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understanding-the-dual-token-economy
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Understanding the Dual-Token Economy

<p><span style="font-weight: 400;">For anyone who has been around the play-to-earn (P2E) space over the last few years, the dual-token economy, also called the two-token model, has been dominant throughout projects in the space, especially with games that host a scholarship model.&nbsp;</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">The most prevalent games that have adopted this model would be Axie Infinity, Pegaxy, and Crabada, with a few more big projects in the works still yet to launch.</span></p> <p>&nbsp;</p> <h2 id="what-is-the-dual-token-economy">What is the dual-token economy?</h2> <p><span style="font-weight: 400;">In short, a two-token system has both a governance token with a capped supply and a utility token with an unlimited supply. For example, in Axie Infinity, AXS is the governance token and SLP is the utility token.</span></p> <p>&nbsp;</p> <p>Don't feel like reading? Check out our video on the same topic!</p> <p>&nbsp;</p> <p><iframe src="https://www.youtube.com/embed/PJdNe9jIC9M" width="560" height="314" allowfullscreen="allowfullscreen" data-mce-fragment="1"></iframe></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">In Axie, the ability to earn SLP was the only reason scholars played. Scholars could earn well (in USD) while Axie Infinity was in its hype phase because the number of managers coming into the game needing SLP to breed outweighed the sell pressure from scholars, causing the price to rise dramatically.&nbsp;</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">The problem Axie now faces is that SLP supply far outweighs demand. The price has fallen from $0.41 to half a cent ($0.004), which means scholars feel it's no longer worth their time to play. This was confirmed by a former scholar in </span><a href="https://discord.com/invite/wizardia"><span style="font-weight: 400;">Wizardia's Wisdom Labs Discord discussion</span></a><span style="font-weight: 400;"> who said “something has to change, because all P2E games are dying.”</span></p> <p>&nbsp;</p> <h2 id="what-problems-does-the-dual-token-economy-face">What problems does the dual-token economy face?</h2> <p><span style="font-weight: 400;">Simply put, it has the same problems with inflation as any country in the world is currently facing with mass printing currency. But the utility tokens in gaming projects are minted to oblivion at a much faster rate than regular money in the real world, which in turn makes hyperinflation occur much quicker.&nbsp;</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">The </span><a href="https://messari.io/article/burn-and-mint-equilibrium"><span style="font-weight: 400;">mint/burn ratio</span></a><span style="font-weight: 400;"> dictates how much of the token is in circulation. The more of these utility tokens that are in circulation (minted), the less value they have. However, even with strong burning mechanisms, the dual-token model eventually runs into problems because people have to take profit eventually and the easiest way to do that is to sell their utility tokens.&nbsp;</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">Because there is compounded hyperinflation in tokens (and most of the time in game assets), these projects require new money to be entering continuously in order to support the current player base's exit liquidity. When new money stops flowing in, the token now has very little appeal to current players and managers who are farming the utility token in high quantities.</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">Without new money infusions, these projects have all seen the same downward trajectory of their utility tokens and assets (which are made from these tokens), and it isn't long until their governance token also follows suit.&nbsp;</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">This was a main concern for Axie Infinity scholars-turned-managers in the Philippines, where numerous players had invested a lot of USD into the game. These players now find themselves upside down on their investments, with a negative ROI thanks to falling token prices.</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">This not only hinders the games they are invested in but also future projects looking to launch, because the pool of potential investors keeps shrinking with each failed project.</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">The big problem these companies face is that most of the time they make their money from marketplace fees. This poses a sustainability issue, because the assets that are sold there are tied to the prices of utility/governance tokens (what they are made up of). As these tokens continue to fall, so does the value of in-game NFTs and, ultimately, company profits.</span></p> <p>&nbsp;</p> <h2 id="fixing-problems-in-the-two-token-model">Fixing problems in the two-token model</h2> <p><span style="font-weight: 400;">Unfortunately, if the mint/burn ratio goes unchecked for a prolonged period of time, you end up with insane hyperinflation thanks to mass token printing. This hyperinflation can't be reigned in unless the company orchestrates a buy back or completely wipes and restarts the economy with a new token, which has happened in some projects.</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">However, even with the mint/burn under control, it only delays the inevitable that the game will reach a point where there are not enough new players for people to take profit or the scholar sell pressure becomes overwhelming.</span></p> <p>&nbsp;</p> <h2 id="the-benefits-of-wizardias-token-model">The benefits of Wizardia's token model</h2> <p><span style="font-weight: 400;">Wizardia uses one token with a fixed supply, so there's no risk of mass printing and hyperinflation. With a set number of tokens set aside for P2E, Wizardia doesn't rely on new players joining the ecosystem to survive and grow the player base.&nbsp;</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">After speaking with scholars, they were in favor of paying for their own entry fees with the </span><a href="https://wizardia.io/tokenomics"><span style="font-weight: 400;">WZRD token</span></a><span style="font-weight: 400;"> as long as the potential to earn remained. This reinforces that some of the main factors in P2E that scholars are concerned about are token price and longevity.&nbsp;</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">The entry to player vs. player (PVP) matches creates a sustainable model similar to the one used by many online poker sites where a rake is taken from each wagered match. But as an additional bonus to early adopters, Wizardia's </span><a href="https://wizardia.io/blog/how-you-can-earn-with-wizard-nfts"><span style="font-weight: 400;">Genesis NFTs</span></a><span style="font-weight: 400;"> will also grant a percentage of tournament fees to be paid to holders as passive income.</span></p> <p>&nbsp;</p> <h2 id="final-thoughts">Final thoughts</h2> <p><span style="font-weight: 400;">If Web3 does ultimately have us all joining together in the metaverse, the way P2E game economies function must change from the two-token model to have any sort of longevity.&nbsp;</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">The best way crypto can be integrated into Web3 is through asset ownership, with players being rewarded with valuable in-game NFTs that have been built through hours of playtime and investment. Players can then sell these NFTs inside a game's marketplace instead of grinding away for hours for a token that will lose USD value over time because of the way it's built to fail.&nbsp;</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">For someone to win in crypto, others have to lose. Early adopters for a lot of these projects made out big. Unfortunately, it came at the expense of players who didn't understand when to take profits. They were oblivious to how the two-token model operates and what it needs to keep the Ponzi scheme going.</span></p> <p><span style="font-weight: 400;">If you're ready to jump on board with a sustainable single-token GameFI model, you can </span><a href="https://wizardia.co/wisdom-labs"><span style="font-weight: 400;">score a limited-time discount</span></a><span style="font-weight: 400;"> on your Wizardia NFTs.<br></span></p>

