Author: @bigfatpenguinQ (Analyst of OFR)

Advisor & Editor: JX (Partner of OFR), Alex (Investor at OFR)

Key takeaway:

1. Unlike Axie Infinity and its clones, Thetan Arena added more internal scenarios for the consumption of its native reward token-$THC to hedge the inflation generated as rewards to users.
2. Thetan Arena attracts people not only by its P2E model but the intense gameplay which will trap users inside the ecosystem. The more players it gets the more value the $THG token will capture since the whole ecosystem's profit rely on the number of active users by its tax levying model preset.
3. GameFi projects like Thetan Arena that combine high-quality game production with a deep understanding of crypto will pave the way for a new era of gaming.

The new rising star of P2E games - Thetan Arena

Play-to-earn (P2E) games are a hot topic in the crypto market right now and Thetan Arena has been stealing the spotlight since its official launch on Nov 27, 2021. Thetan Arena is a multiplayer online battle arena (MOBA) game that runs on PC, Android, and IOS created by KardiaChan and WolfFun games. You can form teams with your friends, battle against others, and earn token rewards ($THC, $THG) with the Heroes represented as NFTs in-game.

This article's main purpose is to introduce Thetan Arena's two main currencies, $THC and $THG, and take a deep-dive into their tokenomics design, strategy, and model. From this analysis, we’ll also take a closer look at the possible macroeconomic scenarios of the ecosystem. This article is for informational purposes only and should not be treated as financial advice.

Table of Contents

1. Introduction of $THC, $THG, and Theta Arena Hero NFTs
2. Economic Flywheel Analysis
3. Thetan Arena & Axie Infinity: A Comparison
4. Breakdown of Macroeconomic Scenarios

Introduction of $THC, $THG, and Thetan Arena Hero NFTs

Unlike traditional mobile games where in-game items are usually illiquid, Thetan Arena’s core assets are open to being traded freely on crypto markets. There are three primary virtual assets: Hero NFTs, $THC, and $THG.

Hero NFTs

As with all MOBA games, players will need to control a Hero to battle other player’s Heroes. In order to lower the barrier to entry for players, Thetan Arena is free-to-play and will allow players to get up to three free, non-NFT Heroes. Designating a Hero as an NFT means that players have ownership of the Hero and can be sold and exchanged on the secondary market; on the contrary, non-NFT Heroes cannot be traded.

Each hero has unique stats according to their roles on the battlefield. Choosing the right class of heroes for each battle is strategically important and can impact a player’s chances of winning. The three class types are:

The Rarity of a Hero is determined by two elements: the base rarity and skin rarity. Heroes with a higher rarity have more unique playstyles, abilities, and will have a chance to get bonuses in battle rewards.

Heroes have three different levels of rarity:

• Common
• Epic
• Legendary

Skin rarity is determined by the frequency of the skin in the selling pool. The rarer the cosmetic is, the better it looks like, with more visual effects and bonuses in battle rewards.

There are 3 different levels of skin rarity:

• Default
• Rare
• Mythical

Thetan Gem $THG

Thetan Gem, $THG, is the functional utility token that will be used as the currency and medium of exchange between players within the Thetan Arena economic system. The total supply will be exactly 420,000,000.

There are several ways to earn $THG:

• Participating in Special Events organized by Thetan Arena
• Participating in tournaments
• Participating in the marketplace and selling NFTs or other in-game assets
• Staking Thetan Arena Heroes or $THG
• Accruing in-game play time
• Outperforming other players
• Completing certain challenges
• Introducing new users to the game
• Participating in governance

$THG Utility:

• Upgrading Heroes for increased stats and increased $THG earning potential
• Community governance
• Staking
• Alternative currency exchange

Thetan Coin $THC

Thetan Coin, $THC, is a pure in-game currency with an unlimited supply that can only be earned by playing the game.

There are several ways to earn $THC:

• Battling other players; the amount of $THC rewarded is dependent on outcome and class and rarity of the Heroes involved in the Battle
• Completing quests for quest points that can be exchanged for $THC
• Ranking up on the Thetan Arena leaderboards

$THC Utility:

• Purchasing Hero boxes, the only source of Heroes of all rarities in the game
• Rewarding other players that stream the game

Economic Flywheel Analysis

What would you choose: play a game for free with no economic upside or play a game with an initial fee but earn it all back and much more later on?

