Gaming and its coming Web3 emancipation : 10 ideas on how to develop a robust Play-to-Earn economy


In this report, we proposed 10 ideas that may help stabilize a Web3 game’s exchange rate and economy, and hope that this non-technical guide can inspire designers who are pushing the boundary of Web3 gaming.

Executive Summary

We believe that players would feel emancipated as they partake in Web3-enabled games – digital kingdoms where FX controls crumble and where they are treated as 1st class citizens with the following rights:

  • Establishment of property right (the right to own in-game items as NFTs)
  • Establishment of human rights (the right to legally earn / extract value and not be taxed at 100%)
  • The freedom of capital movement and freedom to exchange value

We trust the gaming industry’s migration towards such new paradigms to be irreversible. We also feel that the current P2E model (pioneered by AXS) still needs work, especially that in-game currency and yield-bearing assets are subject to substantial and continuous depreciation risk as user growth slows alongside the existence of highly rent-seeking governance tokens. In this report, we proposed 10 ideas that may help stabilize a Web3 game’s exchange rate and economy, and hope that this non-technical guide can inspire designers who are pushing the boundary of Web3 gaming.

  • On the supply side, one may consider furtively capping the ROI of assets, diversifying earned reward types, and bolstering non-investment sinks – all to make simple calculations and rent-seeking more challenging.
  • On the demand side, one may consider ways to maximize retention of economic value in-game, such as increasing the barrier to capital outflow, creating game-native store of value, and/or enabling native yield-bearing opportunities. Additionally, in-game taxation on business activities and infrastructure use can be used to stabilize the economy as well. Lastly, one should actively form business partnerships to funnel outside cashflow into the game.
  • We believe that governance token holders should only deserve the right to vote and rent-seek after they have actively contributed to the game. It may also be necessary for the project to actively partake in stabilizing the FX rate, both in setting expectations as well as in monetary intervention.

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1. Earning-assets shall experience ROI decay. ROI should be capped and obfuscated.

We hold tremendous respect to Axie Infinity for pioneering the P2E category, and we also feel that it is currently mired by the overproduction and insufficient demand of its currency SLP. The uncapped SLP production capability of earning asset (Axie) coupled with lack of SLP consumption outside of investment demand means that an SLP supply glut will inevitably occur. Once the depreciation expectation for SLP sets in, farm-and-dump (to USDC) will become the de-facto strategy for players.

We believe it is necessary to design a careful mechanism for ROI-decay and cap an asset’s earning duration:

  • The ROI-decay of earning assets should naturally exist, and such decay should be latent and not explicit.
  • The repair, recycling, reuse, and replacement of earning assets should consume in-game currency.
  • The lifetime earning potential of assets should be implicitly capped and should be based on complex, multi-variant, somewhat unpredictable models, making crude rent-seeking behaviors challenging.

By monitoring asset utilization and the output / spending ratio, the project teams should be able to somewhat comfortably predict pending currency trends – and thereby accelerate / decelerate issuance of assets based on economic cycles. A ROI-capped ecosystem will put old and new players on more equal footing. Additionally, “capping the ROI” does not mean the assets will be destroyed at the end of their earning lifespan – while an aged asset may not earn in-game currencies as its “ROI”, it may be able to earn other in-game items as well as unlock higher-end experiences within the game, thereby retaining significant utility, gameplay, and collectible value still.

2. Input and reward for earning-assets should be diversified in asset categories and types. The reward structure should be tiered

The singular resource system for both input and rewards is common today: players burn 1 type of resource (time or energy) and earn 1 type of rewards (usually in-game currency). Couple such monotonicity with the simple, predictable production formula, the reward system can usually be summarized in an APY figure easily today.

We believe that aside from making earning formulas more complex, the input and output components for earning-assets should also be multi-dimensional + complex to the extent appropriate and tiered in structure – meaning that the higher the potential quality of rewards, the more complex both the input and the output should be. Games are not simple financial products, they shouldn’t be easily quantifiable in APY.

  • Casual use: necessity – commodities subject to heavy consumption, simple input/output structure
  • Medium use: loots – consumables and common loots, somewhat simple input/output structure
  • Heavy use: high-end, luxury, and vanity goods, complex input/ output structure
  • Circumstantially introducing earning assets, store of value assets, and external assets.

When a diverse, tiered earning structure is paired with an ROI-capped asset, the benefits are multifold:

  • Earning an optimal return requires domain expertise, which makes crude rent-seeking harder.
  • Multivariate reward structure promotes a vibrant ecosystem and higher taxation revenue.
  • A more granular, complex resource system allows for more fine-tunning of in-game economics.

