Firstly, I think building a metaverse is a very difficult undertaking. Secondly, the two sectors that going the hardest after metaverse right now is gaming (represented by a wide range of from large gaming corporates to small indie game crypto-era game studios) and social networking (represented by Meta/Facebook). Thirdly, each team who approaches the metaverse will have their own thinking and philosophy which dictate how their metaverse look like and what properties their metaverse represent. Thus, it is important to make some note about my position when I write about metaverse: My team is a small indie gaming team, and we approach metaverse from the gaming side. Our metaverse vision will understandably be very different to Meta’s vision, Sandbox’s vision, or the 5-person-next-door-indie-team’s vision. Also this metaverse concept will evolve for the time to come when more people come into the area and build more metaverses, the world will reach better consensus about what is a metaverse and what is not. With all that in mind, please proceed this essay in the sense that this is a very concrete, specific, and narrow definition of a gaming metaverse of an indie gaming team and take these ideas with reasonable doubt.
We define our metaverse as:
Metaverse = (Gaming + Social + Finance) * Blockchain
Firstly, the metaverse is a virtual-reality space on the internet where people can interact with other real people as well as digital contents that built into that virtual space. With this in mind, and with the bias of a gaming team, we think approaching the metaverse from the gaming side is the best approach. At least better than approaching it from social networking. Why? It is because the interactions in gaming have always been more intense and more real-life mimicking. Even if you play a game as simple as Mario or Pac-Man, you can’t really play it in half-hearted way. On the other hand, you can do almost everything in a social networking platform in a half-hearted way. That’s why when it comes to designing an extensive virtual world that acts as a natural extension of the reality, gaming offers a much better chance for engagement and construction of online activities.
Secondly, in order for the metaverse to work, it has to solve the problem that traditional social network has solved: it has to bring enough people into its platform, link these people, facilitate interaction between these people, create a sense of community and belonging between these people. In short, the metaverse itself has to achieve the minimum sense of a social network because without unlock this quality, the people in that metaverse won’t spend as much money in it and this will cap the financial performance potential of the metaverse significantly or even disqualify the project from the definition of a metaverse. Think about if noone looks at you in the street and wow about how smart you are, why bother wearing a pair of Gucci shoes with Hermes belt and a Luis Vuitton bag? Noone exists alone. Even to the most anti-social people, we are still social animals in our DNA. Without social aspect, this world (or metaverse digital world) will become lonely and boring. Noone bothers to do anything and buy anything, hence: no capitalism, hence: no money.
Thirdly, it’s a phenomenal in the the world at large and specially the gaming world when blockchain technology comes to exist. Blockchain, especially the birth of Non-Fungible Token (NFT), solves one of the most fundamental aspect of gaming that for the first time there is a technological mean for gamers to actually own items in game, verify authenticity of ownership of those items, verify scarcity of those items, and trade those items in open and legal way inside those games (such as in-game marketplace) and outside those games (such as in NFT marketplace). The game world never has something like that in the past 40-50 years. Thus, this elevates game items from just game items into collectible arts, private club membership passes, or a lot of other things that have both aesthetic value and utility value. These game items can potentially be as significant as a part of people virtual identity and thus open the door for tremendous process of digital value creation. Finance aspect suddenly becomes live in gaming like never before (indeed: never before, in a meaningful way).
That’s why you have the blockchain part at the last portion of my equation:
Metaverse = (Gaming + Social + Finance) * Blockchain
Without blockchain technology, there would be no revolution in financial aspect in gaming and then gaming will never goes pass a cult-like reasonably limited community to take the leap into being a metaverse. Blockchain is the spark.
Now, what gaming teams need to solve when it come to building the metaverse?
Firstly, building a metaverse is a very different undertaking than building a game. Let say there is a lot of different definition of metaverse and we narrow our metaverse down to just “gaming metaverse”. The idea that is already closest to metaverse in gaming is a MMORPG: Massively Multiplayer Online Role-Playing Game. Not MOBA (Multiplayer Online Battle Arena), not RTS (Real-Time Strategy), not just RPG (Role-Playing Game, without the massively multiplayer online aspect), not any mobile, casual, hyper-casual game. So, not every game can migrate into building a metaverse. It has to form from the core of MMORPG where gamers log into the game world and play the game with thousands of other gamers simultaneously. Now building the game engine for this kind of game is a few notches more difficult than building a PC casual game or a mobile hyper-casual game.
