The Top-Level Wealth Game: Exploring New Flywheels and Governance Models in Web3 Games

Original Title: "The Top-Level Wealth Game - Exploring New Flywheels and Governance Models in Web3 Games"
Original Author: AIKO

With the recent market recovery, some interesting projects have come to our attention. They also present practical cases following the design theories of web3 games such as IAT (In-app Taxation) and BLOG.

Therefore, this article aims to accomplish two things:

1) Using Gas Hero and Lumiterra as examples, clarify the new flywheel of web3 games under the IAT business model, namely the top-level wealth game.

2) Using Gas Hero, Lumiterra, and Crypto Raiders as examples, analyze the governance models in web3 games.

For friends who are not familiar with the concepts of "IAT" and "BLOG," you are welcome to read our previous research reports (thanks to Jason and Kydo for their help in making these cutting-edge theories possible):

·IAT - Folius Ventures

·BLOG - Kydo & Aiko

The Theory and Shortcomings of IAT

We are pleased to see that in-game taxation as a commercialization method is valid. As we have described, the total value of in-game value carriers * transaction turnover rate is expected to greatly stimulate the value of the entire game lifecycle, bringing higher value to both ecosystem participants and game companies.

During the writing process of the previous IAT research report, we focused our efforts on describing how to transform traditional closed/semi-closed economic design thinking into a tax-based business model and corresponding gameplay, thereby increasing trading activity and tax revenue.

However, due to the limitations of web3 game practices and theories a year ago, we did not continue to describe how these "taxes" should be used after "taxation" to form a closed loop and more reasonably support the long-term expansion of an ecosystem.

In the past, our imagination about taxation was limited. We saw that ample tax revenue and cash flow could support teams in developing the next project and building the entire ecosystem (look at Axie Infinity and STEPN now), but we did not envision or mention that taxation could actually serve as a powerful incentive layer that always exists within the game and forms a larger flywheel.

Before diving into the main topic, we should also reach a consensus on a major premise—namely, the sense of purpose in web3 games.

The hierarchy of needs in web3 games is completely different from traditional games. Although the top level is about gaining social recognition and admiration, the social admiration in traditional games may come from high damage and flashy mounts, while in the crypto world, admiration mostly comes from envy of the wealth myth.

Therefore, the correct way to incentivize the ecological flywheel through taxation is to allow top-level players to achieve their wealth aspirations through the enormous profits generated from organic trading behaviors within the game, becoming objects of envy for all players.

Next, we will gain a deeper understanding of this from the two games, Gas Hero and Lumiterra.

The New Flywheel of Web3 Games

Gas Hero

Gas Hero is a placement-style battle SLG game with five gameloops. When players play in various gameloops, they drop various assets, which represent the most important combat power systems for players (weapons, pets, and various upgrade items) besides heroes. When these assets reach 100, they can be combined into 1 unit NFT for trading in the secondary market. Meanwhile, the official provides auction houses in different regions to sell locally scarce goods directly.

Thus, the first type of player—"brick-moving players"—emerges, who use lower-level heroes to play various gameloops and buy goods from the auction house to sell for profit in the P2P market. The substantial trading taxes from these players (4% from auction house taxes and 2% from P2P market taxes) become the source of funds for the IAT reward pool.

As players continue to pursue higher returns and power, they gradually differentiate into "official players" and "PvP players."

For official players: In areas below the city level, to become a leader, one must engage in intense PvP to dominate by force; in areas at or above the city level, to become a leader, one must participate in elections, donating GMT to vie for a position in the top 15 world rankings. The higher the donation, the greater the probability of being successfully elected (probability lottery), so the game for players is to donate more GMT to ensure they do not fall out of the top 15 while appropriately increasing their donations to improve their chances of winning, which may gradually increase.

For PvP players: PvP is inherently a major point of contention within the game. To compete for the donation prize pool, they must fully equip themselves, refine strategies, and optimize combinations and positioning. They engage in extensive purchases and consumption of heroes, pets, and equipment, promoting the trading market and activity, while also providing lower-level brick-moving players with a stable income (APY of 30% to 50%).

As shown in the figure, the entire flywheel generates abundant tax revenue through increasing NFT transactions, boosting the reward pool for official players, further stimulating players to donate more during official elections (the higher the amount, the higher the winning probability); these gradually accumulating donations also attract players participating in PvP matches as rewards; PvP players, in order to upgrade and arm themselves, will become the main buyers of NFTs, bringing a large and solid buying force to the marketplace, further encouraging brick-moving players to produce NFTs in the game and engage in buy-sell transactions in the auction house.

Ultimately, Gas Hero successfully and accurately incentivizes three types of players using two reward pools, one trading house, and one auction house, and continues to operate.

Lumiterra

The design of Lumiterra is actually very similar to what we presented in IAT: three gameloops corresponding to three professions, but each profession's growth must rely on the resources obtained by other professions in the corresponding gameloops, seamlessly advancing this interdependence and maximizing commodity trading. Lumiterra chooses a commodity economic society to present this interdependence, making it easier for players to understand, and farming SIM games (taking Stardew Valley and Animal Crossing as examples) are also one of the longest-lasting genres.

