Should SIPHER even care about price fluctuations? If it's an open market, shouldn't we just let the market correct itself?
These questions portray a traditional mindset as it relates to the real-world economy, but it is a completely different problem when creating a market of Virtual (i.e. in-game) Items. We are essentially in a market where their "Production" costs are either very low or nonexistent.
To create a product in the real world, there is always an input cost. Simply put, to make a car you must incur various costs, such as designing the car, Research & Development (R&D), manufacturing each car, etc.
On the other hand, a Virtual Item incurs a one-time R&D cost but provides an infinite production capability if the developer allows it.
This is further exacerbated by the fact that Virtual Items do not depreciate. A car would need constant maintenance and would get rusty over time. Resulting in a decreasing supply and price, however, is not the case for virtual items, which stay pristine forever.
This means that in Virtual Economies, we have a supply that is potentially infinite and is never deflationary (i.e. the item exists forever).
However, like all other goods, demand is not infinite and will fluctuate and wane based on the practical uses of this Virtual Item, and the size of the Sipherian playerbase.
If there is no interference from the Developers, this means that for any given good in the SIPHER Economy, the price of all items will eventually reduce over time. The price could even crash if there is an overabundance of supply.
As such, there MUST be interfering measures from the Developer to maintain a stable virtual economy. In turn, this would ideally provide price stability for those who just want to play the game normally, and would not subject them to purchases that can then give them buyers remorse. At the same time, it would inspire confidence in those that are looking to earn from the SIPHER economy, because they need to know that they are not going to lose all of their potential earnings due to price crashes.
This begs the question: What steps will SIPHER take to protect its economy from an infinite supply of inflationary pressure?
FIRST LET'S TACKLE SUPPLY
How do we protect our main SUPPLIERS in the SIPHER economy? How do we provide stability for supply?
Controlling Supply Part 1: Introduce Barriers to Entry
Let’s go back to the car example, imagine that everybody could suddenly start their own car business and instantly make cars of the same quality as existing cars on the market. In the real world, this is obviously impossible due to many factors. However, it is very possible in a Virtual Economy, especially when it's a currency that ANYONE can start generating when the game starts.
The most likely result of this scenario is that people who have invested time and money to play the SIPHER game and research and invest in optimal strategies to create this product with the purpose of selling it to the SIPHER playerbase will instantly enter into competition with others. Their competitors most likely will want to profit from their research, and would only need to invest money and copy the exact methods that top Earners are implementing, and can start immediately scaling up the operations to compete with the existing sellers.
Sellers of this product begin under-cutting each other and the price of the product immediately gets affected, all while decreasing the profit of (or creating losses for) those in the SIPHER economy.
To combat this issue, there needs to be a barrier to entry for those that want to contribute to the SIPHER Market. These barriers could come in the following forms:
- Minimum game time
- Minimum account level
- Cost to enter the market (refer to ‘Controlling Supply Part 4: Other Potential Solutions’)
- Owning a Genesis Sipher NFT
This way, if you want to sell the items that generate the most amount of cash, you truly need to be a member that is involved and interacts with the SIPHER ecosystem and not just hopping from one game to another looking for the one with the highest return.
COUNTERPOINT: Wouldn't this discourage people from trying the game, as they have to put a large amount of time and money to even START earning?
Note that this is a concern from an onboarding EARNER’s perspective, but for people just looking to play the game, this would not affect their ability to play the game. But back to the earner issue, we can still facilitate earners joining and participating in our economy with our second initiative.
Controlling Supply Part 2: Create a Multi-Product Economy
To further address the issue of inflationary supply pressure, while still facilitating new earners being able to participate in the economy and trying out our game, we are going to spread the supply pressure into a multitude of different products.
If all participants in the market were to only earn and sell the same currency, then the volatility for that currency will be massive. However, if we create a diverse economy that allows participants to sell currency, and different items and resources ranging from low level to high tier items, then we can manage to diversify the selling pressure of all of the SIPHER Earners into many different avenues.
What does this achieve?
It reduces the probability of the price of your currency crashing to nothing. If there's a situation in which market participants realize that selling currency is no longer viable, then they can pivot their in-game resources into crafting gears, generating clones, etc. As said many times before, this affords earners many paths of revenue generations.
Let's use the following two scenarios as examples. In the first scenario, there are only two products in the economy; and in the second scenario, there is a large variety of products in the economy. Let's assume that in both scenarios, the avenue of creating clones and selling them is no longer profitable.
In the first scenario, the entire supply would pivot over to Ather. After some time, this most likely will crash the price of Ather because demand simply can't keep up.
