In-depth analysis of the economic model of the blockchain game League of Kingdoms

Author: Modeo

Compiled by: Jason, H.Forest Ventures

Recommendation:

From the article structure: Although this article is a deep dive into a specific GameFi project, it is logically clear, well-structured, and highly readable. Before delving into the project’s tokenomics, the article succinctly introduces the project’s overview and the reasons for choosing to study it. Additionally, while researching and analyzing the project’s token economy, the author supports the arguments with ample data, making the article more persuasive. Even if readers are not familiar with the project background, they can fully understand the project story after reading, while also learning the structure and logic of the article.

From the article content: This article uses the GameFi project "League of Kingdoms" as its subject, focusing on a recent reform in its token economy—the replacement of the in-game token by the project team. This choice of subject is quite novel and the analysis is valuable. Furthermore, the article compares the economic ecosystem before and after the token reform using real data, validating the project team's wisdom from the perspective of data results. Lastly, the article contains relatively few technical terms, making it suitable for a wide audience, helping both GameFi experts to quickly review the project and newcomers to gain knowledge and understanding.

Introduction: Why "League of Kingdoms"?

How does blockchain empower games? To answer this question, it is crucial to further consider another question: What kind of games can benefit the most from blockchain?

While various opinions exist, one of the best solutions for "cryptocurrency + games" is strategy games. If you have played games like "Civilization" or "Football Manager," you will understand what strategy games are. Players of strategy games need to devise resource allocation strategies and engage in tactical battles with computers or other players. In this context, putting game assets on-chain can elevate the authenticity of the player experience to another level and provide players with infinite incentives to immerse themselves in the game.

Therefore, "League of Kingdoms," as one of the earliest blockchain-enabled MMO games, is an excellent case study. Given its complex game mechanics, its token economy design is one of the most robust among all cryptocurrency games. While countless GameFi projects have died within months, "League of Kingdoms" has survived for over a year.

Author's note: Massively Multiplayer Online games (MMOs) are online video games that feature a large number of players, often reaching hundreds or thousands, on the same server. MMO games typically have vast, persistent, and open game worlds, although some games may differ.

During its operational period, "League of Kingdoms" has used DAI (a stablecoin under the MakerDao protocol) as its primary token. However, with the launch of its native token LOKA through the Binance Launchpad, the game is now shifting towards a different token design. Specifically, it plans to replace DAI with LOKA as its most important in-game token. In this context, "League of Kingdoms" provides a great example for studying GameFi's token economy. Under the same setup, we can compare how these two different yet popular systems operate.

To present a complete analysis, I will first examine the design of "League of Kingdoms" token economy from a qualitative perspective. If you are not very familiar with token economics or GameFi, this part provides a great case to explain how it works. Additionally, I believe people often rush into APY analysis before truly understanding how the project operates. However, in the first part, please remember that I am only analyzing theoretically. Then, I will introduce some data and calculation methods to provide a clear overview of the financial aspects. The final part will give you some insights into how this game operates in real life and what you might expect from it in the near future.

Happy reading!

Summary

• "League of Kingdoms" will transition from using DAI to using LOKA as its native token (gold standard → currency standard).
• Previously, the $DAI system achieved great success because the game’s land and resource NFTs had sufficient utility.
• The $LOKA system has many advantages: stable land rewards, so the income of the treasury will not affect it; it strengthens the game’s endogenous consumption (internal circulation), making the game more sustainable in the long run.
• However, the token swap may disrupt the stability of land rewards, leading to instability in the value of land and $LOKA.
• In reality, the trading volume of "League of Kingdoms" under the $DAI standard is extremely low, and its market price is significantly overvalued.
• Before more land appears or $LOKA depreciates, the yield generated by land will be much higher than before, which may lead to further increases in land prices.

How to Play "League of Kingdoms"?

Before diving into the game’s token economy, let me briefly explain how this game operates; otherwise, it is easy to overlook understanding its complex design.

First, players have two role choices before entering the game: as landowners or as free players. Let’s first discuss landowners, and then the free-to-play game mechanics will naturally be understood.

Before entering the game, aspiring landowners need to purchase a piece of land (an ERC-721 NFT token on Ethereum) through peer-to-peer transactions in the market or official land sales channels. Under the game’s "coordinate ownership" system, the supply of land is limited, while player entry is unlimited. Purchasing a piece of land is equivalent to buying a coordinate. Although there are only a limited 65,536 coordinates in the entire game world, its continents are uncertain (one is released approximately every two weeks), depending on how many new players join.