3. Strive to retain as much economic value within the game as possible by increasing barrier of outflow, creating store-of-value, and/or enabling native yield-bearing opportunities

Prior to Web3, in-game economies were subject to heavy FX control – i.e. there is usually no “legal” way to convert in-game currencies to fiat. The only way players can combat in-game inflation is by purchasing the consensus store-of-value. In World of Warcraft, for instance, Black Lotus became the store-of-value of choice during earlier version upgrades – much thanks to its low drop rate (rarity), wide range of applications as the key ingredient for Epics (utility) as well as loots that tangibly improve the PvP / in-game experience (vanity).

We believe that while Web3 economies today have much freer capital flow and loose FX control policies, game designers should consider the 3 following guidelines to maximally retain economic value within the game, thereby buying time for future business partnerships, in-game taxation / commission, organic growth, and the building emotional connections with the users:

1. Designing appropriate thresholds of capital outflow 

•While users have the right of free capital flow, game designers can still introduce various types of friction and leverage user habits / incremental cost to gate the outflow. We would recommend prudence and restraint when implementing these policies to minimize sense of irritation. Here are a few ideas:

  • Limiting types of outbound assets: items must be converted to certain SKUs of FT / NFT to be transferred out.
  • Threshold requirement to initiate: Prompt the users to do a little extra for the ecosystem before exiting.
  • Exit tax: the tax can be furtive but must be with rightful reasons – such as forging unvested rewards.

2. Providing ecosystem-native store-of-value (SoV)

Game developers should provide the optimists and supporters a good way to store their wealth (instead of pushing them to store it in USDC / fiat). We believe a good SoV should satisfy the 3 following criteria:

  • Benefits from ecosystem growth: the SoV should appreciate in-line with how the game performs. There could be many types of such assets – whether it be rare loots or governance tokens.
  • Liquid and convertible: the SoV should be liquid, so as to lower the mental barrier to swap value into.
  • Experience-enhancing: the SoV should have a noticeable utility that’s investment-related or power enhancing in a PvP/storyline context.

3. Enabling ecosystem-native yield-bearing opportunities

  • Aside from SoV assets, games can also have staking pools that benefits the ecosystem while acting as a sink for in-game capital. In other words, the source of in-game liquidity for any ecosystem-building activities should come from the player themselves.
  • Rental: for example, earning assets can be collateralized to obtain leverage, provided for with the native in-game currency. Players can lend out their currency to directly earn native-currency denominated yield as well.
  • Exchange: users holding any fungible token should be able to provide liquidity into in-game native AMMs via native currency pairs. Such an action would certainly be yield-bearing.

4. Developers should recognize users’ desire to extract value. Leverage playability and rewards to cleverly turn them into “spenders”

Unlike traditional games where users purely “spends value”, the right to property and earning attracts much more ROI-driven users to a game. Given that most P2E games today lack playability (and thereby makes it difficult to induce “non-investment” demand), most games suffer significant more value outflow vs. inflow / spending, thereby requiring new user investments to offset the gap. One may call this phenomenon a clear Ponzi.

We believe that teams must recognize that crypto users follow a different utility curve – and accordingly find ways to minimize their value outflow, maximize the positive economic impact if they do so, and leverage all means (emotion, experience, playability) to nudge them into “spending”.

Additionally, we also believe teams should broaden their reach to really bring traditional gamers in. Teaching them crypto-native finances can help them further convert more users and contribute positively to the economy.

5. Retain control of the financial infra and use commissions to stabilize economy

We believe that foundational DeFi functions are simple and important enough to be natively set-up, and the income / tax generated can be used to stabilize and grow the in-game economy.

These foundational DeFi components include the following:

Fungible Token Exchange (AMM DEX, like Uniswap)

  • Typically 1-30 bps commission, but we think games can charge 5-100 bps. Part of fees go to treasury.
  • Routing and obtaining USDC liquidity could be difficult, thus pools should be integrated with DEX aggregators.

Fungible Token Lending (like Compound)

  • Typical net interest margin of 100-500 bps. Can split the margin with protocols and send to treasury.
  • USDC liquidity may be hard to get, can raise capital or ask investors to provide liquidity.

NFT marketplace (like OpenSea)

  • Typically 200-600 bps commission. Can direct all the fees to treasury.
  • NFT marketplace should be in-house given that the complexity of NFT metadata and utility will exceed that of JPEGs, and that it is specific to the game itself.

NFT lending (still emerging)

  • Borrowing of NFTs and using them as collateral (mortgage) should be seriously considered by the game developers as an inhouse primitive – it will give another stream of income to treasury as well as providing developers with more tools to influence / stabilize the in-game economy.

