5 Steps to Develop an Efficient Token Economy for Crypto Games

Token economy for crypto games

If you want to create a successful crypto game, start by designing game tokenomics — a fundamental element of any GameFi project. If done wisely, you won't have to worry about how to attract investors or drive user engagement.

Interest in the GameFi market within the crypto space shows no signs of falling away. According to CoinMarketCap research, investments by venture capitalists in GameFi and the metaverse have increased from $874 million in 2021 to $2.4 billion in 2022, doubling in a single year. What’s more it is estimated that the GameFi market is expected to reach $38 billion by 2028.

The growth of the GameFi market inevitably comes with increasing interest in blockchain-based games that have promising gameplay and effective monetization strategies.

Read on to learn more about crypto game token mechanics and find out how to design tokenomics for crypto games.

Find out what airdrops are and how they work

More on this topic

This article is part of our larger series dedicated to Tokenomics. To explore this topic in greater detail, here’s the list of articles we recommend:

Tokenomics

What Is Tokenomics? An Introduction to the Token Economy and Its Vital Components

Token distribution

What Is Token Distribution: Overview of the Most Effective Methods

creating a crypto token

How to Create a Crypto Token: Steps, Types, and Benefits

Using tokens to design tokenomics

7 Steps for Designing Successful Project Tokenomics

Token mechanics of crypto games

Token mechanics of crypto games

To clearly understand the concept of token economies in gaming, let’s take a look at the core elements of token mechanics.

Game tokens and coins

Coins and tokens are often used interchangeably in blockchain games, but there is a slight difference between them. Digital coins usually represent some kind of digital money that a player can use to purchase game assets, for example weapons or avatars.

A token represents what a user can do or own in the game. All tokens in crypto games are divided into fungible and non-fungible. Fungible tokens can easily be exchanged without loss of value while non-fungible tokens are unique and distinguishable from other tokens. They are commonly used as gaming items, such as avatars, weapons, equipment, and more.

Non-fungible tokens are unique digital in-game assets that can serve multiple functions, from representing inventory items to being collectible pieces of crypto art in themselves.

All tokens can serve different functions in a game. For example, there are:

  • Utility tokens. These are tokens that can be exchanged for a certain feature/service in a game.
  • Security tokens. Tokens that grant users a voting right, thus enabling them to participate in company/product governance.

Buyback-and-burn mechanism

The buyback-and-burn mechanism is necessary to balance out the game economy. It presupposes the project team buying tokens back from users and burning them, thus removing the tokens from the total supply.

This mechanism is usually encoded into the smart contracts of blockchain games and performed automatically.

Token minting & distribution

Token minting describes the entire process of token creation, including creating new tokens by the project team, preparing the initial token supply, and emitting tokens during token sales or in-game activities. When it comes to NFTs, minting means publishing tokens on the protocol.

Token minting is followed by token distribution, which can be carried out in numerous ways. These include a presale, airdrop, direct purchase by players, rewards, and many more.

To stabilize token demand, it’s good practice to include a vesting period so users won’t be able to dump them right after buying.

Token burning

Token burning is the process of permanently taking the tokens out of circulation in order to regulate the token supply and prevent token values from dropping rapidly.

Currently, there are two key approaches to burning tokens:

  1. 1) Automatic token supply reduction with the help of a smart contract. This approach is more common since it simplifies protocol maintenance.
  2. 2) Sending tokens to an inaccessible wallet.

Staking

Token staking is the process of locking a particular number of tokens in a wallet, which allows users to earn passive rewards. In games, staking is used to distribute revenue among players. The entire process works as follows:

  • Token holders stake their assets to validate a new block.
  • The information is verified on the blockchain and the block gets validated.
  • Stakers get back their staked assets and receive additional rewards.

Treasury

The treasury is an address that accumulates and distributes tokens in line with the smart contract rules. There are multiple ways in which the treasury can distribute tokens, namely:

  • Staking. Users stake tokens in order to get a share of the tokens from the treasury.
  • Rewards. Users receive tokens for their in-game achievements.
  • Team remuneration. Game advisers and/or developers can receive a share of tokens from the treasury. This should be specified in the project documentation.
  • Liquidity. The treasury may provide tokens to regulate token prices, avoid price manipulation, and ensure the liquidity of the project.

Voting

Voting allows game players to participate in the protocol’s governance by using their tokens to vote for or against particular changes. Many platforms include voting rights when designing tokenomics. This way they create community governance mechanics and turn the game into an autonomous organization (DAO).

Pegging

Pegging involves tying token values to another asset, for example cryptocurrency, fiat money, or even real-world commodities. Game currencies can also be pegged to other assets. This practice helps ensure stable prices regardless of external conditions.

Wrapping & bridging

Wrapping and bridging allow assets to be moved easily from one blockchain to another. Through a bridge, tokens can be locked on one blockchain while their new wrapped version is created and traded on another.

Check out our blockchain development service offering and let’s discuss how we can assist you with your project

How to develop a token economy for your crypto game in 5 steps?

How to develop a token economy for a crypto game in 5 steps

Developing a token economy for a blockchain game is a complex process, which requires solid knowledge of game mechanics and a deep understanding of how to design a token economy. Overall, the entire process can be divided into 5 steps. Let’s quickly take a look at each.

Step 1. Identify game participants

The first and most basic step is to define key game participants, such as players, investors, and developers. In addition, you should create a solid strategy for how to attract investors to your game and how to motivate players and keep them interested.

Step 2. Define participant motivation

Think of motives that will make players want to engage with your game. In most games, players are motivated by entertainment. However, blockchain-based play-to-earn games have also introduced monetary motivation, meaning that players can earn money for their game achievements.

