Game Economist Cast
What does the new wave of open economies mean for monetization? Will negative externalities overcome cosmetics economies in the long run? What exactly does a game economist do?
Game Economist Cast is a roundtable discussion of the latest developments in mobile, HD, and crypto games through a bunch of people figuring it out using the economic tool kit.
Game Economist Cast
E20: Game Inflation is Misunderstood
Inflation is a wild word, with everyone playing fast and loose with the definition of in-game economies. Eric isn't convinced inflation is the evil Friedman claims it is, while Chris defends the honor of game tokens from Phil's stablecoin inquisition. The crew debates the meaning of game inflation: in what units and for whom? The answer is not as clear as first thought.
So I went to an Italian restaurant in my hometown and I like we're like sitting down with a bunch of people and this is like all kind of towny because it's like high school friends and stuff but the like owner, I'd never been to this place. The owner comes up to Me. He's like this old Italian guy and he's his name is Johnny or something like that. He's he like comes up to me, pass me on the shoulder. I turn around, I just shake his hands and he's like how's it going today? I'm like yeah, it's good. It looks like the restaurant's doing well. He walks away and everyone was like, holy shit, chris is. He knows this guy. This Chris is like a monster and I just turned him out like I have no fucking clue who that guy was. You can do whatever you want if you pretend you belong, smoke cigars inside. I don't think Johnny was gonna do anything, he just wants good vibes in his restaurant.
Speaker 1:That's right.
Speaker 3:Let's start with utility. I don't understand what it even means.
Speaker 1:Everybody has some kind of utils in their head that they're calibrated.
Speaker 3:There's hardly anything that hasn't been used for money.
Speaker 2:In fact, there may be a fundamental problem in modeling when we want to model.
Speaker 3:Game Economist cast episode 20. There is no guest this week. I don't know how we put together a string of what was it? Five weeks, four weeks?
Speaker 1:Yeah, it was like we went for a year with no guest try to hit our quota.
Speaker 3:Q4 Q4 results. Make sure we hit our okay, ours. What do we do in 2020-24? How do we raise the roof?
Speaker 2:I think the guests keep the momentum going.
Speaker 1:I like that you're like Barack Obama on or something.
Speaker 3:I know you have strong thoughts on Candy Crush. I know the Jonas brothers apparently are into Candy Crush.
Speaker 1:So you have a natural of the Jonas brothers. What? They call me say Jonas, do you mean Jonas? It's like I don't have anything to say to that.
Speaker 3:We have wonderful topics to talk about. Today. I have published a piece on the staircase tax, which is something I have been thinking about for a long time, on how to solve when the fundamental problems I would argue in web 3 supply curves keep shifting out. How do we hold price constant if supply curves are already shifting out? Is there anything beyond durability? I think the staircase tax might be another arrow in the quiver. Let's talk about whether or not make sense. I think there's some potentially some strong takes here. We also have a piece that was published on Twitter recently Called designing an open economy. This was by 0x hemdahl because crypto doesn't like real names and it was a very long piece about open economy Design. We talking about whether or not that. There's some insights to be had there, but before we do, let's talk about we've been playing, got a selection of good things on sale stranger.
Speaker 1:Haven't done this segment in a million years.
Speaker 3:Yeah, it feels good to be back in the holster, chris, tell us about like the 40th board game you've been playing.
Speaker 1:But no, I haven't played a board game in a while. A little bit ashamed actually, but I played a couple of games since the last time we did this segment. I played two space games yeah, starfield, which sucked, and then I played no man's sky, which was awesome, and that's pretty much all I've got to say on the topic, unless you guys want to know why no man's guy, real, real.
Speaker 2:What's the term? Comeback story.
Speaker 1:Yeah, it gave me Minecraft vibes like. When I got in I was like, okay, this is pretty open-ended. The only problem I have with it is that Minecraft has simple UX. Once you're in, pretty much, go, bash some blocks up and you see it in your inventory. You're like, oh, there's like my block that I got.
Speaker 1:The UI is tough in no man's sky. It's difficult to keep track of what you've got. What it's upgrading your ship. There's just so much complexity to the systems. It's a real.
Speaker 1:It's a real difficult one, because it isn't it is a sandbox game. So when you jump in it's pretty much like there's some missions that try to teach you how to do each component, like each of the Big pieces of the game, like upgrading your ship and traveling and stuff. But other than that, I really love it. It really gives me the sense that I'm traveling in space, even though it's not hyper realistic right, there's not 10 quadrillion like miles between space and planets and stuff. Far better than the star, the starfield experience, which is basically just fucking fast travel with extra steps. It's here is like this space game where you're only in space. I only played the game for 10 hours. I gave up after 10 hours, but I was in space for maybe like 20 minutes and it took me 20 minutes to kill my first enemy. So fucking annoying. So two space games enjoyed one, did not enjoy the other. Eric, what are you playing?
Speaker 2:I've been going back to basics. I decided I needed to take my daughter's education more seriously, so we've been grinding tic-tac-toe.
Speaker 2:Grind about yeah, set her up on the iPad, I got her. I've been cranking the difficulty of the opponent gradually. I taught her about forks the other day and, and how old is she? Four and a half, almost five, okay, okay, but I was really proud of her because I've been explained to her and she didn't really understand. And then she started doing it herself and she was like oh, if I go here, it sets up two, three in a row, in a row and they can only block one. No, like yes, you get it, you're gonna demolish those other kids on the playground.
Speaker 3:When do you introduce Nash Equilibrium?
Speaker 2:I think we just keep things intuitive with concepts like that. But I've got this ladder, I'm working my way. So the idea is like what are some? I'm sure an education person could play this better, but I figured tic-tac-toe is like the simplest turn based strategy game, work way up to like checkers or connect for, and then eventually like chess and stuff. And then I've got like another vertical which is like we've been doing memory match, like the flip-to-card See if they're the same work on that working memory so she can play more card games or you have to anticipate what your opponent has in their hand and stuff. And then I think rock paper scissors is like another vertical of like simultaneous action.
Speaker 1:Interesting.
Speaker 2:Yeah, I'm trying to think what's like the logical way to introduce games to a kid.
Speaker 1:I was gonna say I feel like there's a big jump between like tic-tac-toe and checkers or something like that. I don't know what comes after tic-tac-toe. There's that stick game. Right, there's a. There's like a, I think you can play with your fingers where you like, hit the person and then they have two fingers.
Speaker 2:Yeah, that finger game, totally thought about that that one's like a more complex tic-tac-toe yeah is do you think that actually, what is it?
Speaker 3:to teach you anything about general strategies? Does that we get out of this, or is it just fun?
Speaker 2:Yeah, you go like a first you say, okay, this is a winning position, and then so you say, okay, this is a losing position for my opponent, and then I should avoid keep putting myself in a losing position. They like work their way up that logic tree.
Speaker 3:I feel like there's a much better way to teach kids About just everything is to teach them what goes into like the science and logic and math of winning strategies. Yeah, how much focus.
Speaker 1:Do you think you'll put on like strategy versus tactics? Because I think tic-tac, any of these solve games, are like very strategy heavy where, like you do induction, you say here's a winning position and here's how we got there. But with something like chess, like there's strategy, but I think, for me at least, tactics are the top part.
Speaker 2:Yeah, that's a fuzzy line. Tic-tac-toe is so small, there's like basically no distinction. But yeah, you know working her way up. Okay, can you win right now? No, okay, can your opponent win right now? And can you stop them right and just like that alternating, like what are they called mini max algorithm? Nice.
Speaker 3:That's going to be pretty fun to like question your daughter about assess the board for me.
