3 Reasons Why Asset Value Speculation is a Problem for Developers

By this point, we’re all aware of the volatile and questionable nature of P2E. With some studios already having to patch up mistakes and navigate losses, there are enormous implications with Web3 games wherever you look, including the other main revenue stream in Gen1 Web3 games: secondary markets based on pure asset value speculation (AVS). 

Users purchase assets that the game offers, be it a playable game character, a piece of digital land or a token giving some sort of rights within the game, with an expectation that the asset will rise in value many times over and they will be able to then sell it for a huge profit and of course, game developers take a cut from every transaction. This makes it easy to assume that this model will be churning a seemingly endless amount of dollars for the developer, which can’t be a bad thing, right?

Well, here are 3 reasons why AVS may be a problem for developers.

1. AVS attracts short-term users

Just as with P2E, these types of player economies are not focused on the game itself and the player experience. From a developer’s perspective, the types of users that you will attract with AVS will be those who are only interested in extracting as much value from your game in as little time as possible. They do not care about the game (then again, it’s very hard for anyone to care about Gen1 Web3 “games”), they do not care about the community and players will continue to abandon your game for something more lucrative as soon as something more attractive comes along. 

With AVS, your monetisation model is limited and so is your player base. As Gen1 Web3 games by their nature are targeted to only crypto natives, such a limited market cannot sustain many games that are all based on the same revenue stream. Even if the crypto crowd would have time to speculate on asset values on hundreds of different games, there are simply not enough proper players to play all of those crappy Gen1 Web3 games, and there never will be. 

Source: photoroyalty (freepik)

2. Demand may dip 

This kind of asset value speculation is traceable to NFT art projects like Bored Apes, and it has the same inherent flaw: for the value of an item to rise, there always needs to be someone else next in line willing to pay more. This is unsustainable in the long term, particularly for assets that are mainly visual, but also for assets that have some kind of utility value in the game. 

It’s important to also consider that player motivation drives demand. How your players are motivated will determine not only player retention, but revenue. The problem with being only motivated by value increase is that at some point, when the value of an item is no longer rising, you’ll become demotivated. However, this problem only exists if the developer and users treat the assets as means to get a 100x return. Real world collectibles from comic books and trading cards to video games and figurines are all popular to the same segment of people who are also gamers. The difference here is that for the vast majority of the audience, the motivation stems from a collector and fan mindset, and the expectation for value increase is not astronomical or the main motivation. 

3. In-game economy is at risk

Lastly, developers should be very careful when creating what they hope to be a thriving secondary market in their games. Doing it the wrong way can easily destroy the delicate balance that player-driven in-game economies require, and this can spell disaster for the entire game. 

Specifically, developers should always make sure that the secondary market does not enable players to skip content, resulting in pay-to-win or cannibalising in-app revenue streams. 

The fact of the matter is that Gen1 Web3 games do not have any longevity. The market quickly became saturated and we are now seeing the fallout. In Gen2, the most successful games are going to be true cross-platform games with meaningful secondary markets for player-owned in-game items; bringing not only added revenue streams to developers but also added value to players. 

- Kim Soares, CEO