When I flew to Iceland, I was convinced that all those conversations about open economy in games are moot. My view could be summarised as, “a game economy is a fake economy because it maximises fun for the large majority of people whereas a real economy maximises trading. And fun characterises a game whereas financial return is the main objective of a job.”

When I walked out of the plane and the fresh nordic air rushed at my face, I wasn’t expecting my view to warm up. The real economy is cold and has no place in the warm world of video games.

Over the years, I can cite multiple examples validating my hypothesis. All those web3 games brought a few riches and a large amount of misery. And every time a company attempted to make an open economy in a game, it failed.

If we study closely the reasons for those failures, we realise that the main factor is a disconnect between players and speculators. When a game starts as an open market, the extrinsic motivation of money is so strong that it destroys the intrinsic motivation of actually playing the game. Therefore, on day one, inflation hits, which makes a game impossible to play, and since there is no player, the system becomes unstable: high GMV without GDP. In other words: price without value.

From a player’s standpoint, when a game launches with an open economy, due to the enormous pressure of money, the individual starts to immediately optimise for financial return. Some will grind whatever is more financially beneficial, and others will find tricks to increase productivity. The game becomes a job because the player has optimised the fun out of it. The imbalance between intrinsic versus extrinsic motivation is so severe, I even blogged about it: https://michaelfan.medium.com/she-poured-me-another-diet-pepsi-because-it-wasnt-serving-coke-and-i-mechanically-gave-her-a-3679129010d5)

Despite all the negativity implied in a potential open economy, I do believe there is a high degree of uncaptured value in games: the value of joy.

If we take the most popular definition of a game as “one set of rules that enables fun and procures joy to all the participants in a system”, then there is a direct way of measuring joy: the interactions of the players. In its purest form, any action one player takes in a game is a reflection of intrinsic motivation, thereby reflecting the joy of accomplishment. Now, if we project ourselves and believe that people in general will get more and more time to spend on entertainment, then the value of joy should increase exponentially over the generations. The question then is how we materialise such enormous latent value.

Iceland is such a formidable place. A place of contradiction where the surreal peace flirts with the potential eruption of great violence. A young land that is full of old legends and mysteries. A nation of eternally optimistic people who are living under the threat of apocalyptic catastrophes. And that contradiction is inspiring. It is a place of constant change, where people are always ready to go on an adventure and build something new. Through my hours and hours of conversations with some of the smartest people in the industry, and with the help of my friend Richard, I started to see a solution. And as always, it requires the most important resource and the hardest virtue: time and patience.

Players create value in every game by putting effort and time. In single player games, the value is quite limited (bound by the system itself) but in multiplayer games, the value becomes multidimensional and dynamic. In Eve Online, players group to build a spaceship. In Fallout76, players collaborate to build a house. In WoW, players fight raid bosses together. And in all those games, players make friends, communicate and exchange constantly. As discussed above, the value exists, the question then is how to price it. And the only solution is a market.

Since we know that launching a game with open economy leads to the immediate destruction of a system, how about launching a game with the intention of a market eventually. Let players engage, play, have fun, and produce value first and then let them trade within the system. More concretely: launch a game where players can collect, mine, craft, build, create, destroy or exchange without any disruption of open economy. The game has its fake money first: in-game gold. And when the system generates a stable flow of production, open a market where players can now also sell their gold for USD: the in-game gold becomes a currency, the economy becomes real or more precisely: the in-game currency is now valued relative to FIAT.

In this model, we solve the first problem: GMV is now coherent with GDP. The system isn’t under the massive pressure of speculators and is extremely resilient on day one as it is constituted by individuals with mainly intrinsic motivations: the biggest asset-holders are those who also spent the most time playing the game. In other words, the system doesn’t arbitrarily reward external people, the most financially influential players on day one are also those who have contributed the most to the system to date: they are people who have the highest intrinsic motivation and therefore, the most resilient to extrinsic pressure. Which leads to solving the second problem: players are rewarded because they have done something they truly enjoy. The GMV becomes a direct reflection of the GDP, which itself is the materialisation of all the transactions in the game: we priced the value of joy in a system.

The key part in our scenario is that the game has to be good in the first place. More precisely: the game has to be so good and so engaging, the player base will stick to it for years so they have time to develop a constant flow of production and transact regularly over a long period.

The type of games that have the highest chance of seeing a real economy as defined in this model respects the following conditions:

• They are massive: a high number of participants in the system
• They are social: the games maximise the interactions and exchanges between the participants
• They are collaborative: participants work together to achieve common and greater goals

Violence could constitute a key design element to balance such a system. Violence is the initial motivation (the sense of danger which implies adventure) and violence is the ultimate sink (total destruction).

In this model, the game evolves over time, and so the business model. When the market opens up, the game should be entirely free to promote both the number of players and the interactions between all these individuals while the market takes a rake on every transaction, which pays the operators (game developers) and also rewards the entire system (for example: anyone who connected once in the last 10 days gets a cut of the profit, which rewards retention). The only way for game developers to make money is to convince the players their incentives are aligned. Not only does this model potentially generate more money to the developers (since it captures the entirety of the network effect instead of just a linear number of the participants in a system), it puts pressure on the developers to keep true to their words and focus on improving the system for more transactions, therefore, better players’ experiences.

Once enabled, there is no coming back and it will force the entire industry to adapt and to change. The first mover’s advantage is exceptionally high.

Our trip took us to one formidable company that fully embraces some of the key aspects of the Icelandic culture. The office is beautifully designed, set for creativity and collaboration. A wall full of Viking swords is a humbling reminder of the passion and the dedication of this team: only employees who spent more than a decade in the company get one. Richard and I sat down with one of the co-founders. An interesting person with a kind heart and a brilliant mind. He showed us how to properly eat the skyr and shared with us some of his thoughts.

During our conversation, it is said that about 200MM people in the world are happy with their job. It is hard to find good data about it (according to Gallup, less than 20% of the employees worldwide feel satisfied with their jobs) but it doesn’t sound too unreasonable. Such level of dissatisfaction isn’t a reflection of the fundamental quality of work but the limitative nature of the job market in real life. Such a limitation is mitigated in a video game where, by design, any player can instantly choose any task and change at will. In the system described here, since game developers make money in function of the number of transactions, they are also incentivised to create more and better positions to fulfil an even greater number of people’s dreams and interests. In the near future, it is possible that a significant portion of the player base would choose to spend most of their time in-game: the base of reality will shift towards the virtual world.

There are still many things to be discussed and defined. What is a sound monetary policy when the market opens up? How do we deal with property rights? How exactly would the operators sell their gold without disupting the system? Is it possible to create legal entities in a virtual world? Plenty more questions. And for sure it would involve some of the best experts in different fields to answer them. It will take years. Maybe decades. But instead of being negative, I’m now excited about the future for such a system to exist.

Iceland is truly special and could be the birth place of a warm economy.