5 min read
Jul 29, 2022
ShillBill
Read this article

For anyone who has been around the play-to-earn (P2E) space over the last few years, the dual-token economy, also called the two-token model, has been dominant throughout projects in the space, especially with games that host a scholarship model. 

 

The most prevalent games that have adopted this model would be Axie Infinity, Pegaxy, and Crabada, with a few more big projects in the works still yet to launch.

 

What is the dual-token economy?

In short, a two-token system has both a governance token with a capped supply and a utility token with an unlimited supply. For example, in Axie Infinity, AXS is the governance token and SLP is the utility token.

 

Don't feel like reading? Check out our video on the same topic!

 

 

In Axie, the ability to earn SLP was the only reason scholars played. Scholars could earn well (in USD) while Axie Infinity was in its hype phase because the number of managers coming into the game needing SLP to breed outweighed the sell pressure from scholars, causing the price to rise dramatically. 

 

The problem Axie now faces is that SLP supply far outweighs demand. The price has fallen from $0.41 to half a cent ($0.004), which means scholars feel it’s no longer worth their time to play. This was confirmed by a former scholar in Wizardia’s Wisdom Labs Discord discussion who said “something has to change, because all P2E games are dying.”

 

What problems does the dual-token economy face?

Simply put, it has the same problems with inflation as any country in the world is currently facing with mass printing currency. But the utility tokens in gaming projects are minted to oblivion at a much faster rate than regular money in the real world, which in turn makes hyperinflation occur much quicker. 

 

The mint/burn ratio dictates how much of the token is in circulation. The more of these utility tokens that are in circulation (minted), the less value they have. However, even with strong burning mechanisms, the dual-token model eventually runs into problems because people have to take profit eventually and the easiest way to do that is to sell their utility tokens. 

 

Because there is compounded hyperinflation in tokens (and most of the time in game assets), these projects require new money to be entering continuously in order to support the current player base’s exit liquidity. When new money stops flowing in, the token now has very little appeal to current players and managers who are farming the utility token in high quantities.

 

Without new money infusions, these projects have all seen the same downward trajectory of their utility tokens and assets (which are made from these tokens), and it isn’t long until their governance token also follows suit. 

 

This was a main concern for Axie Infinity scholars-turned-managers in the Philippines, where numerous players had invested a lot of USD into the game. These players now find themselves upside down on their investments, with a negative ROI thanks to falling token prices.

 

This not only hinders the games they are invested in but also future projects looking to launch, because the pool of potential investors keeps shrinking with each failed project.

 

The big problem these companies face is that most of the time they make their money from marketplace fees. This poses a sustainability issue, because the assets that are sold there are tied to the prices of utility/governance tokens (what they are made up of). As these tokens continue to fall, so does the value of in-game NFTs and, ultimately, company profits.

 

Fixing problems in the two-token model

Unfortunately, if the mint/burn ratio goes unchecked for a prolonged period of time, you end up with insane hyperinflation thanks to mass token printing. This hyperinflation can’t be reigned in unless the company orchestrates a buy back or completely wipes and restarts the economy with a new token, which has happened in some projects.

 

However, even with the mint/burn under control, it only delays the inevitable that the game will reach a point where there are not enough new players for people to take profit or the scholar sell pressure becomes overwhelming.

 

The benefits of Wizardia’s token model

Wizardia uses one token with a fixed supply, so there’s no risk of mass printing and hyperinflation. With a set number of tokens set aside for P2E, Wizardia doesn’t rely on new players joining the ecosystem to survive and grow the player base. 

 

After speaking with scholars, they were in favor of paying for their own entry fees with the WZRD token as long as the potential to earn remained. This reinforces that some of the main factors in P2E that scholars are concerned about are token price and longevity. 

 

The entry to player vs. player (PVP) matches creates a sustainable model similar to the one used by many online poker sites where a rake is taken from each wagered match. But as an additional bonus to early adopters, Wizardia’s Genesis NFTs will also grant a percentage of tournament fees to be paid to holders as passive income.

 

Final thoughts

If Web3 does ultimately have us all joining together in the metaverse, the way P2E game economies function must change from the two-token model to have any sort of longevity. 

 

The best way crypto can be integrated into Web3 is through asset ownership, with players being rewarded with valuable in-game NFTs that have been built through hours of playtime and investment. Players can then sell these NFTs inside a game’s marketplace instead of grinding away for hours for a token that will lose USD value over time because of the way it’s built to fail. 

 

For someone to win in crypto, others have to lose. Early adopters for a lot of these projects made out big. Unfortunately, it came at the expense of players who didn’t understand when to take profits. They were oblivious to how the two-token model operates and what it needs to keep the Ponzi scheme going.

If you’re ready to jump on board with a sustainable single-token GameFI model, you can score a limited-time discount on your Wizardia NFTs.

ShillBill

ShillBill

ShillBill is a crypto enthusiast, gamer, and trader.

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