Will NFTs and GameFi make a comeback - Artem | Mighty

Hey guys, I prepared 120 slides so I'm going to go fast. Uh so uh the topic of the day is will NFTs and GameFi make a comeback? And what I want to start with uh is that the previous generation is basically 99% of that and there are very cool reasons for it. So I have dug up some statistics. This is actually from last year.

It's even worse now. So 88% of the projects saw a token price drop of over 90%. Uh 93% of gamefire projects are pretty dead by all metrics. Um and the average lifespan of such a project is about four months. Um and on average the token price of any gamefi related projects have declined uh 95% of from all high.

Um so I want to touch on why the previous generation has failed and what can be done so that the next one is successful. So uh let's look at these charts. Very nice one. You've probably seen some of those projects around. Um yeah.

So uh like it's not only about tokens. It's also because everything is tied to a token. Once the token goes down, you have revenues going down, you have active users, and all the metrics basically go down as well. So, but if we actually compare it to uh some projects from web 2. Let's go for Roblox for example.

So, you can see something like totally different every day, every year, bit by bit, there is an increase in revenues. Um, but you might say like Artam, you are comparing uh apples to oranges here. Uh, let's compare oranges to oranges. So, the price of a skin or an in-game asset uh of something like Azuki for example, um we haven't seen any sustainability in this at all as well. Uh but if you actually compare it to something like uh CSGO skins, you can see that the price of it is pretty stable, unbothered, moisturized.

Uh and you can go like uh with a bit more examples. Um and I can go on and on for that but uh basically the takeaway here is uh the model that we had in gamefi so far was basically destined to fail. Um and uh what do we need um in like one word. So what we need is sustainability. But how do we actually achieve sustainability is totally another ball game.

So first of all we got to understand the reasons for this failure. So why is this happening? So I want to touch on why why is this model good. So the current model is good because of that little pump over there, right? Um but why is this model bad?

It's actually because of the same reasons. And to understand why we have to go to basics. So within users there is two types of motivation. Uh users have extrinsic motivation and intrinsic motivation. If we talk about extrinsic motivation which we have perfected in web 3, uh we talk about money, fame, school grades, stuff like that, extrinsic stuff.

And when we talk about intrinsic stuff, it's more like internalized. So it's about satisfying work, uh meaning, social connections, hope of success. So what is the problem with extrinsic motivation that we love so much uh in web 3? Actually a lot of studies show that when extrinsic rewards run out uh the motivation falls below the baseline level as it was without any rewards. So if you put it to the chart so you have two types of motivation extrinsic and intrinsic and once the rewards finish with the intrinsic mot extrinsic motivation you have the motivation of the user fail below what it was.

So do I have any proof of that? Well, look at any crypto chart. Um, that's first proof. But also there have been a lot of studies done um even like 50 years ago. Um and like for example one of those studies in one of those studies people were given a puzzle to solve half of the group was given a monetary incentive.

So they they were paid to make a puzzle and the second group was not given anything. So and within this experiment uh people came out of the room and uh once like and they were starting up like they were like saying that the experiment is finished uh but they left the room and they were observing these two groups of people and actually the group of people which were not given any money they would continue to solve the puzzle for longer times on average than those who were given money for it. So basically with them the attachment to incentives killed their own behavior. Sounds similar right? So in crypto we have made uh extrinsic motivation to go to all-time highs.

But how do we actually move from extrinsic motivation to intrinsic one? So to move from there to there uh we have to move like from up to down. So more extrinsic type of motivation is I do because it brings me money. Uh more intrinsic is I do it because my friends do it. Uh even more intrinsic is I do it because I like it.

And like the most most intrinsic thing is like it's part of who I am. So for example, I play games because I'm I'm a gamer. You cannot really beat that. So how do we really move from there to there? So the answer is pretty simple.

