With the recent market resurgence, some interesting projects have emerged before us. They also present practical cases following web3 game design theories such as IAT (In-app Taxation) and BLOG.
So, this article aims to accomplish two things:
- Using Gas Hero and Lumiterra as examples, elucidate the new flywheel in web3 games under the business model of IAT, namely the high-stakes game of wealth at the top level.
- Analyze the governance models in web3 games using Gas Hero, Lumiterra, and Crypto Raiders as examples. For those not familiar with the concepts of “IAT” and “BLOG,” feel free to read our previous research reports (thanks to Jason and Kydo for making these cutting-edge theories possible):
IAT Theory Review
We are delighted to see that in-game taxation as a monetization method holds water. As we have described, the total value of in-game assets * transaction turnover has the potential to significantly impact the value throughout the game’s lifecycle, bringing higher value to ecosystem participants and game companies alike.
In our previous IAT research report, we focused on how to transform traditional closed/semi-closed economic design thinking into a taxation-based business model and its corresponding gameplay, increasing transaction activity and tax revenue.
However, due to the limitations of web3 game practice and theory a year ago, we did not continue to describe what these “taxes” should be used for after taxation, thereby forming a closed loop and more reasonably supporting long-term ecosystem expansion.
In the past, our imagination of taxation was limited. We saw that abundant taxes and cash flow could support teams in developing the next project and building the entire ecosystem (look at Axie Infinity and STEPN now), but we did not imagine or mention that taxes could exist as a powerful incentive layer within the game and create a larger flywheel.
Before we get into the main topic, we should also agree on a major premise—namely, the goal of web3 games.
The hierarchy of needs in web3 games is completely different from traditional games. Although the top tier is still about gaining social recognition and admiration from the masses, in traditional games, social admiration may come from a rare item or a magnificent winged mount, while in the crypto world, admiration mostly stems from the envy of the myth of becoming wealthy.
Therefore, an approach to incentivize the tax-driven ecosystem flywheel is to allow top-tier players to achieve their desire for wealth through organic in-game trading behaviors, becoming objects of envy for all players.
Next, we will delve deeper into this point through Gas Hero and Lumiterra games.
The New Flywheel of Web3 Games
Gas Hero
The foundation of Gas Hero is an idl combat SLG game with five Gameloops. Players will acquire various assets while playing in different Gameloops, representing the most crucial power systems for players aside from heroes (weapons, pets, and various upgrade items). These assets, when accumulated to a hundred, can be combined into a single NFT unit for trading on the secondary market. Additionally, the official platform provides auction houses in different regions to sell goods that may be scarce locally.
As a result, a new type of player emerged - the “NFT farmer.” These players use lower-level heroes to participate in various Gameloops and purchase goods from the auction house to arbitrage in the P2P market. The substantial transaction taxes from these players (50% from auction house taxes and 4% from P2P market taxes) become a source of funds for the IAT rewards pool.
Continuing to pursue higher returns and power leads to two phases, gradually differentiating players into “Power Chaser” and “PvP Fighter.”
For power chasers, in regions below the city level, becoming a leader requires dominating through intense PvP battles. In regions at the city level and above, becoming a leader necessitates participation in elections and donating GMT generously to secure a spot in the top 15 world rankings. Since the higher the donation, the greater the chance of success (lottery), players engage in a game of donating more GMT to ensure they stay within the top 15 ranks while also increasing their chances of winning. The donation amount is likely to increase gradually.
As for PvP fighters, to compete for the donation prize pool, they must fully equip themselves, refine strategies, coordinate, and position themselves. This leads to a substantial purchase and consumption of heroes, pets, and equipment, driving the trading market and activity while also providing lower-level NFT farmers with a steady income (APY 30% to 50%).
As shown in the diagram, the entire flywheel is fueled by an increasing number of NFT transactions, generating abundant tax revenue. This tax revenue elevates the rewards pool for power chasers, further encouraging players to donate more in official elections (with higher amounts increasing their chances of winning). Simultaneously, the gradually accumulating donations serve as rewards for PvP fighters, attracting them to participate in PvP matches. PvP fighters, in their quest to equip and upgrade themselves, become the primary buyers of NFTs, creating a substantial and robust buying market on the marketplace. This, in turn, encourages NFT farmers to produce NFTs within the game and engage in buying and selling on the auction house.
In the end, Gas Hero effectively utilizes two reward pools, a trading platform, and an auction house to precisely incentivize three types of players, ensuring the continuous operation of the ecosystem.
Lumiterra
The design of Lumiterra’s core game is actually quite similar to what we presented in IAT: three gameloops corresponding to three professions, where the growth of each profession relies on resources obtained by other professions in their respective gameloops. This interconnected relationship is seamlessly integrated and maximizes commodity trading. Also, Lumiterra has chosen to present this interdependence through a commodity-based economy, making it more accessible to players, and simulation farming games (such as Stardew Valley and Animal Crossing) have proven to be a long-lasting category.
