Seeing through UBI to VCT: How does GameFi Break through its Model?
Research DAO
November 30th, 2022

Author: @iamsixsix_eth | @RealResearchDAO


This article is dedicated to explaining the relationship between UBI, VCT and GameFi.

The Original Sins of GameFi

From CryptoKitties to Axie Infinity, to StepN and nowadays, GameFi's model has evolved from the earlier simple games with NFTs to a system of tokens & NFTs combined with multiple values. After the breakout of Axie Infinity, the complex economic system of the "dual token + NFTs'' in Axie Infinity has been determined, and has been widely adopted as the "golden rule" by the GameFi industry. Almost all the later projects copy the Axie Infinity economic model.

But for a long time, neither the earlier single NFT model nor the current mainstream "dual token + NFTs" model has been able to solve one "original sin" of GameFi, which is the misalignment of dedication and reward in the process of users making profit.

  • In the early stage of the game, the dev teams will deliberately limit the entry barrier (whitelist & a certain amount of capital required) to invite a group of high net worth players to enter.

  • In a limited competitive environment, players who enter the game early can often get more returns easily.

  • Through the spontaneous promotion of the dev teams and players who actually made profit, the games attract more players to participate.

  • The dev teams will milk huge benefits off the large number of players who enter late, but will hardly provide them with satisfactory returns. The early players who later exit will accelerate the collapse of the game ecosystem.

Under the current situation of the near to zero-sum game between players who enter the market first and those who enter the market later, if a game is known to more people, it usually means it is coming to an end.

The reason is that the current "multi-token economic model" of GameFi games is being too Ponzi, and the utility token farmed by the players has no actual value support. Early leavers are almost guaranteed to make more profit than the latecomers.

When most people can't guarantee their own profit, the only thing they will focus on is the speed they farm. They will no longer pay attention to the game content, and will not develop loyalty with the game, which is why, at the end of a game’s life cycle, we can always see players losing in a much quicker manner.

A healthy environment of a game not only requires users to gain voting rights through the governance tokens, but also requires a sound "social welfare security system". Only when the economic interests of players are effectively guaranteed will players invest in GameFi with confidence and participate in the game more deeply, And hence the entire game ecosystem will be more prosperous.

UBI & Crypto

UBI is the first term to be explained in this article.

Universal Basic Income (UBI) means that all citizens can receive regular and unconditional allowances to help them pay for their living expenses. Practice has shown that UBI programs can indeed reduce hospitalization rates, crime rates, and poverty rates. President Richard Nixon, Thomas Paine, Martin Luther King Jr., and Milton Friedman are all well-known supporters of the UBI project.

Although the idea of ​​the UBI program has been around for a long time, sporadic experiments have been carried out in some places. During the COVID pandemic, it suddenly became the focus of attention. UBI is widely discussed for two reasons. One is that Chinese-American presidential candidate Andrew Yang won a lot of support in the campaign with his UBI plan, and tech giants Zuckerberg and Elon Musk also expressed their support for implementing UBI. Secondly, during the pandemic, governments of multiple countries have directly distributed money to the people in order to save people's livelihood, which is equivalent to carrying out the UBI experiment objectively.

In November 2016, the Finnish government decided to carry out a two-year "Unconditional Basic Income" experiment, randomly selecting 2,000 people from 1.75 million long-term unemployed, and unconditionally paying 560 euros (approximately approx. 4,400 RMB) to test whether it will increase the labor force participation rate. The two are also the prototype of UBI.

At that time, the Finnish government wanted to seek how to provide enough incentives for the long-term unemployed to return to the labor market in the context of the economic crisis and the aging society. For the Finnish government, the goal of the experiment was clear from the outset: does having a basic income have a positive effect on the return of the long-term unemployed to the labor market?

There is no doubt that whether it is the Finnish government's experimental money-spending behavior or the direct issuance of banknotes to the people by governments of various countries during the pandemic, they have brought positive benefits to the maintenance of social ecology. But it is worth noting that many disadvantages of modern society are caused by using the same token to measure the money needed for basic income and the money obtained from excess achievements, but in fact, it is lower than the minimum living standard. The money below the guarantee is an individual's survival material; the money above this line is the embodiment of the individual's ingenuity.

That comes the idea of Income = Owner Dollars + Airdrop Dollars.

However, assets based on the same currency have a major bug, which is that they ignore the fact that the body needs real money to support it. That is to say, the individual's different survival needs will have an impact on the quantification of the individual's final wealth. If a person spends more money to eat after receiving government subsidies, then for him, the amount of wealth accumulation will be reduced. Under the long-term influence, when the subsidy cannot be maintained, the society will eventually collapse.

