Some little notes: GameFi economic model

GameFi tokenomics faces two main difficulties: market trend and inflation.

Let's assume we are talking about a project that is developed by a dedicated team. When the team is designing the tokenomics of the game, they will need to tackle two problems for the game on-chain token. The first one is the market difficulty. Blockchain market is a very volatile market. A significant number of gamers aim to have a good return by playing play-to-earn games. It is an investment for them. Their return are highly correlated to the blockchain market. In the blockchain market, BTC is a dominant factor to push the market forward. When BTC is bullish, the whole market will be bullish. The token price of the game will also go along with the market. When the token price is relatively high, the return of the gamers is good, vice versa. Only a few GameFi project can maintain a good price while the market is bearish. If the token price is not good enough or even worse than before, the return of gamers will decrease. The drop in income or loss in investment discourages the gamers from devoting to the game.

Another issue is the inflation of game on-chain token. A significant number of gamers aims to farm token from the GameFi project. The more the gamers, the more they farm. The longer their farming time, the more token they farm. It is inevitable to cause inflation of the tokens. Inflation leads to a drop in purchase power and economic value. Some means are discovered to tackle the inflation, they can be divided into two categories which are investment aspect and game mechanism.

Scaling up the number of gamers or investors, and staking and delegation are within the investment aspect. These means can decrease the circulating supply of the on-chain game token in the market to end inflation. The means are tied to the investment aspect because investment prospect is the biggest incentive for the gamers and investors to buy the token in the market. Scaling up the number of gamers is an effective way to decrease the inflation. Gamers will buy the token in the market for the in-game use. However, the scaling must be tightly monitored and controlled to prevent over scaling. It needs to be aware that a significant number of gamers aim to earn money from the GameFi project. Their strategy is to use the minimum money to earn a good return. Over scaling may lead to fast token farming. The game should have a good mechanism for in-game utility to encourage the new gamers to spend enough money by on-chain token in game. Otherwise, the huge number of gamers will speed up the inflation. Another means is staking and delegation. Staking and delegation of the on-chain in-game token are a further step for the gamers or investors to hold the tokens. Staking and delegation usually come with economic return and on-chain governance. These are the incentive for them to hold the token for a longer timeframe. On the gamers' side, the willingness of joining the game and staking and delegating token are based on the gamers' investment expectation and trust in the game. Some investors will just buy and hold the token for investment expectation.

The second aspect is the game aspect. Game utility and burn mechanism fall within the game aspect. As the aforementioned, game utility is vital for the gamers to spend money in the game to prevent the uncontrol of inflation. The more in-game token they spend, the more token they buy in the market and the less circulating supply the token is. A burn mechanism can further reduce the on-chain game token based on the gamers' utility. A good burn mechanism is important. The more the tokens are spent in the game, the more tokens are burnt. The burnt tokens are taken out from the circulating market forever.

The market trend is out of the project teams' control. Inflation can be controlled by the project team. A good design of tokenomics must have a good mechanism to control the inflation.