Summary
Blockchain-based games introduce a new economic model that combines traditional games with decentralized ownership and financial incentives, prompting the rapid rise of the GameFi industry. However, despite their innovative appeal, these games face significant challenges in terms of market stability, player retention, and sustainability of token value.
This article explores the development history of blockchain games and identifies the main flaws of the current token economic model through the entropy increase theory. We propose two new models - ServerFi, which emphasizes privatization through asset synthesis, and a model focused on providing ongoing rewards for high-retention players. These models are formalized into mathematical architectures and validated through group behavior simulation experiments. Our findings demonstrate that ServerFi is particularly effective at keeping players engaged and ensuring the long-term viability of gaming ecosystems, providing a promising direction for future blockchain gaming development.
Introduction As technology continues to evolve, the gaming industry thrives on the journeys of adventurers and outdoor enthusiasts [1]. Beginning in the 1970s, Atari introduced Pong, an arcade table tennis game that captivated consumers during the turbulent 1970s and inspired many inspiring imitations. With the advent of more powerful microprocessors, specialized graphics chips, and personal computers such as the Commodore 64, it became possible to create complex, visually appealing, and sound-rich games.
Following these pioneers, Nintendo quickly captured a majority of the console market with its home console, the Nintendo Entertainment System (NES), launching games like Duck Hunt and Dirt Bike. Meanwhile, Sega and Sony have emerged as contenders with their excellent titles. Sega launched the Genesis and Game Gear, while Sony launched the PlayStation 2 and 3, consoles equipped with CD-ROMs for enhanced game storage that together defined what the future of consoles would look like after 1994. The last big sign of game development is the Microsoft-driven DirectX API adoption wave that's ringing through the gaming world.
Online multiplayer games like "World of Warcraft" and "Fortnite" have completely changed the way players interact and, driven by network technology, represent a leap forward for the gaming industry. These games became cultural phenomena, allowing millions of players to share virtual worlds and fully enjoy the joys of technology. The rise of Google Stadia and Microsoft xCloud is also notable. They stream games directly to players’ devices, providing a high-quality gaming experience without the need for powerful hardware [2].
These breakthrough innovations bring players into a highly social and interconnected experience world, which relies on the development of network technology and will undoubtedly push the gaming industry into the next era. These visionary changes have refocused public attention on issues of decentralization and data ownership. In the era of traditional games, player data and assets were absolutely centralized and stored on servers run by game companies, including virtual items purchased by players. Ownership of these controversial items never rests in the hands of the player who purchased them, subject to the ongoing influence of the classic economic model.
This traditional model has operated for decades around player payouts and company profits, with players receiving next to no return for their investment in valuable resources like time and money, aside from a small direct return rate. Often referred to as "walled gardens," these games host in-game items, characters, and currency on the developer's servers, and players cannot take ownership of their accounts, content, and in-game assets. This time period narrows the scope of rights for players, even though their time and financial investment in the game is significant, and does not even generate any economic value for those who keep the financial cycle in the game running smoothly and provide sustainability.
The emergence of GameFi has reshaped economic production relations and brought real-world incentives. When it comes to bringing "games" and "finance" together in a smoother way than expected, the "play and earn" (P2E) game built on the blockchain network is primed for an eye-catching debut Be well prepared. Blockchain-based games typically create crypto-assets in two mainstream ways: marking in-game items as NFTs and granting fungible tokens the qualification to become in-game currencies [3]. By combining traditional games with on-chain assets, these games enable decentralized ownership, transparency, and tangible economic incentives for players. However, significant challenges remain in terms of market stability, player retention, and sustainability of token value.
This article first outlines the development background and pioneering cases of blockchain games. We then apply entropy theory to analyze potential causes of current challenges and shed light on the factors driving market dynamics. Building on these insights, we introduced two innovative token economic models: the ServerFi model that enables privatization through asset synthesis, and a model that continuously rewards high-retention players. These models are formalized into mathematical architectures, and their effectiveness is verified through group behavior simulation experiments. Our findings highlight the potential of the ServerFi model to sustain player engagement and ensure the long-term viability of gaming ecosystems.
