Dual Token Models in Blockchain Gaming

The dual token model is a term used to describe crypto projects that offer two different types of tokens. Lately, it has become quite popular within the gamefi sector. One of the earliest case was Axie Infinity, which introduced Smooth Love Potion (SLP) to ease selling pressure on its native token AXS.

How Dual Token Games Came About

Before Axie Infinity introduced SLP, the game used a single token model where players would trade USD for its game token, AXS. The platform experienced tremendous user growth and funding from multiple PE funds that backed the market. Despite its early success, the team behind the project understood how important attracting new users to the platform was since if new money dried up, failure would set in.

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SLP was introduced in the first half of 2020 to ease the selling pressure of AXS, with the latter continuing to serve as the governance token. In contrast, SLP served as an in-game utility token that players used to breed new Axies and earn rewards in. The development team increased the ratio of AXS:SLP required for breeding and the amount of $SLP needed.

Initially, this model worked perfectly - a reputable analytics firm found out that the price of AXS rose right after SLP came into play, while the token price of the SLP remained below $0.1 for several months. This would change come ‘GameFi summer’, when SLP prices begin to grow as more users joined the platform. However, the price growth would be temporary, and SLP was soon on the verge of death. To save the token, the team behind Axie responded by changing the community governance structure to make it more decentralized. They also reduced the supply of SLP, which resulted in a slight recovery for the token price.

Analyzing the reasons that led to the birth of SLP and its positive effect on the entire ecosystem, it is easy to see why dual token models have gained traction within the blockchain gaming sphere. The model is strengthened by the fact that one token can be used primarily for governance, where owning more of the token gives the holder more voting power within a community, and the other token used for in-game tasks (utility).

Most games employing the dual token model allow players to earn most of their yield in the token that has the least value within the ecosystem, along with a little in the main token as a premium.

The success of Axie’s dual token model has inspired other GameFi projects. A few popular games employing the same tactic include BinaryX, Starsharks, etc.

The Two Different Categories of Dual Tokens in GameFi

Today, GameFi projects looking to explore dual token models can opt for either input game token or output game token. For example, “BinaryX players use governance tokens to start a game and receive utility tokens as returns while StarShark players start and receive utility tokens in-game.”

Since cost and return are highly correlated to the token value of this model, game developers realize it is much easier to adjust the tokenization model without having to go through centralized adjustments when it comes to dual tokens. In contrast, a USD-based model requires an oracle to specify the number of associated tokens, which may be more troublesome and harder to execute.

Below is an analytical approach to segmenting the dual token model strategy into different categories. After the sale of the Genesis NFTs, project owners can proceed to increase the number of NFTs in the market to meet the demand for NFTs from new players. This can be done in two ways, as we will see below.

In the beginning, most GameFi projects will sell genesis NFTs to onboard players through official platforms or partner platforms such as Binance NFT or OpeaSea. The projects can now use a few tactics to shield the NFTs while promoting token consumption. This can be done through:

Breeding model – here, the second generation NFTs and those that follow them will come from a reproduction of the original NFTs, and no more loot boxes are sold. This mechanism requires tokens to be burnt/spent to mint new NFTs, which allows the game to exert selling pressure on tokens based on the mint price.

Loot box model – this model is simpler compared to the one listed above. Here the team determines the number of NFTs required in a game. The players will sell more when the market is good or when consumption increases. As a result, the price of the tokens will increase since they will be needed to buy NFTs.

Projects with ambition and an eye on the future can decide to send the money made from the sale of a loot box directly to the treasury or burn it. This tactic made Starsharks popular after the team announced that they would burn 90% of their utility tokens raised through loot box sales.