Speaker 2:Yeah, like where should you go here? What are the options? And I have the thing, keep track of her score, and I noticed she's doing better against the opponents. Yesterday she had zero losses, a lot of ties, zero losses and a couple wins and I was like, wow, you get it. You know how to, you know how to block, you know how to.
Speaker 1:Are you training her to become like a chess grandmaster, or like magic gathering, or?
Speaker 2:something Smash bros. Eventually She'll find the game that suits her, but she's going to be good at gaming. Yeah, I'm going to. I'm going to make sure that happened Nice.
Speaker 3:Have you also been hitting up one of the world's foremost extraction? Not sure.
Speaker 2:Dark and darker. Yeah, that game is. They're not kidding. I had to turn the brightness up on my screen a whole bunch to play that game. Dark and darker it's.
Speaker 2:It's got like D&D style characters and like medieval combat in the style of like chivalry and like Mordhau, where, like, you're swinging a sword and your opponent has a shield and they can block it and stuff. But it's an extraction game. So you go into this dungeon. There's a bunch of like skeleton and goblins and treasure chests and shit and you're trying to get all as much loot and get out as you can. Let's say, 15 people go in and there's only seven extractions right? So, like musical chairs, someone's going to die and so eventually you run into other players and they might try to kill you, they might try to run away from you. Some people play like a rat and just hide and look for a portal. Other people go hunting because the other players have accumulated lots of loot and if you kill them you can take all their loot.
Speaker 2:Yeah, it's a really intense experience. And there's all this like organic social stuff that happens where, like, you run into other players and there's this unspoken code when if you just crouch spam, it's like a hey, let's not fight. So you go into a door you see another player. They start crouching and you start crouching and you're like, okay, we're not going to fight. But then they like backstab you when your back is turned, they'll follow you and kill you, and so there's a lot of like betrayal and kind of social elements going on there, which is really cool. But yeah, the game is a lot of fun.
Speaker 2:I think there's an interesting story behind the game where the developers were at Nexon and in their R&D department making new game ideas and they weren't getting any green lights or any traction and the leader of the team left, took basically his team with them and was like, fuck it, we're going indie, we're just going to make this game ourselves. But they reused pretty much all the same assets and there was some data on his personal computer that was supposed to be not there. It's supposed to be on his work computer. Anyway, they're in this big lawsuit with Nexon, a giant Korean publisher, and yeah, it's really like a David Goliath story right now. They got taken off of steam because steam was like oh, you guys are in a lawsuit, we're not touching this, and so they were distributing their builds will be a bit torrent for a while and they made their own launcher now.
Speaker 3:But yeah, it's a real scrappy story.
Speaker 2:I hope they do well, but every day I play I'm like this game might just get shut down.
Speaker 3:This non-verbal form of communication in a PVP game for peace, super interesting.
Speaker 2:Yeah, it creates all like organic storytelling too.
Speaker 1:I was just going to ask there's no, there's no text.
Speaker 2:You can't really type in the game. There is proximity voice chat, and so some people use that to basically say the same thing. Hey guys, I don't have any loot, I'm not going to fight you, please don't fight me.
Speaker 1:I love the idea of having to come up with ways to communicate. It's like the text is almost too efficient and so like it just you lose a lot of kind of depth and strategy versus this like non-verbal thing.
Speaker 3:So is there, if you, is it, a prisoner's dilemma and an extraction shooter? Could everyone just go in, loot a bunch of stuff and get out with no one dying and just continue that onwards and upwards?
Speaker 2:Yeah, so that's where the limited portals musical chairs element comes in is guaranteed. Some people will not make it out and it forces, even if you want to go peaceful with somebody and you're like, okay, we're not going to fight each other, once the circle closes, there's a battle royale style circle like Roger Lee closes in and there's only one portal left and you and that person you were supposed to be friendly with, one of you has got to take it Right.
Speaker 3:Very hunger games.
Speaker 2:Yeah, which is really cool, and there's certain classes like there's a rogue class that can go invisible, who's specifically designed to backstab people and steal from them. So what's the story?
Speaker 3:If you know that only a couple can survive, what's the whole point of coordinating action beforehand? And we saw this in the hunger games too. Right, like a lot of contests. Obviously it's a piece of fiction, but I think we see this in real life, where there can only be one winner, and yet people will coordinate to get to the end. But knowing that there can only be one, what is it? Just increase your, I don't know. Actually, you can solve that pretty easily, like it increases your probability.
Speaker 2:Yeah, you have to get to the end plus one stop. But once the market shrinks to it until it's just them. Now they're competing again.
Speaker 1:It's a lot easier to kill one person than to have to kill like seven, so you boost your odds to have to just take on the one.
Speaker 2:And violence is costly. You expend a bunch of healing resources and stuff to kill somebody else and while you're engaged in a fight someone else might swoop in and third party you. You might get distracted and not make your way to the center of the circle because you're busy fighting. So it's very costly to engage in combat.
Speaker 3:Do you know what this looks like at high level? Play for dark and ducker? The things change as a function of time series in the game or function of higher ranks.
Speaker 2:To be honest, I'm not good enough to really know. I think the better. There's this interesting mechanic in the one of the maps. There's like a hell you can extract out. With the blue portal which gets you out, you get all your loot. And there's also red portals that open up, that take you into hell, where it's everything's harder and there's like tougher enemies and stuff, and so for a player like me, going to hell is basically a death sentence. I'm there's no way I'm getting out of hell. But a good player who is like I can get out of hell 80% of the time. For them it's much safer to go into the red portals and so for them they're much more willing to take a red portal rather than fight to the death over a blue portal.
Speaker 1:Sorry, the red portals are PvE.
Speaker 2:You said the red portals take you to a more difficult level. If other people take the red portals, there might be other players in hell too.
Speaker 1:Okay, but it's like more difficult PvE stuff, yeah. So your lesson, okay, yeah, that's pretty sweet and all it's like a dungeon, all the blood dripping down the walls and shit.
Speaker 2:It's really nasty and creepy. But yeah, the whole game creates the sense of paranoia and anxiety.
Speaker 3:On my end. I've been playing a lot of idle games, so they we launched this experimentation group thing with David, who was on the podcast earlier which we're talking about, and a lot of the people that have come through have been from idle games and I think there's a lot of economic reasons for that, just because there's a certain cost profile that idle games fit really snug and neatly into. So if you've played into these idle games on mobile, a great example of this, or at least the one I've been spending a lot of time with, is called theme park idle tycoon and, as you might imagine, you're building a theme park and what will happen, unlike economy management games like heyday, where you're managing supply chains. So the way heyday works is that you have an order board and so people, towns that have since come in they say I want these ingredients and usually what you use backward induction, figure out okay, if I need to make, let's say, a pie, I'm going to need all these different ingredients and they go through a supply chain and I'd say, if I need a pie, I need butter, if I need butter I need milk, and if I need milk I need cows, and if I need cows I need grass because the cows need something to be able to persist. So you have to work through this backward induction to be able to satisfy that recipe. And one of the tasks of the game is to also manage that supply chain. So the cows, now that they have milk, you need to bring it over to churn it so it turns into butter. So you need to go through all those steps and what you're trying to do is you're really trying to manage the supply chain, solve some sort of equilibrium so there aren't gluts at any part of that supply chain, so you can very easily satisfy those orders. And of course, the game is entirely driven by these order boards. That's how they have progression. It's okay, you're at level five, we're going to introduce this new type of ingredient and we're going to use the order board to make sure that you have demand for the new type of ingredient that we're introducing to the game. That's really how they guide progress.
