Yale University: ServerFi, a new symbiotic relationship between games and players

Original author: Pavun Shetty

Original text translation: Spinach Spinach | bocaibocai

Preface

When the spinach got involved in many Play to Earn games with real money at the beginning of the chain game boom, they ended up losing almost all of it. At that time, there was a clear feeling that the players who got on board first could reap the most dividends. They only needed to mine, withdraw, and sell to suck the blood of later players. After new players get on board, they need to dumb buy at high prices while constantly finding ways to attract new suckers to get on board, making GameFi essentially all about Fi without the Game. There are also problems with the token model design, but recently, a paper by Yale University proposed two new token economic models and conducted a series of simulations, providing some new ideas for the sustainable development of GameFi.

Spinach translated and excerpted some of the essence of the paper from Yale University and shared it with everyone:

Summary

Blockchain-based games have introduced a new economic model that combines traditional gaming with decentralized ownership and financial incentives, leading to the rapid rise of GameFi. However, despite the innovative appeal of these games, they face significant challenges in terms of market stability, player retention, and the sustainability of token value. This article explores the development of blockchain games and identifies the main flaws in the current token economic model using entropy theory. We propose two new models: ServerFi, which emphasizes privatization through asset synthesis, and a model that focuses on providing continuous rewards for high-retention players. These models are formalized into mathematical frameworks and validated through simulated experiments of collective behavior. Our research findings show that ServerFi is particularly effective in maintaining player engagement and ensuring the long-term viability of the game ecosystem, providing a promising direction for the future development of blockchain games.

Introduction As technology continues to evolve, the gaming industry thrives on journeys filled with adventurers and outdoor enthusiasts [1]. Beginning in the 1970s, Atari launched “Pong,” an arcade table tennis game that captivated consumers during the turbulent 1970s and sparked a number of inspirational parody releases. With the advent of more powerful microprocessors, specialized graphics chips, and PCs such as the Commodore 64, it was possible to create complex, visually appealing, and sound-rich games. Following these pioneers, Nintendo quickly took the lion’s share of the console market with its home console, Nintendo Entertainment (NES), launching games like Duck Hunt and Motocross Bike. At the same time, Sega and Sony have also become contenders with their excellent works. Sega introduced the Genesis and Game Gear, while Sony introduced the PlayStation 2 and 3, which were equipped with CD-ROMs with enhanced game storage, which together defined what the future of consoles would look like after 1994. The last big sign of game development was the wave of DirectX API adoption that sounded in the gaming world, driven by Microsoft.

Online multiplayer games like World of Warcraft and Fortnite have revolutionized the way players interact and marked a leap forward in the gaming industry, fueled by internet technology. These games have become a cultural phenomenon, with millions of players able to share virtual worlds and enjoy technology to the fullest. The rise of Google’s Stadia and Microsoft’s xCloud is also remarkable. They stream games directly to the player’s device, providing a high-quality gaming experience without the need for strong hardware support[2]. These groundbreaking innovations have brought players into a highly social and connected world of experiences, which relies on the development of Internet technology to undoubtedly propel the gaming industry to the next era. These visionary changes have brought the public back to the question of followDecentralization and data ownership. In the era of traditional gaming, players’ data and assets are stored in an absolutely centralized manner on servers run by game companies, even including virtual items purchased by players. Ownership of these disputed items has never been in the hands of the player who purchased them, which is subject to the ongoing influence of the classic economic model. This traditional model has been operating around player spending and company profits for decades, with players getting little to no return on their investment in valuable resources such as time and money, other than a small direct return. Often referred to as “walled gardens”, these games host in-game items, characters, and currency on the developer’s servers, and players can’t take ownership of their account, content, and in-game assets. This period of time narrows the scope of a player’s rights, even though their time and financial investment in the game is significant, and even generates no economic value to those who keep the financial cycle in the game running smoothly and provide sustainability.

The emergence of GameFi has reshaped economic production relations and brought real-world incentives. When it comes to combining ‘games’ and ‘finance’ in a smoother way than expected, ‘play-to-earn’ (P2E) games built on the blockchain network are ready for their remarkable debut. Blockchain-based games typically create encrypted assets in two mainstream ways: by marking in-game items as non-fungible tokens and granting fungible tokens eligibility to become the in-game currency [3]. By combining traditional games with on-chain assets, these games achieve decentralized ownership, transparency, and provide tangible economic incentives for players. However, there are still significant challenges in market stability, player retention, and sustainability of token value. This article first outlines the development background and pioneering cases of blockchain games. Then we use the entropy theory to analyze the potential reasons for the current challenges and clarify the factors driving market dynamics. Based on these insights, we introduce two innovative token economic models: the ServerFi model that achieves privatization through asset synthesis, and the model that rewards high-retention players continuously. These models are formalized into mathematical frameworks and their effectiveness is verified through group behavior simulation experiments. Our research emphasizes the potential of the ServerFi model in maintaining player engagement and ensuring the long-term viability of the game ecosystem.