For those interested in making money, being a landowner essentially provides three ways to earn: receiving land (return) rewards, farming resources, and reselling land.

• Based on the land's level (LV1-LV7), the game’s treasury rewards landowners with stable income (previously DAI, soon to be LOKA).
• For each piece of land, landowners can levy a 5% tax on all players residing on their land, with the tax being in the form of resources that these players farm (i.e., NFTs).
• Additionally, as the land level increases, based on the game’s "development points" system, landowners can resell their land in the market.

For players who enter the game without purchasing land, their primary way to earn is through collecting resources. After collecting a certain amount of resources, they can "mint" them into NFTs and sell them in the market to those who want to "exchange money for time." Of course, "League of Kingdoms" is not just a farming game. It has many different PvP mechanisms to enhance playability. However, considering the theme of this article, I will not delve into that here.

Now that we have a basic understanding of how this game operates, let’s discuss how "League of Kingdoms" works under the $DAI standard.

$DAI Standard

Since there is currently no systematic way to analyze GameFi token economics, I plan to use the "cash flow + value structure" framework for the specific analysis later.

Before the native token, "League of Kingdoms" was essentially a "land-selling" game project. Land is the most important because it is the primary way for play-to-earn players to make money, and its supply is limited, making it a scarce resource. Its value is reflected in its price increase. At the time of writing, the floor price of a Level 6 land on OpenSea is about 4 ETH ($10,204.08). However, during its presale, a land of the same level only cost around $168, meaning its value surged 60 times.

So, why is land so valuable in "League of Kingdoms"? The answer lies in the fact that landowners can earn $DAI from a 10% redistribution of game revenue. Earning rewards in a stablecoin is crucial as it eliminates the risk of receiving a depreciating token as compensation. As long as the game generates income and can pay "dividends" to landowners, the price of land may remain stable, or even appreciate based on the influx of new players (intuitively, this could be problematic).

As shown in the cash flow diagram above, landowners purchase land in ETH during land sales or secondary market transactions. This ETH eventually flows into the game’s treasury. In return, players can receive stable rewards. Besides land, players can collect resource NFTs (food, wood, stone, and gold) themselves or purchase them in the market. A certain amount of transaction fees will again flow into the game’s treasury.

In the above image, I highlight the key points through a value structure diagram. As mentioned earlier, the value of land comes from the $DAI yield and P2P trading demand. Additionally, another important reason is that they can generate NFT resources, such as stone, wood, food, and gold, which can be traded in the secondary market.

According to Polygon's February trading data (currently, resource NFTs are traded on Polygon rather than Ethereum), a Level 6 land can average $1 in $DAI rewards. Then, these resources indirectly or directly promote players to upgrade their land, capturing value. For example, to upgrade a kingdom's building, players must consume a certain level of resources. To participate in (war) land occupation, players need resources to train and maintain their troops. Competition in activities gives winners the opportunity to increase their land's yield (again emphasizing that land is the key element). Therefore, there is a mutual flow of value between land and resource NFTs, although NFTs have no upper limit, burning these NFTs can achieve a lot of utility.

In summary, "League of Kingdoms" manages to balance itself because its most critical game assets—land and resource NFTs—both have reasonable use cases and value. On this basis, the $DAI rewards ensure stable income. The combination of land and resources, to some extent, resembles many dual-token designs: one is limited, and the other is unlimited, but with sufficient utility.

However, as I previously hinted, the $DAI standard system largely relies on the influx of new players, which is also mentioned in the "Land Sale #2" document of "League of Kingdoms" (which is very worth reading). We can also see from the value structure diagram that internal consumption and value exchange within the game are monotonous.

$LOKA Standard

"Rewards will no longer fluctuate on bad days, as they are drawn from the $LOKA reward pool (5% of total supply) rather than the game’s daily revenue."

The following content officially enters the $LOKA token module.

As mentioned in the "Land Sale #2" document, the purpose of LOKA is to replace DAI, granting landowners governance rights and the potential benefits of $LOKA appreciation. More or less, the cash flow of the new system may operate in the same way.

However, since LOKA is fundamentally different from DAI, the game’s value structure (or utility relationship) will undergo significant changes. DAO governance has not yet been established, so I observe that the first and most important utility of LOKA is that it promises discounts for buyers during the land sale on March 14. Since land rewards (essentially dividends) will be in LOKA instead of DAI, land will also derive its value/utility from LOKA, creating a mutual flow of value between these two elements.