Speaker 3:I know games are completely different than those games and that's generally how the traditional roller coaster tycoon worked as well. Like you had a supply chain, you had all these economic factors of production. You were trying to manage them. You were trying to basically alleviate cluts. These are basically just clicker games. So you log in, you upgrade something, it collects more and more cash. You get more and more cash. You can upgrade more shit. That's it. There's no fail state, there's no glut. You just upgrade shit over and over again, extremely ad driven. So once you've built out the economic model for one of these games, once you've figured out how the progression is going to work, then you basically just reskin it with a new IP.
Speaker 3:So if you look at like these idle games, there's like a million of them. So there's like a roller coaster one, there's one about a zoo, there's one about managing a bank. So just drive down CPI as much as possible now that you have the economic model and see what works, and so they're pretty cheap to make. So I think there's like kind of this kind of like usually 20 to 50 headcount studio that will make them like one of the most popular ones is like a lumberjack one or you're at a lumber yard. So it's very close to these very early Facebook games that were just click. It's basically just a clicker login and click shit. So if you remember, there's this Facebook game called a cookie clicker. So it was literally just a cookie Just like you, just click the cookie.
Speaker 2:There was the entire point of it. Oh G clicker game.
Speaker 3:It's really how these games work. Now. A lot of times there's visual changes which are really nice, like my roller coaster looks great. So I've been playing a ton of these games and it just it's interesting. You really have to get down to what is the core satisfaction of a lot of these games and it's just like seeing progress, like that's it. You just log in, you get a hit of dopamine of this thing is progressing. It's good to make the numbers feel up, go up.
Speaker 3:I started with, let's say, a thousand $2,000 worth of income per day and I'm at like 1.6 octillion. And of course they use these little new aroma numerals or Roman numerals or like some sort of AA or AB, like they have some sort of ways of summing large sums of money because the system needs to be able to scale, because they've just become comical to display that many zeros. So I've been trying to figure out, like, what makes these things work and one of the experiments we're going to run in one of the idle games this one is called nightclub tycoon. It's by a German studio is basically just adding more shit to click. Like how many more clicker things can we add to this game before it breaks down? So if this is really about clicking, what if, instead of only having seven missions that you collect rewards from? What happens if you had 50 missions or 100 missions? What happens if, instead of only having 10 things, you can click per level inside of what they call an establishment, so like a bar, there's 10 things you can operate in the bar you can upgrade the glasses, you can upgrade the stools. What if we had 50 things that you could click?
Speaker 3:And the whole idea of the experiment is we're going to hold progression constant, so you're not going to move any faster. It's just literally more things to click. And that's been the tricky thing in a lot of these experiments is okay, how do we hold things constant? Because a lot of times you get in these experiments, and especially with lab ops teams, everything just looks like making a progression faster. If you want to do more of something, it always results in progression just being faster, and so you're combining the effect of progression being faster with the thing you want to experiment with. So, anyways, we'll see how that goes. But I'm playing a fuck ton of these games. If you want to get in and understand this, I highly recommend idle roller coaster tycoon. I think that's the one that does this the best. I have spent a fuck ton of money in them.
Speaker 1:Do you, do you have to put that in your interior for your business. Put in all the money you spend on the games.
Speaker 3:Oh, it's man. If you want to build your magic of gathering, I totally build my magic of gathering roller coaster. I don't like you and yeah, I proudly submit my my fairy golden gates to my income is negative at the end of the year. Hey man, utilities great, it's high, it's unmeasurable, at least in this sense.
Speaker 2:Every few years I play one of those idle games and I get like really into it. And then three months in I'm like checking my phone every 15 minutes to click on the things and like man, what am I even doing? And I quit. And then five years later I download a new one and there's something super compelling about it. I don't know.
Speaker 1:Do you guys think? Do you think it's possible to make a web? So there's like I don't know what it's, pixels or something like that, eric, that you were playing. It's like a farming simulator game, it's like an idle game oh, that was sunflower land. There's a new one called pixels and I don't really know what it is. I don't know how, I don't know how the economy works, but I think it's like sunflower land, where it's like a farming sim.
Speaker 1:I wonder how this works. Like in web three. Like I see a lot of these games being developed or even coming out because they're super low cost to build. It's like a pretty, pretty easy thing to build out. You just need the systems. So it's like how does that work in web three? Like this like pretty much you were saying, phil, like you need the number to just keep going up because that's the satisfying part. But how do? You can't have number keep going up, and we'll talk about this in a little bit, probably when we talk about the OX him doll paper. But I don't really see how this works in web three. But I could be missing.
Speaker 2:I think you just embrace the hyperinflation. I think that's the solution. The ways sunflower land tried to solve it by adding costs everywhere. So the progression is just way slower and there's a bunch of down gates. I think the other tact is just embrace the hyperinflation. It's supposed to be hyperinflationary. No-transcript.
Speaker 3:Interesting. I feel like I want to see more Web3 games that are purposely designed just to explode. But you announce it ahead of time so you let prices adjust to the coming implosion, you could have price stability. If you make it announced, you can have price stability. When all the nominal values just explode, the real values could be constant.
Speaker 1:I think seasons are going to be super powerful, and that's something that's probably under utilized right now. It's just like this idea of a time period where everything resets and everybody knows that. It's just really insightful things that I think Dr Ayo taught me or us during our conversation with him. As long as you have a pre-existing agreement with the players, here's what I'm going to do in the future. Everything's fair game as long as you communicate that. It's really interesting, phil.
Speaker 3:So we have a piece that was published last week on designing an open game economy by Zer-Hemdahl, who is a Twitter personality and also is a game economist.
Speaker 2:I see them post about Web3 games a lot. Yeah, they don't even know what he does. It says chief economist at some Web3 game company.
Speaker 3:He's published a very extensive piece, and when I say very extensive, it's most of weighed in at what 5,000 words.
Speaker 2:It was heavy.
Speaker 3:It was heavy. There's some pretty reasonable things that are stated and I'll quickly go through the recap he provides at the end for us to discuss. So he says that currencies must be competitive, building games as developing countries. Avoid a predefined maximum currency capacity. Reduce ecosystem risk to lead to capital accumulation, acquire an initial reserve and gain population. Categorize potential currency inflows Ruralties are a critical inflow in the form of an export tax. Utilize currency stability stabilization practices. Consider ways to design liquidity into the structure of a game. Holy fuck, there's a lot, fuck. I don't even want to go through all these. Oh my god. All right, here's the thing. Web3, stop publishing 5,000-word dossiers every time you need to make a game economy. I just don't understand why Web3 needs to do this.
Speaker 2:You got to be a thought leader.
Speaker 1:You got to lead the thoughts. It's a really long piece that mostly says logical, reasonable stuff. There's some stuff that I'm like does this guy actually know this for a fact Because he's done it, or is he just saying that because economics would say that you want to do it that way? And I think anybody who's worked in this space and actually managed the Web3 economies knows that there's definitely some. If you're a pure econ background, there's some facets of finance that you're not prepared for and there's just some facets of human psychology that you're not prepared for that you need to build into your models and account for, and one of those things is hype. Anyway, some of the stuff I was like, okay, does he actually know that or is he just writing that because it sounds really good the whole piece is about.
Speaker 3:Look, currency stability is good and you get a lot of benefits when you have currency stability. Completely logical to me. If that's the case, web3, just use fucking stable coins. You want to prove this out? Just use stable coins, because at the heart of Web3, let me just get this part out At the heart of Web3 is the problem that a token has to be both a piece of equity and a medium of exchange, and those two things are fundamentally opposed to one another, and Web3 refuses to swallow that pill, which is why they'll never succeed, in my opinion, if they can't get over this.
Speaker 2:He does advocate pretty strongly at the beginning that like look, don't make a value accrual for your game economy, make a medium of exchange.
Speaker 1:I definitely agree with that.