Whereas in the second scenario, the excess supply is now spread over a very large variety of items (There will be a diverse set of items), and as such this protects the supply of the currency (Ather) as well as the rest of the items. Perhaps this could lead to a small dip in price and gains (due to "cloners" moving to the other avenues), but nothing that will crash the price to zero.
How does this allow for barriers of entry while still protecting the current Earners of Sipheria?
By establishing a diverse market with multiple avenues of revenue generation, we can have items that are available for brand new players if they want to start earning right away, and we could leave higher-tier items locked away for those that have put in more time playing the game and are truly learning and finding ways to make the most out of their experience.
For instance, we could have low-tier items available for new players to make and sell, and higher-tier items with low drop rates would only be accessible only for those high-tier players that have played the game a lot and know the mechanics very well.
This is one of SIPHER's many solutions to encourage people to play the game, and to try and earn, all while protecting those that are the cornerstone of the SIPHER product economy.
Controlling Supply Part 3: Resource Sinks
A very simple solution that needs widespread implementation across all products on the market. In this scenario, all items would simply need an alternative other than just being sold to another player on the market. For instance:
- There could be a function that allows items to be disassembled for certain materials or other functions that could allow Players to use these items for other alternative purposes. This way, there is a lower probability of creating a "stockpile" effect in which X item in the market doesn't go anywhere, forever destroying the price of that item on the market.
- Perhaps multiple common items could also be combined together to create an item of a higher rarity - which would make it so that the trading or crafting of common parts become integral parts of the gameplay, and would lead to a lower probability of excess supply.
- Spare Resources can be used in a reroll mechanic, where you can try to maximize the stats on your equipment.
- Resources can be used for transmogrification, if you don’t like the stats of a certain item, you can spend these resources to get those stats an alternative look
- At the very least, Players should be able to trade such items for in-game currency (non-premium) within the SIPHER economy. Like any other traditional game, there should be a way to trade in your "junk items" or those that you have no use for.
This is imperative for protecting the SIPHER’s economy long term.
Controlling Item Drop Rates
The drop rate of items throughout the progression loop must be closely monitored throughout all stages, and the item rarity should reflect the relative power level of that item.
Because if an item’s frequency is disproportional to its power level, then that item most likely will flood the markets quickly, driving down the price of similar level gear because of how cost-effective it is.
Drop rates must have a close correlation to the in-game value and power of the object, and should adequately reflect the rarity starting from common items all the way up to legendary.
There will obviously be trial and error along the way when establishing these drop rates, so SIPHER will strive to be dynamic in this aspect, and have frequent updates to the drop rates and the power level of items. However, with the other measures in place, there should be a vibrant and healthy economy
Controlling Supply Part 4: Other Potential Solutions
This is currently a WIP and Under Discussion
It is important to note that this information is still very EARLY STAGE. As such, it is subject to changes and potentially complete removal. With this we aim to share our thought process and provide insights on HOW we plan to combat supply pressure through advanced measures. but these thoughts are not yet "set in stone", because they are dependent on many factors. Nevertheless, in the interest of transparency and showing you our thought process, we will delve into detail around this.
Transmutation: All items upon generation are owned by the Player and free to use, but to sell them to other players you must pay a listing fee priced in a specific non-tradable "transmutation currency" which can only be earned via gameplay and the live operations of the game. This listing cost would be fixed based on the "Rarity" of the item (e.g. 100 Units of Transmog Currency for Common, and 500 Units of Transmog Currency for Legendary)
A system like this would allow SIPHER (as the Developer) to control the transmutation currency drop if there's a product or item being flooded on the market. As a result, the overall supply of that product can be reduced until the underlying issues leading to the excess supply (i.e. if the product is overpowered, drop rates are too high, or it's too easy to craft) are addressed. Note that what this essentially means is that, the amount of items you can sell is tied to how much you play/how good you are at the game, and is capped equally for everyone. So it is fair for everyone.
Potential Solution 1: Bonding Curve Model
In this scenario, fees are based on the last sold auction price (priced in $Ather) on transfer. This means that, ideally, the Player/Earner will only transmute when they can sell at a profit.
As a result, if Supply ever outpaces demand (excess-demand), then it should self-correct.
This potential solution would ideally correct any excess supply based on the live PRICE of the item on the market.
- Better suited for low traffic items with high prices
- Bad User Experience (UX) for those that crafted the item and entered the market late, they now have an item that can't be sold for as much profit
Potential Solution 2: Marginal Tax based on Quantity
Each time an item is listed, an increasing share of the sales price is taxed (i.e. 1% of the selling price for the first trade, 2% of the selling price of the second trade, and continues until reaching 100%).
As a result, the supply in the market would essentially get "capped", limiting the number of items that can be traded of a particular item class at any given time.
