Tokenomic Design: Dual Token Model (Part 1)
Have you ever questioned the reasons why one single game requires two tokens? In this article, we will explain to you the nature of this dual-token economy and present what we can take out.
Following the success of the pioneering Axie Infinity, several GameFi projects have learned from the project and applied the economic model as well as the dual-token model to their products.
This dual-token model includes one governance token and another in-game utility token. Usually, the governance token has governance power, while the utility t
oken is used for in-game mechanisms.
However, have you ever questioned the reasons why one single game requires two tokens?
In this article, we will explain to you the nature of this dual-token economy and present what we can take out from this.
A comparison between single tokenomic and dual tokenomic
Single tokenomic is defined as using only one token for every activity related to the project, from governing to ones involved in the game economy.
This model has several advantages, namely its simplicity. Users can easily learn the tokenomic as well as its use cases. Moreover, focusing on only one token also contributes to the token's rapid rise in values - since the cashflow is attracted to only one place.
On the other hand, this economic model is prone to failure. When the game’s generated profit correlates with the tokens’ prices, when a large amount of tokens is traded on the secondary market, players would slowly lose motivation as their revenues decrease. As a result, they could be afraid that the tokens’ prices would continue to drop and thus try to sell their tokensat any price, which in turn leads to a deeper dip in token’s prices and creating a vicious circle.
In order to solve this downside of Single Tokenomic, Axie Infinity introduced the Dual Tokenomic model.
Aiming to reduce secondary market’s effects on the game economy, Axie Infinity used a model that deals with 2 tokens, of which AXS is the governance token - representing the game’s value; while the other is SLP - the token used as the accepted currency when players do Breeding process.
AXS Holders make profits from participating in governing - yields come from the fees paid by players that trade on Axie Marketplace.
In general, AXS is considered more sustainable compared to SLP, due to its limited total supply,. This means players can only buy AXS at the secondary market, or participate in events held by Axie Infinity to earn the token, and then take part in governing activities through Staking to get rewarded AXS.
Meanwhile, SLP is an unlimited supply token, which is constantly minted to reward players. The only price momentum for this token is when SLP demand exceeds the token’s supply; as SLP can be considered an in-game currency, therefore this token basically has no investment value.
To summarize, for common players, the price of SLP is more important. On the other hand, investors would keep their eyes on AXS price.
Flaws of Axie’s model
Despite achieving certain successes, Axie’s model still has some drawbacks - namely prices of AXS and SLP have not been able to be separated. In other words, a rise in SLP’s price would somehow cause a rise in AXSs’ price as well, and vice versa.
Perhaps the reason behind this is the game’s mechanism that requires players to use both SLP and AXS at the same time.
In most of the games that integrate the Breeding mechanism, players are required to use both governance and utility tokens at the same time. This can be explained as one of the ways to raise the demand for their tokens. The more players participate in the game, the higher token demands, and the more cash spent for tokens. At the same time, the tokens have a limited total supply, thus technically, the price of the tokens would rise. This is a positive price momentum for governance token.
Therefore, if a so-called attractive game is in its development stage, the price of its governance token usually increases. 2 main reasons for this are:
New players introduced to the game. Basically, new players buy NFTs minted by older players, and this could also be interpreted as new players pay for Breeding.
Investors who are optimistic about the project, so they buy and hold the game’s governance token.
Because of these, though increases in the tokens’ price is a good thing, it will also create tensions between the two groups of holders.
In the best scenarios, in which the project grows, the optimistic investors would continue to buy and hold the governance token, which then leads to rises in prices of that token. This, in turn, leads to higher costs of Breeding, and consequently, NFT prices would also go up. As NFT prices go up, costs of entering the game for new players would also become higher. According to the Theory of Elasticity of Demand and Supply, this phenomenon would cause a lower number of new players. In summary, this example is a negative consequence made from positive motives.
Publishers could solve this by adapting the costs for Breeding, so that they are not deeply affected by governance tokens’ prices. However, the adaptation would require time and data. Meanwhile, the cryptocurrency market has a high volatility nature, therefore subjective changes made by publishers may be left behind.
Advanced improvements in Elpis Battle’s tokenomic
Taking the above mentioned matters into consideration, Elpis Team formed a theory that the best solution would be not involving the governance token EBA in any in-game mechanism.
This theory was backed up by real life cases - to be more specific, iPhone buyers do not have to pay in both cash and APPL stocks.
Benefits of using MEG as the only token for in-game mechanisms:
Completely avoid the conflict of interests between EBA holders and game players (who mainly use MEG).
Reduce gas fees for on-chain exchanges as only 1 type of token needs to be approved.
Simplifies the act of estimating game costs.
However, the EBA-removing process needs to be separated into 2 phases, and there are 2 things that our team would want to explain:
Why did we only remove the token 30 days after the game launch?
How is EBA valuable if it cannot be used for any in-game activity?
MEG market supply is one of the reasons why an immediate termination of EBA would cause negative impacts on the game economy. As of this moment, Elpis Battle is in the very beginning phase, with players being able to earn a maximum of 200 MEG per day.
As each first-time recruitment costs 4,000 MEG and 60 EBA. Suppose that MEG’s price remains at $0.01, EBA’s price remains at $0.055; this means if the player wants to pay in MEG only, they would have to spend 4,330 MEG - which equals 22 days of playing for those who play with one single account. Generally, this is considerably long for a single player, so we want to provide them with EBA in the beginning, until they have enough time to generate their own materials.
For this, we want to achieve an agreement about completely understanding the benefits of this advancement.
In the Tokenomic Design (Part 2) , we will clarify the value of EBA token as well as its use cases in the Elpis ecosystem.