The incentive flywheel in the game can be summarized as follows:
In-game content naturally generates a large number of transactions, and the transaction taxes paid are used to reward DeFi users who provide liquidity. The more players and transactions occur within the game, the more stable the APY returns for DeFi players providing stablecoin and $LUA liquidity outside the game.
These DeFi users also need to interact with DeFi protocols. Protocols benefit from trading friction and slippage and use these earnings to fund the basic prize pool of AMM lotteries. As more DeFi users interact with the protocol, the AMM prize pool increases.
The high rewards incentivize gaming players to recycle specific materials within the game, minting them into lottery tickets to participate in the lottery, providing a significant buying market for in-game content players.
Furthermore, participation in lotteries by gaming users will be the most significant resource consumption point within the game, with approximately 60% of resources permanently consumed in this process. Additionally, 5% of the taxes generated by the lottery AMM will also be added to the prize pool.
If we remove all the intermediate steps, essentially, it’s the incentive from in-game content players that drives DeFi users, DeFi users incentivize gaming players, gaming players are the largest buyers of NFTs and the biggest consumers of in-game resources, thus further incentivizing content players. The ecosystem flywheel completes the loop.
If we assume that game players earn around 10-30% APY by buying and selling NFTs, then DeFi users, depending on their actions and in-game transaction volume, may achieve ranging from 50% to 150% APY. Finally, lottery players could potentially achieve over 200% APY.
Therefore, the game consistently operates with a very high probability of providing participants with significant returns, motivating all ecosystem participants with enticing returns that vary based on their roles and actions within the game. At the same time, it offers participants fair and steady returns as the ecosystem expands in the long term.
Summary
Through the analysis of Gas Hero and Lumiterra, we can identify several commonalities in both games:
The source of the extraordinary returns comes from real in-game transactions and taxes, while all other designs revolve around “how to increase transaction frequency and friction” and “how to design the interplay between different types of players.”
The game consistently operates with a small probability of extraordinary returns to incentivize some ecosystem participants while providing others with returns that match their efforts, along with steady returns as the ecosystem expands in the long term. For example, lottery players with over 200% returns vs. regular NFT players with around 30% APY.
Players with the opportunity to earn extraordinary returns must consume the most in-game resources, and the entire process becomes the biggest sink of the whole ecosystem. For example, in the official donation and PvP in Gas Hero and the lottery in Lumiterra, it requires a vast amount of underlying resources, including extensive player labor and permanent resource burning, to drive an individual to win the game numerically.
Extend the timeline to provide other ecosystem participants with appropriate and stable returns. For example, normal arbitrage of NFT players in Gas Hero and liquidity mining for DeFi users in Lumiterra both offer relatively stable income with cash flow guarantees.
Building a game mechanism that shapes a commodity-based economy from scratch is particularly important. For example, Gas Hero’s five gameloops and Lumiterra’s three gameloops create interdependent commodity economies that form the foundation of the entire economic flywheel and governance.
Through these five design principles, we can see the new design concepts conveyed by Gas Hero and Lumiterra differ significantly from traditional web3 game designs. In these games, probabilistic extraordinary returns are the ultimate pursuit, supported by large-scale player arbitrage transactions and gaming. Players are provided with matching/probabilistic/slightly fluctuating long-term returns based on their roles in the ecosystem, rather than obtaining one-time returns by purchasing different levels of mining machin
Web3 Game Governance
Next, I’d like to briefly discuss governance in web3 games.
- How Crypto Raiders integrated OHM but failed to launch due to game design flaws and a disconnect in the flywheel.
- The differences in the “governance” architecture between Gas Hero and Lumiterra.
Crypto Raiders Crypto Raiders is the first game to set game assets as ERC-20 tokens and use Automated Market Makers (AMMs) for trading. It is also the first game to attempt governance using OHM outside of the game.
Initially, this game came into the researchers’ view because they first applied AMMs for in-game resource trading to reduce the presence of counterparties in traditional game transactions, create an instant trading experience, and allow the team to earn fees from the protocol.
Subsequently, Crypto Raiders also started a collaboration with Olympus Pro, hoping to transfer all liquidity rewards to bonds in the coming months. This serves two purposes: 1) LP staking primarily attracts farmers. Shifting liquidity owned by the protocol (POL) will allow the game treasury to earn an additional $7,500 per day (approximately $2.73 million per year) to fund game development; 2) Reduce selling pressure on RAIDER. However, it seems that this governance model has not been successful, and the game has faced a decline in the number of players.
Currently, the price of $RAIDER has fallen to $0.02, with a 24-hour trading volume of around $3,000.
