Early 2021 witnessed a big boom in the crypto market. Search terms around NFTs dominated the internet surpassing queries like “Etherium” or “blockchain”. The gaming industry which is worth more than $180 billion, was quick to join the bandwagon of adopting cryptocurrencies by selling game assets as NFTs and Game Tokens.

This increased interest in gaming on the blockchain has led to the development of the play-to-earn the model which is being rapidly adopted by gamers across the globe. Players from countries like Bangladesh and Philipines are using this model to earn a sustainable income.

The sense of owning digital assets through crypto transactions is gaining momentum and the play-to-earn model enables that. Axie Infinity and Decentraland are two popular crypto games that employ this model and witnessed an increase in their currency and token rates by 18000% and 4000% respectively.

Needless to say, the play-to-earn model is attracting the attention of game developers and investors alike, and it’s easy to predict that by the mid of 2022, we will see a lot of play-to-earn crypto games go live. However, gaming on the blockchain is still taking baby steps, and hence, there are some major takeaways from the usage of business models and the behavior of the gaming community.

According to Narvik – a gaming-analytics firm, Axie Infinity has an inflation problem as players cash out instead of putting money back into the game, and some HODL. It does make one think about ways to control the game economy in a way that controls inflation within the play-to-earn model. Before delving into the game economy and inflation control, let’s look at – tokenomics (token + economics).
At some point, you might have wondered:

1. Why do crypto games have two coins (tokens)?
2. How should one decide on the Max Total Supply?
3. What happens when Max Total Supply equals the number of players?
4. How should one launch their game token?

The answers to the questions above are rooted in the understanding of two economic terms:
1. Inflationary token
2. Deflationary token

Nischal Shetty, CEO of Wazirx has succinctly defined these two terms.

An inflationary token (like fiat money) doesn’t have a max supply and will continue to be produced with time. A deflationary token
model is simply the opposite in which the max supply of the token is capped, like 21 million for Bitcoin.

Now let’s get to the answers. First – why do crypto games have two coins (tokens)?

There are two types of tokens in crypto games:
1. Governance token
2. In-game token

Governance tokens are for giving rights, authority, and game decisions to the players while the in-game tokens are simply required for gameplay. For example, in Axie Infinity, AXS is the governance token while SLP is the in-game token for access to the game.

Now that we know the types and nature of crypto game tokens, here are my recommendations:
1. Use governance tokens as deflationary
2. Use in-game tokens as inflationary

With this understanding of in-game tokens to be inflationary, the second and third questions on Max Total Supply and their numbers equating to the number of players don’t make sense. While analyzing the trend of gaming tokens on CoinMarketCap, we found that most games that launch in-game assets as NFTs after launching game tokens see a drop, then again after launching the game. Probably, exceptions exist too, but this seems to be the common case.

Now, answering the fourth question about launching one’s coin. As mentioned earlier, Axie tokens saw massive inflation. Learning from that, here are some steps to launch your coin:
1. Start by building a community for your game
2. Announce the whitepaper and roadmaps to build credibility
3. Launch in-game assets as NFTs before launching game tokens
4. Offer the tokens to the public just before the game launch.

As you brainstorm on game economy, keep in mind that players stay for a good gaming experience, and with the introduction of play-to-earn models, for some side earning too. Invest time in the good old practice of making the game interesting with different activities and reward systems. This will inspire players to upgrade their levels, own NFT assets, and look forward to the steps ahead.

This understanding of tokenomics is a good place to start. A more detailed game matrix can help you to plan for getting game tokens back into your game, token rotation, and circulation to keep token count stable, and improve market cap. We will talk more about it in the upcoming blog.

Smart contracts like Solidity and Solana platform enable you to create and launch inflationary and deflationary tokens. Solidity requires you to handle inflation while Solana handles it straightforwardly, as long as the tokens aren’t frozen and can be generated.