Tokenomics 101 — How to Design Tokenomics Model for Blockchain Gaming
TLDR; This is an easy, no frills guide to building a good tokenomics model for your GameFi project. There are 4 key steps, 1. Determine the utility of your token, 2. Design the CapTable 3.Design the mechanics for circulation, supply and demand, inflation and burn rate, 4.Engage senior researchers in evaluating and testing the feasibility of the token 5. Build a legal framework
What is tokenomics?
Tokenomics is made up of two words: Token + economics. Tokenomics is the economic model underlying each crypto or GameFi token.
Why is tokenomics important?
Determines long-term potential of the game
Issuing an asset can be an efficient way to kickstart a project and build a community from 0. However, the challenge is in retaining and attracting new users via healthy tokenomics. Having a good tokenomics model is the foundation of any good on-chain game, and it can determine whether your game survives beyond the initial hype.
Retail IGO users, investors and VCs also closely examine your tokenomics to get a deep understanding of your game’s overall system, intentions, and goals. They also use it to make future projections and determine the long-term potential of your game. To be fair, no game has gotten it exactly right so far, but we hope that this guide will help set the foundation for better tokenomics in future games.
Here is a step-by-step guide to designing your tokenomics
Step 1: Determine the utility of your token
This is the first and most important step of tokenomics design — figuring out what your token is going to be used for.
A good tokenomics model should (1) have a strong value proposition i.e. be able to provide good long-term value to players to encourage holding and spending in the game, and (2) allow for a self-sustaining economy that balances demand and supply based on player interactions with the game and the wider market.
There are three types of tokens you can implement for your game — utility, security and NFTs.
- Utility tokens are meant to be consumed by the gamer or be rewarded to gamers, and we typically refer to them as in-game tokens. For example, games developed by BinaryX require gamers to purchase in-game currency $GOLD to acquire characters or skills in the game. The price of $GOLD does not change in value, so it acts as a stable currency for all in-game activities.
- Governance tokens, also known as security tokens, serve as equity, which gives holders the right to vote for key decisions on the game’s DAO ecosystem.
- Non-fungible tokens (NFTs) are assets that cannot be replicated or altered. Gaming NFTs can be anything from the land that you own in a game, badges that you get from achieving milestones, and hero characters that you can trade. Usually in-game NFTs can be sold and bought within the in-game or open marketplace.
Currently, having a double token economy with NFTs is the mainstream. However, there are many ways in which projects can define their tokens. Some projects merge their utility token and security token as a single, all-encompassing token. Other projects have more than 2 kinds of utility tokens, consisting of a multi-token economy. In some cases, there aren’t any tokens, only NFTs. The kinds of tokens a project has vary from project to project, depending on function and need.
Step 2: Design the CapTable
A CapTable refers to a table that lays out three main things, 1, the exact allocation of tokens split between different roles in the project, including the team, institutional investors, private round investors, seed round investors and retail users, 2, what the token is going to be used for, e.g. developer fee, product operation fee, ecosystem development incentives, contributors rewards, airdrops etc, and 3, offer transparent breakdown of risks to holders and allocation for growth.
A typical CapTable should include the valuation of the project, total token supply, percentage of token allocated to each part, each round’s sale price, vesting schedule and cliff, and so on.
In the spirit of decentralization, we can evaluate a CapTable by the following aspects:
- Number of tokens held by the project team: The number of tokens held by the team should be open and transparently communicated, so that it is easier to be trusted by the community.
- Allocations to institutional investors, as well as their vesting cycle: There’s also a trend that projects launch without institutional investors from seed round and private round, making it a fair launch for all the retail users, since there won’t be any vesting pressure.
Step 3: Design the mechanics for circulation
Decide the rules of your token. Determine what your token can or cannot be used for, how it will function, and the supply and demand controls for the token both in-game and outside the game. More consumption and less output means less selling pressure and more buying demand, which will add value to each token, thus token price will rise.
