GameFi Tokenomics 101: Dual-token blockchain games

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In a previous article, we introduced three tokenomic models for single-token blockchain games and their respective pros and cons.

In this article, we’ll go over dual-token projects, an innovation that came after single-token games, which is the most popular model today.

The dual-token model emerged in the first half of 2020 when Axie Infinity introduced SLP (Smooth Love Potion) to reduce selling pressure on AXS, the original game token of Axie Infinity.

Since then, almost all major titles have had a dual-token economy.

To understand how dual-token games work and why this model exists, we should look at how Axie rolled out SLP.

Before introducing SLP, Axie was a single-token GameFi, where players input USD and receive the game token, AXS. With tremendous user growth and money from many PE funds supporting the market, Axie successfully ran on just one token for over a year.

However, it was not difficult for Axie to realize how critical new users were for the projects. Once new money stopped coming in, a death spiral would begin.

To alleviate selling pressure on AXS, Axie introduced SLP in 2020. Whereas AXS was used for governance and staking rewards, players would use in-game utility token SLP for breeding new Axies and earning more SLP. The development team increased the ratio of $AXS- $SLP required for breeding and increased the amount of $SLP needed for reproduction.

At first, the new model worked as planned. According to Footprint Analytics, AXS’s price roared right after SLP was brought to the game, while SLP’s token price stood below $0.1 for several months. SLP had seen an uptrend drawn by newcomers since the GameFi summer.

However, this trend did not last long, and SLP soon fell into a death spiral. The Axie team responded by changing the community governance structure to become more decentralized. They also removed SLP as the game’s PVE (Player vs. Environment) yielded earnings on Feb. 9 to reduce SLPs mint and supply. With these changes, SLP’s price increased.

The dual-token model has solidified wherein one token is mainly used for governance—owning more of this allows the holder to have more voting power in community votes about the project—and another is used for in-game functions, i.e., the utility token. In most games today, players earn most of the yield in the usually lesser valued utility coin and a bit in the governance coin as a premium, e.g., if they own valuable NFTs.

Besides Axie, several other popular GameFi projects, such as BinaryX and Starsharks, also use the dual-token model.

Two different categories of dual tokens GameFi

Most of the newly released dual-token GameFi projects adopt the model of the “input game token and output game token” model.

For example, BinaryX players use governance tokens to start the game and yield utility tokens as returns, while Starsharks players start and yield utility tokens in the game.

We know from the previous article that the cost and returns are highly correlated to this model’s token price. It is much easier to adjust the tokenomic models without centralized adjustment with the dual tokens than the USD value-based model. The USD-based model requires an oracle to specify the number of corresponding tokens, which complicates the dual-token model.

In this article, we provide an analytical approach to dividing different categories of dual tokens GameFi: After the sale of Genesis NFT, what approach does the project owner use to increase the number of NFTs in the market to meet the demand for NFTs from new players?

In the beginning, most of the GameFi projects will sell Genesis NFT on the official platform or partner platforms such as Binance NFT or Opensea to accumulate initial players. They then have several mechanisms to mint further NFTs while fuelling token consumption. These include:

Breeding Model: In this model, the second generation NFTs and subsequent NFTs come from the breeding of Genesis NFTs, with no more blind boxes sold. This mechanism requires burning/spending tokens to mint the new NFTs, which allows the game to influence the selling pressure on the tokens depending on the price of minting. Blind Box Model: Compared with the breeding model, the blind box is simple. The team sets the number of NFTs in the game, and when the market is good, or consumption goes up, players sell more. This buoys the price of the tokens because they need them to buy the NFTs.

However, all ambitious, long-view projects will declare that most of the money from blind box sales, whether in USDT or utility tokens, goes straight to the community treasury or burnt. Starsharks is so popular because it announced to burn 90% of the utility tokens from blind box sales.

Summary of dual-tokens GameFi tokenomics

Tokenomics are a crucial part of a GameFi project, along with metrics like the number of new players, the number of active players, and the contrast between output and consumption.

As GameFi evolves, each cycle sees new economic models and innovations, each with its own pros and cons. Serious investors can also learn to spot trends within specific tokenomic models to time bottoms, predict FOMO inflation, generate yield during bottom stabilization, and other strategies.

An article originally by Watermelon Game Guild, edited by Footprint Analytics community.

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Posted In: Analysis, GameFi