This is a fundamental component of play-to-earn.

Welcome to the first loop of Thetan Arena. Access to the game would be through Heroes NFT. It is worth noting that a Hero has a maximum battle limit to earn the $THC token (see the chart).

The Hero will not produce any yield when it succeeds the battle limit. You can think of it as a sword getting rusted when being used for many years.

Right now, our loop looks like this.

Next, there would be two paths for $THC to go.

1. Use the $THC to buy a new Hero to continue the previous loop
2. Sell $THC to lock revenue

If we choose path #1, then the action is considered repurchasing or second purchasing. This does not necessarily cause $THC to be inflated as the $THC will be locked in the ecosystem.

If we choose path #2, then it will cause selling pressure to the market and increase the inflation rate of the $THC token.

In this closed-loop, it seems that the $THC price will march into the bottomless abyss as there will always be selling pressure hanging around.

Every game has a resource consumption system in order to maintain the balance and health of the in-game economic system. For Thetan Arena, the consumption system is very robust. In Thetan Arena, the ways of consumption are not easily observable.

First, there are 4 game modes, but we won’t go through all of them here. In the Battle Royale game mode, the $THC minting rate is actually negative; in other modes, the $THC minting rate is positive. This means if you are playing Battle Royale, you are actually helping to deflate $THC supply; if you have less than a 50% win rate, you are losing money.

Another deflationary case of $THC is when playing team mode and the game result is a draw. The expectation model is calculated as below:

The mathematical expectation model:

*Assume you have a 50% win rate and every player pays $THC for a Hero NFT

1. Calculating your $THC gained result in the Battle Royale mode relative to the other 3 modes:

   a. $THC Deflated: Pure Battle Royale $THC Earning Rate - $THC Cost for NFT = <0 (negative value)

   b. $THC Inflated: Other 3 Modes $THC Earning Rate - $THC Cost for NFT = >0 (positive value)

2. The "Draw round" deflation can be calculated in a similar method:

   a. $THC Deflated: Minting $THC as a result of a draw round

   b. $THC Inflated: Minting $THC in a normal win-lose round

There are also soft deflationary mechanics in-game.

• Many more casual players that don’t optimize the play-to-earn component of the game will probably abandon their NFT Heroes after losing interest. This abandonment process will also accelerate the deflationary pace as no potential minting of $THC will actually take place.
• Another soft deflationary system in-game is the $THC withdrawal lockdown. There are two limitations: first, newly registered users should wait for at least 12 days to claim their earned $THC token. Second, the only amount of $THC that can be withdrawn at one time must be >750 and <1500.

There is a cool-down period of 2 days after each withdrawal.

The lock-up mechanism prolongs the inflationary cycle of $THC tokens in order to maintain the economic balance of the game ecosystem.

So far the $THC loop is self-sufficient and functions well. We will complete the final step of the loop by providing a deduction at the end of the article chapter.

But what about $THG? What’s the relationship between $THC and $THG? In short, $THG token is the real value container of Thetan Arena. Let's explore.

1: Transactions in the NFT market and withdrawing $THC & $THC will cause a fee, which requires you to deposit $THG to the game, and it has a tax with withdrawing $THG.

Claim THG Token

Players can claim $THG (Thetan Gem) from gTHG earned in the game.

First, $THG claiming requires Player Account to have been created for at least 12 days.

After that, players can claim once every 48 hours.

Transaction Fee

• A 4% fee based on THG claimed will be charged in gTHG
• Minimum chargeable fee = 5 gTHG

The transaction fee for $THC is also related to $THG.

• A 4% fee based on THC claimed will be translated and charged in gTHG.
• Minimum chargeable fee for $THC = 0.3 gTHG

Transaction Fee (gTHG) = 4% $$ THC claimed $$ Rate

Rate = THC / THG

Therefore the demand of $THG will increase when the user base grows. Moreover, $THG is staked/deposited in-game will also lower the supply in the secondary market.

