Original | Odaily

Author | Aurantium aurantium

A Ponzi scheme is a type of financial fraud that promises investors high returns to lure money in, but instead uses the funds of later investors to pay the returns of the previous investors.

Axie Infinity sparked a GameFi boom in 2021, and various types of GameFi began to emerge in the third quarter of 21, and several GameFi that made a group of users get rich quickly appeared in the third quarter of 21, but also caused heavy losses to the last users to enter the market. Dismantling the underlying economic model of these GameFi belongs to the Ponzi model.

Therefore, at the end of 2021, it was also proposed that the two definitions of GameFi and chain games should be distinguished, the former is a (Ponzi) Decentralized Finance model that applies the game shell, and the latter is a game that introduces Blockchain technology, focusing on different subjects.

In this article, Odaily will disassemble the Ponzi economic model of some mainstream GameFi from 2021 to 2022, showing readers the details of the generation, regulation and termination of bubbles throughout its life cycle, and also as a reference for the current GameFi economic zone.

Deconstruction of participants and processes, key definitions

The participants in the life cycle of a GameFi are as follows:

• Game participants: users who invest assets in the GameFi economy and profit from generating tokens through game items;
• Token investors: buy project Tokens, but do not participate in the GameFi economy, profit through secondary sell-offs;
• Project team: responsible for the operation of the GameFi economy. The main responsibilities include attracting new users to join and controlling the pace of joining, controlling the strength of user selling, and eliminating certain bubbles as much as possible.

Simplify the process for the GameFi economy as follows:

• Users invest money to purchase game assets to produce props (Mining Rig);
• Users generate game assets through mining rigs, which can be re-invested in the game, or exchanged for hard currency (USDT, etc.), and the daily output of all users is recorded as Instantaneous expected income;
• The funds invested by the user are deducted from the funds that have been transferred, constituting the real capital pool;
• Instantaneous return expectation ÷ real pool is recorded as bubble rate, which measures the degree of bubble development of the Ponzi economy, as players continue to enter the market Mining Rig continue to increase long, the real pool continues to lose, the value continues to increase, and the closer to the crash;
• In the end, under the heavy action of lack of confidence: the number of reinvestment users decreased, and long number of users turned to withdraw funds from the capital pool, insufficient funds: the rate of entry users was insufficient to Mining Rig the output rate, capital loss: due to various mechanisms, the entry funds did not enter the real capital pool, resulting in the fragility long of the economy, the bubble was too large: the bubble rate was too high to support and other factors, the bubble burst and the economy collapsed.

Other key definitions are as follows:

Dual Coin Model: User funds are mismatched in and out of the market, and the model that uses two tokens is called the dual coin model. There are governance tokens and game tokens, but governance tokens basically do not participate in the economic cycle and do not belong to the dual coin model. Single Coin Model: Only one Token is used for funds entering and exiting the market. Coin standard: The number of game Tokens produced by users is a specific amount. U-Standard: Also known as the gold standard, the number of stablecoin produced by the user is a specific amount and does not change with the Token Fluctuation of the game. Gacha Model: As long as you have enough specific assets, you can get unlimited Mining Rigs. Breeding Model: Mining Rigs are produced from existing Mining Rigs, usually with a quantitative limit, and a mechanism for the cost of reproduction to increase with the number of times.

Basic mode: single coin + coin standard model + card draw

First of all, with the purest single-coin + coin-based model + gacha, CryptoZoon was launched on July 28, 21, the game Token is ZOON, players need to consume ZOON to buy Egg, and then hatch Mining Rig ZOAN, Mining Rig and then produce Token ZOON.

The model and operation process are very simple, the basic structure of the application is shown on the left side of the figure below, and the GameFi shell is shown on the right side of the figure below.

The key reason for the bubble bursting

As mentioned at the beginning, there are four major factors for the collapse of the bubble: lack of confidence, insufficient funds, loss of funds and excessive bubble, which is the main reason for the collapse of CryptoZoon?

The bubble is too big: CryptoZoon's mining rig sales model is a card drawing model, which means that users can enter the market quickly. As the first batch of GameFi on BSC after Axie's popularity, mining rigs were sold too quickly, resulting in instantaneous expected returns and bubble rates quickly peaking.

Here, first consider a question, without considering the exit of Token investors and the output of the game, what is the relationship between the entry of funds and the bubble rate in static situations?

• Due to the AMM mechanism, the Token price has a quadratic relationship with the inflow funds, and a 10% increase in the pool increases the Token price by 21%;
• Due to static calculations, the user's instantaneous expected return is also quadratic to the pool, which also rises by 21%;
• The bubble rate rises accordingly, which is linearly related to the entry capital.