To give $LOKA more utility, the game will also designate it as the fee for future breeding (Drago: a new project embedded in the game) and NFT upgrade features. Additionally, token holders can also stake. Essentially, as we can see from the chart below, the value of in-game assets will rely more on themselves rather than external factors or new players.

If all goes well, I expect the game to successfully transform its token economy and make it more sustainable. As land buyers will naturally choose LOKA over ETH, LOKA is bundled with Land, providing powerful utility. If the value of LOKA remains stable and appreciates, the demand for Land will surge, further driving up the value of LOKA. From this perspective, the combination of $LOKA + Lands provides a great example of establishing an in-game consumption cycle.

While it is difficult to predict whether the new system will last, it does have the potential to evolve in another direction. First, a considerable degree of $LOKA utility will come from the new Dargo project, "the first collection of the LOKGoods NFT series." However, we have not yet seen player reactions to it, so it is uncertain whether there is sufficient demand for Dargo.

Second, as I previously analyzed, land is the most crucial element in the game, and its utility previously came from the yield of stablecoins. While using a native token will stabilize the yield of each land, replacing DAI with LOKA is a double-edged sword. Will a drop in the price of $LOKA lead to a drop in the price of Land, creating a death spiral?

The key to avoiding this situation is to ensure that LOKA has sufficient utility. Currently, upgrading land levels depends on the development points system, and players can only obtain development points by collecting resources, completing tasks, or conquering temples. Is it appropriate and wise to somehow incorporate LOKA into the development points system? For example: Players must pay a certain amount of $LOKA for each land level upgrade, which is then redistributed through the treasury.

In addition to utility, another "less obvious" deciding factor for the success of GameFi projects is whether players find it fun. Think about it: if LOKA really depreciates, the return on investment for land becomes low enough. In this case, the demand from speculators will decrease, and thus the price of LOKA will also drop. However, if there is a sufficiently large user base that sticks with the project, LOKA and land will not completely lose their utility. In fact, in such a scenario, as the player base shrinks, players are more likely to enhance their land and yields. Then LOKA and Lands will appreciate accordingly.

Data, Calculations, and Financial Perspectives

Finally, let’s examine how these models operate in reality.

First, let’s calculate the actual returns under the current $DAI system. Since the game encourages play-to-earn, it adopts a "winner takes all" formula to distribute its rewards.

Using data from NFTBank, I first calculated how much yield distribution there is for each level of land. For example, based on March data, the current supply of Lv1 land is 386, and the threshold for development points to become Lv1 is 41,506 points. Therefore, the total development points for Lv1 land is 386 * 41,506 = 16,021,316. Thus, I calculated the distribution ratio for each level of land. Then, based on the average daily rewards for all lands (from February 14 to March 13, it was $3,169.48), I found that the average daily yield for each Lv1 land is $0.06.

According to NFTBank data, while cumulative yields continue to increase (and faster than before), the payback period for investors is too long, so if someone decides to buy "high-priced" land from the secondary market, there will be risks. I believe this is the main reason for the poor market trading data of "League of Kingdoms." According to OpenSea data, the average trading volume over the past 90 days is only 11.88 ETH (as of the time of writing this article).

An interesting market observation is that buyers like to price their land significantly higher, as shown in the chart below (I removed outliers for lv6 and lv7 lands). The purpose is to assert that there is a large market and attract potential buyers. Upon seeing the stark contrast in high prices, people might think that sellers do not want to sell their land. However, this may not be the case. In the highly volatile market we just discussed, the current return on investment is very low. Even if it is a blockchain "real estate" business, I don't see why anyone wouldn't sell. So, the reason for the low exchange rate is simply that there are not many buyers present.

Here, we can take a moment to pause and think from the perspective of the game developers. If the current system operates as smoothly as described, why would they shift to a completely different model? Although they call it an "experiment," that is not the case at all. If there are no more buyers coming in, how will the game redistribute enough rewards through its 10% revenue?

Next, let’s see what the yield will look like under the new LOKA standard. As stated in the document, 5% of the total supply of LOKA will be used for land rewards, meaning that 25,000,000 LOKA will be redistributed to landowners over the next five years. The development points system will still exist. However, to reduce the gap between different land levels, the game has also decided to distribute "universal income" (20% of rewards) to all land levels. Below are my calculations. If the price of LOKA is $1.86 (the price at the time of writing), the payback period for Lv1 land is nearly shortened by 10 times, and for Lv5 land, the payback period is shortened by 5 times. From here, we can see that the design of "universal income" indeed achieves its purpose.

