Crypto Gaming & the Monkey Run

Tokens cannot make a game—but they can break one. Here's my take on the right way to build the future of GameFi.

A version of this article was originally published by CoinTelegraph. Read it here.

You’ve seen it before. An amazingly talented gaming founder teams up with a top-tier studio, promising to build a wondrous, jaw-dropping game experience built on the industry’s most powerful engines. But then it happens. It’s paired with a dubious shitcoin that launches well before even a morsel of game content drops. 

In the not-so-distant past, mainstream media may have referred to the hype-fueled crypto “bull market”—but, we’ll respectfully call it what it was: the monkey run. Market volatility aside, metaverse evangelists tout that web3 finance will revolutionize the way games monetize.

I call bullshit.

The only thing these token raises are challenging is the idea of capital formation—not monetization. However thrilling, the monkey run has quickly deluded some of our brightest founders into believing they should raise a nonsensically large amount of capital from tokens printed out of thin air, as a faulty substitute for a real monetization strategy. 

We’re ready for a change of mindset. The critical question is this: how can we make the hyper-capitalized, hyper-hyped web3 metaverse project work—for gamers, for founders, and for investors? 

Path #1: Shilling is Thrilling

Step right up and launch your token in the middle of the monkey market. No game playing, no questions asked. Line up the big gun exchanges and VCs, manufacture hype using a content calendar template you found on Google Images, and shill until you pass out. Your mother might warn you it’s irresponsible to be raising egregious amounts of money without a fully baked product. Do not listen to her!

The next step’s easy: cash out! The upside is it’s a pure political and marketing game. The downside is that when the market crashes, your once massive treasury now only consists of your worthless project token, and now you have to survive on what remains of the cash you raised and tokens you sold. Time to wait for the next monkey market run to repeat the process, at the expense of further dilution—and the risk of your shitcoin becoming a writeoff.

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End scene.

Everyone does well in a monkey run, financially speaking. From major smart contract platforms to experimental DeFi protocols to the next Axie Infinity copycat, the monkey market beautifully substantiates the notion that there actually are no shitcoins—only shit prices. 

For a clearer picture, fly with me through the deal pipeline into the heart of crypto VC, where shiny new metaverse and gaming projects relentlessly flood inboxes. Links to cinematic trailers, Unreal Engine mockups, and convoluted “token economics diagrams” abound, parroting their demands to raise millions on SAFTs to adequately prepare their token launch(es) and IDO. 

The game’s launch date, you ask? Maybe it’s a “mini-game” planned for Q3, or a massive Triple-A launch in mid-2023. What about the kind of utilities the token will have on Day 1? Well, you can stake them for more tokens, and they might even give you access to the game’s first NFT sale. Sometimes they even advertise both a utility-less utility token and a governance-less governance token, justifying their existence just because the big daddy exchanges agreed to list them in just a few short months.

This might read like an exaggeration, and I wish it actually were. However, these are the most troubling realities facing the current landscape of token launches in the middle of a bull—excuse me, a monkey market. They capture short-term enthusiasm without a sustainable plan for future-building. These pitches capture a moment—but not the right perspective and business model required for the future of gaming.

Path #2: Building to Last

The GameFi token landscape is incredibly fragmented. While early liquidity is tempting, a premature token launch has serious risks. In working with dozens of companies, and observing hundreds more, I have some assorted, realistic suggestions about how to approach a token launch strategically, for long-term growth and success.

You do not immediately need your own project token to monetize your application. Tokens are simply forms of exchange for the assets that your virtual world generates and sells. If your web3 game can’t operate on an already liquid volatile token or, worse, a well-pegged stable, then your game is garbage. No excuses. Try again.

“But Alex, won’t that make my project token useless?” If you are that mind-numbingly uncreative, perhaps yes. This conundrum actually offers a purer, narrower focus for project tokens: user engagement and retention, and not pure monetization. The final optimization problem? Maximize additional user retention and engagement per project token emitted, subject to some level of existing web3 revenues and user community.

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So, take a beat! Hold off on launching your own token. Raise enough private capital to comfortably get through beta launch. In beta, work with your smart contract platform of choice to integrate their native token and your stablecoin of choice into your game. Begin the feedback loop: 

1. Observe your core game loops and key revenue streams. Ask yourself those key data scientist questions. Let me paint you a picture:

   • Is there user behavior that we know is defensibly fun but still underperforms? Are we charging or taxing it too much, or is it a UI/UX problem? Is it such a valuable loop that perhaps a subsidy can kickstart things?

   • Even with integrations of both SOL and USDC, it seems that we’re taking in the majority of our revenues in USDC and credit card payments. Does the dominance of USDC come from its stability? Is currency volatility something our users avoid?

   • Where are our users coming from and how are they split? How many are underpaid laborers of developing countries? How many are prosumers looking for the next hip social hangout? How many are whales driving auctions through the roof?

2. Design your token to incentivize users to stay in your world or platform, leveraging perpetual learnings from Section 1.

   • Just like foreign currencies, offer a discount to consumption in your world when paid for in your own project token. But, unlike foreign currencies, price your goods in USD.

   • Charge a functional premium for consumption on foreign currencies like USDC or SOL. 

   • Utilize the layered-risk treasury strategy. Collect these three types of currencies:

     • USD and USD equivalents:

       • Hundreds of millions already hold this currency. Acquire as many users as you can.

       • It’s your safeguard in crypto and macro downturns.

       • Spending it does not exert sell-pressure on your token.

       • It depreciates in accordance with inflation and bad US trade deals.

       • It can be used for project token buybacks.

       • Excess can be used to reward investors and users without exerting sell-pressure on the project token.

     • L1 or L2 of choice:

       • Many hundreds of thousands already have this token. Acquire as many of their users as you can. They’re here to support you for a reason.

       • It’s your safeguard against a hypothetical flop release of your own token when your game is still a guinea pig.

       • If you bring lots of additional utility and liquidity to the L1/L2, you will make your L1/L2 lords happy.

       • Your project token will likely be directly correlated with this L1/L2 currency for a while.

       • Excess can be used to reward investors and users without exerting sell-pressure on the project token.

     • Project token:

       • Best launched in healthy markets, and when your community is banging down your doors for a token.

       • Scarcely rewarded and emitted for promotional and bootstrapping phases.

       • Bought by users off exchanges to use in-game, exerting buy-pressure and absorbing speculative supply.

       • Provides volatile and discounted revenues.

       • Excess can be used to reward investors and users if there is high in-game usage and confidence that tokens won’t get dumped.

Most importantly… keep improving your game! Tokens cannot make your game, only break them. 

The Right Priorities for a Sustainable GameFi Future

The unique value of gaming and metaverse applications is not the token it circulates. Project value is created by revenues which, in the long run, spawns from unique, in-game digital assets. When these NFT-based assets are owned, experienced, and understood by a community, value builds and builds—otherwise stated, the community’s unwillingness to sell increases.

I’m excited for the day when this model becomes the status quo—because it means we’ll be closer to the best web3 games we’ve ever seen. Instead of the market rewarding short-term bag grabs, we’ll see superior gameplay and tokenomics wrapped into one gaming ecosystem—built for the long-term. 

Engagement, retention, then monetization. Optimize for those things, in that order. Choose the right path.

1. Our lead counsel asked us to note that this is sarcasm.

2. Read our article disclosures here: https://republiccrypto.substack.com/about