To sum up, the more long the influx of funds in the static situation, the higher the bubble rate, why is this so? Because it is assumed that the Mining Rig can arbitrage the real pool of funds at the inflated price (the long the cash-out, the bigger the bubble). What's the difference?

• After Token rise, Token investors will tend to sell for profits, and the real capital pool will shrink, but it is worth noting that the impact is usually not too obvious under the single-coin model;
• The sell-off of Token Investors and Game Participants will affect the AMM price curve, and the actual instantaneous expected return inflation rate will not rise in a quadratic way.

In short, because the AMM curve, profit-taking selling, the entry of money will cause the bubble rate to rise.

Money Loss: The chart below shows the price chart of the game Token ZOON, which is Benchmark by about 6.5 times the pump Closing Price of one hour after the Token is launched.

The real pool of tokens in the single-coin model is its LP pool, and the steep V-shaped trend means that the funds to buy Tokens to participate in the game during this period are earned by Token investors, without effectively entering the pool to sustain the economy. On the other hand, the CryptoZoon project party set a sales cap for mining rigs, resulting in a large inflow of funds after the bubble rate quickly peaked, and finally collapsed.

Dual coin model: Give me a pivot point and I can leverage a million-dollar pool

User funds are mismatched in and out of the market, and the model that uses two tokens is called the dual coin model. There are governance token and game Token, but governance token do not participate in the economic cycle and do not belong to the dual-coin model, such as Axie Infinity, although there are two Token, the governance token AXS only has a small amount of consumption during the breeding process, and it is still a single-coin model in nature.

The dual coin model has the following features:

BinaryX

BinaryX is the culmination of the dual-coin model, there are two Token BNX and GOLD in the game, and their economic operation process is as follows:

• Users buy BNX for hero lottery (get mining rig);
• Users spend GOLD to upgrade heroes (upgrade to advanced mining rigs);
• Users stake hero output GOLD (the main output of the mining rig and transfer funds from the yield pool);
• Users use heroes to fight bosses to get BNX, GOLD, and equipment (the secondary output of Mining Rig).

BinaryX matches the dual coin model characteristics as follows:

• Mismatch of entry and exit channels: Users need to buy BNX and GOLD at the same time, but the output is mainly GOLD, resulting in a slow rise of BNX price and pool, while GOLD is under pressure to pump less;
• Pot and income pool: BNX is the pot and the capital precipitation long Fluctuation is small, GOLD is the income pool, the pool is relatively small and long, and the Fluctuation is large;
• The dual coin model does not change the real capital pool (BNX + GOLD), instantaneous expected return (calculated according to the GOLD price) and instantaneous bubble rate, but provides a high-quality means for the project team to regulate expectations.

What kind of regulation does the dual coin model bring to BinaryX's economic operation?

• Small market controls large market

Since users' earnings expectations are calculated on GOLD prices, and GOLD's LP pool is extremely small, around hundreds of thousands of dollars, it only takes a small amount of money to adjust user expectations, thereby driving the BNX of large pools pump. In the single-coin model, it needs to face a million-dollar pot, and it is difficult to "regulate" the operation.

• Secondary hype

Due to the play people for suckers of the double pool, funds enter from BNX and GOLD, but mainly flow out through the channel of GOLD, resulting in BNX being more likely to pump up, and the secondary speculation situation is more obvious. In extreme cases, the pot can have no output, that is, the BNBH unilateral upward pump model that appeared later.

At the same time, this also limits the speculation of second-level users to produce Tokens, because the very small pool of funds can easily lead to raising the Token price too high, becoming a profit for game users.

In summary, the dual-coin model of separating the pot from the income pool provides an effective means of economic regulation for the project side, while intensifying the speculation of the parent coin and suppressing the speculation of the child coin.

In addition to the inherent characteristics of the dual coin model, BinaryX also adds a certain amount of randomness, providing a potential means for the regulation of the game economy:

• Controllable mining rig properties

The Mining Rig in BinaryX is called a hero, which is produced by consuming BNX gacha, which has a difference in attributes, and the attributes will greatly affect the output of the Mining Rig. Therefore, through the probability adjustment of mining rig attributes, the outflow rate of funds can be affected in the long run.

• Random copies

In BinaryX, users can consume BNX to enter dungeon battles, and the output includes BNX, GOLD and equipment, there is the possibility of a single high multiplier return, but not every battle is a positive return. The project team was able to adjust the overall difficulty and output to achieve a certain amount of bubble elimination.

