Most of you have probably read/watched Ready Player One and been both mind-blown and petrified by what life in the metaverse would be like. While the term ‘metaverse’ has become a popular buzzword recently to make people throw money at random shitcoins, this concept has been around since the 1990s. John Perry Barlow was an internet rights activist amongst other things and in 1996 he issued the declaration of the independence of the cyberspace.

He said “Governments of the industrial world, you weary giants of flesh and steel, I come from cyberspace, the new home of mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather. We have no elected government, nor are we likely to have one, so I address you with no greater authority than that with which liberty itself always speaks. I declare the global social space we are building to be naturally independent of the tyrannies you seek to impose on us. You have no moral right to rule us nor do you possess any methods of enforcement we have true reason to fear.”

While we may have strayed slightly off this vision, the general point still stands, the need for a sovereign digital space has always been important. Today we call this ‘cyberspace’ the metaverse. Most people conceptualize the metaverse in the Zuckerberg way. Zuck wants you to live in a pod with a VR headset strapped to you for the rest of your life while you eat bugs and meet your office buddies in some virtual space drinking coffee NFTs. I’m not saying this won’t happen, I’m not going to fade a multi-billionaire who basically controls social media. But, I believe a more appropriate iteration of the metaverse is one which is powered through gaming, more specifically GameFi.

Let me explain why. Let’s take a very hand-wavy look at the evolution of gaming. You had board games and card games, after which came arcade games, then came the transition to console/PC based video games which really sent gaming into the stratosphere. In this current stage of video games, you are seeing the lines between gaming & social start to blur. With the popularity of battle-royale, sandbox games, and RPGs, games are starting to become increasingly social. Are you still gaming if you’re attending a Travis Scott concert in Fortnite? Or living an entire virtual life in GTA NoPixel? You tell me.

For the younger generation, games are the “3rd place” to hang out. Older generations would hang out at home, school, and either the mall/park. The younger generation now hangout at home, school, and in-game/online. Most people may find it tough to conceptualize this virtual life, but for the next generation it will be second nature. We are a product of our environment after all.

With gaming becoming increasingly social, I visualize it as at least the first version of the metaverse if not the final state.\

So what does GameFi have to do with this? GameFi essentially makes the fake in-game economies we currently participate in, into a reality. The community-focused approach supported by the decentralized and open infrastructure of blockchains has created a major breakthrough in terms creating a new sector of gaming. Play-to-earn & Play-and-earn.

Personally, when I look at the GameFi ecosystem from a birds eye view, I see each game as its own nation making the overall GameFi ecosystem the virtual world that these digital nations exist in. The games in their current stage are nowhere near smooth enough or fun enough to fulfil this goal but if you look at games like Axie or TreasureDAO then you can get a glimpse into what a game as a digital nation could look like. A strong community that constantly participates in economic activity and governance while building mini-games on top off the existing games to create an extensive ecosystem of activities.

Nations

There are 3 core elements that make up a nation.

·      Population

·      Economy & Government

·      Territory

I know in the real world economy and government are somewhat separate. But from the GameFi perspective it makes more sense to tie them into one category. You’ll find out why later in the article.

Population

For a Nation to exist, it needs people. The people participate in the economy, occupy the land, and make the nation productive. For our digital nations, the population is the community. Building a strong community whose values align with the project is imperative. Community building can make or break or project. This is not only for GameFi but crypto in General.

The difference between populations in real-life nations and communities in digital nations is that the community has ownership and governance power over almost everything. Traditional games are controlled by the devs, while they may have flourishing ecosystems, the devs have final say over what happens and the community has no true ownership when push comes to shove. The introduction of DAOs into gaming completely changes things, now the community has an active say over the developments that take place within their nation through token voting, and NFTs give ownership of in-game assets to the community. This version of the metaverse is a representation of the ownership economy. The community owns parts of the economy that they build & participate in.

Not only that, but the communities will also be at the forefront of the creator economy. Through the power of modding, members of the communities can create their mini-games on top off the existing games infrastructure to create more economic activity and drive the growth of the nation. Think of modding as using the infrastructure of the nation to build different businesses that people can participate in.