Background: The Rise of GameFi Blockchain-based games create crypto-assets in two mainstream ways: marking in-game items as NFTs, and granting fungible tokens the qualification to serve as in-game currency. 2013 witnessed some key moments, such as Meni Rosenfeld’s concept of Colored Coins, which brought attention to the importance of ownership of virtual assets and mapped real-world assets onto the Bitcoin blockchain [4]. Four years after Meni Rosenfeld, Larva Labs launched the CryptoPunks NFT series. This collection represents an important milestone in the development of NFTs and inspired the ERC-721 standard for digital art and collectibles on Ethereum through its 10,000 unique, randomly generated character images [5, 6].
NFT technology is undoubtedly embraced by visionary founders. Dapper Labs launched the first blockchain game on Ethereum called CryptoKitties, which clogged the network for a short period of time, causing significant transaction delays. In the game, players can buy, breed and trade virtual cats, each with unique visual characteristics and varying degrees of rarity. The huge success of CryptoKitties highlights the appeal of NFT-based gameplay.
CryptoKitties leveraged the psychological appeal of real ownership and potential financial gains to attract avid collectors and savvy investors through an in-game financial circuit, providing incentives to breed and trade rare cats, creating a speculative environment. In the same year, there was a discussion about CryptoKitties. The following is the content of the revised article. The punctuation marks have been changed to full format, and white spaces have been added between numbers and English and Chinese characters:
has almost become a mainstream topic. This innovative GameFi game has attracted millions of players, who not only own these rare "cats", but also gain social identity and a sense of belonging through the CryptoKitties community.
Among crypto games involving NFTs and "play-to-earn" (P2E) models, Axie Infinity developed by Sky Mavis emerged as an important successor to CryptoKitties and quickly became a popular game with its engaging game loop. Players often Get addicted to it and won't stop until late at night. Axie Infinity allows players to collect, breed, and battle fantasy creatures called Axies [7]. Each Axie has an NFT behind it, with unique attributes and abilities that can be enhanced through strategic breeding and gameplay [8].
This delightful GameFi game not only offers financial incentives similar to CryptoKitties, but also introduces more complex game mechanics and a powerful in-game economy. Its far-reaching design philosophy appealed to a broad player base, setting a new standard for the darling of this era and setting the benchmark for all future blockchain games.
Challenges of Token Economics and Our Solutions Facing a lot of competition from traditional online games running on centralized devices, blockchain-based games are becoming accustomed to storing digital assets on the blockchain, allowing players to Possessed items are sold or even transferred to other games or used in specific DeFi applications. Incentive models are gradually improving with the large-scale adoption of blockchain technology. This opens up a whole new way to create cutting-edge production relationships between players and developers.
Times have changed, and these innovations aim to restructure electronic society and have the potential to thrive in a post-game era. In the context of these major developments, we have to ask: In the context of the leap in the Web3 era, why would game developers choose a new production relationship derived from the GameFi industry? Players have different needs for assets, and traditional , the relaxing gaming experience has been put in a secondary position?
Most games have a certain life cycle, and CryptoKitties is no exception. Among the important mechanics of its operation is the breeding mechanic, which allows players to produce new cats, but this inadvertently increases supply, which in turn reduces the rarity and value of individual cats over time. As more players participate and breed cats, the secondary market quickly becomes oversaturated. The scenario is novel and players are piqued, but the dilemma is very familiar: How to maintain the price of circulating tokens? This devaluation problem will be further exacerbated if there are not enough active players for demand to keep up with the growing supply. Therefore, individuals who invest significant time and resources into reproduction may find that the output of their efforts is diminishing. As the game progresses en masse, initial scarcity may lead to player loss of interest and reduced engagement as abundance emerges.
The application of entropy increase theory combined with token economics provides a professional and in-depth perspective for clarifying the dynamics of token flows and value fluctuations in blockchain projects. The theory of increased entropy is based on the second law of thermodynamics, which states that in a closed system, entropy (a measure of disorder) tends to increase over time. This concept can be applied by analogy to economic systems, especially token economics, to enhance our understanding of token distribution, usage, and market fluctuations.
