The 3 Pillars of Blockchain Games
Identifying stakeholders, what they want, and how to give it to them.
Introduction
How can project teams effectively increase their chances of building a successful blockchain game and how can market speculators better assess a project’s long-term viability?
As I highlighted in my previous article, the evolution of gaming is transforming the way games are being made and how we consume them. As blockchain gaming continues to grow and develop, more and more intrepid groups emerge to take a stake in this exciting new space.
In order for projects to have a chance at achieving long-term success, they must be able to accurately identify and deliver value to all of these actors that interact with their ecosystem.
The 3 Pillar Model is a framework that aims to group all of the various stakeholders into three broad categories:
Players
Investors
Builders
By better defining a set of stakeholders, it becomes easier to understand them. With understanding comes the ability to assess what decisions need to be made early on and what infrastructure needs to be in place to drive value to them.
The 3 Pillar Model is useful to both project teams and market speculators:
It helps market speculators to evaluate if the game is designed to deliver value in the right places.
It helps project teams to understand who their stakeholders are, what they want, and how to give it to them.
In this article, we will take a deep dive into each of the three pillars, analyze the different types of actors within each pillar, the roles they play, and look at the considerations that need to be made when designing the infrastructure/tokens used to provide them with value.
It only takes three strong pillars to support an empire. When one shows signs of weakness, it doesn’t take much for it to all come crashing down.
1st Pillar - Players
Players make up the core of any game. They are the main value driver throughout all of the pillars and are ultimately what will make or break a project. In this section, we will focus on how projects can target and onboard the right players before moving on to the different types of players and token design decisions.
The early stages in conceptualizing a game determine who the end players will be (demographics, preferences, income, location, etc.) as well as the thickness of the player base, i.e. how many happy gamers there will be.
When designing a game, some important considerations will be made early on as to whether it is Free-to-Play or Pay-to-Play. This will have a direct effect on the size of the potential player base as well as the mechanisms designed to attract and retain these players.
F2P reduces onboarding ramps, which are especially high in web3. This will make the game accessible to more players and increase the market thickness.
P2P can generate more revenue upfront but blockchain games must consider how to balance NFT price appreciation with accessibility to late entrants.
Another important factor is picking the right markets to target. A 2021 report on the global gaming market by NewZoo, showed how the Asia-Pacific region has the largest number of gamers, making up 55% of the ~3bn gamers worldwide.
However, Middle Eastern, African, and Latin American markets are growing fast with 10% and 6% YoY increases respectively. Furthermore, despite only making up 7% of global gamers, North America makes up 24% of global gaming revenues. Players in each market have their own unique cultures and preferences that require different considerations towards gameplay and onboarding strategies.
An equally important decision that will affect onboarding is how will the game be distributed? Steam is one of the most popular gaming platforms with 120mil monthly active users but has outright banned the use of crypto/NFTs. Both Apple and Google app stores have so far allowed certain blockchain mobile games to list on their platforms. However, we still have no idea how long this will last.
We saw the negative consequences delisting a game can have on a project when China announced that the popular Move2Earn game, STEPN, would be banned in the country. This announcement caused STEPN’s GMT token price to drop 30% in 24 hours.
In addition to distribution, another important consideration is what hardware to launch the game on? This will directly impact the onboarding of new players as well as monetization strategies. Depending on the target audience and game type, project teams will have to consider many factors relating to accessibility, player behaviors, and market trends when making this decision.
Mobile gaming makes up 45% of the global gaming market with gamers spending a total of 79bn hours and $116bn playing mobile games in 2021. Technological constraints make it hard to launch on current-gen consoles so PC is the de facto choice for now when mobile is not suitable. Browser-based games can be the better option to reach a wider audience but have their own set of limitations, with their market share shrinking 18% YoY in 2021.
When choosing the distribution methods/hardware to launch on, the most important consideration should be how can the maximum amount of players access the game and receive the highest quality experience?
Types of Players
In addition to being the backbone of any gaming ecosystem, players’ roles commonly overlap. They can also hold the:
Builder role
NFT collector role
Investor role
Governance role
Depending on how the project facilitates players to take on multiple roles will impact the size and stickiness of the player base. Governance, for example, can empower players to collaborate and get more involved in the future of a game, which increases retention but comes with its own list of challenges.
Understand who the target audience is and it becomes easier to make design decisions that can ultimately increase player adoption, retention, and LTV.
Token Design
When it comes to token design, the first question should be what value is gained by adding tokens? It is important to note that not all games need a native cryptocurrency and not all in-game assets need to be NFTs. The closer you get to being 100% on-chain, the more challenging it is to onboard new players and maintain a sustainable in-game economy.
Players will pay close attention to various token design decisions regarding:
How will tokens affect gameplay?
Is the game token gated?