Now, when we review Crypto Rider after looking at Gas Hero and Lumiterra, apart from uncontrollable factors like market cycles and speculative coin price fluctuations, are there any design improvements that can be made?
Lack of a commodity economy, unstable economic foundation. The materials produced by the gameloops experienced by all players in the game are very homogeneous, and there is no clear or intentionally designed supply-demand relationship. At the same time, the game lacks content and updates, resulting in the rapid production of the utility token AURUM, which most players sell because it lacks a long-term circulation loop and consumption scenarios.
Misalignment of incentives. The beneficiaries of RAIDER are LP stakers, the team, and investors, but what players receive is AURUM. It can be seen that the game does not align the interests of LP stakers and players. In other words, the increase in the time/money spent by players in the game does not directly benefit governance token holders. Conversely, increasing governance token holders and liquidity does not provide any strong correlated returns to in-game players.
The ecosystem’s volume is insufficient to support the long-term operation of a complete governance system. Because Dune Analytics data is unavailable, we can only recall approximate figures. The peak had around five to six thousand active wallets, and it maintained around two thousand on a daily basis. Such a scale is not only challenging to sustain an AMM-trading-centered commercialized game but also insufficient as a basis for DeFi and governance.
Gas Hero & Lumiterra
While both Gas Hero and Lumiterra have elements of “governance,” their approaches to governance are different. The former adopts an in-game governance structure, where governance is part of the in-game flywheel, launched alongside the game and effectively used by game participants (governance donations can further incentivize in-game PvP players). In contrast, Lumiterra adopts an external governance structure, where governance is not part of the in-game flywheel, is not launched alongside the game, and is a playground for LUAG holders in the future, launching voting when the timing is right in the CRV ecosystem and their own game ecosystem.
Gas Hero’s governance is more like income distribution for the official class, and entering the official class requires significant GMT donations to the PvP bonus pool. Therefore, in-game governance can boost the enthusiasm of the entire game. When regional officials want to encourage more players to actively participate in the game and trade, it will trigger more “meta-governance” or “meta-economic interactions,” such as unified management in private group chats (setting announcements and alarms for participating in auctions). This ultimately brings better performance and lucrative returns to the guild and region.
The “governance” in Lumiterra is closer to DeFi governance logic and is expected to involve mechanisms like locked ve tokens or lockup periods to determine voting weights, with voting results related to the return rates of all participating voters. This type of external governance relies more on the natural operation of the protocol, rather than social interactions and governance relationships between individuals. This may lead to a lack of effective communication channels between upstream and downstream participants. For example, a liquidity provider may not understand the game’s guild and governance structure, making it challenging to generate organic mutual promotion and enthusiasm for the economy. Additionally, in the CRV governance framework, allocating rewards poses a risk where ultimate beneficiaries may differ from in-game players, and the benefits of governance may not flow back to the hands of grassroots players but remain controlled by DeFi whales. Lack of effective communication among participants can lead to conflicts, similar to external protocol governance in Crypto Raiders.
While Gas Hero has just started, and Lumiterra is still in the testing phase, the above conclusions are based on speculations, and all return rate figures are estimates. The real-world impact will require long-term observation. However, we should still note that subtle design differences may result in different ecosystem development and changes in the later stages of operation for these two games. Additionally, despite having an intrinsic economic flywheel, games like these, unlike previous models that required continuous onboarding, still have relatively high requirements for user volume. The more players participate, the better they can stabilize the ecosystem, and both parties should strive to expand the user base to support the continued operation of the flywheel.
Afterword
This article primarily analyzed the design of top-level wealth games and ecosystem flywheel mechanisms represented by Gas Hero and Lumiterra, emphasizing the importance of aligning interests in web3 game design and expanding the ecosystem through flywheels.
However, this article has its limitations due to various data gaps (CR’s Dune dashboard failure), theoretical gaps (currently only the IAT and BLOG designs we have previously written), absence of key parties (the Crypto Raider team has moved on to their third project, and player attrition), making it challenging to produce a data-rich analysis of web3 game economic model theory and practical development. Therefore, this article serves as a record and summary of the development of the web3 game economy model theory and practice in the industry, with the hope of helping entrepreneurs who are still designing and exploring economic models to find new paradigms and apply them quickly, rather than being a formal research report.
Furthermore, web3 games, apart from being a testbed for new mechanisms, are fundamentally investment assets with playability/interactivity. Therefore, in addition to their own mechanism design, external factors such as traffic operation, community consensus building, brand endorsement, asset management, etc., are also crucial. As mentioned in our previous research report, it still requires a versatile team. In the end, developing web3 games with a long lifecycle and significant traffic-breaking effects will require the collective efforts of all colleagues in the field.