In token economics, the initial distribution of tokens is usually ordered. At this stage, tokens are relatively concentrated, prices remain stable, and players’ expectations are high [9]. Over time, more tokens are generated through game mechanics and enter the market. The increase in player transactions and token movement subsequently increases the entropy (chaos) of the market. During this intermediate stage, chaos within the system surges, leading to high volatility in token prices.
Possible challenges to token economics include inflation due to an oversupply of tokens in the market, and price instability due to an influx of speculators. Without effective market regulation and incentive mechanisms, the system may reach a state of high entropy (chaos), where the value of tokens generally declines and player participation decreases.
To maintain the long-term health of the system, it is crucial to have a way to link new incentives and regulations. These actions can slow the increase in entropy, thereby maintaining relative order and stability in the market and maintaining player participation.
We often think of token economics as isolated events, such as a single point of failure with a specific cause and effect. But from this perspective, the story is less about any one company and more about the global entropy of token circulation. Certain factors are always destructive, certain gameplay always fails. Taking Axie Infinity as an example, its token economics design has several shortcomings from a player's perspective:
First, Axie Infinity’s token economy is highly dependent on the continued generation of new tokens (such as Smooth Love Potion, SLP). As more players participate and breed Axies, the number of newly generated tokens in the market increases, causing the market token supply to rapidly expand. This supply and demand imbalance causes the token value to decrease over time, devaluing the tokens held by players.
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Secondly, during a token generation event (TGE), many players and investors flood the market trying to make a quick profit by buying and selling tokens. Such speculation can lead to significant price fluctuations and affect market stability. In the long term, profit-taking by early speculators may lead to a collapse in token prices, adversely affecting ordinary players. Third, Axie Infinity’s economic model lacks ongoing incentives to keep players engaged post-TGE.
As the initial novelty wears off, player enthusiasm may wane due to limited financial incentives. Addressing any flaws in the game can help attract new users and potentially increase token demand. Participation in Axie Infinity requires players to purchase Axies, which involves a higher initial investment cost. This high cost creates a barrier to new players, limiting the game's accessibility and widespread adoption. Additionally, the market price for rare Axies can be ridiculously high, making them unaffordable for the average player.
Based on the above discussion, we make two recommendations to improve the GameFi token economic model:
ServerFi: Privatization through Asset Synthesis
In line with the spirit of Web3, players can be allowed to combine their in-game assets and ultimately gain sovereignty over future servers. The concept, called "ServerFi," involves players accumulating and merging various NFTs and other digital assets within the game to gain control of the game's servers. Not only does this form of privatization incentivize players to invest more deeply in the game, it also aligns with the decentralized and community-driven ethos of Web3. By giving players ownership and control of game servers, we can cultivate a more engaged and loyal player base because they have a substantial stake in the game ecosystem.
For example, we could design a game where players receive lottery entries every day based on the value of their contributions to the game server. Players can use these lottery opportunities to draw shards. When players collect all the necessary pieces, they can synthesize an NFT. By staking this NFT, players can share the value of other users' contributions to the game server.
Continuous Rewards for High-Retention Players
Another method is for the project team to continuously identify and cultivate high-retention players to maintain the vitality of the token and ensure the health of the game ecosystem. By implementing sophisticated algorithms and data analytics, projects can monitor player behavior and engagement, providing targeted rewards and incentives to those players who show strong commitment and high activity. This approach ensures that the most loyal players remain engaged, driving ongoing engagement and interaction that supports the overall stability and growth of the game’s token economy.
For example, we can design a game that airdrops a portion of the game server revenue to top users based on the value they contribute to the system every day. This approach will create a "play and earn" dynamic that rewards players for their participation and contributions.
Experiment
To evaluate the effectiveness of our proposed token economic models, we conducted group behavior simulation experiments on each model. These experiments aim to compare and analyze the differences in value capture capabilities of blockchain games built on two different token economic architectures. To model more accurately, we first formalize the definition of these token economic mechanisms as follows.
ServerFi: Privatization through Asset Synthesis
Let vi represent player i’s contribution to the system in each iteration.
The function f(v) = λv represents the number of draws a player can receive by contributing value v, where λ is a scaling constant greater than 1.
Assume there are k prizes in the lottery, and the probability of winning each card is 1/k.