Is there any value generation?
Do early token holders have a large advantage over late entrants?
Tokens must complement the existing game design whilst also providing unique utility to further drive value to players. An example would be how providing players with ownership and open market economies is nice but also achievable with current web2 gaming technology. A true value-add would be if the tokens are interoperable across different experiences inside/outside the ecosystem.
Additionally, sometimes adding a token economy can be detrimental to the longevity of the ecosystem, so extra care must be taken when designing the monetary policy, in-game economy, and token infrastructure.
In short, ensuring that there are more tokens going in (sinks) than there are coming out (taps) of the game is a good start in promoting a more sustainable economy. It is also important to add sufficient economic levers from day one in order to better balance the economy when issues arise.
2nd Pillar - Investors
Investors approach games differently compared to the other pillars. They pay closer attention to macro market conditions, metrics, and long-term potential when they are assessing a project. In this section, we will focus on the investment landscape, important considerations for teams, types of investors (with special attention to NFT collectors and player-investors), and token design decisions.
The global gaming industry has seen historic levels of VC funding in recent years with almost $10bn being invested in 2020 & 2021. This is likely due to the 23% increase in global game industry revenues and the 6.4% increase in the number of gamers (~170mil people) we saw in 2019-2020.
The blockchain gaming sector received a total of $3.3bn in VC investments in 2021. The majority of this came during the September-November boom when all eyes were on Axie Infinity and P2E gaming.
However, we will likely see a reduction in investments across the board due to declining post-pandemic growth figures and less-than-ideal macroeconomic conditions.
Investment, especially early on, can be tremendously helpful in turning an idea into reality. Hiring, prototyping, and marketing are all made easier with early funding, but at what cost?
Teams must take time to consider how the value provided by investors (financial, experience, connections, etc.) can be in-directly passed on to the other stakeholders and ultimately aid in creating a long-term sustainable game.
Another important consideration is will the project offer DAO governance rights to investors? Voting mechanisms can provide value to some investors, such as VCs, Guilds, and player-investors who have a direct stake in the game’s future development.
It is critical that project teams ask themselves early on:
How will the DAO be structured?
How will voting be weighted?
Do you give the power to the people in true web3 fashion, or will the 1% lead the masses?
Types of Investor
Different types of investors will have different roles to play within the ecosystem. They can each have different incentives but all will want to see some form of value accrual over time. The most common types are:
Angel Investors
VCs
Guilds
Player-Investors
NFT Collectors
Along with the development of blockchain technology came a new type of stakeholder, the NFT Collector. These investors have a new set of wants and expectations that project teams will need to take into consideration.
Outside of evaluating the project as a whole, NFT collectors will also factor in a number of variables before making any NFT asset purchase decision:
Supply dynamics
In-game utility
Potential for long-term value accrual
Passive value generation
Aesthetics
Voting rights (if any)
It is important to note that similar to other stakeholders, NFT collectors can hold multiple roles such as player-collectors or builder-collectors, and adopt the same considerations. Depending on what types of NFT collectors a project wishes to attract, teams will need to decide on how best to deliver value to them.
Another interesting group of actors in the blockchain gaming world is the player-investor. Blockchain now enables players to essentially purchase a direct stake in the company, with some projects even dishing out a % of their in-game revenues to token holders. KYC requirements and implications around tokens acting as securities are questions that don’t have clear answers just yet but as more regulations enter the space, the role of player-investors within an ecosystem will be better defined.
What projects need to understand is that if you do not wish to attract player-investors then it may be better to just not sell any in-game NFTs, don’t create a token economy with DeFi elements, remove any tokenized DAO governance, and build a web2 game.
Token Design
When it comes to token design and monetary considerations, it is important to know that investors will carefully factor in how their tokens will provide value accrual over time.
Special care must be taken when a) designing in-game assets as NFTs:
How collectible are they (supply/demand)?
Will there be any passive value generation?
Value longevity (sustainability of both the project and collection/s)?
And b) how one or more fungible tokens will be structured:
What’s the value realization within the game’s ecosystem?
Will there be any passive yield mechanics?
Will it be used to expand the ecosystem?
Some argue that all types of tokens sold to early investors before a game has launched should be subject to a lockup period and linear vesting to increase long-term sustainability and reduce (as much as possible) volatile price action.
When made public, this information will also make the project more attractive to later investors who can better time their entry/exit. Of course, better still is to secure early funding and then release an alpha or beta version of the game before any token sale in order to attract more risk-averse investors and players.
3rd Pillar - Builders
Builders all share a deep connection to the games they are involved in. They help to build the infrastructure that other stakeholders use and grow the ecosystem to increase the value available to all actors. In this section, we will cover some important considerations, the three different types of builders, and finish with token design decisions.
