In 2021 the term ‘Play-to-Earn’ exploded into the crypto lexicon, thanks in part to the game Axie Infinity. The core concept around P2E games is the ability to earn or buy digital assets that have an open and accessible resale market. While purchasing and selling in-game assets is not a new concept, digital ownership through NFT’s is bringing this into the mainstream by applying blockchain technology to reduce transaction friction and provide a clear line of ownership. 

Sitting at the cross-roads of the crypto revolution and gaming explosion lies Play-to-Earn. The charts below show the exponential growth of both industries. Since 2012, the value of the gaming industry has more than doubled into roughly a $170B industry. Investments into gaming are heating up as demonstrated by Microsoft's recent acquisition of Activision for $68.7B and even in the Facebook name change to Meta. The crypto market has grown into a $1.8T industry, keeping in mind that crypto gaming represents a fraction of this. The gaming portion was highlighted by Axie Infinity’s estimated $1.2B in revenue in 2021. Conservative estimates from both industries forecast continued growth and we now sit at the beginnings of P2E. 

Today I am here to lay out the case for an upcoming P2E game that I believe is positioning itself to be a major player in the space. This company is Illuvium. Illuvium has taken the lessons learned from the brief, but valuable, history of crypto gaming. Using these lessons and shortcomings they’ve designed their product from the ground up into something that has the potential to become the first crypto game that is a household name. Please note that nothing written below is intended as financial advice. Always do your own research and only invest what you are willing to lose. 

Full Disclosure: The author of this article owns ILV tokens.

What Is Illuvium? 

Illuvium is aiming to be the first ‘AAA’ crypto game. If you’ve seen or researched Axie Infinity, you’d know that the graphics and gameplay are lacking. Illuvium is adding depth to the P2E gaming experience by designing a stunning world with gameplay that is fun and engaging. For those unfamiliar with Illuvium, the easiest way to explain it is to think of Pokemon. Illuvium is a world filled with ‘Illuvials’ where you can roam around, fight, and capture these creatures. Once captured, you are able to use these Illuvials in battle and level them up. There are multiple different game modes from battling endless waves of computer enemies to wagering and battling other players, all of which will be explored in more detail later.

Illuvium has decided to bring their game to life on the Immutable X blockchain, a layer 2 solution for Ethereum offering cheap transactions through the use of zk rollups. This enables Illuvium to take advantage of the Ethereum network, without the massive gas fees that come with each transaction. 

Game-First Design Principles

As mentioned previously, Illuvium is aiming to be the first AAA P2E game. With this in mind, their ultimate goal is to build a game that is fun and engaging regardless of the economics. By building a game that is fun to play, you can more easily build a player base that is in it for the long haul. The ability to earn money for their time, effort, and skill is just an added bonus. This isn’t to say that the economics have been overlooked, in fact that is where the x-factor lies in my opinion, but more on that later. 

To design a game that appeals to a wide range of interests, Illuvium is launching with 3 completely different experiences: Illuvium Zero, the Overworld, & the Autobattler. In addition, within the Autobattler, there are 4 sub game modes. There is truly an experience for everyone. 

Illuvium Zero

Originally designed as a mini game, Illuvium Zero has carved out its own piece of the Illuvium ecosystem. Illuvium Zero is a mobile base-building game that will interact with the main Illuvium game. Similar in some regards to Clash of Clans, this base-building game is designed on top of Illuvium Land. 20% of the available supply of land will be Dutch Auctioned sometime in Q1 of 2022. Depending on which tier land you purchase, you can participate in the overall Illuvium economy by mining for Fuel which can be sold for Ethereum in the main game. In addition, there is the ability to scan for Illuvial blueprints, which can also be sold for use in the main game. A percentage of all of the sales will be redistributed to ILV Stakers through the RevDis program which will be covered in the Economics section. 

One of the key elements for Illuvium Zero is the ability to onboard a larger user base. At launch the full Illuvium game will be PC only. Having to own a PC limits the number of participants in the Illuvium world. So IZ presents an opportunity to earn money in the Illuvium ecosystem for those who do not have access to a PC. The team will be working on bringing the main game to mobile at some point in the future, however that is a secondary priority at this stage. 

The Overworld

Welcome to the Overworld. This open world RPG experience is where the magic happens. The main character crash lands on a foreign planet and quickly discovers a variety of Illuvial creatures. Walk, bounce (magboots), or fly (jetpack) around 7 unique and different regions of Illuvium to find Illuvials in the wild. When you encounter Illuvials, you port into the Autobattler for a chance to defeat and capture these creatures.

You can think of the Overworld as the equivalent of purchasing a pack of Pokemon cards. There is a small fee associated with entering, traveling, and capturing Illuvials, so just like purchasing a pack of cards, the fees give you the opportunity to capture your Illuvial NFT’s. This experience takes opening a pack of cards to a whole new level. 

