Games are constructed universes.
When we say universe, we think of The Universe, with all the dark matter, stars and galaxies that the Hubble Telescope shows us. The Universe is huge, and we are a tiny part. The Universe may not be The Universe, but a part of a multiverse. Many multiverses, even. Types I, II, III and IV. A Type IV multiverse is a mathematical structure. My head hurts, just like yours does.
The Universe feels theoretical because it is not what we perceive and generate in our brains every day. Our inner universe has feelings, emotions and human connections. In my teens, my universe consisted of going to school, my family and immediate friends. I grew up in a factory township 30 km from Hyderabad. People from the city were different, they went to parties. There was no way I could understand what their universe was like, because I had no access to it. Our inner universe is heavily influenced by what we’re exposed to.
Games are constructed universes. Someone sets up the rules, and we play. The game acquires meaning when players have feelings and emotions. Monopoly, for example, evokes strong emotions every time I think about it. A constructed universe is only valid if we accept the construct. Age of Empires asks us to imagine that we’re a small tribe wanting to build an empire. If we don’t believe in this mission, or don’t like it, we’re not going to play the game.
There can be an infinite number of constructed universes but only a finite number of them exist, and some work better than others. Why is that?
Now is a good time to define a game. There isn’t a standard definition but we all know what a game is, right? I offer you a working definition for the next few minutes. Games are patterns of repeated behaviour. Loops.
Improvisers talk about finding the game in a scene. In improv, the game is a repeating pattern of fun. In this improv scene, Stephen Colbert is an old black woman, back in her hometown after a very long time. Steve Carrell is the unknown companion who is ignored by everyone else. That’s funny, so that’s the game. All the characters that show up after that have figured out the game, so everyone only talks to Colbert and ignores Carrell, acknowledging him only in passing oh, very nice meeting you, sir. Steve Carrell has figured out the game, too. He “plays” by standing in a corner and looking incredulous. Improv players know what to do because of this loop structure.
Loops of repeated behaviour happen at different time intervals in games. Candy Crush has a repetitive core action that happens every second: swapping candies.
A core loop happens every few minutes. Candy Crush players really care about what level they are on, because the core loop is driven by accomplishment.
“Meta loops” are loops that aren’t the core loop. Running out of lives in Candy Crush is one such loop. This enables two loops, one that brings the player back to the game in a few hours, and one that encourages the player to spend money. The money loop is driven by impatience.
Loops are built to encourage players to behave in specific ways. There is no reason to pay for five extra lives in Candy Crush when you can change the time on your phone, or wait for two and a half hours. The rational consumer would wait.
Someone designs a loop and we, the people, bring our humanness to the table. Humanness drives us through these loops. Evolution has shaped our core drives, and designers exploit them to build loops of repeating behaviour.
Everyone outside the games industry marvels at this mysterious power. They want gamification, which is a horrible concept. Imagine an entire creative field reduced to a -ification. TikTok is social filmification of songs, duude. That’s how ridiculous gamification sounds to games people.
Gamification implies that you can take a thing, slap some magic on it and suddenly, people’s behaviour will change. Games take something that is already within us: our core drives, and tap into them. We’ve encountered two so far: impatience and accomplishment.
We are also driven by scarcity; a word beloved by NFT projects. Just make them scarce, give it exclusive feels and people will buy them. But where’s the utility!?
Ten years ago, we wanted to gamify everything. Today, we want to add utility to NFTs. Same poo, different smell.
Why do NFTs exist?
NFTs are smart contracts that live on a blockchain. We should ask every NFT creator: why are you on the blockchain/ web3? Why can’t this be done in web2, a good old website or an app? NFTs give us two new capabilities: provenance (proving who owns what, and a trail of transactions), and the ability to encode a creator cut.
The creator cut is important if an NFT creator thinks like this:
- I create digital assets that people want
- I make awesome/useful stuff, so people will want to trade my assets. I deserve a cut of every transaction
- It is impossible to get a creator cut for digital assets traded in web2. Web3 has smart contracts that allow me to get a cut whenever my asset is traded
The creator cut is unique tech here, and it has spawned a gold rush to create digital assets in web3.
Most of us think NFTs are useless, and people who buy them are idiots. We thought virtual currencies and microtransactions in games were stupid in 2007. We laughed at the poor souls who bought purple trees for $1 on Farmville, while Mark Pincus and Facebook were laughing for other reasons. Zynga unleashed a revolution in Facebook games that carried on to mobile and didn’t stop. By 2017, virtual currencies and microtransactions in games had gone from laughing stock to the dominant business model in the games industry. This happened simply because the capability for microtransactions at scale existed for the first time, and people built products that exploited this new capability.
The new capability that exists now is the ability to enforce a creator cut.
Our ability to understand something is not a predictor of its success. If anything, there’s a negative correlation that increases with age because we don’t get these damn kids. smh.