The incentive flywheel in the game can be simply summarized as:

1) The content in the game naturally generates a large number of transactions, where the transaction taxes pay rewards to DeFi users providing liquidity. As more players and transactions occur in the game, the APY returns for DeFi players providing stablecoins and $LUA liquidity become more stable;

2) These DeFi users also need to interact with DeFi protocols, which benefit from trading friction and slippage, and use these profits to pay the base prize for the AMM lottery pool. As more DeFi users interact, the AMM prize pool increases;

3) High prizes will incentivize gaming players to recycle designated materials in large quantities to mint lottery tickets to participate in the lottery, providing a large buying force for game content players.

4) Moreover, the participation of gaming users in the lottery will be the largest resource consumption point in the game, with about 60% of resources being permanently consumed in this process, and the 5% tax generated by the lottery AMM will also be added to the prize pool.

If we eliminate all intermediate links, essentially, game content players incentivize DeFi users, while DeFi users incentivize gaming players, and gaming players are the largest buyers of NFTs and the biggest consumers of in-game resources, thus further incentivizing content players. The ecological flywheel completes the closed loop.

If we assume that the APY for game players buying and selling NFTs for profit is around 10-30%, then the APY for DeFi users will depend on their operational methods and the trading volume within the game, potentially ranging from 50% to 150%. Finally, the APY for lottery players may exceed 200%.

Thus, the game is always mobilizing all ecological participants with a highly probable excess return while providing participants with appropriate long-term and stable returns as the ecosystem expands.

Summary

Through the above interpretations of Gas Hero and Lumiterra, we can identify some commonalities between the two games:

1) The source of excess return prizes comes from real transactions and taxes occurring within the game, while all other designs revolve around "how to increase transaction frequency and friction" and "how to design the interconnections between different types of players."

2) The game is always mobilizing a portion of ecological participants with a small probability of excess returns while providing other participants with matching, long-term, and stable returns corresponding to their labor as the ecosystem expands.

For example: Lottery players with returns exceeding 200% vs. ordinary NFT players with around 30% APY.

3) Players who have the opportunity to obtain excess returns will inevitably consume the most game resources in the form of competition, and the entire process will become the largest sink.

For example: The donation competition for officials in Gas Hero and the PvP competition, as well as the lottery competition in Lumiterra. To numerically propel an individual to win in the competition requires the consumption of countless underlying resources, including a large amount of player labor and the permanent burning of resources.

4) For other participants in the ecosystem, it is essential to extend the timeline to provide them with appropriate stable returns.

For example: The normal arbitrage of Gas Hero NFT players and the liquidity mining of Lumiterra DeFi users both have cash flow guarantees for relatively stable returns.

5) It is especially important to create a gamified mechanism for a commodity economy from 0 to 1.

For example: The five gameloops in Gas Hero and the three gameloops in Lumiterra create an interdependent commodity economy, which is the foundation of the entire economic flywheel and governance operation.

Through these five design principles, we can see the significant differences in the new design concepts conveyed by Gas Hero and Lumiterra compared to traditional GameFi designs. That is, probabilistic excess returns are the ultimate pursuit, supported by cash flow provided by large-scale player arbitrage trading and competition. Moreover, players are given matching/probabilistic/slightly fluctuating long-term returns based on the different roles they play in the ecosystem, rather than obtaining faster returns and unlimited mining through purchasing different levels of mining machines.

Governance in Web3 Games

Next, I would like to briefly discuss governance in web3 games.

· Analyze how Crypto Raiders' governance combines with OHM but fails to launch due to design flaws and disconnection from the flywheel.

· Analyze the differences in the "governance" structures in Gas Hero and Lumiterra.

Crypto Raiders

Crypto Raiders is the first game to set game assets as ERC-20 and utilize AMM for trading, and it is also the first game to attempt governance using OHM outside the game.

This game first came to the attention of researchers because it was the first to use AMM for in-game resource trading, aiming to reduce the presence of counterparties in traditional game trading, creating an instant trading experience, and allowing the team to earn fees from the protocol.

Subsequently, Crypto Raiders also initiated a partnership with Olympus Pro, hoping to transfer all liquidity rewards to bonds in the coming months. To meet two objectives: 1) LP staking primarily attracts farmers. Shifting to protocol-owned liquidity (POL) will allow the game treasury to earn an additional $7,500 daily (approximately $2.73 million/year) to fund game development; 2) Alleviate the selling pressure on RAIDER. However, it seems that this governance model has not successfully launched, and the game has declined due to a decrease in player numbers.

Currently, the price of $RAIDER has dropped to $0.02, with a 24-hour trading volume of around $3,000.

Currently, liquidity is also less than $200,000.