When it comes to game investors, their motives are fairly simple: their goal is to earn profits and increase their capital. You will need to create solid documentation that will explain how your game will capitalize, how investor funds will be used, and what the unique selling points of your project are.

Step 3. Create game mechanics

Next, you need to create the core mechanics of your game. Ask yourself the following questions:

  • Which mechanics will you use to make your game popular?
  • How will you grow your game community?
  • How will you motivate new users to engage while keeping the existing ones interested?

Step 4. Design a token economy

The process of designing a token economy for a crypto game requires multiple critical decisions. Here you will need to define the total token supply, select token distribution methods, model the interaction between in-game tokens and participants, and decide what types of token you will use (utility tokens, governance tokens, etc.).

Step 5. Define token dynamics

Last but not least, you need to decide how you will add tokens to the general circulation supply and then get them out again. Here your goal is to define the ways in which your players acquire tokens and spend them.

The importance of this step should not be underestimated. For example, if there is a large token supply, but players do not have enough ways of spending them, the token may lose its value. And vice versa: if the token supply is lower than the token demand, the supply will mostly be hoarded by a few users, meaning that you can lose community support.

As you can see, the process of designing a token economy for crypto games involves many questions that must be answered and many details that must be taken into account. If you need more details or have any further questions, feel free to contact our blockchain consultants, who will guide you through the entire process.

Find out how our team helped an eSports startup design a token economy for their project

What are the different types of crypto game participants and their motives?

Generally, there are three key participants in crypto games: investors, players, and developers. Let’s briefly talk about each group and explore the motives of each.

Players

At present, we can distinguish two groups of players: play-for-fun (P4F) and play-to-earn (P2E). P4F players are traditional players who are motivated by leisure while P2E players are seeking to earn a full or partial living while playing.

It’s worth noting that there are also several types of play-to-earn players. These are:

  • Toe dippers. Typically they are new to blockchain games and want to start earning. Such players naturally gravitate towards games that are talked about and have a good reputation. You should ensure low entry barriers for them in order to minimize the time between the first click and the first in-game action.
  • Gamblers. These gamers usually have the spending propensity to gamble for profits while their willingness to invest largely depends on the fairness of the system. Depth of gameplay and a healthy economy is crucial for such players.
  • Fun seekers. These players are very similar to traditional gamers. Their key motivation is to play a fun game, so expensive entry barriers can lead to a loss of interest.

Investors

Investors bring money to the game, so they generally, but not always, expect to significantly increase their profit. As with players, there are different types of investor groups:

  • Crypto whales. Usually possess large liquid funds at hand. Their key motivation is to gain influence early on in a new game.
  • Early adopters. These investors usually come in early to seed the game’s development because they believe in the project. They may not have vast fund liquidity volumes compared to crypto whales, but they are crucial to a game’s initial traction.
  • Entrepreneurs. These clearly understand how the blockchain game economy works and can support the project to maximize the number of passive income streams. To motivate these investors you need to convince them that your game has enough depth, asset variety, and asset value.

Developers

Developers are motivated to and/or improve the current experience of the game by creating new features and enhancing existing ones. There can be two types of developers:

  • Internal. These are actively involved in the development of the game, either via employment by a company or as part of a DAO.
  • External. These are people who are not officially involved in game creation but get involved in building specific features on an ad-hoc basis. They usually have a mixture of motivations, from gaining profit to receiving recognition from a company.

Real-life examples of token economies in blockchain games

Real-life token economies in blockchain games

To get a better understanding of how to model tokenomics, let’s check out some of the most popular examples of crypto game tokenomics.

Decentraland

Decentraland is a virtual world where players interact with various games and creative installations. In it, players can purchase a parcel of land to build their own games, marketplaces, and applications. There are more than 90,000 parcels of land in the virtual world, one of the most expensive of which was sold for around $2.4 million.

Decentraland’s tokenomics is based on the MANA token. The Decentraland platform is user-owned, so MANA token holders can not only buy land or real estate but also fund platform development and vote on community-governed decisions.

What’s more, Decentraland allows third-party currencies to be used in the virtual world. For example, developers making games in Decentraland can add payment options for their own tokens.

The Sandbox

Similar to Decentraland, The Sandbox is a virtual world where players can create their own games with their own business models. Their token economy is driven by the SAND token, which is used to play games and purchase game assets.

The unique aspect of The Sandbox tokenomics is that it enables players to monetize their games in order to earn more SAND tokens. For instance, tokens can be earned through the sale of game items (aka ASSETS) on the Sandbox marketplace.

Alien Worlds

Alien Worlds is a WAX-based blockchain game that consists of different virtual planets and incorporates strong DeFi elements. Within the game, players need to compete to earn Trillium (TLM) — a resource that drives the entire game economy and is needed to upgrade in-game items.

TLM tokens can be earned in several ways, for example through minting (this requires the use of NFTs) or staking. In addition, TLM functions as a governance token on each virtual planet within Alien Worlds.

Find out how to create a crypto token for your project in our detailed guide

Closing thoughts

Tokenomics is one of the most fundamental aspects of a crypto game. So, it’s no surprise that investors pay special attention to this element when evaluating project potential.

However, designing solid crypto game tokenomics is a complex process that requires multiple elements to be taken into account, such as game participants and their motivation, game mechanics, and many more.

It would be wise to involve experienced blockchain advisors who can support you throughout the entire process and help you design an efficient token economy. Feel free to reach out to our blockchain consultants for advice.

With 10 years of expertise in the blockchain domain, we have designed game tokenomics for numerous projects and can provide your team with expert assistance.

author

Darya Yatchenko

Lead Copywriter

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