6. Construct a vibrant, robust, and complex commercial ecosystem, and use taxation to stabilize economy

In a robust P2E ecosystem, users would play different roles within an economy – a division of labor would emerge, leading to resource exchange and value chain formation. In other words, a new economic environment is born within the game, one that encompass production, trade, and consumption of commodities / goods. Aside from utilizing earning assets or staking currencies for ROI, commercial activities should be another venue-to-profit, especially when the ecosystem is vibrant, robust, and complex. Taxation on such commercial activities can then be used to stabilize the in-game ecosystem.

MMORPGs are the best setting for such an environment to emerge. For instance, highly repetitive resource extraction in EVE Online is mostly handled by bots – whereby the players, with the ore net margins in-mind, had to decide whether to (a) spend gas, undertake principal risk, and ship the ores to higher-priced regions, or (b) purchase blueprints and other resources to construct ships for sale. Players took on different roles such as pirates, arbitrageurs, distributors, and shippers – where profits are borne via information and resource asymmetry. Building a complex, balanced commercial ecosystem is easier said than done.

Complexity and Differentiation around resource production can arise out of various sources :

  • Character difference (talent points, occupation, class etc)
  • Earning asset categories and abilities that are different after each level upgrade.
  • Difference in geographical location / availability of natural resources for land.
  • Complexity around forging / minting / enchantment systems.
  • Differentiated rewards for completing quests and winning competitions.

7. Appeal to the senses on character-building and entice non-ROI driven spending

Characters, assets, and organizations within a game are the best avenues for players to cultivate emotional attachment / project their self-identity. It would be a good idea to drill in on the users’ psychological needs to drive non-ROI related spending, while downplaying the investment properties of assets. This can be done via upgrades and aesthetic changes and will act as a continuous sink for the in-game currency, increasing user retention.

The proven, sustainable, non-ROI-driven spending streams are as follows:

  • Self-identity: Akin to how profile-pic NFTs are valued, users would pay for customizing virtual representations of themselves to develop their sense of immersion, self-actualization, and belonging in the game. Avatars’ visuals and rarity may need to be separated from their impact on gameplay to prevent a power imbalance among players. A pay-to-win situation should not emerge.
  • Combat experience: The combo diversification and attribute improvement are there to tangentially reward the users for their work – thereby inciting a sense of accomplishment and curiosity. There is a delicate balance on how the fresh unlock impacts gameplay – and best if the improvement is marginal to most people, but useful / impact for the skillful few.
  • Social experience: we do crazy things for people we care about; so when it comes to guild / family systems especially when it’s linked to PVP, the sources of sinks could be meaningful.

Aside from character related features, games can also monetize via avenues linked to convenience and play-type. For example, reducing the cool-down period for quests, dropping jackpot-style rewards (crates, boxes), creating winner-take-all PVP mechanisms, etc. can all be implemented and charged a fee upon transaction.

8. Actively pursue business partnerships and introduce external cashflow spending into the game to stabilize the economy.

Despite one’s best efforts – whether it’s capping assets’ ROI, diversifying the streams of earnings, having multiple venues of commission / taxation, or driving significant non-ROI spending – the total in-game currency production could still quite likely exceed demand [non-ROI spend + rent-seek revenue], especially as user growth slows.

To stabilize the economy in the long-term, we believe the resource injection from the outside via business development activities to be essential. The injection could come from direct spending externally to achieve some purpose, or value-exchange by having users burn in-game resources in-exchange for some external perks. We have a few ideas as below:

  • Advertisement income: in the attention-scarce Web3.0 world, users can be targeted more specifically via marketing between different communities.
  • Resource swaps: upon reaching critical scale, a project can leverage its users in acquiring valuable external resources (for example, outside marketing spend) to drive in-game currency burn.
  • Broadcasting rights & betting commissions: Can be sold by intense and competitive PVP games with high entertainment value.
  • Swags, cross-overs, and collabs: one-off / continuous NFT mints with fashion brands, or physical items.
  • IP-licensing: Sold to entities for publishing, movies, and shows, with all revenue going to Treasury.

External resource injection certainly won’t happen until the community reaches critical scale and adequate recognition. A stable enough economic model + solid gameplay are both still required to get to that point.

9. The distribution, voting right, utility, and rent-seeking property of governance tokens shall be linked to in-game participation

The governance token should be viewed as “Sovereign equity” – its utility and distribution mechanism will directly impact user growth and retention. We feel that having a long-term, stable, non-speculative, and deeply-involved user / governance holder hybrid is as important as having a strong core team itself.