So, now that we look back at Gas Hero and Lumiterra, aside from uncontrollable factors like market cycles and speculative price fluctuations, what design aspects could be improved?

1) Lack of a commodity economy, leading to an unstable economic foundation.

The materials produced by the gameloops experienced by all players in the game are very singular, lacking clear or intentionally designed supply-demand interdependencies. Additionally, the game content is insufficient and the update speed is slow, resulting in the utility token AURUM being sold off by most players due to the lack of a long-term circulation cycle and consumption scenarios.

2) Misaligned incentives.

The beneficiaries of RAIDER are LP stakers, the team, and investors, but game players actually receive AURUM, indicating that the game has not unified the interests of LP stakers and game players. In other words, the increase in time/money spent by the player community in the game does not provide any direct benefits to governance token holders; conversely, the increase in governance token holders and liquidity does not provide any strongly correlated benefits to in-game players.

It is evident that in Crypto Raiders, there is no good cooperation and dependency relationship between liquidity providers and players. Even if a governance layer is added or external liquidity provision schemes are improved, it still cannot bring a positive flywheel for ecological expansion.

3) The ecological scale is insufficient to support the long-term operation of a complete governance system.

Due to the failure of Dune dashboard data, we can only recall approximate data. At peak times, there were five to six thousand active wallets, maintaining around two thousand daily. Such a scale is not only difficult to support a game that commercializes around AMM trading but also insufficient to serve as the foundation for DeFi and governance.

Gas Hero & Lumiterra

Although both Gas Hero and Lumiterra have elements of "governance," the governance structures between the two are not the same. The former adopts an in-game governance structure, meaning governance is part of the in-game flywheel, launched alongside the game, and is effective for game participants (governance donations can further incentivize PvP players in the game); while Lumiterra adopts an external governance structure, meaning governance does not belong to the in-game flywheel and was not launched with the game, but will be initiated in the future in the CRV ecosystem and its own game ecosystem when the timing is right.

The governance in Gas Hero resembles the income distribution of the official class, where entering the official class requires a substantial donation of GMT as a PvP prize pool. Therefore, in-game governance can boost the overall enthusiasm of the game. When regional officials want to encourage more players to actively engage in the game and trading, it will trigger more "meta-governance"/"meta-economic interactions," such as unified management in private group chats (setting announcements and alarms to participate in auctions), or even behaviors like red envelopes/monthly salaries in games like "Rate of the Land," ultimately leading to better performance and substantial returns for the guild and region.

The "governance" in Lumiterra is closer to DeFi governance logic, speculating that it will be similar to locked ve tokens/lock-up times to determine voting weight, with voting results related to the return rates of all participants. This external governance relies more on the natural operation of the protocol rather than social and governance relationships between individuals, which may lead to a lack of good communication channels between upstream and downstream, for example, a player providing liquidity may not understand the governance structure of in-game guilds, making it difficult to generate organic mutual promotion and boost economic enthusiasm. Moreover, distributing rewards within the CRV governance framework carries the risk that the ultimate beneficiaries may differ from in-game players, and the benefits of governance may not return to the grassroots players but remain controlled by DeFi whales, leading to conflicts due to a lack of effective communication among participants, which bears similarities to the external protocol governance issues faced by Crypto Raiders.

Although Gas Hero has just launched and Lumiterra is still in the testing phase, the above conclusions are based on speculation, and various return rate figures are estimates. The actual practical effects will require long-term observation. However, we still need to note that subtle design differences may also lead to different ecological developments and changes in the later operational processes of the two games. Furthermore, while games with inherent economic flywheels differ from the previous need for continuous new user acquisition in a Ponzi model, they still have high requirements for user scale; the more players participate, the more stable the ecosystem can be. Both sides should strive to expand their user base to support the continuous operation of the flywheel.

Postscript

This article focuses on analyzing the design of top-level wealth games and ecological flywheel mechanisms represented by Gas Hero and Lumiterra, emphasizing the significance of aligning the interests of all parties in web3 game design and ultimately expanding the ecosystem through the flywheel.

However, this article also has shortcomings, as various data are missing (Dune data dashboard failure), theoretical research is lacking (currently, we only have the previously written IAT and BLOG designs), and the parties involved are absent (the Crypto Raiders team has moved on to their third project, and player attrition is high), making it difficult to write a data-rich article summarizing the theoretical and practical developments of web3 game economic models. Therefore, this piece serves merely as a record and summary during the industry's development process, hoping to help entrepreneurs still designing and exploring economic models find new paradigms and apply them quickly, rather than being a serious and documentary research report.

Additionally, web3 games, aside from being a testing ground for new mechanisms, still fundamentally serve as playable and interactive investment targets. Therefore, in addition to their internal mechanism design, external traffic operations, community consensus building, brand endorsement, asset management, etc., are also quite important. To quote our previous research report, a versatile team is still needed. Ultimately, developing web3 games with long lifecycles and significant traffic breakout effects requires the collective efforts of all colleagues.