While the Overworld will be fairly straight forward at launch, the landscape, features, and interactions will continue to grow and develop as time goes on. The possibilities are endless for content that can be added into the RPG experience. 

The Autobattler

Autobattler’s are a new phenomenon in the gaming world. The rise in popularity kicked off in 2019 with the success of Dota’s Auto Chess. Since then, many others such as Teamfight Tactics have hit the stage. Illuvium intends to be the next major player, offering ways to earn money on top of the fun gameplay. 

In the Illuvium Autobattler, you have a finite amount of energy to spend to place your Illuvials on the battle board. Each Illuvial comes with their own set of skills & traits to take down your opponent. Many of the Illuvials combine skills to create additional synergies. Once the Illuvials have been placed, the Autobattler takes care of the rest. This is a game of out-strategizing and outsmarting your opponent.

There will be 4 different game modes that utilize the Autobattler. 

• Leviathan Arena (PVP) - This game mode takes into account all stats, levels, and items. Here you can wager against your opponent to see who has the most lethal deck. 
• Ranked Arenas (PVP) - Just like in the Leviathan Arena, you battle against other players. However, to level the playing field, all stats & levels are normalized. This is to ensure that Pay-To-Win is not the only experience available.  
• Capture Mode (PVE) - This game mode is where you port to from the Overworld to battle and capture Illuvials. 
• Survival Mode (PVE) - Here you battle against endless waves of computer controlled enemies. Each round the enemies become stronger. How long can you last against the ever stronger Illuvials?

In-Game Economics - How Illuvium Is Changing The Game

P2E games are a delicate balance. They consist of 1 part video game and 1 part economics. While I mentioned that Illuvium was using game-first design principles, the economics are what I believe will help differentiate them from previous games. Many of the design aspects & tokenomics are truly visionary, but also have never been tested in the real world. While they have hired economists to vet their concepts, it is still important to understand that only time will tell if these will be successful.

Before we jump into the various aspects of the Illuvium ecosystem, we need to quickly cover what drives economies. While there are thousands of factors at the micro level, at the macro level it boils down to the following: Supply & Demand. If there is more supply of an asset than there is demand, the price of that asset will decline until a willing buyer is found. If there is more demand for an asset than there is supply, the demand side will have to increase their bid until they find a willing seller. Keeping supply & demand at the forefront of your mind will help with all of the following concepts. 

Supply Side Dynamics - Illuvials

As mentioned earlier in this article, Axie Infinity posted nearly $1.2B in revenue in 2021. What that picture fails to capture is the economic collapse they experienced throughout the year and that they continue to battle. As Axie grew in popularity, so did their entire economy. However, the economy was not set up to be sustainable. 

In Axie, there are two main ways of earning income. First is creating “Smooth Love Potions”. SLP’s are used for breeding Axie’s which is the second way of earning income. While on the surface it’s hard to spot the issue, if we go back to supply & demand it becomes more apparent. In the game, the ability to breed an unlimited number of Axie’s exists. This means that the theoretical supply of Axie’s is infinite. While the game was growing in popularity, this wasn’t an issue, because they were onboarding users faster than Axie’s were being bred. Once the tipping point was hit, where supply outgrew demand, the economy tanked. 

Illuvium aims to use this as a learning lesson. To combat an infinite supply of Illuvials, they have implemented 3 main tactics: Logistic Difficulty Curves, Time Bounds, & Fusions.

• Logistic Difficulty Curves - At launch, 150 Illuvials will be available to capture. As seen in the chart below, the difficulty of finding and capturing an Illuvial will increase as more players capture that specific Illuvial. While this doesn’t put a maximum cap on any individual Illuvial, it makes it increasingly less likely that you will encounter popular Illuvials. This put constraints on supply of side of Illuvials on the market. 

• Time Bounds - Going hand-in-hand with the logistic difficulty curves, each Illuvial will be in the game for a finite period of time. As more Illuvials are introduced, others will be sunset, never to be seen again. By placing time bounds on Illuvials, you create a definitive cap on the number of a specific Illuvial on the market. Think of this like having a First Edition Charizard. No more First Editions will ever be made and so it adds to the rarity of earlier items. A nice benefit from using blockchain technology is that investors know the exact number of each Illuvial available once they have been removed from the game. In the instance of First Edition Charizards, the risk that new ones are found in someone's closet or that fake ones are produced always exists.
• Fusion: Each Illuvial has 3 stages of existence. In order to level up your Illuvial to the next stage, you must burn 3 Illuvials of the pevious stage. Taking into account the difficulty curve and the time bounds placed on Illuvials, this dynamic will remove supply away from lower tier Illuvials. This creates an interesting game theory, where it is possible that a Stage 1 Illuvial could become rarer than their more powerful counterpart.

Demand Side Dynamics - Attracting New Players

Equally as important as designing a sustainable supply side dynamic is increasing the demand. Demand for a product is what ultimately drives economies, because even for assets with a supply of 1, if the demand is 0, then the asset is worthless. Luckily this won’t be the case for Illuvium as over 100,000 players signed up to participate in the Private Beta. However, there is a need to continually grow the demand base. Below are a handful of ways that Illuvium aims to achieve continued growth.

