May 26, 2022

Inflation in GameFi: Origin and Solutions

When the currency calculated in the market surpasses the demand, the currency’s purchasing power decreases. This situation is called “inflation”. In Gamefi, inflation simply means that a token depreciates in value over time.

What are the causes of inflation in Gamefi?

Concerning the in-game economy, the issue of inflation is unavoidable. In most cases, players have to buy in-game assets to participate in the game. According to their in-game performance, players are rewarded with tokens, thus, tokens are generated with a tremendous or uncapped supply. Although players can use their tokens in games’ ecosystems such as leveling up their in-game assets or re-investing in the new ones,  a large proportion of them intends to sell their rewards (including both NFTs and tokens) on exchanges or marketplaces for immediate revenue. With the enormous amount of tokens accumulated over time, market selling pressure will accrue, and inflation is inevitable. 

Address the today’s concern of inflation in Gamefi

The situation of inflation can not be solved completely but can be mitigated. The traditional strategy to curb inflation is to attract more users to play the game. This helps increase demand for in-game currency and consequently stabilize the token’s price. 

Charging players’ transaction fees and burning a portion of them is another original solution. The developer may also buyback and burn to reduce the circulating supply. This is a temporary and unsustainable way to handle inflation because it does not create any motivation for players to hold their tokens. 

The multi-currency model used in Axie Infinity transfers inflationary pressure and continuously transfers the selling pressure of a single currency. Although inflation will not be fully resolved, Axie Infinity demonstrates specific ideas for decelerating inflation for GameFi projects.  

The imbalance between old players’ selling pressure and newbies’ demand requires a third flow of capital into Gamefi to maintain a stable in-game economy. The developers can generate revenue in numerous ways rather than only depending on the game’s mechanism. For instance, In-app advertising is a traditional but never unfashionable method for the core team to monetize their games. 

Gripping gameplay should come first, not the earnings. A seamless gaming experience will motivate players to hold and re-invest in in-game assets instead of selling them. Also, besides monetization, players can reap other benefits from playing Gamefi. For example, StepN offers users a chance to keep fit by performing exercises daily. 

The Gamefi industry is still evolving and thriving. Projects will need a combination of all solutions mentioned to control inflation and create a great mutually beneficial gaming experience. 

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