How we should build the future of GameFi

You have already seen it. An incredibly talented game founder teams up with a top studio, promising to create a wonderful gaming experie...

You have already seen it. An incredibly talented game founder teams up with a top studio, promising to create a wonderful gaming experience based on the most powerful engines in the industry. But then it happens: it’s associated with a dubious shitcoin that launches long before a piece of game content even drops.

In the not-too-distant past, the mainstream media may have referenced the hype-fueled crypto bull market – but, with Bored Ape price floors still in the clouds, we’ll respectfully call it what it is: the race of the monkey. Market volatility aside, Metaverse evangelists still claim that Web3 finance will revolutionize the way games monetize. I call BS.

There is currently no focus on new monetization models. The only thing these token increases call into question is the idea of ​​capital formation – not monetization. As tempting as it is, the monkey race quickly fooled some of our most brilliant founders into believing that they should raise insane capital from tokens printed from scratch, as a flawed substitute for a genuine strategy of monetization.

We are ready for a change of mentality. The crucial question is: how can we make the hyper-funded, hyper-hyped Web3 Metaverse project work – for gamers, for founders, and for investors?

Related: Blockchain games are taking over the mainstream

Path #1: Shilling is exciting

Everyone does well in a monkey race, financially speaking. From major smart contract platforms to experimental DeFi protocols to the upcoming Axie Infinity imitator, the monkey market beautifully confirms the idea that there are in fact no shitcoins – only shitty prices.

For a clearer picture, walk with me through the deal pipeline at the heart of crypto venture capital, where shiny new metaverse projects and games relentlessly flood inboxes. Links to cinematic trailers, Unreal Engine mockups, and convoluted “token economic diagrams” abound, repeating their demands to raise millions on simple deals for future tokens to adequately prepare their(s). ) token launch(es) and their initial decentralized exchange offering.

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 one? 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 a utility token with no utility and a governance token with no governance – justifying their existence because major exchanges agreed to list them in just a few months.

That might sound like an exaggeration, and I wish it was. However, these are the most disturbing 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 building the future. These pitches capture a moment – but not the right perspective and business model required for the future of the game.

Related: Metaverse-as-a-service will be the basis of the next Internet era of Web3

Path #2: Build to last

The GameFi token landscape is incredibly fragmented. While early liquidity is tempting, a premature token launch carries serious risks. The balance between creating sticky tokenomics and successful game design actually offers a narrower focus for project tokens: user engagement and retention, not pure monetization.

The last optimization problem? Maximize additional user retention and engagement per project token issued, subject to a certain level of existing Web3 revenue and user community.

You don’t immediately need your own project token to monetize your app. Tokens are simply forms of exchange for the assets your virtual world generates and sells. If your Web3 game can’t run on an already liquid and volatile token or, worse, on an entrenched stable, then your game is in trouble. Try again!

Instead, raise enough private capital to comfortably get through the beta launch. In beta, work with your smart contract platform of choice to integrate its native token and your stablecoin of choice into your game. Start observing your core game loops and revenue streams.

Consider yourself a data scientist! Is there any user behavior that you know is defensible, but still underperforms? Is it such a valuable loop that maybe a grant can kick things off? Is currency volatility something your users avoid? Where do your most engaged users come from? How many underpaid workers are there in developing countries? How many prosumers are looking for the next hip social hangout? How many whales blow up auctions?

Ultimately, you need to design your token to entice users to stay in your world. For example, just like with foreign currencies, you can offer a discount on consumption when paid in your own project token, but you price your digital goods in USD. You can also use the layered cash-at-risk strategy, where you accept USD (and equivalents), L1 or L2 of your choice, and your project token. This ensures that you have a large existing audience immediately equipped to interact with your world. It also helps protect you during crypto and macro downturns, and the excess can be used to reward investors and users without putting selling pressure on your token, among other great benefits.

Related: How blockchain games create entire economies on top of their gameplay: report

The most important thing you can do as a game founder in Web3 is stay focused on improving your game. Tokens can’t make your game, but they can break it.

The right priorities for a sustainable GameFi future

The unique value of gaming and metaverse apps is not the token they serve. Project value is created by the revenue that, over the long term, comes from unique in-game digital assets. When these NFT-based assets are owned, experienced, and understood by a community, value builds and builds – otherwise said, the community’s reluctance to sell is growing.

I’m excited for the day 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 grabs, we’ll see superior gameplay and tokenomics built into a gaming ecosystem built for the long haul.

Engagement, retention, then monetization. Optimize for these things, in this order. Choose the right path.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Alex Ye leads Republic Crypto’s early-stage research, investments, and token economy strategy – helping to secure and advance cutting-edge projects for Republic Crypto’s advisory portfolio. Prior to Republic Crypto, Alex led fintech and blockchain investments at ZZ Capital, crypto fundraising at the $7 billion Top Tier Capital Partners venture fund, and the University of Chicago, his alma mater.