For those who don’t know, modding refers to modification. This is when members of the community change certain elements of the game or add certain things to the game to make it a new experience altogether. Games such as Roblox and GTA are very popular for this. Even Day Z was a result of multiple mods. This type of modding helps with player retention, player engagement, as well as creating a new inflow of users. In traditional games, some publishers don’t really support modding because it doesn’t benefit them directly, with GameFi games, modding will actually be incentivized and seeded because it will drive demand for the underlying tokens of the game. The DAO treasury can also benefit by collecting additional revenues in transaction fees that are generated by the modded games since they use the underlying infrastructure of the game. TreasureDAO is very popular for facilitating this.

Gauging the success that modding will have depends on the overall systems created by the devs. This means that the overall system of mechanics and features must be built such that it enables flexibility. Knowing how a game will be received by the audience is a game of prediction, you are not always going to be correct, so being very rigid and deadest with systems means that you are restricting the players to receiving the game the way you want it to be received. This is generally not a good way to build out a community. If you enable flexibility within your system it allows you to update the game depending on how it is received. By paying attention to the community you can continuously tweak and add more features to grow your user base.

While this sounds fun, we must be cautious. It’s still early days for GameFi. We have never seen an open & free in-game economy with real monetary value run over the long term. When devs have complete control over the game it is relatively easy to manage. When it is open and community-governed it becomes 10x more difficult to manage. There are potentially hundreds of problems that haven’t been encountered because GameFi hasn’t scaled to that level as yet.

Economy & Governance

Every nation needs a functioning economy. The economics for digital nations may seem simple at face-value but are deceptively intricate. The ultimate aim is to establish an appropriate balance between sinks and faucet. Balancing money in vs money out. Faucets are the mechanisms by which tokens and items are created and sinks are the mechanisms by which tokens and items are removed/used. For the DeFi degens, it can be thought of as burning vs minting.

Examples of sinks include utilities such as small player upgrades or buying some public good, periodically auctioning rare collectibles, gambles where players pay money in the hopes of getting an ultra-rare item, taxes on land or trading, crafting which can act as a token and item sink, donations/events where people are incentivized to pay for a certain experience or rare item, and staking the currency. Faucets mainly include the emission schedule and rewards for completing certain tasks.

The task is to build the features and mechanics of the game such that there is an appropriate balance between the faucets and sinks. The features should incentivize users to maintain this balance. Too much from the faucet and you lose player retention because things in-game become less valuable which de-incentivizes players from putting in effort. Too many sinks and then it becomes too difficult for players to do anything. Finding the balance is key.

As you may know, most games follow a dual-token model. One token is the governance token and the second token is the utility token (ex: AXS/SLP, CRA/TUS, RAIDER/AURUM). Holders of the governance token essentially become the government of the digital nation. They vote on proposals and collect taxes through protocol revenue redistribution (which is why I tied economy and governance together). The utility token is used to fuel the in-game economy. It is emitted as rewards for completing tasks and used for the in-game sinks. But the current economies aren’t perfect, they’re lacking a few elements to take the user experience to the next level.

This is where DeFi steps in.

Within the metaverse, if games are the activity & social layer, then DeFi will be the underpinning financial layer. Currently, most games already use DeFi primitives such as AMMs and staking, but they are yet to unlock the full potential of DeFi. To better understand what this can look like, I’ll refer to an article written by @0xAikoDai & @0xkydo. They drew up the idea of BLOG. I highly recommend checking out this article, especially if you want a more detailed explanation of this concept. But, I’ll give you a very simplified overview.

BLOG stands for Buybacks, Locking, Omnipool, and Governance. The overarching aim is to improve the trading experience through an all-inclusive AMM, decrease sell pressure through long-term locking, increased locked token utility through governance controls, and increase buy pressure through efficient buybacks.

The trading experience is improved through Bancors omnipools. The Omnipool AMM is perfect for games because games have many tradeable items and tokens that aren’t very liquid. Through Omnipools you have a central liquidity pool which makes it such that you don’t really need a counterparty for your trade so everyone’s trading experience will be smoother. Liquidity is no longer fragmented.

Long-term locking happens through Curve’s Vote-escrow (ve) model. The longer a user locks their token for the more rewards and governance power they receive, it’s just like putting money in a bank. This effectively decreases sell pressure.