Background: The rise of GameFi is based on the creation of encryption assets in blockchain-based games through two mainstream ways: marking in-game items as Non-fungible Tokens, and granting Fungible Tokens as the qualification for in-game currency circulation. In 2013, there were some key moments, such as Meni Rosenfeld’s proposal of the Colored Coins concept, which triggered the importance of virtual asset ownership and mapped real-world assets to BTC Block on-chain[ 4 ]. Following Meni Rosenfeld, Larva Labs launched the CryptoPunks Non-fungible Token series in the next four years. This series marked an important milestone in the development of Non-fungible Tokens and inspired the digital art and collectibles ERC-721 standard on the Ethereum blockchain with its 10,000 unique, randomly generated character images[ 5, 6 ].

Non-fungible token technology is undoubtedly sought after by visionary founders. Dapper Labs launched the first Block Chain game on Ethereum, called CryptoKitties, which congested the network for a short period of time, resulting in significant transaction latency. In this game, players can buy, breed, and trade virtual cats, each with unique visual characteristics and varying rarities. The huge success of CryptoKitties highlights the appeal of Non-fungible Token-based gameplay. CryptoKitties capitalize on the psychological appeal of real ownership and potential financial gains, attracting avid collectors and savvy investors through an in-game financial loop, providing incentives to breed and trade rare cats, creating a speculative environment. In the same year, discussions about CryptoKitties became almost mainstream. This creative GameFi game has attracted millions of players who have not only owned these rare “cats”, but also gained a social identity and sense of belonging through the CryptoKitties community.

In encryption games involving Non-fungible Tokens and Play-to-Earn (P2E) models, Axie Infinity, developed by Sky Mavis, has emerged as a significant successor to CryptoKitties. With its engaging gameplay loop, it has quickly become a popular game, often keeping players hooked until late at night. Axie Infinity allows players to collect, breed, and battle fantasy creatures called Axies[7]. Each Axie has a unique Non-fungible Token behind it, with distinct attributes and abilities that can be enhanced through strategic breeding and gameplay[8]. This delightful GameFi game not only provides economic incentives similar to CryptoKitties but also introduces more complex game mechanics and a robust in-game economy. Its influential design concept has attracted a wide player base, setting new standards for this era’s darlings and establishing a benchmark for all future blockchain games.

The challenges of Tokenomics and our solutions. Faced with fierce competition from traditional online games running on centralized devices, blockchain-based games are accustomed to storing digital assets on-chain, allowing players to own items that can be sold, transferred to other games, or used in specific decentralized finance applications. The incentive model is gradually improving with the widespread adoption of blockchain technology. This opens up a new path for establishing cutting-edge production relationships between players and developers. The times have changed, and these innovations are aimed at rebuilding the electronic society, with the potential to thrive in the post-game era. Against this backdrop of significant progress, we must ask: Why would game developers choose a new production relationship derived from the GameFi field in the context of the Web3 era, when players have different asset needs, while traditional and casual gaming experiences are relegated to a secondary position?

Most games have a certain lifecycle, and CryptoKitties is no exception. Among its important mechanisms, the breeding mechanism allows players to produce new ‘cats’, but this inadvertently increases the supply, thereby reducing the rarity and value of individual ‘cats’ over time. As more players participate and breed ‘cats’, the Secondary Market quickly becomes oversaturated. This scenario is novel, and players are intrigued, but the dilemma is very familiar: how to maintain the price of circulating tokens? If there are not enough active players, the demand cannot keep up with the continuously rising supply, and this depreciation problem will be further exacerbated. Therefore, individuals who invest a lot of time and resources in breeding may find that their efforts are yielding less. As the game progresses collectively, the initial scarcity may lead to a drop in player interest and engagement as richness continues to emerge.