The dual coin model does not change the Ponzi property, but leaves ample means to adjust user expectations. BinaryX has been running effectively for about 3 months and is already a long-lived player in Ponzi GameFi, but eventually died due to too large a bubble and insufficient entry funds.

U-Standard: It only takes 8.8 seconds to jump from the Empire State Building

In addition to the single-coin and dual-coin models mentioned above, GameFi at that time also distinguished between the coin standard and the gold standard (U-standard), with the coin standard being denominated in tokens for entry and output, and the U-standard being calculated using a fixed stablecoin price. This model can be considered to have been pioneered by Valk (Valkyrie) and carried forward by CryptoMines (spaceship), and has become a huge hit due to the excessive extremes of the model.

Under the U-based model, the user's entry cost is converted into a stablecoin unchanged, for example, the fixed value is set to 100 U:

• When the coin price is 50 U, the Mining Rig price is 2 Tokens;
• When the coin price is 100 U, the mining rig price is 1 Token;
• When the coin price is 200 U, the Mining Rig price is 0.5 Tokens;

Under the coin-based model, the purchasing power of a Token is fixed and does not change with the change in the price of the Token.

Similarly, the user's output is also converted into a specific stablecoin, and if the output is sold immediately at any time, the amount of stablecoin exchanged remains unchanged.

Extreme positive and negative feedback

Using a fixed stablecoin amount to convert input and output, will the Ponzi attribute be reduced?

The answer is no, and although this model weakens the selling pressure from mining rig assets, it greatly enhances the expansion and bursting of bubbles.

• The asset sell-off was modest

In the coin-based model, the number of Token to buy Mining Rig does not change, so with the rise of the Token price, the Mining Rig price will also rise, especially under the double-coin model, by pulling the price of the small pool up and pump, the expected return of the Mining Rig will also pump, resulting in a rapid rise of the price.

In the absence of a crash and sufficient market liquidity, mining rig holders are able to sell a large number of mining rig assets to make a profit.

Under the U-margin, the price remains unchanged no matter how rise long Mining Rig, so users will not choose to sell Mining Rig, but continue to produce Token.

• Rapid expansion and bursting of foam

In the case of no selling pressure on the mining rig, the only pressure comes from the sale of tokens, and under the U-based model, the positive and negative spiral effect is obvious, and basically only one unilateral pump and one unilateral fall will come to an end.

In the process of pump, the output of the Token decays with the pump of the price, and users will find that if they hoard the output Token, the book assets will expand rapidly.

For example, if the U-margined value is rated at 100 U, the user can produce 1 Token worth 100 U. When the Token reaches the price of 200 U, the output is only 0.5, so compared with users who enter the market later, it can be regarded as doubling the number of Tokens and doubling the price, which has a very obvious advantage. Therefore, in the process of pumping, users have obvious reluctance to sell psychology and emotions, and the token selling pressure is small and pumping in a positive spiral.

Similarly, in the process of fall, the number of Token output continues to increase, and if it is not sold first, subsequent users will produce more long Token and the price is relatively lower, so the selling pressure continues to strengthen the downward fall spiral, which is consistent with the bubble bursting process of LUNA.

CryptoMines has experienced a round of unilateral pump and a round of unilateral fall, and its Token price has risen from a maximum pump of 1 USDT to more than 8 million USDT in two months, and the LP pool has exceeded 30,000 BNB at its peak. However, its collapse took less than a week, the Token price fall fell by more than 50% per day, and finally due to the Token additional issuance, the long exceeded the predetermined limit of the total amount of Token, and the Liquidity exhausted users were completely unable to exit.

Token investors suck blood

As mentioned in the previous section, users who participated in the game were reluctant to sell Token, which led to a significant pump in Token. And CryptoMines also limits the withdrawal of output Tokens, with a 15-day cycle, and there will be a number penalty if withdrawn early.

The above situation makes Token investors make large profits and have the advantage of being able to exit at any time, and can withdraw large amounts from the high point at any time, so that the pool loses a large amount of blood quickly.

As shown in the figure below, without increasing the number of Mining Rig, the share produced by game participants decreases with the rise of price, but the selling power of coin holders does not decrease, and when the rise reaches a certain level, it becomes a potentially huge selling force.

Eventually, with the GameFi of the U-M model, more and more long users chose to hold only coin and not participate in the game process, resulting in a shorter game life cycle, reduced to pure secondary hype, and the model died out.

