amount consumed for upgrades and other actions is quite high. If one relies solely on output to upgrade pets, it will take a long time, and after upgrading, it will be difficult to have excess tokens to sell.

3. Only level 7 pets can contribute blueberries, and a level 10 factory is required to convert BPET. New players must first invest and then accumulate returns during a waiting period.

4. The introduction of the PVE mechanism adds another avenue for obtaining BPET, but claiming BPET will reduce the pet's level by 3, decreasing future PVE rewards and also suppressing the urge to sell tokens quickly.

III. Revenue Model

Game Mining Revenue and Token Speculation Revenue

Currently, the main way to earn revenue in the game is through farming. However, since the price of the game token BPET is volatile, if BPET is purchased at a high price for upgrading pets and factories, and the price subsequently drops, the break-even period when converted to USD will be extended. Conversely, upgrading at a relatively low price and accumulating output to sell when the token price is higher will shorten the break-even period or increase profits.

Token speculation is primarily about buying low and selling high, taking cues from successful farmers to seize opportunities when prices are temporarily undervalued or overvalued for profit. Due to limited supply and the impact of token conversion periods, the inflationary price of XPET tends to be significantly higher than that of BPET.

Since upgrading pets requires a considerable amount of BPET at the current token price, it is best to seize the timing for mining revenue. Below is a table of upgrade costs and berry output:

Source: "Start Your xPET Pet-Raising Journey Tutorial"

IV. Potential Risks

1. Economic Model Risks

The rise in token prices will enhance the project's popularity and early participants' earnings, but it will also raise the entry threshold for later participants. When the price of BPET is $1, upgrading to level 7 requires consuming BPET worth $285. Owning a level 10 pet and a level 5 factory will require $685 worth of BPET, which is not a low price for most retail investors.

Balancing the growth expectations created by rising token prices with the need to continuously attract new users without causing the economic model to collapse is a significant challenge for the project team. Currently, no effective solutions have been observed. However, a healthy model should maintain a gradually oscillating upward token price, allowing new users to have growth expectations and wealth creation effects, encouraging them to spend upon entry in anticipation of future earnings.

The model for token earnings from adventures planned by the project team also seems applicable to the overall token economics.

Source: xPET Official

2. Centralization Risks

According to an audit by third-party blockchain security firm Beosin in December, the xPET project exhibits centralization characteristics, leading to potential risks. For example, the main contract of xPET is an ERC 1967 upgradeable contract, responsible for handling the lending logic of ETH and xPET. However, since the main contract is upgradeable and the project has not disclosed the logic contract within this upgradeable contract, potential logical errors or risks in the logic contract cannot be detected. The xPET token contract inherits from ERC 20 and AccessControl contracts, designating the deployer as the administrator role, creating a centralized control point. Attacking the deployer's account poses significant risks, and regarding token accessibility, the contract centralizes token liquidity since all tokens are minted to the contract itself. This design makes token liquidity centralized.

However, centralization is a common issue in many blockchain projects, and whether problems arise ultimately depends on the project's technical strength and vision. Users should DYOR.

3. Competition Risks

Following the popularity of xPET, many clones have emerged recently, such as XSaiyan, Bitpet, zPET, and xKingdom, among which xSAIYAN has gained relatively high attention, based on the Dragon Ball Z universe, with tokens deployed as both BRC 20 and ERC 20.

V. Data and Roadmap

1. Current Data Performance

The game has only been officially running for about a month, with a total user count of only 15,000. Given its foundation on the X platform with hundreds of millions of users and simple gameplay, capturing users from X through continuous marketing is not a difficult task. Overall trading volume trends and changes in ETH value have not been in a stable growth phase but have shown significant inflows following price increases. From a practical functionality and operational data perspective, it is still in an early stage, but the project's overall situation is good, and the market has significant potential for growth, indicating considerable room for future development.

Source: Dune

2. Roadmap Planning

xPET has announced a 3-month roadmap, which can be divided into three main parts:

1. PVE (Launched)

   Adventure (PvE) - Week 1 (December 21, 2023 - December 28, 2023):

• Launch of the adventure feature (Player vs Environment).
• Allow users to let their pets participate in exciting adventures.

1. PvP (In Development)

   PvP Beta Version (Private) - Weeks 2-3 (December 29, 2023 - January 11, 2024):

• Develop and release a test version of the player vs player (PvP) feature; limited access for internal team private testing to identify and resolve potential issues.

  PvP Ver 1 (Public) - Week 4 (January 12, 2024 - January 18, 2024):

• Release the first public version of the PvP feature; allow users to participate in enhanced PvP battles.

  PvP Ver 2 (Completion) - Weeks 5-6 (January 19, 2024 - February 1, 2024):

• Finalize and complete the PvP feature based on user feedback and testing; introduce additional elements and improvements to enhance the PvP experience.

1. Multi-chain and SocialFi

   Multi-chain - Weeks 7-9 (February 2, 2024 - February 22, 2024):

• Begin implementing multi-chain support; explore and integrate compatibility with multiple blockchain networks to enhance flexibility.

  More SocialFi Features - Weeks 10-12 (February 23, 2024 - March 14, 2024):

• Introduce additional social finance (SocialFi) features; enhance the social and interactive aspects of the platform to provide a more engaging experience.

VI. Conclusion

1. Rational participation in xPET requires grasping the rhythm of token fluctuations, investing at low points, and selling at high points for stable returns.

2. How xPET addresses economic model issues to allow its tokens to rise without collapsing remains the biggest challenge; clones that cannot solve this issue will follow the price trend.

3. Projects like xPET are still in the early stages, but the market confirms the enormous potential of this sector, making it worthy of attention.