2: $THG can be consumed to upgrade the hero NFTs, which is also deflating $THG supply in the market. Let’s assume, they play the same Hero with the same stats, are at the same skill level, and earn the same expected number of $THC tokens they’re both at a 50% win rate. The first match results in a draw. However before the rematch, one of the players decides to upgrade his or her Hero. Now, the predicted win rate changes in that player’s favor because the Hero NFT has better stats. The second player realizes this and decides to do the same and upgrade his or her Hero.

You start to find out that it becomes harder to win cause his hero is getting stronger, and the win rate change from 50% to 55% or 60% with his Hero NFT level getting higher. Both players are back at a 50% expected win rate but now, $THG has been spent. This is a very typical action in many games and it continues to work well. When more players enter Thetan Arena, there is an incentive to upgrade Heroes and spend $THG. The value of $THG will subsequently increase since $THG is the only asset that can facilitate a Hero upgrade. $THG will continue to increase as the number of players of Thetan Arena also increase, especially since $THG has a supply cap of 420M.

Thetan Arena & Axie Infinity: A Comparison

So far, we have a general understanding of the tokenomics in #ThetanArena, which utilizes a dual-token model to maintain the game to be profitable while ensuring the ecosystem continues to steadily develop and grow.

Axie Infinity, another blue chip play-to-earn crypto game, also deploys a dual-token model ($AXS, $SLP). How do they stack up to each other?

To make a comparison, let’s understand the basic tokenomics of Axie Infinity. Here is dedicated research from JX.

Let's summarize some key features of Axie Infinity:

1: The main character you play in Axie Infinity will be your 3 Axies NFT (like Hero NFT in Thetan)

2: Axies can battle and earn $SLP.

3: The utility of SLP will be consumed to breed new Axies.

There are different kinds of crypto games in the market, Pokemon-esque / card games like Axie Infinity, DeFi-type games like Mobox, and MOBA games like Thetan Arena. All crypto games rely on NFTs and a fungible token system to run their economic system. In Axie Infinity, the NFT is the Axies that can produce $SLP. $SLP will be burnt to breed new Axies. In Thetan Arena, the NFT is the Hero which can produce $THC, and users purchase other Heroes with it.

The key difference lies in the lifetime production limits of NFTs. The Axie NFT can produce $SLP in-game forever as long as you playing it, whereas in Thetan if the Hero reaches a battle limit then it can never produce $THC again - this drives the incentive to purchase other Heroes.

We can simplify it with a metaphor. Thetan Arena is like a casino - the chips are your Hero NFTs, and everybody is taking risks to win $THC. Instead of losing the entire chip in a loss, the remaining chances for the Hero to earn $THC diminishes The win condition does not solely depend on luck but depends on whether you are a real and proficient player to win against other players. You will most likely lose money if your skill is not up to par with the rest of the ecosystem and player base.

Axie Infinity is like a utopia compared to Thetan Arena. Once you buy 3 Axies and start playing the game, you never have to worry about making back your principal. As long as you keep playing Adventure mode in-game then it’s possible to receive 50 $SLP easily every single day. It now becomes a problem of "when" rather than "if".

The economic system of Axie Infinity relies heavily on the growth rate of new players. There will be tons of $SLP selling pressure in the market each day and new players will not need to use $SLP to breed Axies when the market is already fully saturated. In Thetan Arena, you may fall into a situation where you continue losing money if you are in deflationary gameplay or have a below-average win rate. The inflation of the Thetan Arena economy will be offset internally, completely independent of the in-flow of new players. The sustainability in Axie Infinity relies on how fast Axie's universe can expand and whether new players keep faith in their continued participation.

The sustainability in Thetan Arena depends on whether people really enjoy the game and remain active in-game. The way to realize sustainability diverges between the two games. So for the Axie Team, they started to deploy new utilities to $SLP token in order to maintain the $SLP price, like including $SLP in mining new Ronin chain's native token $RON. It can be seen from the chart that the $SLP kept dropping until the announcement of yield farming on $RON in Nov 2021. There is an expectation that there will be an additional utility for $SLP coming soon.