So you have to apply gamification techniques correctly in but what is correctly right to understand how do we apply them correctly we have to understand a bit of fundamentals first so who has heard about classical conditioning raise your hand anyone heard of Pavlo's dog oh that's nice uh yeah so classical conditioning is when you pair two things together in the brain of an animal dog or user or like your kids or something like that. Um, so with Pablo's dog, so when the dog is given food, they will would always ring a bell and it would create a condition response in the dog. So every time the dog would hear a bell after some time, it would produce saliva even without any food at all. Um, so bell rings, food is here, saliva is getting produced. Um in some other cases um like one of the examples probably a lot of people will understand here is like you get an iPhone notification you get stressed immediately just because it's associated with work.

Um so yeah dog will follow commands and get food and it will produce a dopamine and if we attach it to uh gamefi or any type of incentives within web 3 you have a player or user who engages with the core loop and then uh it produces dopamine and you loop it up. So and this is called uh positive reinforcement loop. Um and in games you might have heard uh it as dopamine loop and uh to actually create this loop within your incentive system whether it's uh gamefire or anything else uh you have to correctly apply classical conditioning within positive reinforcement as well and badly applied um classical conditioning leads to decrease in intrinsic motivation and increase in extrinsic one and we don't really want that because of the something we call overjustification effect. So this is happens in many crypto projects. Uh so as I said before like when the rewards dry out the motivation drops significantly if you push for extrinsic rewards and uh you can see it all over the place in our industry.

So crypto is a classical example of overjustification effect basically at this point. Um so and most of web 3 programs are affected. you probably might have um like have a coin of choice that has done that. Um and uh yeah, it's not only GameFi or NFTs, it's DeFi, it's info, social, whatever fi, it's layer ones, layer two incentive programs, everything. But of course, we can do better.

Uh but how do we do better? So a lot of people right now uh in gamefi industry say like just make good games projects. But like this is like very vague like what what do we do exactly? like how do we make gamefi NFT projects make a comeback? Let's break it down.

So the first mistake is actually incentive size. So when you try to create positive reinforcement loops, uh let's take an example of uh uh dog coaches. So when they try to make a dog sit for example, you give a dog the least amount of reward which will work at the time. So you give a little bit of food once and like once the dog starts producing the behavior, you give it a bit more, a bit more um and this is how you teach the dog to do something um bit by bit with the smallest possible reward which is going to work. Um and uh in the current situation basically in web 3 what we do have is we uh gave a dog a mountain of food and then we are like wondering why the dog is not responsive basically.

Um so if you look at uh web two actually so I've put some uh learning um platforms in here and uh they all use uh a concept of points and all of those points interesting enough they're useless basically you cannot do anything with those points but uh all of these projects have statistics um and they have been running internal experiments and external ones as well um and we know for a fact that this useless XP points they increase all metrics that are related to retention and motivation of the users by about like 15%. Uh so even though they're useless they work because of the reason like because of the small incentive size like in this number go up just works. So um yeah even useless points works. So th this is the first thing and then the second thing is timing. So reward must be closely tied to the behavior that you want out of your user or your anything.

So you must tie the action to a dopamine and um again if you look at um web two guys uh like you are given uh XP points for every single small thing that you learn and it it's made in a way that loops you in. So uh coming back to our like formula uh and I want to come up like with a more overarching formula by the end of the speech. So the smallest possible reward should be given immediately after desired behavior. And the third mistake is that the random non-random or expected rewards are given to people in crypto. And this is pretty bad as well.

uh when people expect something uh like in crypto uh TGE events you have like a set event and people are like waiting for it for months and months. Reward is really expected and this leads to overjustification effect. Um but unexpected rewards do not crush intrinsic motivation. Um and we have countless of studies to prove that. And basically the reason for it why does it work is that reward is not the main reason for doing the activity.