Speaker 1:Then make a stable coin. Okay. So, phil, let's say you want to do a stable coin, usdc. Say I want to take the Stryolos economy and USDC. How do I do that? First I've got to accumulate I don't know $100 million worth of USDC to hand out to people and use as a medium of exchange. Or I guess if you completely rebuilt the economy to be hey, you've got to come in with 20 bucks and use that to exchange.
Speaker 1:In our ecosystem that's possible, but there are some really powerful benefits of having your own token, right. So think about this guy. He really digs into countries like hey, comparing these Web3 economies to countries which I really like, because it gives you a lot more control. When you have your own currency you can control. There's monetary and fiscal policy that you can implement that you wouldn't be able to if you were dealing with a stable coin. That said, who knows, maybe the benefits of having the stable coin far outweigh the costs associated with not having that monetary control. But I do think, especially for existing Web3 economies like, it's non-trivial to just switch from your own token to another token.
Speaker 1:I've always been an advocate for there's a place and a time for a token. Obviously, I think an economy like Stralis, which tries to resemble Eve online, should probably have its own token. There's a lot of stuff we want to be able to do that we wouldn't be able to do if we're using USDC. That said, we allow trade in our economy with USDC and when I'm looking at price indices I use USDC, and price is much more stable in the economy when we measure it in USDC than we do when we're measuring an atlas, and obviously we've seen anybody who's following outlets has seen crazy explosion over the last couple of weeks, which is causing a bit of a headache in terms of stability in the game. Depending on who you ask, prices are going up or prices are plummeting because the value of atlas is going up so much, so it depends on the price index.
Speaker 3:What do you think is something that you can do when you have your own token, that you couldn't do if you had a stable coin?
Speaker 2:Seniorage- you make the money. Yeah, that seems like a bad idea.
Speaker 3:Anyone who's been given their own printing press does not seem to make good decisions.
Speaker 1:Oh, I don't know if you could say that, hey, you're a big US fan, aren't you, phil? Usa, right, there's certainly risks and problems associated with being able to print money, but we wouldn't have enterprise the way we do if we didn't have tokens. And the other thing is, this is no different than comparing a shitty country with terrible currency to the US dollar. Right, we look at the US dollar as the stable coin because it's the most stable thing. It's all a relative game. If the euro becomes the most, if that's the I almost said language, if that's the global currency, then that's the thing we compare things to, because USDC is this established currency. I don't know, I think it's all about a frame of reference.
Speaker 1:The other thing I wanted to add in terms of this stability argument is we were talking about it earlier with respect to the excitement and the explosion of the economy, and maybe, if you just announced that, hey, this is actually a part of the game design, like the game is designed. And there are board games like this where the game is designed so that the market crashes at the end and like the first person to crash the market wins, or something like that. So I really I personally see there being almost like a career that comes from having a token with a floating price. There's a whole entire game mechanic there that players can engage with and there's a whole bunch of risk. Like I understand that what I'm saying is controversial. There's a lot of excitement that happens in our marketplace and there's a lot of user retention. That happens because the token exists, and if it didn't exist, maybe we'd have something more like Skyweavers economy.
Speaker 3:But that's because they see it as a piece of equity that's going to go up in value. That's just. We're just back to the normal Web 3 problems. I'm excited because I own something and I think it's going to go to the moon.
Speaker 2:I mean there's like currency traders and commodities traders.
Speaker 1:I was going to say I see it as there are certainly people who hold these things for longterm value, but I think a lot of the motion is from, like, these short term kind of speculators and these flippers who are trying to I'm going to buy this and I'm going to sell this, I'm going to have all these interesting financial instruments.
Speaker 2:So I wanted to touch on your point about the, the economy that's designed to crash Chris, which is like all right. So, heimdall, in this article he basically says stable currencies are good. Here's 109 ways to do that, and I think it's a very comprehensive and here's a bunch of ways you can try to stabilize your currency. There's one huge assumption they make at the very beginning, which is stable currency is good, and he frequently, throughout the article, rags on Diablo three and says well, this game is hyperinflationary. The value of gold crashed precipitously and missed out on the point that Diablo and these loot grinders are supposed to be inflationary. The whole point of the game is run dungeons, get loot. Run harder dungeons, get more loot. Run harder ones, get more loot. It's the idle game fill you described, but with extra steps.
Speaker 2:And the way Diablo and of these games manage it is they do hard resets, like every three months or whatever. Your entire account is wiped, everything is thrown into the garbage bin. Start over from the beginning, right, and that's the fun. People come in for the new season. They're like all right, we're starting from scratch again. Everyone's poor again, let's start running.
Speaker 2:And I think this at this guy coming at it from an economics angle and a crypto angle and not from a game design angle. He never stopped to ask is hyperinflation fun? Like when does hyperinflation? The goal of the currency is to support the game is not to just to be stable. But what does the game need? Diablo does not need a stable currency. Diablo needs a hyperinflationary currency that you can wipe every so often, and so that's my biggest gripe with the piece Does your currency carry over from season to season, diablo? So the way they do it is there's the active accounts, which are wiped, and then there's the eternal realm, which is all your old accounts. You still have your old characters and stuff, but everything there is pretty much worthless because everyone's got max level stuff fully geared, I'm sorry.
Speaker 3:So in the seasonal model gold is wiped.
Speaker 2:From the. Yeah, there's like the seasonal characters that get wiped periodically and there's the permanent characters who never get wiped and everything just accumulates there. Everyone in the eternal realm is super rich, Right.
Speaker 3:So what are the? Do you mind if we walk through, like the gameplay consequences of an inflationary economy in Diablo? So what do you mean by inflation in that economy? So is it the price of gold? The purchasing power of gold decreases over the course of a season.
Speaker 2:Yeah, so the USD to gold. So let's start say the desirability for, let's say, a million gold at right when the game starts is extremely desirable. It's extremely hard to get a million gold and people are willing to pay more money for a million gold items right yeah. To buy items.
Speaker 2:Buy, yeah, buy whatever you need in the game. But as people level up, you go from level 10 to level 50 to level 100 or whatever. You accumulate gold much faster in the game. You've run harder dungeons. The monsters drop more loot. You know you can have better loot so you can run the dungeons more efficiently, and so the rate of people's income measured in gold is much higher, and so the dollar value of a million gold drops precipitously. Because there's an open marketplace. D3 had one, briefly, d4 does not but there's gray markets and stuff.
Speaker 3:But isn't. The thing I don't understand about that, though, is it only really matters if there's an open marketplace, right? Because when we say inflationary, it's what do we actually mean? So the purchasing power of the gold is declining because prices are changing, right, prices are changing at the same rate. Your rate of gold is going up. They are maintaining equilibrium. Just, the numbers are going up, right, the income is going up and the prices are also going up. Your purchasing power per unit of progression is almost state constant, right, this only matters if there's an open economy in the course of a season.
Speaker 2:The value of an item in terms of gold also goes down right. Let's say you have a staff that's purple or whatever. Early on it's very valuable and the gold price it would fetch is much higher than later on, when everyone's getting this loot constantly and the supply is flooded, gold income is increasing for items because you're moving up the power curve.
Speaker 3:Because to me it's always about progression.
Speaker 3:It's like how they're pricing progression, and so to me this only really matters in an open economy where, if I'm a new player who's entering Diablo, let's say at D30, day 30 into the season, I can relatively buy more units of progression at a cheaper price, so I could buy up to level 20 worth of gear because it's relatively cheap to do so.
Speaker 3:Where if I wanted to buy up to level 20 worth of gear on the first day, that would be much more expensive, it wouldn't be $100. Whereas if I do that later on, it's only $5. That to me would be like true inflationary economy and that to me presents a lot of problems. If you were to go with that model, because you're basically giving away, you're not maximizing the value of the content, and so I guess what we're saying is you basically get an XP boost the further and further the economy goes into the game, and so the early content becomes cheaper and cheaper and cheaper and cheaper and cheaper and cheaper. So it to me is it's almost comical, like you're this is just like the districts at the heart of the problem with?