The application of entropy theory combined with Tokenomics provides a professional and in-depth perspective on the dynamics of Token flow and value fluctuation in blockchain projects. The entropy theory is based on the second law of thermodynamics, which holds that in a closed system, entropy (a measure of disorder) tends to increase over time. This concept can be analogously applied to economic systems, especially Tokenomics, to enhance our understanding of Token allocation, usage, and market fluctuation. In Tokenomics, the initial distribution of Tokens is typically orderly. During this stage, Tokens are relatively concentrated, prices remain stable, and players’ expectations are high [9]. Over time, more Tokens are generated and enter the market through game mechanisms. The increase in player transactions and Token flow subsequently raises the market’s entropy (disorder). In this intermediate stage, internal system disorder surges, leading to high fluctuations in Token prices. Challenges that Tokenomics may face include Inflation caused by an oversupply of Tokens in the market, and price instability due to a large influx of speculators. Without effective market regulation and incentive mechanisms, the system may reach a state of high entropy, causing a widespread decrease in Token value and reduced player participation. It is crucial to have a way to link new incentive mechanisms and regulatory measures to maintain the long-term health of the system. These actions can slow the increase in entropy, thereby maintaining relative order and stability in the market, and sustaining player participation.

We typically view tokenomics as isolated events, such as single points of failure caused by specific reasons and results. But from this perspective, the story is more about the global entropy increase of token circulation than any particular company. Certain factors are always disruptive, and certain gameplay always fails. Taking Axie Infinity as an example, its tokenomics design has several drawbacks from the players’ perspective: firstly, Axie Infinity’s token economy heavily relies on the continuous generation of new tokens, such as Smooth Love Potion (SLP). As more players participate and breed Axies, the number of newly generated tokens in the market increases, leading to rapid expansion of token supply in the market. This supply-demand imbalance causes the value of tokens to decline over time, depreciating the tokens held by players. Secondly, during the token generation event (TGE), many players and investors enter the market, attempting to profit quickly by buying and selling tokens. This speculative behavior can cause significant fluctuations in prices, affecting market stability. In the long run, early speculators profiting and exiting may result in a big dump in token prices, which is detrimental to ordinary players. Thirdly, Axie Infinity’s economic model lacks a sustainable incentive mechanism to maintain player engagement after the TGE. As the initial novelty wears off, players’ enthusiasm may wane due to the limited economic incentives. Addressing any flaws in the game can help attract new users and potentially increase token demand. Participating in Axie Infinity requires players to purchase Axies, which involves high initial investment costs. This high cost poses a barrier to new players, limiting the accessibility and widespread adoption of the game. Additionally, the market prices of rare Axies can be exorbitant, making it difficult for ordinary players to afford.

Based on the above discussion, we propose two suggestions for improving the GameFi Token economic model:

ServerFi: Achieving Privatization Through Asset Synthesis

In line with the spirit of Web3, players may be allowed to combine their in-game assets to ultimately gain sovereignty over future servers. This concept is called ‘ServerFi’ and involves players accumulating and merging various Non-fungible Tokens and other digital assets in the game to gain control over the game server. This form of privatization not only incentivizes players to invest more deeply in the game but also aligns with the spirit of Web3 decentralization and community-driven. By granting players ownership and control over the game server, we can cultivate a more engaged and loyal player community as they have substantial interests in the game ecosystem. For example, we can design a game where players earn lottery chances based on their contribution value to the game server each day. Players can use these chances to draw fragments. When players collect all the necessary fragments, they can synthesize a Non-fungible Token. By staking this Non-fungible Token, players can share the contribution value of other users to the game server.

Continuous Rewards for High-Retention Players

Another approach is for the project team to continuously identify and cultivate high-retention players to maintain the vitality of the Token and ensure the health of the game ecosystem. By implementing complex algorithms and data analysis, the project can monitor player behavior and engagement, providing targeted rewards and incentives to those who demonstrate strong commitment and high activity. This approach ensures that the most loyal players can stay involved, driving sustained participation and interaction, thus supporting the overall stability and growth of the game Token economy. For example, we can design a game to Airdrop a portion of the game server revenue to the top users based on their contribution value to the system. This approach will create a dynamic of ‘earn while playing,’ rewarding player participation and contribution.

Experiment

To assess the effectiveness of the Token economic model we proposed, we conducted a group behavior simulation experiment for each model. These experiments aimed to compare and analyze the differences in the value capture capabilities of Block-chain games built on two different Token economic frameworks. To model more accurately, we first formalized the definition of these Token economic mechanisms as follows.