Secondly, on top of that, the game should allow users to maximally customize everything related to their space: their avatar, their living space, their social interaction with other digital beings, their creations that can be bought or sold, etc. Why? Just like in real life, the more open and free world there is, the more room it is for users to take ownership and generate content, or build things on top of the metaverse foundation. This goes back to reinforce and keep the users to stay in the metaverse and keep building. Thus, as first, when templating about the idea of our world, we are also inspired by other game worlds in their effort to create a distinct identity of their world. But the more I think about it, the more I like the idea of create an absolutely white paper: no special name, no special lore, no special background where gamers have to read a 400-pages fiction to understand a quarter of the game history. We want to build our metaverse as generic and as interlink-able as possible with the real life. As if it feels like when you sit on a chair, take the phone out, and go into our world is just like you walk cross over a digital curtain into an open digital space that is different and give you an escape of reality, but not too different to the point the two worlds are not linked. We want the two worlds to be close to each other. Our gaming metaverse is not a distinct world that exists in isolation. It’s a natural extension of the real world. Thus, the quest to build this kind of metaverse is like the quest to build a game engine, in conjunction with building a game on itself.
Thirdly, this gaming metaverse has to solve the social networking aspect that a traditional social network has solved. Back in early 2000s, Facebook won the social network race because it was the first to successfully build an online social place where people use their real identity. This created authenticity for the site and create the social network effect. Now in the metaverse era, everyone wants to be anonymous, and people hate the idea of privacy evasion, gaming company needs to achieve a similar social network effect to make a hit meanwhile not using users real identity. How? Here come finance and in-game economy aspect that is enabled by blockchain and NFT technology. It is proven through the success of Axie Infinity that financial incentives from play-to-earn can generate massive users acquisition and create network effect. So network effect in gaming metaverse can be solved by designing smart digital economy.
Fourthly, because financial aspect is so key in building a successful and sustainable metaverse, it is imperative to think really hard about this from the start. How has the GameFi sector solved this issue? The answer: it is still in a very primitive stage of constructing a digital economy in-game. In the past 2-3 weeks, even the beacon of GameFi world Axie Inifinity has to scale back P2E in facing high inflationary scenario with its SLP token and facing community pressure when taking this move. It is a sense-making move and is needed to keep Axie Infinity sustainable in the long run. What, however, striking is that in taking this move in the middle of the road like this, meaning even Axie Infinity, the world leading GameFi right now with backing of the world most prestige VC a16z somehow didn’t foresee this issue from the beginning and have to take a violent turn in the middle of the course. This, to me, signals the in-game digital economy aspect is nowhere near solved even from the room of the smartest guys in the industry. As the beacon dwindles, implying the whole GameFi sector is actually at risk of unsustainable financial backdrop.
Fifthly, so what is the current status of GameFi financial application? Let take a look at gaming history, in the past 40 years, how game companies make money? With arcades, in the early 1970s, the gamers went to game shops, put coins into big machines and played while they last. It was pay to play. Then Consol and PC came out in the 1980s and people bought the machines, bought the games, and played at home. Then mobile game came out in mid 2000s, besides pay-to-play model, a lot of other game companies opt to subscriptions and freemium (free-to-play but then enable buying in-game items to generate revenue). Now, crypto comes along with the magic spell to enable gamers to authentically own in-game items, trade those items in marketplaces, and verify scarcity of those digital items. This suddenly makes in-game items become valuable and create a layer of financial aspect on top of gaming activity. Thus, GameFi, in order to take advantage of this financial aspect that never happens before in gaming industry, grow-hack the game’s userbase and achieve network effect by throwing out a bait which is play-to-earn, where gamers can play the game and also make money along the way. This is the main financial application and is the key growth strategy of the modern day GameFi projects.
Sixthly, what’s wrong with this financial application and what does that mean for gaming metaverses? Let look at the simplified version of stakeholders of a GameFi project, there is: (1) Game Developers, (2) Gamers, (3) Investors (i.e.: Token holders). In a traditional gaming revenue model, game developers make games for gamers to play, gamers get entertainment, game developers get money, hence investors make money. In a GameFi project, game developers make games for gamers to play, gamers play and make money. Who pay for gamers? There are a few answers: (1) New gamers pay for old gamers until no new gamers come and the game collapse, (2) Game developer pay for gamers until game developers run out of money and the game collapse, (3) Investors pay for gamers until investors wake up and run for their lives. There is an argument that therefore the game need to build a game so good that there are some people go in there and enjoy the game so much and willing to pay (be financial losers) for other who play-to-earn (be financial winners). However, there is a few fundamental issues with this argument. First, because the gamers who actually play GameFi are all risk-taking, somehow technology advanced, and reasonably matured in age (that’s why they are in the crypto space: trading and investing) thus the portion of gamers to come for the game for money is significantly larger versus the portion of gamers who are naïve and carefree enough to come to the game to play for fun and pay to play. In fact, I can’t think of the latter gamer persona. Some rich kid 13 year-old somehow have bank account and navigate crypto space to play game and enjoy GameFi so much and constantly lose money to some 33 year-old office workers or 25 year-old game guild member that grind the game with 10 different screens together with 5 of his friends in an internet cafe? It is very less likely the combined rich kids have enough finance to cover the earnings of go-after-the-money professional Gamefi grinders. Second, the way the growth-hack happen is typically through crypto communities of those who mostly adults: traders, speculators, online moneymakers, while completely lack of focus onto communities of pay-to-play and play for fun type of gamers. Thus the portion of serious GameFi grinders soon outnumber the portion of those who are willing to lose money to have fun. Third, from content perspective, GameFi is way behind traditional gaming. For a rich kid 13 year-old, it’s way more fun, economical, and fulfilling, paying for skins and items in Fortnite and League of Legends than pay to lose for even the best GameFi in the market. Thus, it is safe to say that the portion of gamers who are willing to pay to lose in GameFi that is large enough to generate meaningful revenue to subsidize the cost of goods sold that GameFi projects have to pay for the play-to-earn is non-existence.
