Author: JamesX(@0xJamesXXX) & Tim (Midaswap co-founder)
In Web3 games, the interaction between players and games is a two-way behavior of value interaction. Thanks to NFT's encapsulation of game assets and props, props in Web3 games can be priced not only based on their utility in the game, but also based on market trading behavior. In traditional Web2 games, game props can only be priced based on their utility in the game.
The reason why Web3 game props can be priced at a premium based on market trading behavior is that the port of the Web3 game is connected to a value Internet with basic financial infrastructure. There is free and abundant liquidity on this value Internet, so any valuable asset target can be fully traded and priced in this market, which allows Web3 game props to capture additional liquidity premiums.
As the pricing core of Web3 game props changes from game utility pricing to financial market transaction pricing, the way Web3 project parties capture value will also transform from Web2 prop recharge consumption to transaction taxation. Ideally, Web3's NFT props can be freely traded on the financial public chain and Web3 game project parties can obtain corresponding transaction fees and commissions in each transaction. As Folius Ventures stated in the article "The "tax collection system" business model is more suitable for Web3 games", Web3 game value carriers can be retained and freely circulated on the chain with the help of NFT, and developers also have the autonomy to let the world's liquidity price the game value carrier.
However, in actual product implementation, the star projects of the last bull market, Axie Infinity and Stepn, both chose to build their own NFT MarketPlace to direct public domain traffic and liquidity into private domain pools.
The core reason for this contradiction is that the ultimate source of income for Web3 games occurs in the transaction link, while the public chain itself is a free and open financial transaction market. The financial system of the public chain is equivalent to the World Trade Organization, under which member countries can mutually recognize a unified trade agreement (EIP) for communication. Each Web3 game project is an independent trading city-state. Since the current tax rates of Web3 games remain off-chain, this means that the independent trading city-state is not connected to the WTO system, and the internal transaction tax rates cannot be recognized by other member countries. Therefore, it is impossible to levy taxes on transactions that occur in other member countries. Therefore, Web3 game project parties hope to retain more transactions in their own trading city-states to maximize their interests.
This article will introduce and compare the different ways that Web3 game projects can build on-chain trading liquidity platforms, analyze the existing business model based on royalties/transaction fees, and provide a new solution for project developers. ** **
Traditional MarketPlace Construction Method for Web3 Game Projects
Web3 game projects generally adopt the method of building NFT MarketPlace to collect transaction fees. According to the method of building NFT MarketPlace, it can be divided into two different schemes: centralized NFT MarketPlace and semi-centralized NFT MarketPlace
Centralized NFT MarketPlace mostly appears in the Gamefi mobile app. Internal users conduct transaction matching in the centralized server, and externally use the recharge and withdrawal method to manage assets. The advantages of using a centralized NFT MarketPlace are fast development speed and low cost. The overall development cycle is within 3 months. The disadvantages are high risk and lack of interoperability with on-chain liquidity. It is necessary to capture traffic and liquidity by attracting new deposits. The representative project is Stepn, which can earn up to 5 million US dollars in daily transaction fees at its peak, and 100 million US dollars in monthly income.
Semi-centralized NFT MarketPlace mainly appears in the form of a web terminal. The matching of user transactions occurs in a centralized server, and the delivery of NFT assets is submitted in real time on the chain for settlement. Users can operate directly by linking their wallets. The advantage of using a semi-centralized NFT MarketPlace is that it opens up the traffic and liquidity on the chain, and users can buy NFTs and play games in a very smooth way. The disadvantage is that the semi-centralized NFT MarketPlace product structure is complex, the development is difficult, and the later operating costs are high. The overall development cycle is within 6 months. The representative project is Axie Infinity, which had a daily transaction fee income of 11 million US dollars at its peak and a maximum monthly income of 360 million US dollars.
NFT trading royalty model using third-party Marketplace
PFP project parties, led by Yuga Labs, did not earn transaction commissions by building their own NFT MarketPlace, but directly earned commissions from the transaction process through royalties. Data shows that in the past two years, Yuga Labs has earned a total of 147 million US dollars in royalties on the chain. Through royalties, you can earn transaction commissions without developing and operating an independent NFT MarketPlace, and you can directly capture the traffic and liquidity on the chain.
Therefore, the first step for Web3 game projects to step out of their independent trading cities to capture the liquidity and traffic of the entire chain is to put the transaction tax rate on the chain. At this time, we can use EIP-2981 to achieve this function. EIP-2981 is an NFT royalty smart contract standard. It allows asset contracts (such as NFTs that support ERC-721 and ERC-1155 interfaces) to send a specific proportion of the royalty amount to be paid to the NFT creator or rights holder each time the NFT is sold or resold. NFTs using EIP-2981 can achieve accurate royalty payments regardless of which market they are sold or resold. Web3 game project parties can set the transaction rate of NFT game props through EIP-2981, so that they can directly capture liquidity and traffic on the public chain and obtain continuous royalty income.
