Mar 11, 2024 - Economy

Valuing blockchain games like "real-world economies"

Illustration of a pattern of 3D pixel style dollar bill signs.

Illustration: Aïda Amer/Axios

A blockchain economist has proposed a more holistic way of thinking about what a token-powered community is really worth.

Why it matters: Open digital communities, including many gaming applications, are hopping again — but the current standard for measuring their value needs an upgrade.

The main way on-chain economic communities get valued now is by how much money (cryptocurrency) has been deposited into them, a metric known as "total value locked."

  • Everyone agrees this is inadequate, so Economics Design, a consulting firm that helps cryptocurrency startups think through the best way to design incentives for users, has proposed a new one: "gross network value," or GNV.
  • The firm's founder, Lisa JY Tan shared its draft papers on GNV with Axios. In short, evaluate them more like the way we evaluate regional or national economies, something like a nation's gross domestic product (GDP).

Between the lines: The concept is based on the observation that many creators of blockchain games talk about them as if they are little nations.

  • "That is an accurate statement in the sense that blockchain gaming projects have created unique virtual ecosystems that function very similarly to real-world economies," Economics Design's paper notes.

How it works: GDP is basically a measure of money spent, by consumers, investors, the government and then net export (the difference between how much it sold abroad from what it bought from other countries).

  • GDP trackers add up those kinds of expenditures and arrive at a final number.
  • Economics Design proposes measuring all the analogous things in a game.

Zoom in: Consumption is the purchase of ephemeral items in a game, like potions, gas or ammo. Investment is the purchase of durable goods, such as weapons, land and upgrades.

  • The government is the company behind the game (in the case of the game that ruled 2021, Axie Infinity, that would be Sky Mavis). They spend money on things that should be good for everyone: developer salaries, promotion of the game, incentives for players.

The tricky one is net exports. When a player spends fiat dollars to buy in-game items, that would be an export (money outside the game is entering its economy).

  • When a player withdraws loot or crypto it won in the game to trade for stuff like dollars or bitcoin, that's an import (they are using in-game assets to buy stuff from the outer world).

The intrigue: Some of these expenditures might be in virtual currencies or fiat (like dollars), but it doesn't really matter for this analysis.

  • Spending is spending.

The big picture: February was an all-time high for daily active unique wallets in decentralized applications, known as dapps (the closest anyone can really get to measuring people), according to industry data site DappRadar.

  • In the gaming world, lots of activity means lots of money sloshing around.

What's next: Tan plans to develop her company's methodology into a new market cap tracking site based on GNV for game worlds (for now), tracking all the on-chain expenditures they can.

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