Speaker 2:what's wrong with that? Let me ask you that question.
Speaker 3:Yeah, what's wrong with that? So let's imagine for a moment that you could buy to any level you wanted in Candy Crush, so I could buy to like level 100 if I wanted to. And let's further imagine that over time you can, that the price of buying to a given level is also decreasing, just for the inflationary problem that we talked about. So to me, what happens is that you're not maximizing the value of that content, like people would actually have been willing to pay more to get to level 100, and so that's being devalued just by the factor of the open marketplace. And I would say the second part is like it's about an experience. It's like reading through a Wikipedia entry versus watching an actual movie, wikipedia entry for a movie versus actually watching that movie. It's like getting the cliff notes, like the whole point of games.
Speaker 3:This is something, chris, that you highlighted, that Edward Castro Nova pointed out, which is you could just click a button and you could have total economic efficiency right. Just one button, everything's maximized, all accounts are full, everyone's level 100. But ultimately that's not what we find. That games have value and it's about overcoming challenges. It's s-curve, it's flow, it's all the things that we've talked about. And so when you start to use prices, it really fucks with our ability to control flow and to give users a particular experience. It is a centrally planned experience that we're trying to give to players, and that is the one that we found to be the best.
Speaker 2:So the experience that the hardcore players are looking for is they. The reset happens and they're excited. It's a race like we're off to the races I'm gonna get. I want to be the server first to level 50. I want to have the highest level barbarian on the server and I want to get there before my friends and that for them, it's the climb, that's exciting. It's and, yes, as the average level on the server goes up, it's easier to boost your friends up.
Speaker 2:It's if candy crush reset and you could buy up to say, 50 levels behind whoever was the highest. So if the highest player is at level 150, you can buy up to level 100, but you still have to grind your way from 100 to 150 and then, once the highest player gets level 100, you can buy up to level 150 and you have to grind the rest of the way. That's the experience and you're right that it's like weird from a monetization standpoint. They don't monetize this directly in Diablo. This is it's all for the gameplay purposes, but yeah, and it creates this weird progression thing where if you start later, you can progress faster. But again, I think that's by design that the hardcore players grind up and then their friends join in later and it's a catch-up mechanic for their friends.
Speaker 3:I'm to be clear, I'm on board with the catch-up mechanic. We see this all the time in World of Warcraft, where they'll increase the level cap, but what they'll do is they'll simultaneously make it easier for the the beginning levels to be achieved, so they just shift out the progression curve almost. So the total time it takes to get to, let's say, level 100 is less than it was previously. But when you add that the time it takes to get to, let's say, the new level cap is 120, it's still more than it was previously.
Speaker 3:The whole idea that progression gets a little bit cheaper as the level cap increases Makes a lot of sense to me. I guess my argument would be where it becomes. Comically it's it's always decreasing, even when the level cap is not increasing. That's me, would be a problem. Those two things have to move together and there's no there's. You don't need the incomes to increase For that to be true under a tradable web economy, because capital is just going to accumulate and progression is just naturally gonna get cheaper and cheaper, like the supply curve is gonna get this right like what's the next thing?
Speaker 3:but this is like her just continues to move out.
Speaker 2:That's why they hit reset right. That's why they do the seasonal resets. You're right that there's no steady state. There's no. This thing is not designed to be sustainable or reach some equilibrium, and so they just hit a hard reset button and Maybe there's a more elegant way to solve that problem. But I think the my main point here is I think that you can have a game where the currency is hyperinflationary by design and the game is fun, in part for the same reasons. The currency is hyperinflationary.
Speaker 1:I want to clarify because there's. So I set a picture to our chat and this is a picture of US DC price index and Atlas price index of our goods. And it's not, it's not like a CPI. Don't look at it as a CPI. It's not centered about 100, but basically what you can see is the price of Atlas in the open market starts to go up, the two price indices become Disjointed and you can see that the price of assets in the game are stable in US DC but they're decreasing in in in Atlas. So this, in my view, I would. I look at this and I see the US DC is the stable currency. That's the thing that I'm pegging everything to. That's my real value. And I say prices are stable in real terms. Prices are decreasing in Atlas terms, which means that CPI is going down. So we're actually having deflation. The value of the currency is going up or the value the goods are going down. Now the question is so for me, I know the answer because I know that US DC is stable. So if the prices are stable in US DC but they're decreasing in Atlas, that I know that the culprit is Atlas, not the actual assets themselves. So there's two different sides to this price index. There's the the actual value of the goods decreasing because there's so many of them, or the price of the currency going up and having more purchasing power. People will always anchor to the US DC, no matter what, because we're opened up to the rest of the market.
Speaker 1:I guess I have two points here. I'm mostly just talking in a circle. But my first point is it's just really cool because it means that we can have this kind of currency Flexuation and still have a relatively stable game. Right, because all the nominal values haven't really changed in the game. And then the second point is completely out of my head. I completely say so, but I oh with.
Speaker 1:The key is there's a two-sided market here. Inflation you can have inflation or deflation, and I think of inflation and deflation in terms of the prices, the goods in the game, not necessarily the value of the currency. I think sometimes we conflate those two. But I see deflation and inflation is this like fluctuating thing, at least in our game. Like I don't see prices. This game has been released for three and a half months, so I'm not not counting anything yet. We see prices relatively stable in US DC, but it goes.
Speaker 1:It's pretty wild and Atlas and I see that as an interesting two-sided kind of a market. I guess that's my thesis here, is I it's really in aligned with here. I don't see the currency being unstable as necessarily a bad thing. I definitely think it can pose problems and it does pose problems, right, like I just did. A we have this tax in our economy, or crafting tax essentially, where your Crafting fee for crafting something is five percent of the market price of that thing. Now, ultimately, this type of crafting fee is gonna be hopefully in the hands of the players in the future. But it poses a really awkward thing because all the sudden the crafting fees and US DC have just skyrocketed Because the value of Atlas has also gone up. But in terms of Atlas it's the same. It's a wash because it's a percentage of Atlas.
Speaker 3:I think I concur with that. Let me give perhaps another definition of inflation. I think we we play fast and loose with the term inflation and game economies. So we usually talk about inflation as Things are getting relatively more expensive and when we talk about just like general real-world economics. So first of all, that there's generally always inflation because we're always printing more and more money. Usually money is never being circulated out of the economy very rarely is that the case. Very few historical examples of that and almost every single Token is about increasing the money supply. Every single token schedules about the money supply going out. There are very few that have tried to remove tokens from circulation in such a way that the long-run supply is Decreasing over time. Very few tokens tried it.
Speaker 3:But I think when it comes to game economies, when we talk about inflation, sometimes we talk about it in single-player context, when prices can't float, which is very weird, violates how it generally we think about inflation and the price level because we need velocity, we need all these, we need Hume's famous equation.
Speaker 3:We can't really have a price level.
Speaker 3:But when I talk about inflation, like in the single-player example that you were talking about, eric, usually what I'm talking about is the price per unit of progression, because what happens in almost all game economies that have Power score and you're getting powerful in any way is that the price of a basket of goods Is getting Relatively cheaper because your income is getting higher.
Speaker 3:So, okay, I could go back and world our craft to the beginning zone and I earned so much more income at level 120 then I did it level one that all of these goods, the good, the goods, are relatively flat in terms of pricing, but my income is Just so much fucking higher that my purchasing power per unit of labor is so much higher. I could just buy so many more of these golden chain mails, but the problem with that is that those aren't really valuable to me. So I really think about what is the Unit of labor and then, ultimately, what is the unit of progression, and when I look about it, when I look at an inflation in that sense, without a floating market prices in the more traditional game economy sense, there's there's deflation. There's deflation, like I actually have to spend more units of labor and I actually get less units of progression.