There are a few ways to control the circulation of the token:
Deflationary methods:
- Burn (Permanent): Game projects can buy back their tokens from token holders to burn or directly burn the tokens in the team allocation. This means the tokens are permanently removed from public circulation.
- In-game consumption (Temporary): Players can buy in-game NFTs, top-up for tournament tickets, hero level-up or other in-game usage by spending tokens. In this way, the token will flow to the hand of the project team and the token supply in the secondary market will decrease.
- Staking (Temporary): Players can stake their tokens to earn rewards and decrease the total tradable supply of the token, as long as the rewards are less than the staking amount.
- Hold (Temporary): When players hold on to the game’s tokens, the token is not available to the public temporarily, decreasing overall circulating supply.
Inflationary methods:
5. Minting (Permanent): Minting is the process of creating new tokens to increase the supply of tokens in circulation. P2E games that excessively rely on NFT mining with incredibly high APY are definitely on minting mode and can lead to extreme inflation. This is usually called Ponzi schemes, where the rewards for previous players depend on token purchases by latecomers. It has shown to be an unsustainable business model for GameFi.
6. Vesting (Temporary): After a token is launched, you need to vest the token according to the CapTable. At each round of vesting for seed and private investors, the whole circulation will be faced with a selling pressure. Also, if you want to distribute tokens through airdrops from the team allocation or unlock the previously locked token in a certain campaign, it will also increase the circulation.
Controlling the demand and supply of tokens is a delicate balancing act — the right models will allow gaming projects to maintain a healthy liquidity and number of holders to build towards mass adoption. This will in turn ensure that the token has steady growth, contributing to the overall value of the ecosystem and the asset.
Step 4: Engage senior researchers in evaluating and testing the feasibility of the token
For this section, there are 2 parts to take care of:
Firstly, examine the token security at the smart contract level. You need to conduct third-party security checks and auditing. It is recommended to present a complete security/audit report including the tokenomics part to the public, or at least state which security/audit company you have partnered with.
Secondly, examine the applicability and market potential of the token in view of the entire project. Since different stakeholders may have different opinions in terms of tokenomics, in order to build a win-win ecosystem, this needs to be done alongside security testing, and be carried out by asking your advisors from IGO platforms, VCs or investors for help to review the tokenomics model, or even provide market making services.
BinaryX offers strategic counsel and iterative feedback for protocol designers to create tokenomic models that work for your specific project.
Interested to work with us? Apply to IGO through BinaryX here!
Other steps: Build a legal framework
To list your game’s token on most of the centralized exchanges, you need to build a legal framework that specifies the legal status of the token and its corresponding functions.
This includes specifying the type of token your asset falls under. It is especially important to make a distinction between utility and investment tokens as investment tokens may have a more advanced legal component.
There is also a need to consult a professional legal team that has experience in evaluating tokenomic models to ensure that your token complies with jurisdictional laws wherever your token is launched.
Apply to IGO with BinaryX
We hope you have found this guide helpful. If you would like to learn more about tokenomics and need help to launch your project successfully, reach out to us and we will be happy to help!
Contact us to receive a preliminary evaluation of your tokenomics model at business@binaryx.pro.
If you would like to IGO with us, you can apply on our website, or reach out to chat at business@binaryx.pro.
About BinaryX
BinaryX is the GameFi platform behind play-to-earn games CyberDragon and CyberChess, both of which run on the BNB chain.
BinaryX began as a decentralised derivative trading system. The team gradually evolved into developing decentralised video games, and is now transitioning to becoming a GameFi platform offering IGO services to bridge Web2 developers to Web3.
As one of the top 10 projects on the BNB Chain, BinaryX has a vast community of more than 100k coin holders and 17K monthly active wallets. It is also one of the largest metaverse projects by trading volume on the BNB chain, with more than 400 million in market cap. BinaryX also has a token, $BNX, that has consistently demonstrated strong performance despite the bear market.
For more details and information about BinaryX, please visit www.binaryx.pro
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