To infinity and beyond
NFTs have a price, and can be traded, so we can think of them as assets. Assets have value. Talking about the value of NFTs tends to start Twitter feuds, so let’s express it with unbiased mathematics. I present you… an equation.
Creator revenue from an NFT
=
Mint price (the price paid for the first sale)
+
Creator cut x Number of trading loops x Average value of each transaction
There’s four ways to maximize the money one makes from creating an NFT. Have a high mint price, take a big creator cut, have a lot of trading loops or ensure that the price keeps going up with each trade.
NFTs that made the news, like the Beeple artwork that sold for $69 million, were NFTs where an auction mechanic drove up the mint price. Auctions are great at upping the mint price, but they don’t necessarily enable a trading loop.
The first trading loop happens when the holder of the minted NFT sells it to someone else. At some point, this person would sell it on to someone else, and that would be the second trading loop.
Creator cuts only become important if there are a lot of trading loops, or the price skyrockets. To begin making more money from secondary market sales than the initial mint, you would need 40 trades at a 2.5% creator cut. This assumes that the NFT is sold 40 times for the mint price, which is unlikely. But we’re looking for a high number of trading loops, not like… five.
We’re on web3 because of the creator cut, so we’d want to make assets that can be traded a lot. There’s no reason to limit the number of trading loops. We might as well go for infinity.
This is not I create digital assets that people want to buy
It is I create digital assets that people want to keep buying and selling
HODLing an NFT in the hope that someone will want it later does not enable a trading loop. We are thinking that the price will keep going up. This isn’t just a hope, the community might take action to ensure that this happens e.g. by buying up NFTs available on the secondary market to drive up the floor price; sweeping the floor.
Infinite trading loops are really important because they create continuous conditions that bring in new NFT traders. To enter the trading loop in the first place, we have to believe that the loop will continue to exist forever. At least until we want to sell it to the next sucker who believes that the loop will go on. For NFTs to be mainstream, this would need to work for everyone beyond crypto bros and NFT enthusiasts. The loop really does have to exist forever. It can’t be a Ponzi scheme. Successful NFT projects should look like stock markets with high trading volumes. But that isn’t happening.
One reason is that most NFT projects are on Ethereum. High gas fees means high transaction costs. NFTs are expensive and less trades happen. NFT projects need to have low trading costs to even have a shot at enabling trading loops.
NFT projects and marketplaces love talking trading volume. About 500k ETH ($1.5 billion) worth of Bored Ape Yacht Club NFTs have been traded so far. It’s the hottest NFT project in the past year. Trade volume numbers are sexy, but they don’t measure trading loops.
The trading loop in Bored Ape Yacht Club (BAYC) is driven by belonging. The NFT is an entry ticket to the Club, and the club will do these awesome things. That’s vague because it is. The utility doesn’t matter, because the trading loop is broken.
Once you belong, you don’t want to un-belong. The only reason to un-belong is if the NFT stops being useful to you. It’s the most buzzy NFT project in the past year, and the number of trading loops the entire collection has gone through is less than 1, which means that 10,000 BAYC NFTs have been traded less than 10,000 times. In the last 120 days (November 2021 to March 2022), there have been 3,303 BAYC NFT trades. (Thanks to the team at cryptoscores for this data)
Lowering transaction costs has a dramatic effect on the number of trading loops. Boss Cat Rocket Club, on the Cardano blockchain, is a project similar to BAYC and every NFT in the 9,999 cats collection has been traded at least 25 times.
If a trading loop is finite, then once the loop reaches its limit, NFTs don’t get traded. That means there’s no continuing benefit for the creator and the community, and the project dies. NFT projects have to keep the trading loops going.
Most NFT projects are driven by scarcity, belonging and ownership, which tend to result in HODLing and finite trading loops. This is why they need seasons, or collaborations with other projects, while they’re trying to figure out utility. We can’t just add utility later, we’ve got to bake it in. Counterintuitively, we have to bake it in such a way that it incentivizes trading, not HODLing.
Mobile games do seasons as a last resort, only when the core loop stops being effective, and needs some help. Seasons create a months-long meta loop.
Problem is, seasons and new NFT drops don’t always create reasons to trade existing NFTs in a collection. They don’t spin the same trading loops, they create new ones. That’s not a bad strategy, because it works. But it’s much less effective and scalable than if the core trading loop is powerful enough that people will do it naturally anyway. At best, seasons scale linearly and have a diminished effect over time.
If everyone’s doing this, NFTs are not scarce anymore.
Projects where trading the NFTs is a game are very interesting because there’s a high chance of finding infinite trading loops. Games lend themselves naturally to loops because… games are loops.
Cryptokitties is one of the first successful game NFT projects, even before art NFTs were a thing. Kitties are bred, evolved and traded in Kittyverse. In theory, it has an infinite trading loop. It was built by Dapper, the same company that did NBA Top Shot, where iconic moments of NBA history are minted as NFTs.
Is NBA Top Shot a game with an infinite trading loop? You decide.