A few points on the concurrent governance token design:

  • DAO governance is imperfect: Citizens are forced to work with one another through votes but are bound by geographic, cultural, and physical ties. There is no such tether between voters in Web3 – and as votes in Web3 governance today can be freely traded, there exists unrealistic expectations around Athenian democracy. Teams must recognize the downsides with liquid-democracy – plutocracy, short-termism, and political sinecure, to name a few – when they attempt to embrace “decentralization”.
  • Token distribution mechanisms remain mostly crude, monotonous, and ignorant of differences in community contribution: VC-rounds + ICO/IEO/IDO remains the norm, which opens up room for whale / bot influence akin to how foreign capital influences a country’s direction. Actual users who contributed to the projects’ success may often be left out and feel exploited. We believe there are better mechanisms for distributing token equity.
  • Too much rent given to people who contribute too little: the utility of governance tokens remains somewhat blunt as well – basically the profit streams from the game. We feel that such a profit-sharing mechanism coupled with a highly plutocratic token distribution gives rise to too sizable a rentier class too early, thereby stunting ecosystem growth. Game developers should think hard about how to demand continuous contributions from these token holders in exchange for the rights to profit.

We believe a good governance token mechanism should follow the design principle of “more utility, more work, and only then, more benefits.”

Token Issuance should prioritize in-game participants / supporters:

  • Initial token distribution should be vested in line with community consensus: the game, especially in testing phase, will have its early supporters, as if the game were open sourcing contributions to product design, bug-catching / audits, market research, user feedback, community management, marketing, and business development. Projects should consider, upon mutual agreement, incorporating these early supporters into the initial token distribution and subject them to vesting.
  • Continuous distribution should be tied to in-game participation: the in-game and on-chain metrics are excellent data sources in helping decide where the governance tokens should continue to go. It may also not be a bad idea to bond the token to achievements + higher-tier equipment while subjecting the tokens to vesting. One should be careful about “spraying” governance tokens to everyone.
  • Introducing gamified elements to distribution and voting is not a bad idea: Similar to Curve War or Wolf Game, introducing gamified, PVP components to the rationing of governance token inflation could be a very interesting idea – whereby the time-weighted votes get to decide which faction / classes get how much governance token in each period. Teams can continue to draw inspirations from the crypto community and meshing the new mechanisms with in-game arena / instance / guild designs.
  • Notably, with NFT presales as an alternative, teams no longer have to raise via governance tokens.

Tokens should be a core-part of game-design and help the ecosystem grow:

  • Right to govern should be linked to in-game participation: Governance weight should not be solely dictated by the value of governance tokens – but should also consider value of in-game assets held, extent of in-game participation, staking lock-up, etc. Giving too much credence to short-term, mercenary capital on in-game governance may be detrimental to long-term growth.
  • Right to rent-seek should be linked to in-game participation: Allowing governance token holders to easily rent-seek from the in-game ecosystem without in-game participation is detrimental to in-game economic growth and user retention. Projects can use on-chain and in-game data to specifically filter for loyal contributors.
  • Introduce in-game utility to governance tokens: At no sacrifice to economics and in-game balance, games could consider prompting usage / staking of governance token in exchange for perks.
  • There should be limits on tokenholders’ governance powers: Ecosystem design / game development / metric-setting are all delicate tasks that require both time / attention and professional knowledge – which voters and those unfamiliar with the Web3.0 world may not possess. We feel that the scope and impact of governance should be carefully considered and slowly expanded.

10. Maintaining stability and setting stability expectation of in-game currency are equally important

We think it is important to continuously install confidence to the project, thereby cementing positive / optimistic expectations on the in-game ecosystem and stabilizing the exchange rate.

Manage expectations and build a positive / optimistic outlook: Players react differently when they are optimistic / pessimistic about a P2E game. When the players are optimistic, they tend to hold on to the currency / assets and opt to reinvest their returns. When they are pessimistic, capital flight out of the game would be the norm – and such “consistent depreciation expectation” is both self-enforcing and extremely difficult to revert (ex: Zimbabwe, Venezuela, Turkey). Hence, teams need to send a strong signal to the market, through both words and action, about their commitments to grow the economy, stabilize asset prices, suppress over-speculation, and calibrate exchange rates.

A comprehensive “ecosystem relations” strategy: Messaging from the team can directly impact player actions. Therefore, careful expectation setting (especially around potential changes to token / asset economics) would be crucial in stabilizing asset and currency prices.

Use foreign reserves when necessary: The ecosystem treasury may set aside assets specifically used for stabilizing in-game currencies (and its mere existence could install confidence). These FX policy actions should be part of a mandate pre-approved by the DAO and can be run independently of the Treasury.

Changes in monetary policy must be made gradually and in line with past statements of intent. The consequences of monetary intervention on the game economy and players’ responses are generally hard to predict. Repeated and heavy-handed interventions could set bearish biases. In most cases, teams should allow native currency prices to float within a fixed (wide) band, prepare for an emergency-response plan in advance, and continuously monitor the reaction of the market.

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