Governance controls come from the Ve(3,3) model outlined by Andre Cronje. Suppose the token in question here is XYZ, users can then use their veXYZ to buy GovNFTs which will give them governance rights plus other abilities, thereby giving locked tokens utility. It can also be used to control where liquidity is directed in interesting ways.

Buybacks are done through Bancors vortex system. It allows the protocol to do buybacks at a discounted price rather than at a 1:1 price. Vortex basically creates a market to trade XYZ/veXYZ. Since each veXYZ represents 1 or more XYZ, the veXYZ can be sold for XYZ to get a discounted buyback.

This is just one example of how DeFi can be used with GameFi. DeFi will solidify the economic structure and activity of digital nations. It will act as a key infrastructural piece.

Territory

The beauty of digital nations is that they don’t have to bother with territorial disputes or the threat of violence. The wars fought here are over the attention of the people. Which nation attracts and retains the most people. The real world is confined in terms of available space, there can only be so many nations. But on the internet, you can have an infinite amount of nations and people have the choice to reside with the communities that they like the most. Regardless, of whether the game engines are run on-chain or off-chain there is space for everyone.

Since digital nations are not confined by physical land, we can look at occupying territory as capturing the attention of people and retaining them within your community. This is a product of identity & culture. The culture created around the games and the way people identify within that community. With digital nations you have the power of choice, you are not born into a place that you don’t know and simply forced to assimilate within that community. You join a community that suits your vibe. People long to fit in, and the way the identity of a digital nation is portrayed is instrumental to expand the nation with the correct people. The more people that end-up fitting in and staying within your nation, the larger your footprint on the metaverse will become.

Investing in Nations

I think the best way for you to judge the long-term potential of digital nations is by getting stuck in with the community. This is very cliché but it’s important. If you lurk the discords/telegrams of the communities then you start to understand how the people view the project, who are the prominent members, are they looking to building their own mini-games on top etc. You get early information which basically gives you early access to whatever is happening inside this nation. You can also gauge the general vibe of how many people are in this for the long-term and how many people are in this to make a quick buck and leave. You can interact with the core team to understand their vision and depth of knowledge, and if you’re lucky you may also get sneak peaks into the roadmap and general plans that the project has. Crypto Raiders and TreasureDAO checked these boxes for me which is why I’m bullish on them. I am certain there are many more such communities but I just haven’t found them as yet.

Another way to look at it is through the lens of a gaming-centric fat protocol thesis. Investing in L1 tokens was the best trade of 2021 because it is the underpinning infrastructure upon which all activity takes place. The projects on the L1s have never been able to be more valuable than the L1 they are built on, although cross-chain & multichain applications might change this.

Similarly for the metaverse, you have virtual worlds. Projects like Sandbox and NFT worlds which act as the infrastructure on which people can build out anything. You can buy the land and create anything on your land to facilitate economic activity. If games build their digital nations on top of these virtual worlds then by investing in the underlying infrastructure you get exposure to the upside of everything in the virtual world doing well.

Another aspect to look into is game design and game economies. I briefly spoke about them above but I recommend checking the resources below to get a more detailed outlook on how to evaluate game economies and game design. As mentioned repeatedly, the main thing you have to look for is whether there is an appropriate balance in their economy. This will take time to figure out but once you do you will be able to understand the sustainability of the games. Other than sustainability you can also gauge the incentives being pushed by the creators. Are they trying to quickly attract users & liquidity for short term hype or potential exit scam, or are they trying to gradually build out something that will be big in the long run?

Concluding Thoughts

This framework is a helpful thought experiment in terms of conceptualizing what the metaverse could look like a few years from now. The reason I think games will be the nations, at least in the near term, is because people need some activities to participate in. Gaming has proven itself by having a user base of over 3 billion people globally. By being able to actually monetize gaming through P2E & P&E a metaverse powered by GameFi looks very plausible.

I do understand that it is a bit dark because being bullish on the metaverse is technically being bearish on reality, but when change is taking place and the majority of people seem to value it, it is foolish to swim against the tide. As Bruce lee says “be like water”. Adapt to what’s happening and make the most of it.

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