Constructed Universes, not metaverse
We’re building the “metaverse”, and the tech community is excited because the building blocks are coming together. AR, VR, cryptocurrencies and NFTs are already here. Brain-computer interfaces are not consumer-grade yet but when that happens, we won’t need haptic suits and VR glasses. We can do full immersion through sensory substitution.
Builders are excited about building the metaverse but no one is really asking people why they would want to be in the metaverse. This is build it and they will come.
We see this mindset every time there’s a new way of doing things in the world. Eventually, we need to build things that users want.
Okay, so what do users want? No one’s going to tell us, we have to try things and see what sticks.
Okay, so what’s going to stick? That’s a slightly easier question to answer because the last fifteen years of consumer tech products and games have been a battle for user acquisition and retention, and we have learnt quite a bit.
Sticky products means that we’re trying to build loops of repeating behavior that tap into a human’s core drive.
All the things that drive loops
Understanding human motivation is big business (and research area), so everyone has an opinion. If you ask Bollywood films from the 1970s; money, power and revenge drives people.
The OCEAN model identifies five big personality traits: Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism. It is the bestest, most researched and backed-up-with-data model.
This stuff feels incomplete because it is focused on interaction between people. We’re building universes, so we need something that captures the complexity of interacting with the universe itself.
Constructed universes share three design features with The Universe.
- There are other people in the universe
- The universe is meaningful to the people in it
- The universe has resources
This allows us to ask specific questions about what drives us in The Universe. How do we interact with other people? How do we find meaning? What is our attitude to resources?
When we interact with other people, we are driven by belonging, pride/envy, competition and cooperation.
We find meaning in the universe by accomplishing things, overcoming barriers, expressing our creativity, feeding our curiosity and by participating in stories.
Our attitude to resources is driven by scarcity, impatience, ownership and unpredictability.
When I was a PM in games, I learnt how to spot loops in other games. When I see loops, I see the designer’s intent, so I can no longer play a game with the innocence of a player. I see loops everywhere. Not at all loops are good or effective, but everything wants to be a loop.
Where’s money, power, love, sex? Laughter? This is my take, from being in the gaming industry, and building on lots of existing work on core drives. I formalized it during my work with Activision building training material for their product managers.
| Core drive | Game | Software, not game | Physical world | |
| Interacting with people | Belonging | Join a clan | Kickstarter | Football season pass holders |
| Interacting with people | Pride/Envy | Call of Duty emotes | Instagram pictures | Black card |
| Interacting with people | Competition | Wordle | Kaggle | Sports |
| Interacting with people | Cooperation | Battle Royale | GoFundMe | Team sports |
| Making meaning | Barriers | Super Mario | Gmail invite | School |
| Making meaning | Accomplishment | Candy Crush | Trading apps | School |
| Making meaning | Creativity | Minecraft | Reels | Clothes |
| Making meaning | Curiosity | Choose your own adventure game | News apps | Travel |
| Making meaning | Participating in stories | Gardenscapes | Kickstarter | Military |
| Attitude to resources | Scarcity | Pokémon Go | Gmail invite | Diamonds |
| Attitude to resources | Impatience | Clash Royale chest | Buy now pay later | Credit card |
| Attitude to resources | Avoiding pain | Subway Surfer keys | Cleartax | Fast track |
| Attitude to resources | Ownership | Farmville | Amazon | Homes |
| Attitude to resources | Unpredictability | Slot machine | TikTok | Eat what chef makes |
Every digital product has a behavioural loop that is driven by one of the things on this list. Money, you will notice, is not on this list. That’s because something else drives us to seek out money. For example, we want to buy a bigger house because we feel envy of other people’s houses, and pride for the ownership of our own house. Mobile games taught us that one loop may not be enough, you need many loops working at different time intervals to build a successful, sticky, constructed universe.
There’s no such thing as a good drive, bad drive, powerful drive or weak drive. It depends on the context, and what we’re trying to build. We don’t get to choose the drive we want as designers, the drive already exists in people. What matters is that we identify the drive accurately and tap into it.
It’s all a game, you say
People in constructed universes are real
They live, laugh and play in them
They have meaningful experiences, that makes the universe real
All universes equally valid
All universes equally real
So what?
I work with a team to trade NFTs in projects with low transaction costs. We operate like a fund, in the sense that we want to make money in a repeatable way, following an investment thesis. We find ways to bet on projects that have infinite trading loops.
We want the entire NFT space to succeed. All these words about universes, core drives and infinite trading loops need to actually turn into great products that people want.
But first, a crash is coming. 2021 was the year when NFT projects launched with the promise of building trading loops in the future. 2022 will be the year of dead loops, and we’re going to declare NFTs a fad, especially on Ethereum mainnet. The people who focus on building long-term, sustainable, effective trading loops will rise through this noise.
We’ve made a loop designer tool to help people making NFTs, or any loop, really. You can find it here.
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