1、ServerFi: Achieving Privatization through Asset Synthesis

• Let vi represent the contribution of player i to the system in each iteration.
• The function f(v) = λv represents the number of draws a player can obtain through contribution value v, where λ is a scaling constant greater than 1.
• Assume there are k prizes in the draw, and the probability of drawing each card is 1/k.
• Assuming the number of new players on the first day is n and considering the rise dynamics of the game, we define the number of new players in the i-th iteration as n/α(i-1).
• We assume that all players in the game are rational. Therefore, if a player calculates that the cost of synthesizing a Non-fungible Token exceeds the current stake reward, they will choose to quit the game. Specifically, for new players, the expected cost of collecting all fragments is λ Σ( 1/k). When this cost exceeds the stake reward of a single Non-fungible Token, no new players will join the game.
• The total value of the system in the i-th iteration (day) is Ti = Σvi, where n is the number of players in the i-th iteration.

High Retention Players with Continued High Rewards

• Let vi represent the contribution of player i to the system in each iteration.
• We stipulate that the system will reward the top 20% of players with 80% of the total earnings based on the players’ cumulative contributions in the past five days.
• We assume that all participants in the game are rational. Each player has a randomly initialized tolerance threshold, and if they fail to receive rewards for multiple consecutive times, they will choose to quit the game.
• The total value of the system in the i-th iteration is Ti = Σvi, where n is the number of players in the i-th iteration.

Given the inherent randomness in real-world scenarios, our actual simulation experiments introduce random noise from various perspectives, including individual behavior and population rise. For example, we introduce a variation operator in individual modeling to capture the random fluctuations in productivity of participants in the game. To ensure a fair comparison between the two strategies, the experiment is designed with the same parameters in two experimental groups, such as the maximum number of iterations and the initial population size. The population of each economic model undergoes 500 iterations, and each experiment is repeated 100 times. The experimental results are shown in Figure 1. The horizontal axis represents the number of iterations, and the vertical axis represents the total value contributed by players in each iteration. The light-colored band represents the range between the maximum and minimum values, and the dark line represents the average value.

In the asset synthesis privatization model (left), we observe that with the increase in the number of iterations, the total player contribution value shows a continuous rise trend, indicating that the model can effectively maintain player participation and drive long-term value rise. In contrast, in the continuous reward high retention player model (right), player contributions initially show a significant rise, but then a significant decline. Although the model shows higher player contributions in the early stages, the subsequent decline in iterations indicates challenges in maintaining player participation in the long term.

Based on the modeling results, we believe that although the strategy of continuously rewarding high-retention players may drive significant engagement in the early stages, this approach inherently exacerbates player stratification in the long run. Specifically, this approach may marginalize tail-end players due to a lack of sufficient positive feedback, ultimately leading to their exit from the game. This kind of stratification often sets a high entry barrier for new players. As a result, the decrease in new players, coupled with the departure of tail-end players, drops the rewards for existing top players, leading to the formation of a vicious cycle.

In contrast, the ServerFi mechanism is based on fragment synthesis, introducing a certain degree of randomness through the fragment lottery process, thereby enhancing the social liquidity within the player community. For existing non-fungible token holders, continuous synthesis of new non-fungible tokens ensures that even top players cannot simply reap the rewards; they must constantly contribute value to maintain their status. For new or less-contributing players, there are still plenty of opportunities to synthesize non-fungible tokens and share server rewards, promoting upward liquidity. Therefore, the ServerFi model more effectively promotes social mobility among players, activates the entire system, and cultivates a more sustainable ecosystem.

Conclusion

In this article, we delve into the Tokenomics challenges present in current Blockchain-based games. The analysis indicates that traditional economic models often lead to market instability, decreased player engagement, and unsustainable Token value. In order to address these pressing issues, we propose and analyze two promising Token economic models, with particular emphasis on the ServerFi model based on asset synthetic privatization. Through extensive collective behavior simulation experiments, ServerFi demonstrates significant potential in maintaining player engagement and ensuring the long-term sustainability of the game ecosystem. Unlike traditional models, ServerFi effectively promotes social Liquidity among players by introducing a dynamic and competitive environment where continuous value contribution is a necessary condition to maintain status. This model not only nurtures a more vibrant and inclusive community, but also provides a scalable and resilient framework for future Blockchain games. As the industry evolves, the ServerFi approach may represent a significant shift in the Tokenomics structure, providing a more sustainable development path for the integration of Decentralization technology in games.

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