When the transaction fee tax rate is on-chain through EIP2981, the independent trading city-state of the Web3 game project will join the financial trading market of the public chain. After that, the Web3 game project can receive the corresponding handling fee for all NFT game props traded on the chain. At present, the transaction process of centralized NFT MarketPlace such as Opensea, Looksrare, X2Y2 and Blur is completed through the centralized system matchmaking off-chain. Therefore, even if they can obtain the royalty tax rate of the game project through EIP2981, since the transaction process occurs off-chain, they can still choose not to collect royalties. This is like having a unified trade agreement, but the transaction intermediary conceals information through the opaque information of the transaction process to circumvent the tax rate that needs to be paid during the trade agreement.
The most appropriate way to eliminate this loophole is to put the transaction process on the chain, use the characteristics of smart contracts "Code is Law" to fully execute the transaction process, and complete the operation of collecting royalties on the chain during the transaction. If you want to put the entire NFT prop transaction process on the chain, you must rely on the decentralized NFT MarketPlace, that is, NFT AMM.
The final battle of NFT Marketplace: NFT AMM
NFT AMM is a set of smart contracts that use AMM algorithms to automate NFT pricing and trading. It mainly uses liquidity pools to achieve frictionless and low-cost NFT transactions. In NFT AMM, liquidity is uniformly gathered in the Pool. At this time, both buyers and sellers can interact with the Pool to buy and sell NFTs. The Pool provides instant liquidity in the NFT trading market. Therefore, NFT AMM creates a very effective trading platform for traders, unlike centralized markets where sellers must list NFTs one by one. NFT AMM has the feature of being permissionless, so any NFT/ERC20 trading pairs can be constructed, such as BAYC- $APE, Axie-$SLP, etc.
Web3 games are naturally suitable for NFT application scenarios. Web3 games have proven on Axie Infinity and Stepn that the new game props trading tax collection business model has the potential to surpass the in-app purchase props system of Web2 games. Compared with the in-app purchase props system, the tax collection system requires not only sufficient traffic, but also sufficient liquidity to match it. For example, Axie Infinity and Stepn both belong to the X to earn model. Under this economic model mechanism, users continue to purchase NFTs as deposits and sell the FT assets produced by NFTs as withdrawals.
The flow end is the drain port of the swimming pool, and the liquidity end is the outlet of the swimming pool. If the flow is not enough, the water in the swimming pool will accumulate very slowly. If the liquidity is not enough, the outlet of the swimming pool cannot be controlled, and the accumulated water in the swimming pool will also quickly flow away.
On the traffic side, Axie Infinity obtains new traffic through YGG's ground promotion. On the liquidity side, Axie Infinity is a product that has survived the bear market. At this time, the cost of obtaining liquidity from CEX is very high. Therefore, Axie Infinity uses the Defi tool Liquidity Mining to capture on-chain liquidity and store liquidity in the AMM Pool. Now that the bear market has come again, Web3 game project owners should retrace the long march of Axie Infinity and find new traffic entrances and ways to obtain liquidity.
I have been thinking about whether there is a set of NFT trading liquidity architecture that is more suitable for game assets than centralized NFT MarketPlace such as Opensea and blur. The answer may be Midaswap.
How does Midaswap efficiently solve the needs of Web3 game projects?
As an on-chain NFT AMM, Midaswap will be connected to multiple traffic entrances such as Opensea Pro and major mainstream wallets and compatible with EIP-2981 after its official launch. Like DeFi Summer's Uniswap, it can help game project parties build an on-chain NFT trading market leading to the liquid global crypto financial market, increase the game NFT premium and guarantee the game project party's transaction fee income for each transaction in the form of "code is law".
Midaswap also includes a complete set of NFTFI solutions to help project parties capture on-chain liquidity: the NFT AMM automatic market-making algorithm can realize instant buying and selling of NFTs and help project parties automatically make markets in custom ranges, with only one liquidity addition required.
Its permissionless architecture allows users to purchase NFTs with any token, and supports project owners to build an ecological market similar to TreasureDAO based on $magic around their own tokens. At the same time, it also innovates the liquidity mining based on erc20 in the Axie Infinity era with NFT-based liquidity mining and lp token corresponding to erc721 format, and encourages the community to keep NFTs in the NFT AMM's Pool, which also reduces asset selling pressure and improves the liquidity of the corresponding NFT/FT trading pairs, thereby extending the life cycle of the project.