The Finnish experiment ran for two years, after which the policy was discontinued. The reason for stopping this policy, in addition to the huge financial pressure, is because it leaves the unemployed without pressure to go out and look for work. While it was true that some people went out to look for work, the intention to go out to look for work was stronger in the control group who did not receive the subsidy.

In fact, the answer the Finnish government wants to know is also what the GameFi projects want to know. After all, the two have almost the same problem, which is how to best ensure that participants stay, and how to keep those who stay active.

GameFi & VCT

VCT, which is the second term to be explained in this article, is the asset value capture token, which together with the game's governance token and utility token, constitutes a new economic model paradigm, the so-called "tri-token economic model".

This model aims to provide "minimum living guarantee" for players in the game, in which VCT is responsible for "building the bottom" for the price of the in-game utility token.

There is a strong correlation between VCT token and utility token: in terms of quantity, regardless of inflation or deflation, the ratio of the two will always remain 1:1; in terms of price, because each utility token can be "exercised at any time" ” (exchange a VCT token from the dev party and then convert it into stablecoins equivalent to the current VCT token price). Therefore, the price of utility tokens is always greater than or equal to the price of VCT tokens.

In addition, VCT token is "insensitive" to normal players, will not increase the burden on players, and is not circulated in the secondary market, and will only be used when "exercising rights". In addition, the process of "exercise" is one-way and irreversible. Each utility token and VCT can only "exercise" once, and the utility token and VCT token after being exercised will be burned.

The value capture pool VCP is the "social security fund" in the "social welfare security system". The amount in the VCP is gradually accumulated over time. Only when the amount in the value capture pool increases will the smart contract mint new VCT tokens (because the number of VCT tokens and utility tokens is always 1:1, so new VCT tokens are being minted. VCT tokens will also mint the same amount of utility token); when the amount in the value capture pool does not increase, it will not mint any new token. The funds in the value capture pool are not allowed to be withdrawn at will, so there is no fund in its reduced situation. In this way, each minted token can be guaranteed to have corresponding value support, and no redundant tokens will be issued out of thin air.

There are various sources of funding the VCP, which can be freely combined by the designers, such as the advertising fees in the traditional "Free-to-Play" games, sales in in-game items, royalties in the blockchain games, and more.

But regardless of the source of funds injected into the VCP, the total value stored in the entire pool will always equal the current amount of VCT multiplied by the price of VCT token.

In general, the VCT model is equivalent to providing a safety net for Play-to-Earn farmers. Due to the relationship between the number of VCT and the utility tokens, and the user’s “rights to exercise”, it will produce two-way deflation, which will make VCT and utility tokens being in a state of deflation for a long time, which has brought the driving force for the price increase of the two. Due to the existence of "rights to exercise", the price of utility tokens can never be lower than VCT, which also provides a minimum profit guarantee for players' farming behavior.

For example,

  • The number of utility tokens in a game = VCT = 10,000

  • The total value of VCP from advertising revenue = fiat revenue = 10000 USD

  • Then 1 VCT = 1 USD at this time

  • When the utility token of the game was sold on a large scale, it started to fall from 3 USD

  • Through the "rights to exercise" mechanism, players will feel that they can stake in a rate of return of at least 1 USD, which will not cause panic. On the contrary, due to the deflationary expectation of "rights to exercise", it will effectively prevent the decline in price of utility tokens.


Undoubtedly, through the VCT model, a game could provide an alternative iterative idea for the current mainstream "dual-token economic model" solution of GameFi.

On the one hand, the existence of the minimum income guarantee system can prevent more participants from losing everything because of the market depression or a death spiral, which will further stimulate the participants to invest money and energy in the game. In the long run, the entire game will enter a positive spiral state.

On the other hand, in the process of transforming Web2 games to Web3, there will be many value elements that were not included in GameFi before, such as the advertising revenue mentioned above, or the fee income from the sale of non-crypto in-game items, etc. The emergence of VCP can capture these sources of value very well, so as to more accurately present the market value of the game itself.

But at the same time, the "tri-token model" also has problems, such as low cost performance. It is reliable to build an additional VCP based on the current "dual token model", but in fact, before this, many dev teams have specially used the role of VCT by dividing a certain proportion of tokens from governance tokens.

In other words, under the premise of related functions in the future, it is necessary to introduce new tokens, which will become a problem for the dev teams to think about.

In addition, the "tri-token" model represented by VCT is also based on the fact that enough value can be captured at the beginning of the game, which is the icing on the cake. But it can't solve the problem of where the initial liquidity comes from, and it can't help solve the immediate problems.

In other words, VCT does not solve the core problem of current GameFi, which is the contradiction between the token incentive system and the user growth flywheel.

How to effectively identify real long-term users while providing incentives to make users truly addicted to a game may require more thinking.


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