Propagation Model: Ineffective Market Regulation

In addition to the above single-coin and dual-coin models, coin-based and U-based models, there is also a key difference in the way mining rig assets are sold, which this article refers to as the gacha model and the propagation model:

• The gacha model refers to the direct sale of mining rigs from the game system, the price is constant, and there is usually no limit to the number.
• Under the breeding model, the output of the child mining rig is synthesized from the mining rig of other users, and the price is determined by the market, and the quantity is controlled by the number of parent mining rigs and market sentiment.

Nine Tibetan Cats (DNA×CAT)

All the offspring cats are from the previous generation of breeding, in the breeding users need to consume BNB and a very small number of governance token DXCT, 50% BNB automatically repurchase SFC, the rest of the deposit library is operated by the project team.

Among them, SFC is the only Token of the game economy, and the Mining Rig produces SFC by participating in game activities, and the BNB consumed during incubation is its power.

Under the reproduction model, the quantity and price of ** are determined by the market, can this mechanism self-regulate through the market to reduce the Ponzi attribute to achieve a longer operation? The answer is still no. **

• The price is high, and the profit is completely cut off by the early players:

Under the breeding model, the number of assets in the early game is extremely rare, so the price will be extremely high. On the other hand, since mining rigs are directly produced and sold by players, the difference between the selling price and the cost is directly obtained by early players.

It takes 5 days to hatch a single offspring cat in Jiuzang Cat, and it can be considered that the difference is the output of a single mining rig for 5 days. Assuming that the mining rig pays back in 20 days in static calculation, it means that 25% of the profits go directly into the hands of incubators. Under the gacha model, user funds enter the LP pool and are extracted by the overall ecological output, which shows that the breeding model greatly reduces the thickness of the capital pool.

• Exponentially multiplied, the foam expands rapidly

From 21 years to the present breeding model GameFi, usually a pair of mother mining rigs can produce 7 child mining rigs, which will lead to as long as there is any profit shorter, the holder will continue to produce mining rigs until the profit returns to zero. As a result, assets and bubbles will pump exponentially.

The figure below is a statistical chart of the number of NFTs of Jiuzang Cat in 21 years, the production of the initial offspring requires a five-day incubation period, and after turning on the accelerated incubation function (Token can be spent to directly complete the incubation), the number of Token output has risen rapidly, and the supply and demand of the number of Mining Rigs have changed, which finally makes the difficulty of capital undertaking explode, and it only lasted for 18 days and began to collapse.

From the 21-year-old Jiuzang Cat to the 24-year-old Gas Hero, once the popularity is too high before the game is opened or officially opened, the first generation of assets is often overhyped and the price rises, and then the number of mining rigs rises exponentially and the price falls, resulting in a rapid crash.

Conclusion

The above economic design is summarized as follows:

• Single coin model: It is relatively stable for all parties, but it is also more difficult to adjust expectations and control orders;
• Dual coin model: Fluctuation is differentiated into two pools, which can achieve expected regulation relatively easily;
• coin model: relatively stable, no self-feedback effect, prone to value-added selling pressure on the asset side;
• U-based model: extremely unstable, with significant positive and negative spiral effects, prone to speculators' coin selling pressure;
• Gacha model: It can be combined with other designs to control the flow of funds, but it is prone to excessive influx in a single day;
• Reproduction model: It is easy to lead to excessive fear of missing out (FOMO) at the opening, which is suitable for situations where the project party can effectively control the operation rhythm and regulate market supply and demand.

In addition to the above-mentioned basic models, there are also many long effective mechanism innovations. For the project team, the fundamental goal is how to expand the bubble and delay the collapse time, which specifically involves long the design of the economic model and the coordination of the operation rhythm, encouraging users to Lock-up Position/reinvesting, creating emotions and events, and controlling the entry and exit funds in the whole cycle.

However, at present, there are few pure Ponzi models in GameFi, but financial attributes, as a natural attribute of Web3, cannot be ignored.

And for users, what are the key takeaways?**

One is that when the voice is boiling, it is the time to leave, not the level of the price, but the exit liquidity of the valuation, the GameFi of the Ponzi model, with the claim of N days return as the basic element, but often can not support longing N days, the voice is the time to exit and cash out at the highest valuation, without taking the risk to continue to dig and sell N days.

On the other hand, GameFi market assets are dominated by P2P, which needs to be undertaken by counterparties, and the buzz means the best exit liquidity. When it enters a downward falling trend, the P2P market will face the problem of liquidity collapse and difficulty in selling.

The most important thing for users to recognize is that the design of economic models can only affect the general process and mode of development. For the Ponzi model, the pump and fall of the economy are not brought about by the design of the economic model, but determined by the inflow and outflow of funds.