It can um like basically make the activity better but it's it doesn't form the reasoning for why you're why you're doing this activity. And uh if you study the literature about um for example how to create uh classical conditioning within uh docs for example you have something called jackpot concept. So um you feed the rewards bit by bit um to the user or anyone and at one point you give like a huge reward uh and it has to be unexpected. Uh so for example how we apply it we have something called treasure chests in our system. Um and uh we give uh rewards to people but they are uh there is a very small chance to earn a large reward but and like it's very clear for everyone that you're not going to get it unless you're like very lucky and um you can see how it changes the motivation of users from extrinsic which is money to intrinsic which is a hope of success somewhere.

So um coming back to our formula this is smallest possible and variable/random reward should be given immediately after the right behavior. Uh the fourth mistake is actually a pretty cool concept called currency distancing. So I want to come back to the um like one of the first charts we had like why is this model bad? It's not only because of that initial pump. It's actually because of the entire premise of the whole thing.

Uh like all of this prices and like charts and like we always look at them in crypto, right? Um and uh in gamefi actually uh focusing on money might not necessarily be good at all. Um so web two devs have been actually doing this for years and have been trying to achieve this for not even years, decades. Um so currency distancing is uh like created to distance yourself away from the currency as much as possible. And it's it's pretty clear why you do that.

The reason for that is not to create overjustification effect to not create the attachment to rewards itself. And uh yeah, as I said before, um web two games have used currency distancing since forever basically. And uh you what you do within currency distancing again is you detach in-game currency from its monetary value and you detach it in a few different ways. You detach it in UX, you detach it economically when you structure your system. And uh yeah, in crypto most of in most of the cases the dollar value of the assets is placed up front uh in the main UX.

Everything is like super um in with dollar signs and stuff uh or ether. Yeah. And this is how you get to this. Um actually um I want to touch on coin system a bit. This is actually um a step in the right direction because points represent one more layer between actual monetary value and incentives.

So it's actually a progression in the right way. And um um currency distancing is a subset of a larger thing in gaming in general um and like in incentive systems we we call unnecessary obstacles. Um and unnecessary obstacles is something pretty cool. Uh like for let me explain it to you like by using chess as an example. So you have all of these rules in chess.

You have like one figure that is walking like one way, the other figure walking the other way. And it's basically like uh why can't I just like go and crush the entire like table and like win, right? Uh because it's unnecessary obstacles. Um yeah and uh they are done to actually create dopamine loops more easily because you need to tie the reward to something and you need to tie it immediately right and you need some kind of mechanics to make it easy to tie it immediately and this is why you need unnecessary obstacles. So coming back to our formula, the smallest possible and variable/random reward given immediately after the right behavior all while distancing from the monetary value of it.

And uh this is basically how we move from this to this. And on the most basic level and how we move from this to that and uh how do we actually use blockchain at that? Um yeah and blockchain can help us in many ways in here. Um but it can can also kill all the incentives if used wrongly of of course. Um so blockchain is um what it it it is in essence um it is more efficient value transfer uh at scale and the the word value is very important here.

Um value is not always money. It doesn't have to be money. Reputation is value. Attention is value. Knowledge is value.

Community is value. And notice it's uh all of the things I've mentioned here, they are in intrinsic things, not extrinsic. And uh we can obviously use um blockchain to enhance the value of incentives um not kill the incentives. Imagine we we were um having a stick and now we have a AK-47. So we have just a bigger tool right now which is more powerful than before, but we need to use it in the correct way.

Um, so, um, I know that, uh, people are going to like listen to this and like just do a TG again, but, uh, uh, that's pretty that's fine. Um, so in the future, yeah, we will see, uh, NFT, GameFi come back, but it will be very different from what it was before. So one of the things that is going to happen is that the percentage of the market which is used for fundraising is going to decrease and the percentage of uh tokens that are going to be used for incentives will increase. Um the other thing we'll definitely see is that we will see more complex economic models. uh not just taking burning but like a combination of multiple factors and uh the reasoning behind it is basically you have to do all of those stuff like currency distancing and uh other things to actually make long-term lasting user engagement.