When builders take a macro look at the game they will factor in a number of considerations:
Demographic reach
Diversity
In-game and off-game activity
Closed or open systems
White-label or licensing models
Adding a set of utility-driven building blocks boosts the value multiplier for builders, allowing them to fortify the strength of the ecosystem. Builders are the gardeners that nurture and promote sustainable growth.
Teams should ask themselves how can they design mechanisms to encourage and better facilitate this behavior? The main goal should be to encourage builders in leveraging the development of the core concept/game to build new infrastructure. Important considerations must be made in setting the rules of interaction:
How much freedom will builders have in the design process?
How much power will they have in shaping the future of the game?
How will you encourage positive network effects?
Another important consideration is how can the project secure the best talent to help them build the best games? As the number of games being built increases, the demand for quality game developers has never been higher. As many of these games fail, it is common for people to lose motivation and leave the industry. Compounding this issue is the fact that there are very few web3 developers who can help add the layer of blockchain technology to a game.
Recently, in part thanks to the proliferation of the internet and communications technology, it is now easier than ever before to develop a game with distributed teams and facilitate contributions from external builders from all across the world to further grow the ecosystem.
Types of Builders
We can separate builders into three broad categories. Each has its own role in the ecosystem and its own unique areas of value-add:
Core Developers
Second-Layer Developers
Community Builders
Core developers are the leading force behind creating fun games for players to enjoy. They must focus on not only the different players within the game but also potential partners.
To increase player adoption, core devs need to consider:
Appealing to a wide audience
Catering to different types of users
A more diverse player base will result in a stronger ecosystem that is better equipped to survive longer when faced with various challenges. Are they creating a standalone game or will it evolve into a franchise or platform for other devs/partners to build upon? A more open ecosystem can attract a wide player base and lead to a stronger foundation.
Another consideration will be how decentralized governance will be incorporated into the game. Is this something players or investors want? Is this something the project wants? Not all stakeholders are qualified to make game-defining decisions but being open to community input is great for engagement, retention, and community growth.
Second-layer developers represent external actors that help to strengthen and expand the existing ecosystem. They help to build an engaging world that then further enriches a player’s experience. This can take the form of:
Mini-games
Events
Tools
UGC
These help to increase the enjoyment of players and enhance various gameplay elements like breeding or level progression. It can also double as a great organic marketing method for outreach.
Blockchain technology and the introduction of NFTs have added a whole new dimension to UGC. It is now possible to tokenize creations and distribute them to the community at large to own and enjoy.
What tools will the project provide to attract second-layer developers? A diverse stack of APIs, SDKs, incentives, voting mechanics, and other tools will encourage engagement and the continued growth of the ecosystem.
Community builders are members of the game’s community that are passionate about the project and accelerate network effects. They can take the form of:
Community managers
Player managers
Partners
KOLs
As the core team focuses on creating a great product and sustaining the project long-term, these builders provide huge amounts of value to both internal and external stakeholders.
As the community grows, the importance of community builders increases. Teams need to decide early on what this relationship will look like and what mechanisms they can put in place to further drive value throughout the ecosystem. The more engaged the player community is, the more passionate they become.
Some examples of the value-add services community builders can provide are:
Managing multiple communication channels
Troubleshooting within both the community and game
Internal and external community collaborations
Content creation (streaming/tutorials/reviews)
All of the above can boost onboarding, retention, and LTV. It is important for teams to consider how these efforts can be gamified to reward participants? If there is one thing that all great projects have in common, it is an active and supportive community.
Token Design
In regards to the token design, teams must consider how tokens can help or hinder the various builders they wish to attract? These can include:
Will the tools be token gated?
How will contributors be compensated?
What value is accrued by holding tokens (not always about $)?
What rights or privileges do tokens provide?
Do token interactions reduce or increase friction for builders?
It is important to evaluate the financial incentives that could potentially take away from the initial reasons builders have to contribute to the ecosystem. Teams need to decide how best to maintain a healthy relationship between motivations and compensation?
Closing Comments
There is no magic checklist you can go through while designing a game that ensures its future success. There is no fixed template on the best ways to provide value across all three pillars.
This is only meant to be a framework to aid in research and decision-making. Every project should be making informed decisions on how they can create a bespoke strategy that is unique to the goals they wish to achieve.
The 3 Pillar Model doesn’t only apply to gaming, it can be adjusted and used in the same manner for any type of project you want. The key takeaway is that if any one of the three pillars is undervalued and pushed to the side, the project will struggle to continuously scale in the long term.
Understanding who makes up each pillar, what they want, and how value is driven towards them is just the first step. There are many other important considerations that must be made in regards to gameplay, mechanics, monetization, tokenomics, and community building to name a few. Rest assured, we will go in-depth into all of them in future articles.
Well done for making it to the end! Your support is always appreciated.
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