Breakdown of Macroeconomic Scenarios

Based on our analysis, $THG price is closely correlated to the robustness and rigidity of Thetan's ecosystem. $THC price is targeted to remain relatively stable when the closed loop of consumption and inflation form.

However, since Thetan Arena’s launch, $THC price seems to be performing poorly. So when will it be $THC’s day?

Let’s look at our $THC loop again and focus on where we haven't highlighted yet. There is a time lag between purchasing a Hero NFT and when the Hero can actually generate $THC token yields. The time when players buy the Hero NFTs with $THC will be precedent to the minting of $THC. We can predict the $THC price to go up under this assumption.

But if we look at the chart right now, the $THC price continues to drop and there’s no sign of it reverting and increasing.

This reflects the sentiment that the market remains uncertain about $THC floor, a value where the market deems the Hero NFT box price to be cheap enough for players to buy and play the game.

Thinking speculatively, selling discounted boxes will result in a $THC dump. At the time where discounted boxes weren’t available, the $THC price was around $0.40 and one common box was worth around 1,000 $THC ($400). But with the discount, it will only acquire $150 to purchase.

This is a mechanism used to sacrifice existing players in order to attract new players. If the $150 is priced as a regular price for a Thetan Arena Box, then the $THC price would reasonably settle at $0.15 since new players can use less money to take advantage of the $THC arbitrage between the price gap. As more discounted boxes are purchased, the price of $THC will slowly regress from $0.15 to $0.40.

It also reflects that the project team believes $150(1 $THC = $0.15) would be a lucrative price for early players to join in the game. Given that the whole revenue through this discounted box selling will be used to burn $THC, this will probably cause a pump in the future.

Given that Thetan Arena is a new game in the space, it will naturally have a price premium once the dump fear fades. Thus, we predict that $THC is best valued around $0.30 and will increase to that target in the near term.

Closing Thoughts

Recently, Eva Wu from the Mechanism Cap categorized the crypto games into three tranches in her great piece:

• Earn-First Games: Center around earning as opposed to gameplay; Easily bootstrapped but not long-term sustainable. (Current stage)
• Play-First Games: Fun gameplay with crypto incentivization system. Rebuild current high-quality games with crypto would be difficult. (Mid-term stage)
• Financializing Fun games: Native gameplay with crypto assets and tokenomics built-in; users can get self-fulfillment playing the game while maintaining assets ownership and financial return. (Future ideal stage)

The purpose of this analysis on Thetan Arena is to illustrate an example of how traditional mobile games can be rebuilt into crypto blockchain games that are fun to play. Thetan Arena was transformed from a popular MOBA game "Hero Strikes" rated 4.4 out of 5 at the Google Play Store. Wolffun Game, the producer behind both games, is a proven team with a versatile knowledge base in both crypto and gaming that can develop quality games while financilizing fun at the same time.

Nonetheless, we need to point out that the game is not without flaws: key metrics in-game, such as battle rewards and Thetan Box listing price, are still controlled by the team in centralized ways. Any adjustment of key attributes or metrics without notification, like the discount sale of the new Thetan Box we mentioned above, would impact the builders of the game most significantly.

Beyond the analysis itself, we also would love to depict the ideal crypto games we are looking for, which also represents the investment thesis of Old Fashion research within the gaming space:

• P2E games with a long-term sustainable model that can overcome at least one full bear-bull cycle
• A traditional game team with proven track record of building large-scale, quality games with a deep understanding of crypto or willingness to learn about open economy / distributed network systems. Many existing traditional gaming teams ignore the opportunity that web3 and blockchain have to offer, particularly in mobile gaming.
• Native blockchain games: built originally by DAOs since day one; gameplay centers around crypto or is rooted in blockchain technology. Examples include Dark Forest, Worldwide Webb, etc.

Note: Metaverse projects like Sandbox, CryptoVoxel are not with the scope of the above discussion since we would prefer to categorize them as metaverse or virtual spaces in lieu of blockchain, P2E games.

🌟Readers and project teams on GameFi please feel free to reach out to the authors @bigfatpenguinQ, JX, and Alex for discussion. All ideas are welcome.