This potential solution would correct any excess supply based on the QUANTITY of LISTED items on the market.
- Better suited for mass quantity items with low prices.
- Similar to the first potential solution, this would be a bad UX for those that crafted late or are late to the sale.
Potential Solution 3: Marginal Tax on a "per item" basis
Each time a specific item is traded, that same item gets taxed higher and higher. Similar to the second potential solution, the difference with this one is that it creates an effect whereby one specific item can not be bought, used, and resold infinitely - imitating the depreciation of real-life assets (such as cars).
As an example, let's say you have a gun (Item ID #1337) that you sell to another Player and it gets taxed 5% during this first trade. Afterward, if that Player trades the gun (Item ID #1337) to someone else, the tax could increase to 10%. This pattern would continue until the gun is "fully depreciated" and no longer worth trading.
The result of this potential solution is that it will lead to the slow removal of items from the market.
Any excess supply would be corrected by limiting the constant re-selling of items.
- Better UX for sellers. As long as they are selling a relatively "new" item that has not been traded much, or at all, this would not affect them.
- Might not provide enough deflationary pressure against an oversupplied product (i.e. different item ID, but the same gun).
Potential Solution 4: Manually tax each item OR item class differently, based on their prevalence in the market
This would be a similar alternative to Potential Solutions 1 and 2. The difference here would be that SIPHER manually tracks ALL items for sale on the market, and would adjust the rates for them differently based on the market price and the market demand at any given point in time.
For instance, a gun for which there is excess supply could have higher taxes than another gun for which there is low supply, and constantly would be adjusted over time as the supply and demand dynamic changes for that particular gun.
- Allows for defined and fine-tuned control over the market.
- Extremely labor-intensive and would require a lot of trial error.
- Very prone to human error, especially as the game grows in scale and scope.
Potential Solution 5A: Item Durability based on usage
We could introduce an item "Durability System", in which utilizing items would slowly make them weaker until they eventually break and become unusable. After reaching this point, these items would need to be discarded or repaired (creating a resource sink).
As a result, the number of items in the market would be limited simply due to inertia.
- Would guarantee a drain on the supply of items.
- Good UX for sellers, not punishing them for a sale at any point in time.
- Bad UX for gamers, goes against the precedent of ownership of an item.
Potential Solution 5B: Item Durability based on time (Expiration)
Instead of durability on use as we described on Potential Solution 5A, we can have durability over time with a similar effect. In this scenario, a Player that owns a specific item will be able to use it unlimited times within the expiration timeframe. After the item reaches expiration, it will need to be discarded or repaired.
This would be a slightly different mechanic than Potential Solution 5A. However, if a Player does not play the game for that period of time, the item loses its durability and will need to purchase another if they decide to play again.
- Guaranteed drain on item supply
- Good UX for sellers
- Bad UX for gamers, goes against the precedent of ownership of an item.
Conclusion: There are a lot of things that SIPHER can do, and we may have to go through many interactions to test how it affects UX, how it affects the market, user numbers, etc. However, our ultimate goal is to create a vibrant economy that is appreciated by both players and earners alike.
We’ve talked about in-depth, let’s quickly touch on how SIPHER plans to boost demand for its game. No brainer answer: Make a game good game, which attracts lots of players and has a healthy playerbase. Obviously, the larger the playerbase the better the demand in the SIPHER Market, and SIPHER’s goal will always be to create a good product that people are happy to come back to play and happy to spend their money in the market to enjoy the game.
GAAS: Games as a Service
We believe that it goes without saying that for a game to be successful as a blockchain game, it should be a live service game, there isn’t really an alternative. There should be season passes, content cycles that always provide users with new things to do, new characters and gear to try, new challenges to conquer, among other things. This, in conjunction with the crafting system, creates a dynamic market that is always shifting, depending on the “meta”, and keeping the game vibrant as well as keeping the demand of the game constant. Creating a Diverse Meta There should be various feasible ways to play the game. If you want to be a close-range burst DPS, long-range sustain damage, mid-range tanks, or whatever combo you desire, there should be a healthy meta where many play-styles can compete. This encourages the playerbase to try many different builds, creates more interesting matchups, and avoids the end game from feeling repetitive. This encourages players to try many different builds, prepare different sets of gear, multiple clones with different abilities and furthers the demand for items within the market.
We hope this can provide some insight into how serious we are about creating a healthy economy for all of our players, even though we know that GAMEPLAY and FUN are first and the most important aspects. We realize that we have to create a healthy space for our Players as well as our Earners. Look forward to the Fireside with Nghia Nguyen (PEEKABOO), our Community Manager, in which he will present shortened versions of the 3 articles from this week, and then will end off with a Q&A session.
Thank you for reading!