Assume that the number of new players on the first day is n, and taking into account the growth dynamics of the game, we define the number of new players in the i-th iteration as n/α(i−1).
We assume that all players in the game are rational. Therefore, if a player calculates that the cost of synthesizing an NFT exceeds the current staking reward, they will opt out of the game. Specifically, for a new player, the expected cost of collecting all fragments is λ Σ(1/k). When this cost exceeds the staking reward of a single NFT, no new players will join the game.
The total value of the system in the i-th iteration (day) is Ti = Σvi, where n is the number of players in the i-th iteration.
Continuously reward high-retention players
Let vi represent player i’s contribution to the system in each iteration.
We stipulate that the system will reward the top 20% of players with 80% of the total revenue based on their cumulative contributions in the past five days.
We assume that all players in the game are rational. Each player has a randomly initialized tolerance threshold, and if they fail to receive a reward multiple times in a row, they will opt out of the game.
The total value of the system in iteration i is Ti = Σvi, where n is the number of players in iteration i.
Given the inherent randomness in real-world scenarios, our actual simulation experiments introduced random noise from various angles, including individual behavior and population growth. For example, we introduce mutation operators in individual modeling to capture random fluctuations in participants' productivity in the game. To ensure a fair comparison between the two strategies, the experiment was designed with the same parameters in both experimental groups, such as the maximum number of iterations and initial population size. Each economic model population was run through 500 iterations, and each experiment was repeated 100 times. The experimental results are shown in Figure 1. The horizontal axis represents the number of iterations, and the vertical axis represents the total value contributed by players in each iteration. The light band represents the range between the maximum and minimum values, and the dark line represents the average.
In the asset synthesis privatization model (left), we observe that as the number of iterations increases, the total player contribution value shows a continuous upward trend, indicating that this model can effectively maintain player participation and promote long-term value growth. In contrast, in the model that consistently rewards high-retained players (right), player contributions initially rise significantly but then decline significantly. While the model showed high player contributions in the early stages, declines in subsequent iterations indicate challenges in sustaining player engagement over the long term.
Source: PANews
Based on the modeling results, we believe that while a strategy of “continuously rewarding high-retention players” may drive significant engagement in the early stages, this approach inherently exacerbates player stratification in the long term. Specifically, this approach may marginalize tail players due to a lack of sufficient positive feedback, ultimately causing them to quit the game. This stratification also tends to set a high barrier to entry for new players. As a result, the reduction of new players, coupled with the departure of tail players, reduces the rewards for existing top players, thus leading to the formation of a vicious cycle.
In contrast, the ServerFi mechanism is based on fragment synthesis, which introduces a degree of randomness through the fragment lottery process, thereby enhancing social mobility within the player community. For existing NFT holders, the continuous synthesis of new NFTs ensures that even top players cannot “just sit back and enjoy the gains”; they must continue to contribute value to maintain their status. For new players or players with smaller contributions, there are still plenty of opportunities to synthesize NFTs and share server rewards, promoting upward mobility. As a result, the ServerFi model more effectively facilitates social mobility among players, kickstarting the entire system and fostering a more sustainable ecosystem.
in conclusion
In this article, we take a deep dive into the token economics challenges that currently exist in blockchain-based games. Analysis shows that traditional economic models often lead to market instability, reduced player participation and unsustainable token values. To address these pressing issues, we propose and analyze two promising token economic models, with a special emphasis on the ServerFi model based on synthetic privatization of assets. Through extensive experiments with simulations of group behavior, ServerFi has demonstrated significant potential in keeping players engaged and ensuring the long-term sustainability of gaming ecosystems.
Unlike traditional models, ServerFi effectively promotes social mobility among players by introducing a dynamic and competitive environment where continued value contribution is necessary to maintain status. This model not only fosters a more vibrant and inclusive community, but also provides a scalable and resilient architecture for future blockchain games. As the industry evolves, the ServerFi approach may represent an important shift in the structure of token economics, providing a more sustainable path for the integration of decentralized technologies into games.
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[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: "PANews"
Original author: Spinach Spinach
Original text from Yale University "ServerFi: A New Symbiotic Relationship Between Games and Players"