• In-Game Incentives - As part of the Illuvium Tokenomics, they have set aside 1,000,000 ILV tokens for in-game incentives. At the time of writing, ILV is worth roughly $650 USD. Making this pot of available funds roughly $650,000,000. In-game incentives will be distributed to players for completing certain activities throughout the game. Not only can you earn money by capturing and selling NFT’s, but you can earn money simply through playing the game.

  In addition, Illuvium has the lofty goal of hosting the world’s largest esports prize pool tournament roughly 6 months after launch. This not only incentivizes early players, but will be a massive marketing opportunity for Illuvium across the gaming space. 

  Now you might be asking, wouldn’t releasing 1,000,000 tokens into the wild increase the overall supply and therefore drive down the price of ILV? All things being equal, it would, but by driving more adoption through marketing as well as the Staking/RevDis incentives that are covered below, there are mechanisms to counteract this increase in supply.

• Free-To-Play Model - One of the downsides of Axie Infinity is that the barrier of entry is high. In order to begin playing, you must purchase 3 Axie’s. This is something not everyone is willing to do or can afford to do just to try out the game. Illuvium is creating Free-To-Play models for both the main game and Illuvium Zero. For the main game, you are able to play and still capture Tier 0 Illuvials. While the earnings won’t be high for these Illuvials, you still have a way to play the game. With the F2P model, the ability exists to grind to higher level Illuvials or figure out whether you like playing the game before investing. By lowering the barrier of entry, you entice more people to try your product. Then the key is creating a game that can keep people around. 

• Onboarding The Next Million Users - Paying to play a game isn’t the only barrier of entry when it comes to P2E games. Accessibility is another issue and one that Illuvium will face at launch. Outside of Illuvium Zero, you must own a PC in order to play. This immediately cuts the potential player pool significantly. Illuvium is working with Gaming Dao’s to help combat this in the near term, but that can only go so far. Illuvium has identified this as a risk and is in the process of hiring a mobile development team to help bring the main game to the masses. While PC games don’t always translate well to mobile, if Illuvium can pull this off while creating a fun experience on mobile, the demand side has the ability to grow enormously. 

Staking & RevDis

While I haven’t reviewed the tokenomics in depth in this article, there are a few things working against the ILV token price in the near future. One being a massive early-investor token unlock coming in March of 2021 and the other being in-game rewards & high staking yields. Both represent large increases in the token supply. There are two investing mechanisms that I believe will help counteract the influxes in supply: Staking Mechanics & RevDis. 

• Staking Mechanics: For those unfamiliar with staking, it is a way of locking up your tokens in exchange for yield (or a return on investment). Illuvium has provided some high returns for staking, currently 300+% APY. High returns are a great way to attract early investors to your project, but without the correct mechanisms, they can lead to immediate token dumps which drives down your price and hurts investor confidence. Illuvium has implemented a few systems to prevent this from happening.

  First, in order to get the full APY, you must lock your tokens for 52 weeks. This locking system is flexible and allows users to stake for as many weeks as they would like, up to 52 weeks, and provides bonuses to those who stake longer. This mechanism incentivizes locking up liquidity for longer periods of time, which reduces the supply on the market. In addition, all yields that are earned are automatically locked for 52 weeks. Again, this prevents the immediate dumping of rewards that are generated. So what happens after the 52 week period? Do people start dumping all of their tokens onto the market? That’s where the next mechanism comes in. 

• Revenue Distribution (RevDis): Illuvium is testing something truly revolutionary here. 100% of all revenue that is generated by Illuvium will be redistributed to staked tokens. You heard that correctly, ALL revenue is distributed to stakers. The company does not keep any revenue (granted they are a large staker as well). 

  At launch there will be multiple streams of revenue for the project: Crafting shards for capturing Illuvials, NFT sales, Imbues for weapons and armor, Skins, Travel, Wagering Fees, and a few others as well. All revenue that is generated is sent to the Vault. Periodically the Vault will take this revenue and market purchase ILV tokens to distribute to the staked token holders. This applies buy-side pressure to the token, which in theory should raise the price. In addition, it incentivizes investors to remain staked in the protocol long after the initial staking rewards have dried up (assuming the game is a success). RevDis not only applies to the initial game, but any future games, merch, etc. that may enter the Illuvium ecosystem. 

Conclusion

In wrapping up, I hope I’ve been able to convey why Illuvium could be a major player in the P2E space. With a focus on making a game that is first and foremost fun to play while subsequently putting a lot of time and energy into creating a sustainable economy, the mechanisms exist to make Illuvium a unicorn in the crypto gaming world. As previously mentioned, many of the systems are new and unproven, so only time will tell if this will be successful. However, if Illuvium is able to pull off their vision, it has the ability to become the first P2E game that is a household name.