These yields differ from the game’s estimates (see the first part), and I believe the difference comes from their calculations of all lands, including those that have not been sold (after Land Sale #2, the circulating supply will be 10,197/65,536). In the future, as more lands are sold while the $LOKA emission remains unchanged, this yield will be diluted.

All the information is laid out, and it would be interesting to make some predictions about the #2 land sale and land prices in the near future. Recently, GameFi projects have witnessed explosive growth—according to an article from Binance, it has grown by 2,934% compared to last year. This latest wave of FOMO may create ripple effects, driving up the prices of Lands and the LOKA token (just as it has done in the past).

Moreover, the return on investment for land will still be relatively low, but there is still a significant improvement compared to the previous version. I believe it is very likely that more buyers will be attracted by this higher return. As analyzed in the first part of this article, as land prices rise, the price of LOKA will also increase, further pushing up land prices. As the utility of LOKA, such as staking (20% of total supply, while land rewards are 5%), is implemented more, land may have more value, and transactions will become more frequent. Therefore, I expect a chain reaction that will raise the prices of both assets in the short term.

However, this is just my personal opinion and should not be considered financial advice. Many risks do exist, as mentioned in the theoretical part of the article.

Conclusion

In summary, it is worth observing what the new $LOKA design will ultimately produce, as it is significantly different from before. Regardless of whether it succeeds, we can learn lessons from this attempt. More broadly, I believe the new system of "League of Kingdoms" will reveal to us the ultimate use of tokens in games. In the long run, is a stablecoin sufficient to support a GameFi project? If not, how much utility should a token have to offset its unstable nature?

Additionally, theory and practice are intertwined, but sometimes the former may be misleading in the real world. We must carefully examine a project's claims, which is crucial for us. Ultimately, how you interpret the data determines how you balance your risk tolerance and return expectations, both of which are always important factors in making judgments in this unpredictable market.

PS: If you have any questions or are curious about the calculation methods, feel free to contact me on Twitter: modeo.eth.

Translator's Note:

After reading this research report, I couldn't help but ponder the relationship between games and token economics. In other words, the difference between traditional games and blockchain games, and whether the attributes of Game or Finance are more important in the term GameFi.

In the traditional gaming field, there seems to be little discussion about game token economics. For example, if Tencent's shooting game "CrossFire" announced that the purchasing method for in-game assets would change from CF points (obtained through recharge) to Q coins, it probably wouldn't attract much attention. Because the essence hasn't changed; players still need to spend fiat tokens to "purchase" (in reality, "rent") game assets. In most traditional games, there is only Play, with very few opportunities to Earn (excluding rare player behaviors like leveling or streaming). Therefore, most players or participants in traditional games are quite "pure" players.

In the blockchain gaming field, most games can be Play2Earn, so participants in blockchain games are no longer just "pure" players who want to Play; there is also a portion of opportunistic players who seek economic benefits from the game ecosystem. Taking the author's research subject "League of Kingdoms" as an example (although I have not played it myself, I can roughly understand the game's attributes in Play and Earn through the author's detailed description and explanation), the author categorized players based on whether they own land; I can categorize players based on their purpose for entering the game. That is, Player A wants to leverage the ecosystem of "League of Kingdoms" to seek economic benefits, so A may recognize the game’s token economy and choose to enter; Player B genuinely finds the game enjoyable and wants to buy land and upgrade to establish their territory in the virtual world, gaining a sense of achievement. A and B actually represent two large groups, but after a certain period of interaction in the game, it is possible that A may become less "speculative" due to the game's high playability, while B may become less "pure" due to benefiting from the game's economic attributes. In short, the "Game + Finance" attributes of GameFi give the game itself dual characteristics.

After clarifying the above logic, I believe the token transformation chosen by "League of Kingdoms" essentially aims to balance the two attributes of the project. After upgrading the financial attribute of the game, if Player A recognizes it, the balance will not tilt for the time being. Conversely, if a GameFi project successfully balances and considers both Game and Finance attributes, and both attributes are at a high level, then it must be a good GameFi project, as such projects will neither deter "opportunistic players" nor deprive "pure players" of their enjoyment.

Summary of the translator's personal views:

• One of the core differences between traditional games and blockchain games is that blockchain games have a stronger financial attribute.
• GameFi projects, due to their dual attributes, can attract more users than traditional games.
• A good GameFi project must balance and consider both financial and gaming attributes to sustainably develop into a thriving ecosystem, avoiding being a flash in the pan.