Speaker 2:That's like just generally how we've done Diminishing returns in game economies so this example, the golden chain mail, the units of progression it's offering is decreasing over time as opposed to fixed.
Speaker 3:Yes, so if I put on that unit of chain mail right now, when I was at level 120, it wouldn't do jack shit. I'm just. I get absolutely railroaded by other players. That's because you're norming to the richest people right all of the enemies are balanced in such a way that that would Significantly decrease my probability of being able to defeat them but you're talking about the top level enemies, right like I think.
Speaker 2:If you compare to the, let's say, the level one to 20 enemies, that golden chain mail is just as powerful as it was in vanilla.
Speaker 3:Well, correct, but that's not a unit of progression to me anymore.
Speaker 1:I've been struggling with this question a lot too by the way I think I get it, phil does this makes? Does something like a? We have a bunch of different like CPIs you can use in a game, especially like an open game like this that we're talking about. I like to think of, I really do think in the long run there's going to be like basically, the new stuff is always going to be the cool stuff, it's always going to have the strong prices and the old stuff is always going to.
Speaker 1:Prices are almost always going to go down and that's like an inevitability. Not even holding supply constant, you're probably going to just see prices go down because there's less demand for it might be because of power progression or power creep and it might just be because those are less attractive. So I almost think of creating indices for different generations of goods and the. If you look at something falling out of fashion, maybe you take that out of the CPI or whatever your price index is, and so it's what's the bundle that people care about and how's that progressing over time versus keeping, like your old school bundle, constant? Over time you go, of course you're going to see the price go down, but it's not accounting for that new stuff.
Speaker 3:So let me perhaps give two examples from games I've been thinking a lot about to help illustrate how I'm thinking about inflation these days, particularly when there is an open marketplace. So one is a lot of the machine zone games, game of war, the fuck was the answer. What's an eager one mobile strike? And what would happen in those economies is that machine zone desperately wanted money and they were spending crazy amounts of Money to acquire users and at scope, like we all fucking knew that their LTV was house of cards, that they were way Overspending, and so they were getting to a place where they need a lot of cash in the short run and so their live ops team was going out and they're running like these absolutely crazy sales and when I say crazy sales, they were spending. They were saying, okay, for now a given dollar buys you like five million units of currency Hypothetical example whereas a week ago five dollars would have bought you only a hundred thousand units of currency. And so what would happen is that they were effectively making progression a lot cheaper, a lot cheaper, like incredibly cheap, and so that to me was really inflating the economy because people were moving to the value of that money was changing very rapidly and there actually are some open marketplace dynamics inside of these 4x games so you can actually build troops and troops go out and they attack other people. So there's actually these crazy down funnel effects of printing more money or making money relatively cheaper in that economy.
Speaker 3:But again, prices were held constant. Prices were not really able to move. Actually there are a little bit. There's this auction house that happens in 4x, but let's not get into 4x dynamics. So there's this very like weird effect. When you make the purchasing power of a given dollar Like you're giving away more units of progression for very little cost. So that's one example the value of a dollar they increase the purchasing power of it per unit of progression to a significant amount. They inflated the currency quite a bit and just moved to a new, higher level. It wasn't always increasing. You moved to a higher, new or peg.
Speaker 1:So the value, the purchasing power of the currency has gone up, but the price of goods has gone down, relatively speaking. So that would be like.
Speaker 3:The price of goods is a constant.
Speaker 1:Okay.
Speaker 3:This is nothing. No, the systems designer didn't change it. Now they eventually started to end up changing shit because they needed to sink out all that currency they had pumped in to maintain equilibrium, because that's what you need in the game economy to have a binding effect. Is that the cost of things that I need to progress need to exceed my account balances or my income, or else it's just I'm just ripping through content. If I was, if a candy crush gave me a million units of gold bar when I finished a level, then I would just rip through all the levels in one sitting, because I just buy all the boosters and buy the five extra moves. It's just a question of, like, how many things I want to swipe. So I published a piece it's something I've been working on with a couple of teams for there is a fundamental problem in Web 3 that we've been touching on earlier in this cast, and it starts with Taylor Swift, as naturally, all problems do.
Speaker 3:So when you think about a normal good, when you think about a t-shirt, there is this sense of capital depreciation which we have to model in developmental economics, where a given good, given durable good, degrades at some rate. And so if you think about a t-shirt. If you wear a t-shirt, a bunch t-shirt is no longer the original t-shirt that you had. It stretches, it gets coffee stains. A car gets worse over time. It depreciates in some sense. A Taylor Swift song does not. It's a digital good. The MP3 is still the same MP3 at year 100 as it is at year one. The song is still the same song. Your listener quality may have changed, but ultimately the good itself is the same. And so we have these in the real world. We have items that are being circulated out of the economy at the rate at which the capital is depreciating until it's distinguished. But at some point that t-shirt is going to be something that no one really gives a shit about. And so in Web 3, we have a problem that we don't have capital depreciation. It's like that Taylor Swift song, and the problem is that we often we also have an open marketplace, and so what that means is that the supply curve is going to continue to shift outward. The more and more NFTs that do not degrade are produced, and if those supply curves keep shifting outward as we know, we hold the man constant price is going to fall, it's going to fall, it's going to fall. It's going to fall. It's exactly what we saw in Axie Infinity. It's exactly what we're seeing a lot of game economies that don't solve for this and so I think there's a lot of solutions to this problem, and I wanted to add potentially, another idea into the rain.
Speaker 3:So this, to me, was very similar to something that's been developed in MMOs called durability. So to solve a lot of the shifting of supply curves, outward MMOs introduced the idea that all durables would now be consumables, and so what that meant is that you would only have, let's say, a hundred swings of an ax, and when you had the one hundredth swing completed, you would need to go to a goldsmith or a blacksmith, and the blacksmith would be able to repair that ax. You could have another hundred swings at a certain fee, and so, in that sense, they were circulating money out of the economy. They were circulating that gold that, ultimately, that ax represented out of the economy, and so this is a great model. This seemed to work. This works on paper. The problem is that players fucking hate it, they fucking hate this, they fucking hate the idea that their durables are secretly actually consumables.
Speaker 3:So sometimes, I think in many ways almost predominantly shifted to this idea of soulbound. We're just going to make sure that an item is non-tradable. We'll just remove the whole idea of a marketplace. Fuck it, we don't want to deal with it anymore. So I think this idea of a staircase tax is another alternative to this that maintains the idea that an item is durable. We're also removing the item from the marketplace.
Speaker 3:So in the idea of a staircase tax, what happens is that every time an item is traded, a tax increases on the item.
Speaker 3:So you might start out a 5% tax when that item is traded and let's say, after the third trade that tax now goes to 10%. After the sixth trade it goes to 15%, and so on and so forth until it reaches 100%, in which the item would essentially have no value being traded. So in this sense we've removed the item from circulation at the rate at which the tax increases At some point no one's going to sell an item that's even at 50% tax rate. It just simply would be unprofitable versus the other variety of items. So in this sense we've solved the problem. The ax is still as good as it always was. It can still kill monsters at the rate it was a year ago, two years ago, and we've mirrored this idea of capital depreciation by increasing this tax and effectively moving it from circulating supply. Such is the case that the supply curve would not shift outward and we've maintained price stability. So yeah, that's what I got Staircase tax. Maybe it'll solve all Web 3 problems.
Speaker 1:I don't know, Phil. I don't know about that. There's some doubters in the crowd. Let's hear it. Eric, do you want to go first?