We will have uh better monetization models. We'll have uh better revenue sharing models and this is what blockchain allows us to do very well. We'll have better modding and user generated content incentives. will have uh portability of rewards. I love this one.

Uh portability of rewards u and like we can make rewards useful across multiple mediums and the number of applications here is very big as well. And we will see uh composible incentive systems because we do open source a lot of stuff in general. We have uh something we call permissionless innovation within um ecosystems of uh blockchain, Ethereum and stuff like that. So everyone can build on top of each other and use the similar text stacks and don't build everything from scratch. Um yeah, so yeah, just this is a reminder of like what are the main things um on how to properly structure incentives.

Um and in general we can utilize blockchain a lot better than we currently do. And uh what I want to get away from here in the end is we can actually utilize full scale of digital or human capital and uh I would like you to all think about it and like let's go build and uh yeah this is the literature that we've used for this presentation. Thank you. [Applause]

Thank you Artim. Uh do we have uh questions?

Yeah, thank you very much for the presentation. You've mentioned that you believe that NFTTS and gamefi will do a comeback and what do you believe will be the catalyst for that?

Like no particular catalysts games in general they take uh a lot of years to be built and uh the idea of gamefi is nothing new. It's been like around for some time but really good games uh they do take a while to build and structure properly. So uh there will be a few games that will be very popular that will have blockchain element in it and we already can see uh quite a few uh like games that like their development stages they're quite promising. We need to see whether they actually will succeed in the real life but uh something like that will be inevitably like getting uh hundreds of millions maybe like tens of millions users. Yeah.

So basically uh you mean you're waiting for this uh game development cycle to finish and for the nice AAA games with web three functionality to pop up and then uh it might kind of catch up and uh bring a comeback of gamefi and NFTs right

yes yes and it's not only about games it's about systems in general we see that like in any type of field we have incentives right and in any type of field we utilize these incentives And you can see how uh during the years our industry have progressed towards more complex models. So before we used to just like shovel people with tokens all over the place. Right now we have points which is like one more intermediate layer. So the systems get more complex and uh this is good and we will see more and more complex systems for special use cases. Um and uh it would depend on the use case.

So like you can probably attach it to DeFi, you can attach it to InfoI, you can attach it to layer ones incentive programs, a lot of stuff.

So you mean uh games won't be just games for fun, but they will have certain functionality outside of entertainment.

Like games will be games. There will be like things at the intersection of things obviously uh but in general um it it's applicable to towards multiple mediums. That's what I mean. Yeah.

Thank you very much.

Thank you. Uh how do you gamify something which is not a game or not learning something which is intrinsically boring or or not not resembling a game in in any meaningful way. I don't know like a banking application know whatever something really

I I can give you an example of like uh so in you know Chrome browser so when your internet goes down right you have this little game of like jumping like do you know that game like um um like whenever the internet goes down you have this like dinosaur jumping on the Chrome. So, uh this is a um like um an example of how gamification can be used to like uh improve the user experience in some like very boring moments because like when your internet goes down it's like the most annoying moment ever, right? And uh that dinosaur with Chrome, it did really well with user retention. So like in like you have to identify the most boring points like if if that part like of your user experience is very fun already, you don't need to gamify it. If it's boring as hell, uh if there is some barrier there, uh you have to gamify that part in particular.

And you can do it via many mediums like uh it it will have to depend on the the actual thing. Yeah, thank you uh for the for presentation. Um uh you mentioned uh in your presentation uh there are words uh lasting impact. What is in this words for you?

Like um I always strive to build something for long term. I never like thought about anything short term because I'm just like not interested. So when I talk like about lasting impact for example what we do is we do education, right? And uh in our case what we want to do is not only like make a person learn something one one thing but also like create a culture of learning so that he's uh like or he or she is uh interested for the long term and like just day by day improving itself and like this is how we actually make impact on this world and uh u yeah like u in our industry we have a lot of short-term things um and I believe that will change actually yeah

thank Thank you for your question. If that's all round of applause for Artimus.