Seventhly, thus, one of the key switch of GameFi projects is to get out of pay-to-earn as fast as they can and find shelter in PvP: where the winners take money from the losers and as game facilitator, the GameFi projects make revenue from fee. This is actually a financially sustainable path for GameFi project. The only problem is the portion of gamers who are willing to engage into competitive win-lose situation either by luck or by skill is not that much. I.e. among gamers that seek our GameFi to play, how many expect to find a game to grind and make money vs how many want to find a game to play and not quite sure of winning or losing money? Take from another look: If a game is a game of skill (let take a MOBA shooting game), how long does it take for the losers to quit the game after realizing she has no chance to win vs smarter players, professional grinders, and better equipped players (another word: richer players)? If a game is a game of luck or even a mixture between a game of skill and luck, then how long does it take for the players to quit and go to the casino to play blackjack or poker instead? Thus thinking hard about these PvP questions will at least point to a potential trouble that PvP model has to face: the issue of scale. If P2E is like a poison pill where it’s easy to increase ROI, attract gamers, and make the project grow fast with the cost of blowing up when the user base growth stop, then PvP is like an alcohol sobering pill for customers that after taking the pill the reality comes and not much people want to be drunk in your shop anymore.
The next generation of game studios need to come up with better financial application in-game in order to push gaming industry move forward.
Eighthly, so how do we learn from this and construct a better financial aspect for gaming metaverse? First, gamers have to pay to play. There is no getting around of this. Game developers make the game to make money, somebody has to pay. Gamers have to pay. However, the responsibility of game developers is now heavier: because they can’t afford to make a crappy games with financial incentive to lure players into their games anymore, their games have to be good so that people want to pay to play. Second, the game needs to create an in-game economy that is circular. Let say gamer Oreo can create things and sell to gamer Milk, gamer Milk either happily buys those things for aesthetic values or utility values, then those things gamer Milk owns can be resold and traded to gamer Mana. Gamer Mana is a service provider who create some services and offer those services for gamer Oreo, who happily spend money to take those services. Essentially: (1) people have to be happily spend money inside the game, (2) in order to have money spent, in-game value creation has to happen and be created by talents somewhere in the world, (3) the money has to flow around, and (4) because money is involved, macro monetary policies need to be studied and applied: total money supply, inflation rate, credit growth, etc. This is something new era of GameFi can do but traditional non-blockchain gaming cannot do. This is something GameFi studios need to embrace and solve.
To tie all of this together, we see that it is incredibly hard to build a gaming metaverse that works:
(1) It has to be an MMOPRG mixed with a game-engine for content creators - and it is hard to build an MMORPG that is really good, it is even harder to build a game-engine for content creators that works,
(2) The gaming engineering aspect has to be thoughtful, making interactions in game between gamers intuitive, simple, and interesting,
(3) The architecture of the game, on-chain/off-chain structure, game-engine, blockchain layer, have to be well built and well defended against hackers,
(4) Technology has to be interoperable, scalable and bridgeable between multi-chain and cross platform (PC, mobile, possibly VR and AR),
(5) Visual Art has to be top notch, else why someone buy a pair of shoes in there?
(6) Social networking aspect needs to be solved can use a bit of P2E (i.e. the GameFi’s drug) but not too much for sustainability,
(7) Financial aspects needs to be solved by building a circular in-game economy that works where (a) gamers are willing to pay for in-game items, (b) digital goods and services that have value need to be created by users, (c) money has to flow circularly in-game, and (d) monetary macro policy is a real consideration.
(8) Sustain competition from all fronts by continuously generating new content and offer innovative technology products into the game world to defend from other metaverse projects, traditional gaming projects, social networking projects, and other activity that indirectly consume user’s time and money that would otherwise be spent in the metaverse.
I think this is hard enough. I don’t want to discourage builders (including myself) too much.
Tri Ton
Austin, TX
2022 Feb 26th