Speaker 2:I'm not a doubter, I'm a promoter.
Speaker 1:I'm not a doubter. I'm not a doubter. I have two main critiques. So the first critique is I have kind of a logic I don't know explanation or like a proof or something. We're going to use an example by proof. Fuck it we call Eric probably knows about it.
Speaker 1:Okay, so let's assume you've got 100 players and you've got this market for a sword. Everybody eventually gets the sword without once that sword breaks down. Maybe there's 99 players with one with a sword and then the other player needs this. One player needs a sword. They might go earn the sword, but they might buy it from the marketplace. So another player says oh, I've got like an extra sword. Here you go, You're going to buy it for me. Okay, I bought that thing. Now let's assume there's no durability. Everybody gets their sword and everybody always has a sword and they only need one sword. So all of a sudden there's no marketplace for this.
Speaker 1:The first issue is that when you take these things out of circulation in the market, it doesn't mean that people still don't have the sword. So all of a sudden, liquidity essentially goes to zero and you don't have a market anymore. Prices probably, I don't know, they might go down, they might go up. So I guess the first critique there is does this really solve the problem of prices? Does this really solve the problem of the market, where the market sucks? Obviously, very simple example, just like a ton of nuance.
Speaker 2:I think there's an assumption baked in that there's a constant stream of new players coming in and old players leaving, and that those new players will be the new source of demand.
Speaker 1:Okay, that's fair and I think, like my simplistic example assumes that there's you only need one sword, you don't need 10 swords, or there's not a distribution of the need for swords. So I definitely, I could definitely get behind the fact that there could still be a vibrant market even under this kind of issue. That once you do say, just because you've taken it out of marketplace circulation doesn't mean that's solving the supply side, or I guess, like the price problem, but it's not really fixing the demand side. There's still no demand for it, there's no taste for it.
Speaker 3:So we know that the supply curve is constantly shifting outward if players are able to continuously mine an item. So a simple example as you're mentioning, I have a monster. It spawns every 30 seconds. Every time it spawns I kill it and I get a sword and what will happen is the supply curve will continue to shift outward at the rate at which that monster respawns and someone kills it and someone lists the item in the marketplace. So we just let's assume all those problems away for a little bit. That supply curve is always shifting outward at the rate at which that monster respawns. The staircase tax would remove some of those items from circulation. So the supply curve would still be shifting outward, but there would be a countervailing force against the rate at which the supply curve was shifting outward. That could be equal to the. You could reach equilibrium right. So we could say we could implement a staircase tax of, let's say, a hundred percent after one trade.
Speaker 1:You want to balance the tax to the rate of inflation right or the rate of asset.
Speaker 3:Yep, we want to see a new steady equilibrium. That's the key here is, like steady equilibrium, we don't want price, left to its own devices, to go down to zero. What's happening? That makes the demand curve shift outward. It's just because players' needs are being satisfied, because now they have the axe. Now they have the axe, they don't need another axe because it's not a consumable. So that would mean the demand curve is shifting inward, so you have a supply curve that's shifting outward and you have a demand curve, that's, but it's not shifting out.
Speaker 3:Is it shifting inward continuously? I guess once after the first end trade happens, it's shifting inward.
Speaker 1:I'm of the belief that in the long run, the demand is Portional to player growth.
Speaker 2:Yeah, I think so roughly. I just want to jump in on the motivation point. Phil mentioned price stability. I feel like you fell into the same trap as Mr Heimdall over here, which is that first off price stability I don't think is the end all be all here. Let's ask a question of why.
Speaker 2:From a game design standpoint, from a gameplay standpoint, is depreciation good? And I think from a gameplay standpoint, you want players to be consuming more. It doesn't have to be literally spending money, but you want them to get a bigger sword. Maybe they try a different weapon out, maybe they experiment with the new items that you want players to access, the content in the game, as opposed to just I got the one sword I want. I'm not going to use any of this other stuff. And so, even in single player games, all these pressures to push players to try new content, to consume new content I think Breath of the Wild famously did it with their weapon durability system. You might love using spears, but if you use all your spears they're gonna break. It's gonna force you to use a sword. And now you've got to learn a different combat style, which is compelling.
Speaker 2:I think card games do this. They buy cycling out cards. They force you to play with the new set of cards, which is a whole new set of game mechanics. So even if you found a deck that you really like, those cards don't work anymore. Here's some new cards, here's more gameplay, and we know that people often are hesitant to throw away what they have, but they are often happier to have been forced to try something new that they like. But it's the same way. Spotify playlists inject new songs into your playlist because you don't just want to be in a net cookie, and I would say the motivation for this is not just stable prices. I think almost all games that have a bevy of content want players to churn through that content.
Speaker 1:Yeah, I like that a lot and I think that goes back to my belief. Right, there's two different types of goods. There's like the intermediate goods, which you can, as a game economist, churn through those goods and burn them in the economy such that prices are relatively stable. Over time, everybody's always going to have a glut of kind of their reserves. I see that in our game. The whales want goods. They don't want to trade them, they just want to be sitting on them. They're like dragons. It's the final products. That are where this breaks down.
Speaker 1:Right, you can't just burn someone's NFT ship or they're going to freak out. You can burn their like consumable SFT because they don't care about it. It's like a piece of copper Okay, I've got like a million pieces of copper. So I think it really does come down to this how do you create a sense of maybe seasonality, maybe even cyclicality, like how is there a way to churn through the new content? And I was thinking about this a couple of days ago and I don't know how you guys feel about it, but I think good Web3 games are probably going to be like they're going to have to be live service games, because you need that new product, that new content to be churning through, and I can see it firsthand that new content makes money. Like just from the revenue side of course this is something we know, but I think even for the economy, in-game new content creates positive price support.
Speaker 3:So to go back to the original thing we were talking about, what happens to the man curve? So a staircase tax does not destroy value in the same way that durability does. So durability destroys value. It makes the item go down to zero. You literally cannot use it after 100 swings.
Speaker 3:And so what would happen is you would have someone sitting there killing this monster that's respawning at some sort of time ratio. You would then put the item up for sale. They trade it once, and let's assume the staircase tax goes to 100 after one trade. Let's just assume it's a very radical version of this, just for the thought experiment. So basically you've got a bunch of people whose needs are constantly being satisfied, like as soon as they come in, they get the item and essentially it becomes sole bound after that first trade. So in that situation we've shifted out, we've shifted in the demand curve once it's at a new equilibrium, and we've prevented the supply curve from constantly shifting outward. So we've reached a new equilibrium which the demand curve has shifted to the left and the supply curve has shifted to the right. So we've actually created even more of a deflationary effect with a staircase tax. Then durability, then durability.
Speaker 1:So you're saying it has an even more profound negative impact on prices?
Speaker 3:Yes, because so many people are being satisfied with the good, because, remember, every time someone slays that monster, they're putting the item on the marketplace and someone is getting it and it's sole bound. Because what happens in an alternative model is that basically a bunch of people get to trade that sword around, a bunch of people get to basically extract value from that sword, just like a rental right. But you have a DVD, but you basically 100 people could watch that DVD and they could all extract value out of it, and so what we're saying here is that once you get the DVD, it's yours forever and I'm just extracting these DVDs and I'm watching them, and now I don't have any demand for the DVD on the marketplace, and so my demand curve has shifted inward. It stretches, it stretches both ways and you get bought farms.
Speaker 2:So functionally it's an extension of account lock and content, and I think that's probably most powerful when players are cycling through rapidly right. Either you've got a lot of new players coming in, your old players are churning, or your old players who got this sword say hey, I've got a better weapon, I don't need this sword anymore. With zero staircase tax, they just sell that sword to the market and that's just flooding the market with all these old players selling off their sword. But with your staircase tax it limits that supply and it forces those new players to kill some skeleton and get some sword instead of just buying one from the market cheaply.
Speaker 1:One thing I was thinking is does it incentivize the botting issue that is hot in the space right now? With my first unit I get one good trade out of it. I want to trade these things. Let's suppose there's ample demand and there's not this negative impact on demand as a user. That thing's gone, so I'm just going to go produce another one and another one.
Speaker 3:Now, not if we benchmark it against the traditional economy, that wouldn't have a staircase tax because essentially what we've done is we've decreased the long run value of the item in real terms. If I offered you a pair of shoes and I said there's going to be a transaction tax on the shoes versus an item that doesn't have a transaction tax on the shoes, you'd be willing to pay more for the item than you would on the shoes. You'd be willing to pay more for the item that doesn't have the transaction tax on the shoes, because we've decreased the long run resale value of the item and also we've decreased the resale value of the times when the person who you sell it to sells it to the other person, and so all of that is realized as that present value up front. So you would take a hit against this.
Speaker 1:Okay, I buy that I buy that. No, I think that's right.
Speaker 2:So, phil, I think my main criticism of this system is how do you explain it to players, how do you present it in the game world in a way that feels logical and reasonable to them? You mentioned people hate durability because they're like obviously got the axe, why does my axe break? I think explaining that your axe has a progressively increasing trade fee is there's no like design affordances or like in world like explanation for this.
Speaker 1:Couple that with crypto. People right.
Speaker 3:Man. You see some of these crypto economies. The amount of sophistication and white papers and diagrams that people have had to explain and the kind of economy designs have come across are quite something to behold. I would say people understand Soulbound, they understand that I can pick up an item and it's binding on equipped and so they understand leveling. They understand a lot of, like, very sophisticated game concepts. So the idea of saying, when I hover over an item and I see its text box and I see that, it's at this point.
Speaker 3:You could do a little visualization of the staircase and where the item is on the staircase and say, hey, when you list it, there's going to be a 10%. You don't even need, you don't even need the visualization. You can just say, look at, when you list this, there's going to be a 10% tax. Because here's the thing like the item carries the tax with them and the player only faces one part of the staircase, the only face the part of the staircase that they're on, and so you only really need to present that information to the player is like hey, look, you don't want to give them some sense that, like, the staircase tax is going to grow over time and normally, like we don't present a lot of economic information to players, like Eve is the only one going out there doing macro economic reports. So I think simply just presenting that, look at, the next time you trade this, there's going to be a 50% tax on it. People get tax rates that there's a tax rate on the item. I don't think it's. I don't think it's that complicated.
Speaker 2:But what's your infamously explanation? It's all about it's art. This grab the frost morn and the demon sword attached itself to his body and nobody else can wield the sword. That makes sense in a fantasy setting. What's this?
Speaker 3:If we're talking about Diablo, maybe there's like a demon that like demands penance, or like penance or timing item is traded like usury laws. Maybe, like you could have some sort of like usury laws have always been deemed immoral, so maybe inside of the game world there's someone who's just like training is evil, going to the marketplace is evil, like substituting your own labor for the labor of others is evil. And so I'm going to, I'm going to implement some sort of like tax to extract that of you. I don't know if I'm a fantasy writer. I think you could tie it into things like durability. I guess durability does have a natural explanation of capital depreciation. What is the in world explanation for soulbound?
Speaker 2:That's what I said. This is a magical living artifact and once it's bound to your soul, no other person can wield the sword Like. That seems like something that would happen in.
Speaker 3:You ever watched Star Trek, star Trek next generations? You heard about the Frengees. The Frengees have rules of acquisitions and there's like hundreds of these rules. But just to give you, just give you some rules of the Frengees. Once you have their money, never give it back. The best deal is the one that makes the most profit. Never spend more for an acquisition than you have to. Never allow family to stand in the way of opportunity. Small print leads to large risk. Opportunity plus instinct equals property. I think you could come up with something where there's some class of people.
Speaker 3:There's someone who's trying to garnish wages. I think I could cook on this.
Speaker 2:I'm just saying that's a lot less direct than durability. People understand if you use a weapon enough, it breaks.
Speaker 3:Fair enough. Fair enough, I think, at the end of the day, when I put that in the laundry list of problems, I think, like solving the supply curve, shifting outward to me is worth any sort of institutional risk you might face from players.
Speaker 1:I'm still not convinced that the players don't come aren't okay with depreciation. I don't know Like. I love Minecraft and there's tons of depreciation in that.
Speaker 2:No depreciation.
Speaker 3:Yvonne.
Speaker 1:Lyne has ship destruction.
Speaker 3:Yeah, no, I think Eric was talking about. Look at, there are other ways to solve the idea that supply curves are constantly shifting outward as, like a known fact. Eve destructibility we've talked about that. We were just talking about the seasonal models in Diablo. We were just talking about Soulbound. There's a bunch of different arrows that are in people's quiver.
Speaker 3:To be able to solve this, you could just do MMO inflation we were talking about that for a long time which is like numbers go up, so no one's going to care about that chain mail. No matter how many of them are produced, they just have zero value to people who are at level 120, and maybe everyone's at level 120. There are a lot of ways to solve this problem. What I do think is there needs to be an answer, especially for a game that's constantly shifting out their supply curve in a way that has an open marketplace. That is the problem. If you don't have an answer to that as a game economy designer or a Web 3 project, I think you're in for deep shit. So we got to come up with some innovation here.
Speaker 1:That's the most important part, I think, especially in Web 3, price decreases or just death sentence, no matter how you cut it. We're talking about how fun it would be to have this game currency. Oh, it goes up, it goes down. That's great. The reality is, and probably one of the biggest criticisms of what I've been saying this whole time during this conversation is yeah, that's nice to say that the price goes up and the price goes down and that's all fine, but it's really not fine with the price going down, no matter what.
Speaker 1:There's this negative connotation. When the price is going down, even if prices in other parts of the economy are going up, people are just happier. There's just way too much psychology associated. I'm sure there's people, economists, who have studied this. But when the price is going up, just everything is better. I did. One of the graphics in the article showed enjoyment of the game is constant, but the enjoyment of the game plus the price when the price is up is way better than when the price is down. I think your article I like because it adds another quiver to the, or another arrow to the quiver, like you said. It helps us to address this issue of how do we make sure that a price is supported and not decreasing, because, no matter what we say about oh, the prices don't matter, they do, especially for certain assets of the game.
Speaker 2:I've got your narrative explanation. You've got this legendary soulbound sword that attaches itself to whoever grabs its hilt. But it also comes with a can of WD-40 that can only be used four times to detach it from your hand and give it to somebody else. Once that can of WD-40 runs out, it's sunk.
Speaker 1:WD-40. Okay, very nice.
Speaker 3:I do have another piece cooking, by the way, that's very similar to Staircase Tax. Staircase Tax removes items from circulation, or at least market circulation in some sense, but we need to prevent items from getting onto the marketplace to begin with. How do we do that? I think there's the idea of a transmog currency that perhaps makes an item tradable from being untradable. I think there's another direction we can go with this, because we may have prevented or we may have accelerated the off-ramp. If we think of the marketplace as a highway and players as cars on that highway, what the Staircase Tax does is it kicks people off the highway. It actually makes that the off-ramp is much easier to exit as higher capacity. But I would say the other thing we got to do is we got to strangle the on-ramp. The on-ramps way too hefty and I think there are ways to do that, but for now that's Game Economist Cast, Episode 20. We should teach this to our children.
Speaker 2:Economics is major, major major Everyone has to major in economics.
Speaker 1:Number one for personal survival. Economics major.
